Sunday, June 28, 2015

Quick and dirty mental filters when confronted with new ideas.

Just a story to set the tone for this discussion.

If you had known me 20 years ago, I was not exactly a charming specimen of the male gender.

I'm soft of like Ted, but not cute. A female undergrad once asked me to carry her bag for her. I told her no, "Because scarly I fall down how ?"

During my NUS days, I struggled to get a date, then I normally screw up my chances for a second date because I am a troll. I can't really help it - Gen X girls are so self-contradictory about marriage, relationships and career and I had a great time pointing this out to them - as a result my wife still laughs at me for getting a girlfriend so late in my life. I also never understood when I should be providing a listening ear versus giving advice. I am engineer. If you have a problem, I'll solve it for you.

But the difference between me and other guys is that I know about my problem with girls and have no illusions about how 'attractive' I was. Note that those days, my net worth was negligible. I might also be argued that I had low esteem on relationship matters.

So when I was attending an entrepreneurial seminar, a hot chick came up to me and introduced herself.

Being a cynical asshole, I reduced this to three possibilities : she's either into insurance, MLM or wants to convert me into a Charismatic Christian.

So I went with MLM and decided to troll her with a pre-emptive strike. I said "Haha ! Hot chicks don't just talk to me just like that. You must be into MLM and I'm not into MLM. Sorry !"

Man, the look on her face was priceless !

She nodded in agreement, looked a little embarrassed and sat back down.

Looking back, I think that was dumb, I was pretty sure if she was hotter, I would have pretended to be interested in MLM just to get a date, but what I did was clearly cynical, not skeptical. I crossed the line.

The last article got some people into thinking about reading a whole new set of books which demonstrate how skepticism is ideally carried out against new ideas.

A good friend  then told me on FB that this may not be enough, he wanted something actionable on a much smaller scale. And after all, developing a healthy approach to a new idea takes years ( And many opportunities to date women ) to refine.

I'm just going to share three quick suggestions on how to approach a new idea. They are not a collectively exhaustive list of what you need to go through, but generally it should be helpful at the street level.

a) What's in it for the person if you accept this idea ?

The first filter is to ask, what's in it for the person who is selling the idea to you.

Everyone who was into real estate or selling housing loans was selling the idea that real estate is a sure winner in good times and bad. Why ? Because if you buy the idea, they have the possibility of earning commissions.

Contrast that with a dividends investor.

I get asked all the time which REITs are good. I can't just answer "Sabana" for it's current high yields, there's the complicated issue of expiring master leases and that horrible manuever in Chai Chee. A contextual discussion on Sabana would take investment bloggers hours.

So instead, I very reluctantly tell people that perhaps the best approach to avoid idiosyncratic risk is to simply buy up all REITs which would yield about 6.5%.

Would I make any money if these guys succeed. Hell no ! They might just go NLB to borrow my books.

But I might get cursed here if they lose money so expect my advice to be sound but reluctantly given.

b) Is the idea falsifiable ? ( impossible to disprove, tautological )

The second filter gets rid of all that detritus that common well-meaning folks will throw at you, as these are issues of faith and not science.

Take for instance the Law of Attraction, which has generated a whole new legion of fucking idiots who believe in wishful thinking.

The Law of Attraction is not falsifiable. But morons who believe in it will asset that if what you dream about comes true, the law works. If the law does not work, you do not have enough faith to make the law work for you. The believer will not accept the idea that the Law is simply not true. It is as if I can dream my way to a training contract in a law firm or a beef steak in my pockets.

Compare that with the assertion that global stock equity can defeat inflation. There is enough data in Bloomberg to show that this might not even hold true in some market conditions. You can prove this assertion wrong, but you will find out that at a horizon of over 20 years, the odds of beating inflation goes up by quite a bit.   

c) Is the evidence credible ?

The third filter is that on balance of probabilities, the idea is believable based on the evidence given. You just need to assess the credibility of the evidence.

In this case, I can be a little elitist, I would peg an assertion by The Economist more accurate than a left-winged website like The Salon ( which I do read just to experience how stupid liberals and a progressives are.  )

This is important as a last filter as even I was misled by self-help books which claimed that a Harvard study confirmed that business students who had personal goals were richer than those who did not - this study was entirely bogus ! It spawned a truckload of literature based on a big lie ( SMART goals anyone ?).

And, no,  Einstein did not talk about making fishes climb trees either.

This also means that you have to pidgeon-hole some of your friends because they tend to draw evidence from the sources that they like.

I have developed a strong suspicion of lawyers or law students who are making an assertion  even if they have a strong body of evidence to support their views. I know they are just advocating a position, and that it's not too difficult to dig out evidence to to suggest the contrary. Lawyers are aces at evidence.

As a consequence of this, I do not trust my classmates on legal matters and reasoning but I do trust them if they bring up insights from their first degrees.

Anyway, in summary, if you do not really know how to develop your skeptic muscles, just ask yourself three questions :

a) Does the context imply that someone will benefit from you believing in this idea ?
b) Is there a way to falsify the idea by referring to research or just waiting for some results to appear ?
c) Is the evidence credible ?

Wednesday, June 24, 2015

Masterclass in Skepticism.

I noticed that a large number of readers or folks who are interested in passive income or personal finance are also very susceptible to messages from self-help gurus. Some folks I have spoken to have shared personal stories of putting money into the wrong Internet Marketing programs or have been roped into MLM at a certain stage in their lives, others have paid possibly thousands attending some seminar on forex trading or real estate flipping. The older ones even went to bucket shops.

Readers and other financial bloggers have this problem :

How do we tell the difference between someone who genuinely have something to teach you about financial success versus someone who is just trying to become a financial success at your expense ?

If we were to go really deep into technical differences between a real investment specialist and a financial bullshitter, we'd probably end up with covering the entire CFA syllabus and do note that in the early 2000s, asset-backed securities and CDOs were covered in great detail in the exams at level 2 as no one could foresee that they would play such a big role the Great Recession.

The answer to resolving this problem is to develop a healthy does of skepticism. But skepticism is merely the ability not to take something at face value and critically think about what the other party is trying to tell you accounting for information asymmetries and the context of the engagement. Mastering skepticism is also quite challenging, you may need to complete a liberal arts degree to tell bullshit from the real McCoy. Be too skeptical, and you run into the problem of cynicism, where even good ideas and investments are discarded in the name of prudence.

Before I actually get into the Masterclass, I'm just going to share with everyone why Skepticism is so important.

Start with this idea : We bloggers are experts in engineering diseases of the mind !

Ideas are like viruses, sometimes an idea comes around and its not designed so much to harm you, but to make you more susceptible to other ideas. This is what I would term the immuno-deficiency of the mind. Some ideas are AIDS viruses, it opens your mind to other ideas like MLM, Pyramid marketing, land banking, internet marketing and ILPs. As an example, a book by Robert Kiyosaki would hardly harm the reader and generally have the positive effect of motivating him, but it subliminally prepares the reader for a life engaged in MLM as it keeps harping about building businesses and helping other people -themes which keep getting repeated in MLM seminars. Similarly, I can imagine self-help guru espousing the concept of "saying yes to everything" which inspired a hilarious Jim Carrey movie some years ago. Which is why I really hate stupid websites like Elite Daily and MindBodyGreen.

I think I have developed a vaccine against the immuno-deficiency of the mind.

Here are three books which, if read and processed, leads to the development of healthy skepticism.

a) The first book SHAM, exposes the key issues and flaws with the self-help movement. It is easy to read and immensely entertaining. Almost all your favourite self-help gurus are put to the torch in this book.

b) The second book is Bright-sided by Barbara Ehrenreich which replaces your Pollyannish positive thinking with a dose of gritty realism.

As  a side-note, I advise you to always read this book with the works of Martin Seligman who is the father of Positive psychology. I do not find that both author's ideas are mutually exclusive.

c) The third book, which I recently read, is a true classic. Oliver Burkeman hates self-help so much, he practically read the entire body of knowledge of self-help to expose it for his readers and highlights what works and what doesn't. It's hard to imagine a person who now knows more about self-help than Oliver Burkeman.

I think Oliver Burkeman is more than qualified to start a CSHA or a Charter of Self-Help Analyst accreditation body. Life Coaching is pretty good money in the US.

d) Google "John T Reed". John T Reed was an early crusader who set up a website to debunk and expose the real-estate gurus who were his competitors, his points are well thought out and his website contains a lot of dirt on your favorite self-help guru. 

A savvy reader would notice that I did not include the ancient philosophers of Skepticism like Pyrrho or Sextus Empiricuswho comes up when you wiki skepticism. The four resources mentioned actually demonstrate how to take down and process key ideas which plague our modern world and form examples on how to skeptical about new ideas.

In the process of reading them, you will also find that they all qualify as great self-help books on their own.

Perhaps in a future book, I will make Skepticism a key skill before we even consider the basic skills required to attain financial independence.

Sunday, June 21, 2015

Some thoughts on parenting on Father's Day.

Thought I'd share some thoughts on parenting.

Giving parenting advice is inherently dangerous for us bloggers because we wouldn't really know what to expect from our kids in the future. Even the children of ministers and top lawyers end up being sidelined by the education system and fathers typically end up paying to send them overseas for a "paper thosai" qualification.

I count myself lucky that my 4-year-old daughter, Clio, is a normal and healthy kid. Other than trying to issue her own currency 2 weeks ago after my mum pretended that she has no money left and trying to mimic Donald Trump's hilarious speech, Clio has not really demonstrated any real talent yet. The only thing she inherited from me so far is that she likes to sing and tries to mimic pop lyrics as she is unable to read yet.

Statistically, I believe that Clio, like most Singaporeans in her generation, will struggle with getting a seat in a local university.

I don't know very much on parenting, I have read many books on child development but I do not conscientiously apply the principles I pick up from those books. One thing I don't do is to stop my mum every-time she says that Clio is smart or pan-lai ( even though me and my wife do not do this on a regular basis as its bad for her intellectual development ).

The insight I wish today on Father's Day is the concept of capital transfer to future generations.

Parents transfer wealth in two ways which I believe should be equivalent to each other if proper planning takes place.

a) Transfer of Financial Capital

Transfer for capital assets happen upon death or on special events. Money and financial securities changes hands from parents to children when parent's die or feel that children are ready to take over some of the assets. This is dominant form of wealth transfer which presents a lot of problems ( or lucrative fees for lawyers ). Asian children are sometimes not ready to take on this amount of wealth and have a strong propensity to spend it all away.

My personal philosophy is teach my kids to manage their wealth properly. Not just in terms of learning how to save, but they also need to play with the capital markets early in life.

b) Transfer of Human Capital

The second form of transfer is the transfer of human capital. The parent makes a wealth deduction to increase the human capital of their children.

This is a huge industry in Singapore. Parents can spend thousands a month to give their kids tuition. The best tutors can be a as rich as hedge fund managers.

On a very disturbing note, there are now camps to prepare children to get into the Gifted education program. I read brochures threatening parents that if their kids are really gifted and nothing is being done to give them special training, they would get bored and would lose interest in their studies.

The first important insight is to recognise what tuition and these gifted boot-camps are, a means of transforming financial capital into your kid's human capital.

c) Balancing financial and human capital transfer is the killer app of parenting.

With the realisation that everything is just a form of capital transfer, parents should be able to move more tactically when making decisions to develop their kids.

Suppose you spend $2,000 a month on tuition and boot-camps, and you believe that if you do this from age 3 until the age of 18, you would be able to push your child into a university program. It is helpful to ask yourself whether you can invest this same $2,000 in a portfolio to generate passive income for your kid such that when he graduates from a polytechnic, the passive income and his salary would be higher than his starting pay as a fresh graduate.

As it turns out that compounded at 7%, paying $2000 for 15 years ends up with a pretty large portfolio of $650,000.

Your kid can get enough capital to build a start-up with that amount of cash.

d) Why I lean towards financial capital transfer.

It can be argued that being somewhat against tuition, I am less kiasu than other parents, but I want to argue that I am actually more kiasu.

When your kids enter an expensive Montessori program or attend an expensive play-school, is there documented evidence that these children go on to university programs after accounting for social economic factors and other variables ? Instead, if a parent were to invest a bit of his own time, he can teach his kids to use Khan Academy and Coursera to pick up skills based on the child's own personal interest.

The statistical evidence for the return of a portfolio of equities, however, is easily accessible over the web. With a time horizon of 15 to 20 years, the odds of a portfolio beating inflation is definitely higher than the odds of your kids getting into law or medical school in NUS.  

Of course, to be able to balance the extent of human and capital transfer, you will need to be intimately familiar with the strengths and weaknesses of your child and make decisions accordingly. I believe that tuition should be targeted at the crucial subjects your kid is hopeless at but must pass to get into a good tertiary institution (Like EL1), or at subjects where your kid is so good at, a slight nudge from a trained coach can get your kid into the Olympiads.

It is entirely possible that your kid would not make it academically but can succeed as an entrepreneur instead and would appreciate financial capital instead.


Saturday, June 20, 2015

Time as an asset class.

Initially the title of my blog post today was supposed to be about RGS and billionaires, but fortunately (or unfortunately),  a series of events has allowed me to interrupt my article planning for something which is more useful to readers. ( Although I think many readers want to know what I think about the assortative mating between RGS and Billionaires as well... )

Two events serve as a catalyst for this post.

Just today, I had a great honour of having breakfast with a reader John Smith, we spoke about many things but one idea stood-out and I felt that it is useful to share that with readers today.

The second incident concerns blogger 15WW. 15WW has written an excellent post about an old JC alumni gathering which went horribly wrong. You can read all about it here.

The essence of the problem is this : 15WW was sharing about his family's approach to life and his very successful JC classmates ( who would be considered assholes in my book ) hinted that by downshifting one's lifestyle is tantamount to lacking ambition and I felt that 15WW's feeling were hurt after he did some thinking about the words exchanged on his JC gathering.

My stand has always been clear about other financial bloggers. 15WW remains, financially, one of the most successful bloggers out there who has accumulated a mind-boggling huge portfolio for someone his age. The idea that he or his wife lacks ambition is ludicrous and a should be a cautionary tale on JC reunions more than about financial independence. After reading the post, I was thanking my lucky stars that  a secondary school or JC class reunion for me would be very tame as most of my peers are doing IT work.

The insight on this problem coincidentally came from friendly breakfast I had with John Smith (which clearly shows that bloggers do learn a lot  from readers).

John Smith was commenting to me about the nature of jobs like that the in public service. His insight is that the stability and predictability of jobs in the civil service can be source of allowing someone to take on bigger risks and innovate in other areas of his life. 

I think John is onto something really important when he shared this insight with me.

A steady job in a company which takes up a reasonable amount of one's time is not the lack of ambition but a pretty prudent life strategy. A civil servant with a steady track record has a job which looks very much like an investment bond. Moshe Milevsky, author of Are you a Stock or a Bond ?would say that this allows him to take on more equity investments and even use some leverage in his financial portfolio. Vicki Robin, author of Your Money Or Your Life would also argue that this person is optimising the exchange of his life energy with money.

This is a buildup into a more interesting idea that Time is an important asset class which I had been harping about but could not develop the idea further in my writings. As of now we do not have the tools to manage Time like a portfolio yet. Certain life philosophies like Getting Things Done might allow one to succeed at the tactical asset allocation level, like how to save time when going through email using the GTD system to prioritise work, but there is no formal discipline on allocating your time around careers which maximise the exchange of time for money at the broader level.

So one things for sure, not all jobs are created equally.

Some office jobs end on time and you are assured of reasonable amount of leisure time per week. Other jobs may exhibit time volatility in spite of low contact hours at work : An IT engineer on call may be lounging at home, but he cannot plan his leisure time as he may be interrupted to resolve a server outage. It also makes it hard for the same engineer to sign up for investment seminars in the evening.

I would probably need more time to come up with the framework to show folks how time can be managed at a strategic portfolio level which would probably require that I think about the arcane statistics of various careers choices. For example, what is the standard deviation of the duration a litigator spends in the office ? Datasets such as these would start to become available once devices like Fitbits are used to track employees in the office. Ideally, employees should be compensated for absolute time spent in office as well as variability.

So in conclusion, I would say that the doctor who snubbed 15WW is pretty sad idiot who was fixated with the idea that ambition is the optimising of career capital, as downgrading to being a GP is being less innovative or useful to society, that is a very limiting belief.

I would even argue that 15WW has even more ambition as he is trying to optimise his financial capital as well as his human capital / temporal capital assets.

Conflating 15WW's financial independence as a lack of ambition is likely a accumulated problem of Singapore's singular obsession with only one dimension of success. It is sad that a doctor, someone who should know better, can adopt such a parochial stance on success.

Saturday, June 13, 2015

Sharon Au's faux pas warrants a relook into SAP education.

I had wanted to blog about this earlier, but I really had to give myself a break so I went off to Kuala Lumpur on a carnal food fest. After I got back to Singapore, my lecturer started spamming readings for the second half of summer term, so I spent the last 3 days mugging up 2 weeks worth of e-commerce lectures.

So let's talk about something non-financial for a change.

When I heard that Sharon Au made some remarks which made some ethnic minorities uncomfortable during the opening of the SEA games, I googled her educational background because I felt that the education system was probably more guilty for the incident than Sharon herself. After all, Sharon can be said to be acting a comedian, and Sharon's infraction was no more culpable than a Russell Peters in a stand-up comedy show.

I have confidence that ethnic minorities in Singapore are magnanimous people and they have already moved on from the incident, however, I can't help but feel that this incident can be a good catalyst for policy makers to relook SAP education in Singapore because, after all, Sharon Au spent 6 years in SAP schools and very Chinese-inclined colleges, she may not even be aware that what she has done is even offensive to others.

SAP school are not a good way to educate ethnic Chinese students, why the does the government need to isolate a group of ethnic Chinese students for 6 or more years, then apply the 'elite' label to them just because they take CL1 as a subject ? If American whites were to come together and then start harping about how they are elite and special, you wouldn't end up with SAP schools, you'd end up with something like the KKK, no one wants to be associated with them.

In Singapore, history is littered with similar infractions in the past where some insensitive was said about ethnic minorities, I leave it to the readers to google the incidents involving Seng Han Thong and Choo Wee Kiang and then make a value judgement as to why reforms to SAP education are an urgent priority now if we want to push our multi-ethnic society forward.

Here are the reforms I propose :

a) End the isolation of SAP students.

Have the standard Express stream program for all Singaporeans regardless of race but have classes for 4 days a week. Reserve one day for training in electives. CL1 should be an option but we should have more flexibility for what students can do with their time. There can be an Institute for English Literature for folks who want to get deeper into the English language. There can be an Advanced Science Institute as well.

b) Remove the elitist label for student who take CL1.  

With China being a burgeoning market, it would be insane not to promote the Chinese language. CL1 should be open to all students who get an A* for CL2, even students who are weak in other subjects. SAP schools should be retooled as Chinese Institutes where CL1 students gather over weekends to learn Higher Chinese.

This allows specialization in Chinese and eliminates the downside of isolation.

c) Scholarships can incentivise students to take CL1.

To encourage more students to pick up CL1 over other specialisations, perhaps scholarships can be used to entice students to pick this elective.  There should be more opportunities to get subsidised travel to Shanghai.

Student may be able to choose between Higher Chinese or Higher Mathematics but he may choose higher Chinese because it has more travel opportunities and scholarships.

d) Create institutes to promote the Singapore's business agenda without isolating ethnic Chinese students.

We do not need to end with just promoting the learning of Chinese language, institutes which cover India and Indonesia can provide Singaporeans opportunities to learn Hindi and Bahasa Indonesia to tap into the growth of emerging markets.

In conclusion, Chinese chauvinism is a hidden disease of Singapore society. You can argue that minorities like ethnic Indians and Malays have to live with it, but do not forget that English-speaking Chinese like myself and Peranakans are victims too !

I have been told over and over again that my inability to memorise proverbs is affront to my Cantonese ancestors.

I hope that in time, we can forgive and forget about Sharon Au, but we should keep telling policy makers that the root of Chinese Chauvinism have grown deep into the SAP program, and there are ways to promote racial harmony without sacrificing language proficiency.

Friday, June 05, 2015

Why Kim Jong-Un would approve of my insurance planning ?

I spend about $120 a month on AVIVA SAF group term life insurance which gives me about $1,000,000 of protection, this is the only insurance I have. Everything else is taken care by my passive income flow. This is the essence of buy term and invest the rest.

Today, I received a letter telling me that I have just received a $570 rebate. I have received this amount last year which has effectively reduced my insurance expenses by a further 40%.

Why is my insurance so cost effective ?


I refuse to have an agent.

No one can advice me better than myself.

Compared to a commission-hungry advisor, I think that I can do better because there is no conflict of interest. If i am willing to pour my personal time into the study of money and investments, my own advice would be worth many times that of an agent as no cook would willingly poison his food when he is cooking for himself.

So a central part of my philosophy is that it's better to advise myself wrongly than to rely on someone else who gives me good advice.

This is not an easy philosophy to adopt in this modern world. I have spent 5 years combing through almost every single certification on investing. Worse, I have extended this philosophy into legal advice - no one can advise me legally better than myself, even if I do have to seek help from another legal expert, I would at least know how to use him.

This is not an easy road to walk. For one, you need to very curious and enjoy an academic life.

One other country which adopts this approach is North Korea. North Korea's philosophy of self-sufficiency is know as "Juche". I remind myself that if I misapply this philosophy, my family can starve like North Koreans during a drought.

As much as I would wish to, I have not extended this to seeking medical advice, unless my daughter gets into medical school.

If you are a financial planner, agent or a private banker, it might be tempting to write nasty stuff on this blog to question my approach.

First of all, I actually welcome interaction from insurance professionals, especially if it is hostile.

Second of all, you need to reflect upon the lack of trust in members of your profession. Having a code of ethics will not get anyone anywhere. Policy makers are doing the right thing with DIY portals but the next step is to eliminate sales commissions on your industry and toughen up penalties for fraud.

Third of all, my strategy got me out of the rat race at age 39 - I was an IT guy for 14 years, not some banker, lawyer or doctor. You need to propose something better for your clients before you second guess my approach. But we all know, that between you and your client, you are more likely to reach financial independence first.

So what can the industry do ?

The industry needs to disrupt itself aggressively and come to the realization that consumers are getting smarter. When an agent churns his client's account, consumers will know that the reason is not dishonesty, but the incentives built around the sales of particularly high-expense products.

Agents will have to abandon commissions and accept that the fixed fee is the way to move forward which leads to the next problem - Asians don't like to pay for advice.

Tough luck ! If there is low perceived value in your advice, you obviously need to up your game.

Perhaps paying customers can be allowed to attend seminars where my fellow bloggers would conduct, who knows ?