Saturday, June 25, 2016

It's all about your kukujiao !

The title of this post is inspired by a recent programme in Channel New Asia, after all if your kukujiao (penis ) is talked about in mainstream media, readers will have no problem accepting this in financial blogs.

The largest thing going on in people's minds is Brexit. What it would mean for financial markets and how you should position your portfolio moving forward ? Unfortunately, even experts are lost as to what to do about this situation. For me, the only clear signal would be to convert some cash into English pounds and try to  spend your Chistmas in London. Alternatively, if you have been hoarding gold all these years, selling some of that to pay for that trip to London might not be a bad idea.

But the most important lesson from Brexit is that everything happening around the world is about your kukujiao.

What has Rody Duterte, the rise of Trump and Brexit have in common ?

In my opinion, the rise of macho right-wing politics around the world is largely a reaction against devaluation of the male gender role that has been happening for the past 20 years. All of these camps channel a certain male machismo and generally very attractive to working class males.

I was having breakfast with my friend who I deemed relatively successful in life because he has a  happy family and is gainfully employed in a steady iron-rice bowl job. Even he laments that one generation ago, the salary of a male Singaporean is enough to sustain one entire family on its own.

These days we have two-income families and in places like the US and the UK, boys are losing out to girls in their universities. Worse, progressive forces continue to downplay the value of men in the mass media and are pushing for alternative models of what a family is like, applying labels like "White Male Privilege" to open up jobs in places like Silicon Valley. If we push this to its logical conclusion, Western countries will have a population of angry males who are unable to catch up socially and economically to women.

Changes in gender roles, family structures and the economy is happening too fast for men. Once men are denied sexual access and a means of economic survival, it is no surprise that they will do anything to disrupt the social order.

Hence Brexit, Duterte, Putin's popularity and very possibly the election of  Trump as US President.

Singapore is in a relatively good spot from the rest of the world.

Singapore still needs men in NS and we do get 10 years of  useful male networking when we go back for reservist training. Singaporean males also receive possibly one of the best education systems in the world so very small gap exists between boys and girls in academic performance. The Singapore government is also slow to adjust the traditional family structure here and only recently started to slowly prod Singaporean men into redefining themselves -  this is something which cannot happen overnight.

In summary, in almost all societies, what is still currently in place is a Patriarchy which is mostly led by a male of a majority ethnic group.  Progressive forces, for reasons of morality and egalitarianism, have tried to topple this power but may have succeeded too quickly when Barack Obama was elected. The result is a backlash where mostly poorly educated males of the majority ethnic group would decide to vote any irrational government to preserve the social structure.

It is all about your kukijiao.

Next time you look for your answers, look between your legs

[ At least for my readership whch is 75% male ]

Wednesday, June 22, 2016

My next talk !!!

Looks like the good folks of NLB and WDA have already prepared the EDM for my next talk.

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Tuesday, June 21, 2016

Debunking the arguments for Integrated Shield Plans.

Due to a combination of government policy-making and the marketing propaganda being spread by insurance companies, the selling of Integrated Shield Plan (ISPs) have become almost as easy as taking a lollipop away from a child.

For most people, ISPs are a no brainer. The most convincing argument to purchase a ISP is that the deduction of premiums come from the Medisave account so no cash outlay is required. This is a very difficult argument to debunk because Singaporeans have come to believe that Medisave money is not your money and you are better off using it up because it will have no impact to your personal finances. 

I did some research by looking at sales brochures of some insurance firms and would like to convince the reader that the basic arguments to buy ISPs is probably unethical and it may even raise legal questions as to whether some sort of misrepresentation may even be taking place when a sale is being made ( Although the only way to confirm this is for a victim to take civil action ). 

Here are some points for your consideration:

a) You are already covered by Medishield, do you really need to go beyond that ?

The most important point about ISPs is that you are buying a better ward when you get hospitalised. You need to really ask yourself whether you really need to stay in a Class A ward when you fall sick. This points to the fundamental idea that insurance is about risk transfer. You already have a means of risk transfer via Medishield, do you need to transfer the incremental risk of expensive Class A medical support ?

All Singapore citizens are being covered by Medishield which provides reasonably generous subsidies for hospital stay for class C and B2 wards. When you buy an ISP, you are typically being made to buy insurance for a stay in better wards.

At least for the brochure I examined, the examples of medical costs incurred employ Class A as an illustration which has the tendency to make the medical expenses quite frightening. Your task when looking at this example is to ask your financial adviser to make the same illustration for a class C or B2 ward before you conclude that medical costs are cripplingly expensive in Singapore. 

b) Your Medisave account does not contain funny money which is out of your reach and belongs to the PAP.

You know something is wrong with an industry when some agents try to perpetuate the myth that CPF money is government money and not your money.

If they do so they are wrong. Your Medisave is money which belongs to you.

The problem is that you need to understand how CPF-MA flows into CPF-SA which flows into your hands after age 55. 

When your CPF Medisave Account (CPF-MA) exceeds the contribution ceiling of $48,500  $49,800, the excess flows into your CPF-SA. This is vitally important because after age 55, you are allowed to withdraw your CPF-OA and CPF-SA if it exceeds the minimum sum of around $161k. More if you pledge the value of your HDB flat to CPF.

What this means is that if you manage your Medisave frugally and spend on only what you need,you can have a larger pot of cash in your hands when you reach 55 years of age.

c) ISP premiums may cost 150% to 200% of your Medisave premiums but it will not seem that way when the sale is made.

Another bugbear of mine is that at least in the illustration shown on some sales brochures, you might observe that the Medisave premiums are only illustrated to be only 10-20% higher than your ISP premiums. 

This is due to the practice of the government giving Medishield subsidies based on your economic status. For example, at 41 years of age, my Medishield premium is officially $435. But the government subsidizes part of it, even if I am of a highest income bracket, I only pay $242 a year from my Medisave account.

At least one company I observed puts the pre-subsidy $435 side-by-side with their premium costs to trick the customer into thinking that the difference is not particularly large, when it should be $242 which should be compared against. 

To figure this out, the customer must be sharp enough to ask whether the current Medishield premiums incorporate government subsidies. 

We know that most ordinary folks would not do that.

d) When you get an ISP, you will literally pay the piper after age 50.

The most damning feature of some ISPs I observed is that, unlike Medishield, you start to incur a cash outlay after you reach 50 or 60 years of age. Based on that sales brochure, this cash outlay can escalate very quickly. Based on the lifespan of a Singaporean male, at age 83, you could be looking at an outlay of $1,000 to $4,000 a year. This effectively exacerbates the longevity risk you face and your monthly payouts from CPF Life may be required to pay off these premiums.

By the time you reach that age, your agent may be long retired or may even have died, you will be shouldering an additional financial burden to maintain your ISP. 

In summary, we should start thinking twice about government initiatives which increases the number of accounts which we have. Specifically cordoning money into Medisave will incentivise the private sector to exploit your inherent bias for mental accounting. Parents who invest in a large Child Development Account also tend to spend freely on specialist pediatricians because the medical fees are debited from a separate pool of money designated for childcare. This makes citizens dangerously lazy about their finances.

We are entering a new age with separate spending accounts for keeping fit and getting extra training. 

We should always be mindful that these accounts function as some sort of a subsidy for specific industries which are smart enough to exploit our psychological biases.


Sunday, June 19, 2016

What to think about when thinking about Billionaires.

In Singapore, the fastest and most convenient way to one-up a millionaire when you are not even one is to cite a billionaire.

A common thing to hear about these days is Jack Ma telling his son that he does not need to be a top student to succeed in life. What Jack Ma meant was that if your dad is Jack Ma, you probably will not need to top your classes.

The problem is that most of us are not fortunate enough to be Jack Ma's son.

The bigger problem is that that ordinary people do not study billionaires as a discipline.

( You may also want to read about a previous blog article I wrote about advice from Richard Li. )

So up till today, my job is half done. While I managed to establish the ridiculousness of spouting the pithy wisdom of billionaires, I was unable to come up with a better alternative that would allow us ordinary mortals to think about billionaires in an intelligent way. Fortunately, Sam Wilkins wrote a book called Wealth Secrets : How the Rich got Rich which contained a lot of historical snippets on how Billionaires made their money.

Here are some pointers on how to think about Billionaires :

a) Instead of spouting what a billionaire says, focus on what he did.

Billionaires obviously need society to accept him as he is. In such a case, it is only natural to highlight their struggles and how poor they started out. The magic is to dig into what was actually done by the business to get this far.

The problem is that this step is not enough. A lot of Singaporeans like to remind others that Bill Gates and Mark Zuckerberg dropped out of Ivy League universities. If that were a secret that a lot more drop-outs woulds be billionaires.

b) Focus on government-business interfaces.

Once you get into the rabbit hole trying to figure out how billions are being made by some very special people, having accounting expertise is not enough. Typically, billionaires will be able to sustain huge profit margins and ROIC of 30% or more for over a decade to get where they are today. This is virtually impossible in Singapore because our government will slap you with competition law provisions before you can get too far.

The first place to scrutinise is the billionaire's relationship with the governments of the day. The Ambani dynasty of Reliance in India thrived because they knew how to deal with the License raj and was able to hold onto licenses which permitted them to manufacture polyester decades ago.

c) Think about economics : Natural monopolies, economies of scale and network effects. 

Billionaires became that way because they found ways of establishing natural monopolies. This was how robber barons like Rockefeller got rich. He bought rival oil companies and to gain economies of scale and then colluded with railroads to eliminate the competition. Warren Buffet was special because he did not exploit these economic ideas directly but invested in companies that did.

Economics focuses on these powerful ways of making money and it normally focuses on putting yourself in a position to have no competition.

d) Think about the law of property or intellectual property.

Another aspect of becoming wealthy is by manipulating the legal landscape of your respective country. Riches are normally made due to some lack of clarity in property or intellectual property law.

It is a mistake to think that Bill Gates was a technological visionary who dropped out of Harvard University to code software - I hope engineers can think about this and not make mistakes like this any further.

Microsoft sustained huge profit margins because MS-DOS was written at a time when the US courts was still unsure of whether software can be copyrighted and Bill Gates had a lawyer dad who was able to help his son shape the contracts which license his software out to users. A large bulk of MSFT's success was learning how to enforce their IP rights.

( Yes ! It blew my mind when I read about this. )

There are certainly more way to think about making money in the billions but most of us are still stuck at the level of thinking about leverage, motivation, using other people's money and dropping out of school. While my current framework is not perfect, it is definitely better than what folks currently have.

Before I end, I'd just like to share what Sam Wilkins said anecdotally based on his research on billionaires :

a) Billionaires are almost exclusively numbers people with an odd fascination for mathematics, which led me wondering whether Singapore's policy educational policy on mathematics is the reason why the concentration of millionaires is so high here.

b) Billionaires seldom see money as a means to get something to be enjoyed, they see wealth accumulation as a game for its own ends.

c) Billionaires are brutal and always had a history of getting rid of their business partners once the business begins to prosper.

Maybe before someone would start throwing off micro-aggressions in the name of Jack Ma or Richard Li, you might to ask yourself whether you have these traits before you spout your mouth off.

Wednesday, June 15, 2016

How to lead a life without a Financial Advisor.

It has been a relatively tough week for me this week because I have just started my internship. I have to acclimatise myself again to a 6-hour sleep cycle. One perk of being a student was that I get plenty of sleep although the readings takes up almost all of your waking hours.

I'm going to go light on myself this week. I just want to build up on Budget Babe's post that a lifestyle blogger has complained about the substandard advice she has gotten from an insurance agent.

I never had a financial advisor. Generally, I'm not a very big fan of commissioned based advice because I can read and pick things up on my own. There are too many bullshit bingo advisors on financial and health matters. If you do not want to receive bullshit dieting advice from an overweight trainer, you should never get help from a financial advisor who needs to make a sale to earn a living.

Not listening to an advisor is, by itself, a cheap form of insurance - I insure myself from crappy financial advice. As a result - I gained the ability to live on my investments decades earlier than many of my peers.

Here are some pointers on how to get that financial advisor out of your life forever :

a) You will need to spend more time thinking about insurance when you do not have a financial advisor.

At a bare minimum, you need to think about three components of risk transfer if you refuse to have an advisor : Mortality risk, Longevity Risk and Hospitalisation risk.

For mortality risk, I have an upsized SAF Group Life insurance from AVIVA which insures me for $1,000,000. I bought this during my NS days and it costs be $120 a month. This month I am expecting $500 of rebates from them, so on most years, I pay slightly less than $1,000 of premiums. Try finding a whole life plan that can do that.

For longevity risk, I have a maxed out CPF-SA account which, as of now, is still higher than the CPF minimum sum. At age 68, CPF board will give me a decent income for life via CPF Life which can potentially supplement my income at old age. This covers the scenario of me living too long.  In the US, this is an product sold by an insurance firm called an annuity.

For hospitalisation risk, I have Medishield. Everyone needs to know that all Singaporeans have a decent Medishield plan which works provided that you stick with a Class B2 ward. The insurance industry spreads a lot of fear constructing scary scenarios on what expenses you would incur if you get an illness like cancer. Examine them closer and you will find that most of such examples assumes a stay in the Class A wards which denies you access to government subsidies. I have yet to meet an agent who can explain to me what benefits their H&S plan has over Medishield if I stay in a Class B2 ward and show me a comparison for insurance premiums escalation after 40 years of age.

b) You must save much more if you wish to fire your financial advisor.

The lynch-pin to living life without a financial advisor is that you need to save and invest aggressively. I don't want to repeat myself here again but a cash-flow from a income portfolio will insure against everything else.

Here are some risks which no insurance agent can transfer away :

Maybe you want to go to a spa after weeks of exam preparation. Your portfolio insures you from post-exam stress.

Maybe your wife wants an expensive watch. Your portfolio insures you from spousal wrath.

Maybe you want to go to KL to buy Uniqlo T-Shirts at SGD $6.70, your portfolio insures you from paying for that Aeroline trip.

More importantly, my portfolio pays me every quarter. Compare that to someone who has a battery of insurance policies. Every year-end these guys have to use their hard earned bonuses to pay off their premiums. What kind of life is that?

c) You need to live conservatively.

Insurance is about risk transfer. If you keep everything to bare minimum and really don't to deal with a dishonest salesman, you are in essence absorbing the risk yourself. You might be vulnerable until your portfolio becomes $300k to $500k in size.

This is the most important lesson. You just cannot afford to be YOLO if you want to deny an insurance company your premiums :
  • Don't go into dangerous places with dark alleys and end up getting robbed.
  • Don't travel without a companion.
  • Have a reasonable diet and active lifestyle.
  • Cut away smoking and alcohol.
If you have the discipline to consider my alternative plan, the odds will be greatly in your favour. 

You are in essence taking the commissions you would have given to the advisor as well as the fund managers and invested it in your own future financial security. 

Friday, June 10, 2016

Personal Finance Lessons from eating KL Murtabak

I have just ended my second trip to Malaysia and will embark on my third trip tonight.

Just wanted to share a really delicious picture of KL Lamb Murtabak with all of you readers to remind you that 1 SGD is almost 3 MYR as we speak and going into Malaysia to enjoy some fruits of currency arbitrage might not be a bad idea at this time of the year.

( Just do it with more sensitivity as Malaysians do consider most Singaporeans arrogant and proud.  )

But more importantly, if you ever visit Malaysia over the holidays you need to reflect upon the life that you have chosen in Singapore.

Mutton Murtabak in Singapore costs around 7 SGD. It is relatively large compared to the one in Malaysia and is accompanied by cucumber dipped in tomato ketchup. The above murtabak is hardly considered cheap for the locals, it costs about 9 MYR or 3 SGD but the picture speaks for itself. ( My rule of thumb is that Malaysians generally earn the same wages as Singaporeans but denominated in their own currencies. )

With labor and rental costs a fraction of that in Singapore, the Indian Muslim cook in KL can put in a lot of personal love and care into the making of mutton murtabak, You can have a very thin crust that is packed to the brim with mutton and egg ingredients. It's circular shape is also unique and more troublesome to make than the ones you find in Singapore. To me, the most special treat would be the pickled onions, which adds a tangy twist to this traditional Indian meal.

Some of my relatives working in Singapore see our country like a high-pressured sweat shop. They like earning Singapore salaries but see our country as boring and sterile. The moment they earn enough money, they will be heading home. Singapore is a place which lacks emotions and sentimentality ( Unless you are talking about anger which we have in spades. ).

There are now 5,000 Singaporean families who have chosen to live in Johor instead of in Singapore. To me, Malaysia is not an easy place to live in because of security concerns. When I was in KL, I was almost hurt by a yellow zebra crossing because we are cluelessly stupid Singaporeans and have no idea that zebra crossing mean nothing in KL. Funny thing is that no one will get killed because traffic is so slow there. I also personally witnessed a decent hotel at Jalan Ampang with no inclined ramp, and saw a middle-aged man push some goods on a trolley down a flight of stairs. You can only appreciate the care taken by your authorities at home only after you witnessed the system in other parts of the world.

But all-in-all, Malaysia is a relaxing place at the current exchange rate, you can let your hair down, make a few tactical mistakes buying stuff and no one will fault you for it. Someone sold me a decent laptop haversack for $95 MYR and I was too tired of bargaining after a long day of travel. My travel buddy got something with a better design for half my price at this outlet called Yubiso ( Which is an amazing outlet, purportedly Japanese, which seems to me a copy of a copy of an idea which can be found in SG and HK ).

In summary, we can all choose to be global citizens, work and spend at different countries, but we have to be aware of the trade-offs.

Some places are cold, unemotional but the infrastructure works and you can accumulate private property quickly. Other places may be more chaotic and insecure, but some people will prefer its occasional glimpses of humanity in their people.

Take your pick.

Sunday, June 05, 2016

Quick Update on my life.

Just a quick update on my life...

I have spent the past few days trying to arbitrate the the SGDMYR exchange rate...

No lah...

These two weeks are the only two weeks of leisure that I have.

Beginning mid-June, I will start 6 weeks of internships and my semester will open 2 weeks earlier than my peers if I get selected for International Moots.

This means that I may not have a break until December beginning next Monday.

I will be off to KL for the next 3 days and then will enter Malaysia again before the week ends. It's a great time to convert some SGD to MYR to do some shopping.

Hopefully I will have some more insights to share on lifelong learning and the value of a university education. This is a ramp up to my talk in mid-July which is sponsored by WDA on funding a child's university education.

Catch you guys on Friday !

[ I just finished The Three Body Problem by Liu Cixin. Chinese science fiction is mind-blowingly epic and does not really apologise for the amount of physics which goes into fiction. I am mid-way along the second book entitled The Dark Forest. ]

Thursday, June 02, 2016

A different way to think about Lifelong Learning.

Just the other day, I had the privilege of meeting members of the NTUC Social Media team, we had a good, long discussion on the possible issues face by the workforce of the future. NTUC is interested in collaborating with bloggers to come up with content. As I wanted to preserve to my unique voice, I opted to blog for information instead of remuneration. I promised that if any data on the labour movement were shared with me, I would be able come up with some unique insights into work and human capital in Singapore.

This gives me the freedom to be candid with NTUC's initiatives and maintain the critical tone of my blog, which I suspect readers will enjoy more.

So this article came about because of my discussion with NTUC but it was not vetted or paid for by them.

Let's talk about lifelong learning and why we might be going about it the wrong way.

One perspective on adult education comes from a study of evolution. When biologists study species which have a tendency to survive, it is not the strongest but the most adaptive species which go on to reproduce.

If we apply this concept to lifelong learning, there are two kinds of learning - Exploratory learning and Exploitative Learning.

Exploitative learning is what most people think about when they think about adult education. An engineer studies for the CFA exams in the hopes that he can exploit his financial knowledge to get a job in the banking sector.  A security guard gets accredited so that he can command a higher salary at work. I remember regular soldiers studying for the O levels at age 30 because he wants to move into the Warrant Officer track.

Exploratory learning is equally important but currently does not play a role in our vision of what lifelong learning is all about. A accountant might want to learn creative writing because he just wants to explore his creative self. An engineer studies psychology not for more income, but to develop better strategies for dealing with assholes at work.

The dominance of exploitative learning is felt when we look at the policy behind English Literature. In Singapore,even people who love English Literature cannot take the subject because it skews their grades downwards. The apologists for the subjects do not do subject any justice, repeatedly focusing on skills needed to "navigate the complexities of life" ( What the fuck does that mean anyway ? ) .

The pragmatic emphasis on exploitative learning is why there is downward spiral in the number of students studying the humanities today. And mark my words - the legal industry will face a lot of trouble in the years ahead and as the last consistently well-paying career for Arts students stop paying its high salaries, our JCs and Polys will become merely Science and Business vocational colleges. Losing the Arts would make us less anti-fragile as a nation and culture, but that will be some other article at a later time.

The crux of the lifelong learning focused on exploitative learning is this : We do make bigger investment mistakes when we choose to learn something. Industry changes may render our learning worthless at least from a human capital perspective.

After getting my battery of qualifications in Finance, I found that it was more profitable to carry on being an IT guy and investing my money. My investments in finance did not increase my human capital although it was very profitable managing my own portfolio. Same goes for my JD investment, law students are moving into an era where they may not get a training contract and even if they do, may not get retained.  If I do get retained, I may be financially better off picking up my old career.

The nature of exploitative learning is that it is dependent on the industry and the economy. And business cycles are getting shorter by the day.

Exploratory learning takes place out of intellectual curiosity. Generally when we learn something out of curiosity and personal interest, returns are not the primary motivation to pick something up. The side effect of exploratory learning is that the skills stay with you and can be applied to different areas in your life. Photography can teach a person a thing or two about aesthetics, may come in helpful when decorating your home. Literature put fictional characters in strange situations which may prepare you for one in the future. Exploratory learning creates larger possibilities. It allows you to be more adaptive and maintains value regardless of the economic situation.

From a financial perspective, exploitative learning is buying a short-dated in-the-money option on your human capital. Exploratory learning is more like buying many long-dated out-of-the-money options which may suddenly become valuable in any stage of your life .

We can't ignore the exploratory side of learning. For individuals to be robust, up to date industry knowledge and technical skills need to be supplemented with skills developed via exploratory learning. This has to be chosen independently and based on personal interest. For a decade , my interest was public speaking and I made very close friends which I still hang out with today from the NUS Toastmasters. When I give talk on the radio and in public, my skills in public speaking makes a big difference in my life.

And now for the hard part which may confound policy makers.

For exploratory skills to remotely benefit the learner, we need to beyond the ra-ra motivational bullshit that is being taught in corporate companies. Motivation does not last very long if it is not accompanied with a certain level of mastery. HR department's idea is that you throwing your money into a seminar to keep employees happy, their will stay productive.

Exploratory skills requires mastery just like exploitative skills. Deliberate practice is required to be a good creative writer, photographer, historian or psychologist. In fact, the bar is even higher if you see yourself trying to monetize this in the future. So many hobbyist photographers in the market. Who will pay you a decent wage ?

In summary, my advice for the reader is as follow :

Beyond the PMP, CPA,CFA qualifications that you are currently studying for, you may want to think about what areas you would like to explore that does not directly result in a higher remuneration. It can be computational thinking, mathematics, art history or literature. Go to Coursera to see whether there are courses where you can put yourself under a rigorous program to master that subject.

For policy makers :

With the death of high legal salaries over the next few years, a strong humanities and social science education will no longer have a role to play in Kiasu Singapore. You have to preserve Arts education through free adult education. My biggest fear is that after a life spent being  kiasu and chasing the dollar, Singaporeans suddenly find very little meaning in life. We develop a HIV of the mind and begin to buy anything from anyone who gives us a sense of hope. Just look at how polarized we've become in the Cultural Wars.

In such a case, it is way better for Singaporeans to find solace and consolation in the likes of Seneca, Aristotle, Kierkegaard, Lao Tze or Plato than someone like Kong Hee.

Push your universities to start putting up your best humanities lectures into Coursera and reward them for sign-up rates. For civil service recruitment, without offering to pay more, create a HR recruitment culture which is interested in candidate's enrollment in these courses. Have bosses ask about hobbies and interests.

And for goodness sake, grade the H3 contrasting subjects with a P/F grade lah.