Tuesday, December 30, 2014

Countdown to 2015 - Create Systems, not Resolutions.

As we approach the new year, I start to find myself busy again. SMU has started spamming the readings for the next semester and I've been finding that I'm spending more time clearing the cases for the upcoming semester, so this has not been very much of a break in spite of being a month long.

After working on getting my condo into a livable state, things have been so comfortable that I have not been able to travel our of the country before school reopens. Hopefully, I would be able to budget for some travel during the next round of holidays although that's the break where the bulk of internships and pro-bono work would take place. 

Recently, many financial bloggers have started sharing their resolution plans with everyone. Being conscientious in nature, I expect most of them to succeed in their resolutions. 

This year, I'm going to move away from crafting my resolutions. Instead I'm going to see if it's possible to have a better year by employing the "Systems, not goals" approach proposed by Scott Adam's How to Fail at Almost Everything and Still Win Big.

So for 2015 I'm going to stick with the following systems.

a) Health and exercise system

For my health and exercise, I'm going to use up the ridiculous $320 I now pay as conservancy for my condominium by trying to swim or cross-train 3 times a week. Not much motivation is required these days as gym facilities is s short walk from my unit which is on the first floor. For a start, I will stick to a 30 min session and push it to 45 min once my body gets used to it.

b) A "system" of no touching of capital 

My finances are taking a back seat in 2015 as all I need to do is not touch my capital for one more year. I have two more major installments of close to $18,000 each to clear this year and need to worry about the final pay-out in October. Pay-out for April was partially offset by SMU thanks to my good fortune last semester. With any luck, I would have some ready cash to get into the markets next December.

While I might regret some of my market moves later, I have not touched my portfolio for the greater part of 2014. While there are few really bad dogs in my portfolio, I am strangely unaffected by the drop in oil prices. Maybe next year, my real estate holdings may take a hit when interest rates start to rise.

c) Better system to cope with school-work.

As a student, I would expect most of the effort to be concentrated on my studies in 2015. My current approach to my school-work leaves much more to be desired. I am still clueless on how to write a winning essay and have a mediocre strategy for exams.

My first system to implement is to look-out for resources on writing decent legal essays and treating it as a topic of study two weeks into the term. This also means knowing the exam Qs early so that question spotting can take place throughout the semester.

The second system is to overhaul my inefficient studying process. Despite acting really in the semester on all my assignments, there was a lot of rework getting my notes up which facilitates exam preparation. Exam-grade notes are now prepared as part of seminar preparation, so that I can avoid the nasty panic of creating notes only just weeks before the finals. In this case, the Kaizen guys understand what it's like to get it right the first time. Some rote learning cannot be avoided in an open book system as precious minutes can be saved if there is no need to refer to the cheat sheet.

To ensure that I have resources to put these systems to work, I would have to hold back on DMing my games and instead, will participate as a player in the next semester, Fortunately, someone else is ready to take on the mantle of Game-master while I plan my aggressive campaign to survive Semester 2 of the JD programme in SMU.

Wednesday, December 24, 2014

About to begin my fifth decade....

Tomorrow, I will celebrate my 40th birthday.

Just some thoughts and reflections on the last decade of my life and what's in store for me in my next decade.

It has been a very productive decade leading to my 40th birthday. On the family front, I started dating, got married and became a dad within this time. More interesting, this is probably the most prosperous decade I would ever experience in my lifetime as I was able to accumulate a portfolio size which gives me a higher drawn income higher than my previously held job, which then opened up a host of opportunities which would be closed to many other folks who are busy getting house in order, including getting into SMU Law School and gaining access to an entire host of "forbidden knowledge" which is only available for a very high fee.

Looking back, I can't say that I've made entirely good moves for my career. I was doing well in the private sector and made some moves which I soon grew to regret as I mistakenly thought that I would be happier and better off with more work life balance, which is where my biggest career mistakes were made. As I lost interest in IT work in my later jobs outside the private sector, I count my lucky stars that my financial knowledge allowed me to get a second chance in the legal industry.

This was something I had to do upon gaining financial independence, a lot of work frustration over my 15 years in IT was due to legal related matters, it could be clauses in a outsourcing contract, procurement or some terms and conditions for a software competition. Each engagement with legal professionals was, unfortunately for me, extremely unpleasant and I came off feeling very stupid every-time, I've always felt legal advice too dubious and clouded in . Law school is vindication. It's not enough to get a degree, I need to convince myself that I can make an above average lawyer.

I guess it's my fault that I'm too much of an engineer and geek at heart - I don't trust the so-called "experts" and had some success making financial decisions on my own and being from the outsourcing industry, I've always believed that insourcing is best.

I think a man's fifth decade would be the darkest decade in his lifetime. His parents will not be getting younger and the bulk of the most productive period of his time is over but the mortgages and liabilities would still be there. As for me, I have the dubious position of rebooting my career as a legal professional which I would have make a sincere attempt to build.

As I prepare to get back to the workforce in my mid-forties, I have articulated two major financial goals over the next ten years. The first would be to generate 5 digits worth of average dividends every month over a year. This is attainable very quickly if I can get a job as a lawyer as I can start saving my current dividends beginning 2016. The bigger challenge after reaching that income threshold is to rapidly pay off my 36 year condo mortgage over 3-4 years just to get to get rid of that big albatross around my neck. This needs to happen fast and before I hit my 50s as the Fed may raise interest rates soon.

This year is shaping up considerably well taking into account as to how fiscally challenging it was for me. I've accumulated almost a full year of unemployment, paid the highest income tax expense I ever had, moved into my new condo, bought all the furnitures and appliances, paid two semesters worth of fees, carried on servicing my mortgages and living expenses and I still managed solely using investment income.

Still, I had towards my 40th birthday on a new high.

My results were good enough that SMU has given me an award to shave off a couple of thousand bucks from my next round of school fees. It was probably more luck than skill as I've done better for my team projects and class participation than my written exams, this is not likely to repeat itself in future semesters.

There are still two more months before the adverse year of Horse ends. I'm cautiously optimistic for my luck in  the year of the Goat but I'm not holding the hard work for the next semester.

Catch you guys on the New Year  and Merry Christmas !

Monday, December 22, 2014

Who wants to be a "Sergeant" ?

A class of problems in a modern urban city is that problem of "Who wants to be the Sergeant?"

Why would a top A level student choose Engineering as a discipline when the pay of a technical professional lags a marketing or finance professional after 5 years ?

Similarly, why would a medical practitioner choose to be a GP considering the gap between the salary of a GP and a specialist ? More likely, why would someone really smart and capable choose nursing, pharmacy or an allied health practitioner and play the sergeants and assistant to doctors.

To a lesser extent, most lawyers prefer corporate law to community law, we have a case of too many law graduates when there is a shortage of legal professionals in the community space.

Closer to many readers, recently some students made a conscious choice to choose a neighbourhood school in spite of getting a PSLE aggregate of 261. This led to them getting the attention of the PM. While I respect the choice made by the student and the parents, this is the exception rather than the norm. In my opinion, joining a neighbourhood school after getting fantastic grades is not a strategic move because of the power of the alumni of the top schools. You may get a decent education in a neighbourhood school, but you deny yourself a great alumni which can be a major asset to your career in the future. Even if the government can make all schools good schools. The reality is that not all alumni are great alumni.

This is an important problem, because if everyone were to let the invisible hand determine career and school choices, society might be less optimal or anti-fragile as a result of this. As Nicholas Taleb recently told Singapore officials, some entrepreneur needs to feed all the bureaucrats within the system, so Singaporeans should not be over-educated. Now we have a situation where our top engineering schools are the recruitment grounds of our best banks, which is great for the engineering graduates as it's a ticket to a great life, but who would create the new jobs and bring out the hottest start-ups of the future and risk living a life of serial failures most successful businessmen has to go through ?

I don't have a solution to this problem but I do know what generally does not work : Appealing to morality will most likely fail. There is no nobility in poverty and mediocrity. What I want to do is to reframe the problem in terms of evolutionary psychology so that we can look at the problem in a more visceral and fundamental manner:

I always challenge a start-up founder/engineer by saying that if he is stuck in a singles bar with an investment banker, doctor and lawyer and all of them want to hit on a chick, who is likely to score in Singapore ?

This is just a mental experiment which I think sheds light on how to solve the problem.

Policy makers need to get into the singles bar and create a situation where if a start-up founder, investment banker, lawyer and doctor wants to hit on a chick, the start-up founder has a fair chance of getting lucky. At this point of time, no one expects the situation needs to change to give the start-up founder an unfair advantage.

Just a fair chance would do.


Tuesday, December 16, 2014

Financial Independence as a Continuum.

Since my exams, I have been busy getting my EC ready as TOP occurred a couple of months ago.

Most of my day has been spent moving my belongings from my parent's place and assembling Ikea furniture. As we spend quite a fortune on conservancy fees, I was also retooling my exercise routine to ensure that my conservancy fees will result in a healthier life which will hopefully defray medical expenses in the future.

This blog article is my first one from my new home.

A lot of bloggers and the financial community have been very anxious and excited over Anthony Robbin's latest book entitled Money. Overall, I think that it is a a very credible product. I don't really read Tony Robbins for his financial know-how, his genius lies in making really complex self-improvement habits accessible to the lay-man - folks who are emotional creatures and not conscientious scholar-types who would not require a motivational speaker to meet their personal goals. This is something which I struggle to do as a finance writer.

The financial community has had many years to criticize Anthony Robbins when he was the King of Infomercials in the past, when he was trying to sell his brand of NLP and even invented a new measure of healthiness of  a food product by labeling each item with a frequency measure.

This time, twenty years after his previous book, Tony Robbins actually created a real product which can benefit a lot of readers, he has come under  attack from all corners of the financial industry. The criticisms  focused on nitpicking his choice of portfolio allocation, but I think what the financial community really wants to do is to muffle his central message which is to get everyone to cut down the commissions they pay to the financial industry. Another words, readers are advised to move away from actively managed funds into low cost ETFs.

I am only currently a third into his book and can't really comment on his investment strategies yet, but I am already impressed with the way he broke the concept of Financial Independence into manageable steps which people can aspire to.

Basically, according to Robbins, there are 5 levels of financial independence. At each level, your investment income covers some of your needs. A person who is financially secure covers his basic expenses, a person with absolute financial freedom can buy a private island in Greece and live a life of constant luxury without being answerable to anyone.

A summary of Robbin's ideas are as follows :
  • Financial Security = Investment Income covers  Mortgage, Utilities, Food, Transportation, Insurance
  • Financial Vitality = Financial Security + 0.5 x (Clothes + Dining + Entertainment + Indulgences)
  • Financial Independence = Current level of expenses
  • Financial Freedom = Financial Independence + Some travel + Donations
  • Absolute Financial Freedom = Financial Freedom + Private island + Private Jet
If you refer to Robbin's model, I can currently cover his criteria for Financial Independence but that's mainly because, beyond the fees I pay to SMU for Law School, I have few indulgences in my life. 

More useful to the beginner who is just beginning his journey in investments, is that it may be better to break the first step of  Financial Security down into component expenses. For a young graduate or blog reader who has just realized that he needs some retirement planning, one approach is to start with each expense item. 

For financial security, let's say that you incur $200 of insurance expenses a month or $2400 a year, As a beginner, you do not know how to invest and has decided to buy a portfolio of REITs which yield about 6.5% ( Suppose you alphabetically buy 1 lot of all local REITs with your savings ) . Using a conservative 5% estimate for dividends, you will need a portfolio size of $2400/5% or 20 x $2400 or $48,000 to permanently cover all your future insurance expenses. If you can save $12,000 a year, you may attain the state of being able to pay off all subsequent insurance expenses after 4 years of work. 

Similarly for transport, you may also spend $200 on bus and MRT trips. By saving another $48,000, you also permanently resolve your transport woes once your portfolio reaches another $48,000 milestone. This will take shorter than 4 years as you would have a couple of raises and can also save the $200 you no longer pay from your earned income to the insurance company. 

In your journey towards becoming financially secure, you may start with Utilities, Insurance, Transport before moving on to food and the mortgage which tend to be larger expenses. This may take a decade of work but at the end of the journey, you can stop relying on your earned income to pay for these basic items. Note that disciplined savers may also find that they can accelerate their wealth accumulation as they earn more and spend less of their earned income as the years gone by. 

All in all, it was nice that a motivational superstar like Anthony Robbins agree with my slow and steady approach to wealth accumulation. The problem with each generation of folks is that they are always looking for a short-cut to gain financial independence where there is none.  By the time I was in my early thirties, I was able to save 100% of my earned income every month. I was even more pleased that Tony was also able to highlight areas of growth for folks who have achieved financial independence. Perhaps after I resurrect my career as a lawyer in the future, I can start thinking about designing a more comfortable lifestyle for my self and my family.  

Tuesday, December 09, 2014

Why Jack Ma is wrong about education and innovation.

Jack Ma joins the list of very successful billionaires who laments about the education system he has gone through and has spoken very convincingly of why the Chinese education system must change in order for the country to make progress.

This is not a new idea. Einstein himself values imagination above knowledge.

Many successful business men and even our own minister talks about the value of creativity and imagination in creating a vibrant innovation driven economy. In fact, I count a large part of my academic achievements not so much by my mediocre exam taking skills but mostly through public speaking and class participation. My ability to think out of the box comes largely from my 30 years playing RPGs and Dungeons and Dragons. We spent years linking up class abilities, spells and magic items to resolve any scenario the Dungeon Master tosses at my party. The current generation will use the same mindset and thinking to plan their next Zerg rush or Warcraft raid attacks.

In spite of billionaires, famous scientists and top politicians who wax lyrical about imagination, innovation and creativity, I am inclined to think that they are all wrong.

The primary reason why this thinking is wrong is that while creativity and imagination allows a few individuals to really achieve quantum leap progress, we are not convinced that a system which fosters such out of the box thinking is good for the masses.

That is the dilemma faced by policy makers.

Creativity, imagination and innovation worked for me, Jack Ma and Albert Einstein. But does it work for Tan Chee Hong, a fictional Geylang Pimp,  who finds an interesting way to name his prostitutes to increase repeat customers by 30% ? How about the Chow Ah Beng, who experiments with colours and Surrealism by spraying a national monument to demonstrate his artistic talent? Or Roy Ngerng ?

Clearly the most innovative country in the world is America. It has Facebooks, Google, Apple and Microsoft - no other country can do that. But America is also the country where a liberal arts graduate will graduate with crippling bank loans and his best possible job is making coffee at Starbucks, why do we have private schools that trick him into a course where it's hard to get a decent job ? Where else you can be shot by a cop because of the colour of your skin or by a gun toting psycho because you are attending high school. You can also be raped by a comedian in the 80s or worse, have to listen to Justin Bieber.

I'm not going to take the position that creativity and innovation is bad. I think that it should be confined to a select few. How much, and who should be given such training is something I'd wish social science would be able to answer.

The problem of Asian societies and Singapore is not not whether creativity or innovation should be emphasised in educational training, the question is how many should be given this emphasis and how do we select these people. Western societies which desire to open the minds of everyone are taking the wrong approach - just look at Justin Bieber. Singapore's elitist approach emphasising academics may also be wrong, look at Dr. Eng Kai Er.

What we know is that most of the population need to be trained to follow instructions and run the bulk of the economy. That is to provide society with operational personnel, engineers and bureaucrats. There exists a sweet spot, a magic number of population where the Jack Ma's exist waiting for the system to unlock their potential.

Of course, taking my idea to it's logical conclusion runs the risk of adopting Plato's concept of the Philosopher King which can lead to a totalitarian regime. The moment you take the road to select people to be treated in a different way, you also run the risk of thinking that men of gold will produce children of gold, which I think is increasingly becoming a problem in Singapore.

Technology can provide the answer. Data analytics and the science of personality can isolate the traits of the Jack Ma's and Bill Gates and we can determine what are the traits which can make a difference. The answer may well radically differ from our government's fetish with academic ability.

We need to bring personality metrics, income and social economic status into a database for number crunching first, then we need our social scientists to work with our data scientists to determine what is that sweet spot.

That is the key to a truly Smart City.

Monday, December 01, 2014

The Myth of the Self-Made man.

Wow ! It has been a while since I blogged. I've been busy on my first Law Exams which took me out for about 3 weeks, and after that, I've been playing Dragon Age : Inquisition and trying to move into my new condominium.

It's going to be almost a year since my last pay-check and it's been quite a struggle maintaining my fiscal balance in 2014. I have to settle two semesters of fees and condominium furniture and appliances on a year of investment income and I've been barely making it with some of my counters declaring fewer dividends ( like that blasted Sabana Reit counter ) over the months ahead. But so far so good, one of the biggest benefits of law school is that I no longer have any time to enjoy the stuff that I eventually pay for so my personal expenses have dipped below $200 a week.

2015 is all about interest rates with the Fed expected to raise rates over the year. Everyone is speculating how this would impact their investments, but Im going to sit this one out as I believe that many other countries like the EU and Japan will start their own QE in the months to come.

Today I'm just going to blog on what I've been observing among my non-law school friends ( Yes, I now have two categories of friends because of social pressure to conform to law school norms of drinking and talking about cases. ). As you know, many of us are approaching our forties and I've been realising that we middle-aged uncles, having sort of found our positions in society, are starting to erect very elaborate psychological defences to cope with middle age.

One such defence is the idea that there is such a thing as a self-made man.

The idea of the self-made man comes in many forms. The "weak form" of the self-made man idea is that it is inherently more noble not to receive help if you have privileges in society. A "strong form" is that you are actually better off not receiving help even if it is normally expected that you do so because we are an Asian society because it makes you grittier and more amenable to succeed.

Personally I think that this idea is comforting because it has a hidden purpose and meaning. When faced with mid-life and mediocre life outcomes, middle aged men like myself want to create that impression that we did it the harder way. It's an act of the mythologizing the self, so that we seem more heroic in spite of our pathetically average life outcomes in our health, finances and relationships. It's also quite easy to find evidence to support this stance, there is always a wastrel in the family from the rich side of the branch who amounts to nothing ( We forget that folks who are low in conscientiousness can come from both the rich and poor branches of a family ).

I'm against such psychological defences ( I am actually not entitled to it because I grew up in a relatively ok middle class household. )

My first disagreement is that there is no nobility in mediocrity. There should be little nobility in success, if you feel morally superior, use your success to help others. No point crimping yourself and not receiving help from your rich parents when you can give so much more to the world if only you get a slight push. You might as well say that you have average outcomes because you are a good and moral person.

My second disagreement is that a gritty life is a choice. If you are born with a silver spoon in your mouth, it's still your prerogative to choose a harder target to meet. If you have more, you can desire to achieve more.  If your peers are trying to get to a University, you can always choose to create jobs for others because you have started out with so much more. In Dragon Age III, you can choose the level of difficulty of your play experience. You can slam rich and successful people but there are those among their ranks who have created thousands of jobs today who would never apologise for using their social advantages.

My third disagreement is that even if you did not receive advantages from your family. A lot for folks are blessed if they have families which do not impose a burden upon them. You need to explain why you are mediocre when some folks who are born to gambler parents can still achieve greatness. In such a case, the psychological defence fails when someone who have less than you do, end up doing so much more.

Finally, I think folks who adopt this stance needs to ask themselves this question : If you really believe in the self-made man and that it is better not to tap your natural social and economic advantages - are you consistent with that philosophy when raising your children ?

Do you deny your children comforts, refuse to pay for tuition or even refuse to give them your personal time ? After all, if you are truly consistent, your kids will be grittier and more successful right ?

At this point, if I go further, I would just generally end up losing my friend.