Tuesday, September 30, 2014

What tools in the Arts and Law can be used by an investor ?

After Hell week, my class started getting bombarded by essays and more written work so I am unable to put up more postings for quite a while but today is a good day, I just finished a 2,500 draft of an essay I was supposed to submit in November so it puts me ahead, to, well... do more advanced work for my classes.

One of the ideas I was obsessed with that ideas are "weaponizeable". Ideas from disparate fields can be integrated together to solve tough problems within a domain and even provide insight to practical problems in daily living.

It started during my engineering days when I was doing some object oriented programming. I was sort of into Philosophy then and became acquainted with Plato's Theory of Forms. I always felt that the way software engineers disrupted structured programming by coming with OOP in those days were really inspired by Plato. You need to define what an abstract idea of an object is, and then subsequently you need to write code to instantiate the object to be used in the real world.

Of course, it went on in my finance writings, I felt that frugality always had roots in Calvinism and Stoicism. Breaking away from the hedonic treadmill is very similar to the Buddhist concept of Nirvana. If you really want to delay gratification and save money, you are probably better served by reading Marcus Aurelius and Seneca than Robert Kiyosaki. If you want passive income, reading Jane Austen can help retool you into becoming a Mr. Darcy.

In Law School, I try to push the envelope in my presentations, recently taking a risk assessment model known in IT audit ( Risk = Probability of Loss x Loss amount ) I picked up when I did the CISA exams  and rigorous applying it to resolving some problems with sentencing in crimes of negligence in Singapore.

I am trying to share this new approach of finding gems in the Liberal Arts and Law into looking at investment ideas.

Sociological Imagination

Sociological Imagination was taught to all final year Engineering students in NUS. The idea is simple - You take a simple social observation in your daily life and ask yourself, what are it's implications in the grader scheme of things. Sounds airy fairy enough ?

Not quite. Beyond the financial statements that you read, applying a helicopter view to your finances, can help assess the outcome of a investment scheme.

Say you like SPH as a stock, it's a great yielding instrument and you get to own a publications monopoly. Apply sociological imagination you know that SPH is closely tied to how far the government will go when it comes to freedom of speech. Most of the income is in Singapore dollars and you can expand your scope to include your projection of the Singapore economy.

I think most practitioners of the sociological imagination tool commit a lot of logical fallacies. You run the risk of reading too much into a incident. If one moron heckles a bunch of students with special needs, does it reflect upon the stupidity of society as whole, the failures of our education system, or it's simply a stupid moron with a very dubious personal agenda ?

Which leads to my second tool.

Ratio Decidendi

Lawyers have a way of confounding everyone with Latin terms. When we figure out the ratio of a case, we are just asking ourselves to summarise the judgement into one line which would be the same decision that will be made in future cases.

I think something magical happens when a divergent tool like the sociological imagination encounters a reductionist tool like ratio decidendi.

You get the best of both worlds.

SPH is a stock. It may be grounded by how the government views freedom of press and tied to the Singapore economy. But we are now required to ask ourselves what drives SPH stock, in particular, what drives its dividends for someone like me.

IMHO, my one sentence after all the considerations is that the dividends are driven by property rentals like Paragon Shopping Mall. Absent property in its current portfolio, I would not really like to own a publishing business which is rapidly being disrupted by e-books. If you arrive at the same conclusion as me - you might be better off looking at the cash flows from SPH REIT instead.

I have close to 30 stocks in my portfolio, having a key driver or ratio decidendi for the stocks in my portfolio allows me to balance my school and my finance activities and fine tunes my sixth sense when I read about the current affairs in the newspapers.

In conclusion, I think at this phase in my midlife, I am really trying to approach everything as a fox. Law school is quite foxy in nature as opposed to the hedgehog approach of engineering school.

A typical LLB student can at best approach a legal problem as an LLB student. I like to see myself as a little different, I will not hesitate to attack a legal from an engineer, programmer, project manager, auditor or a finance perspective.

The more models, the merrier.

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