Wednesday, May 31, 2017

Equity Management #14 : Starting positions of my leveraged account.

This is going to be a short post.

Following up on my previous post, I have managed to set up a margin trading account with Maybank Kim Eng and used $10,000 from May's dividends pay-out to get started on a portfolio with leveraged yield.

I chose four starting positions which has the following criteria - Must yield at least 7% and has to contain stocks which I do not currently own in my main portfolio. With the exception of Manulife, the financial costs of the leverage is about 2.88% with Manulife going at 3.5%.

[ I really hope no one tries to replicate my four stock choices, for one thing, they do not exist in my main portfolio and are chosen to diversify my holdings further.  This blog does not make stock recommendations or give financial advice. ]

My "suicide squad" of four stocks are : Frasers L&I, Manulife REIT, EC World REIT and Far East Hospitality Trust.

For now I'm only applying 100% leverage so I should end up holding around $20,000 in stocks. In three months, I would try to top up my account and try to maintain it at 200% margin so that I will not end up with a nasty margin call when markets turn south. If everything works out, I should be looking at a portfolio which gives me about 10% yield on my $10,000 "tuition fee".

That's if it does not die a horrible death.

( You'll never know whether Trump will end up getting impeached or if UK decides to vote Labour. )

Tuesday, May 30, 2017

Discourse on Avocado sandwiches betrays Gen-X's own financial insecurity.

Every generation likes to poke fun at the generation which succeeds them.  Baby Boomers were particularly cruel to Gen-X when we were growing up and made fun of the shows we watched ( Friends ) and the music we listened to ( Nirvana ).

As Generation X got older, they started to take on Millennials or Gen-Y and recently came out with a distracting argument proclaiming that Millenials will never retire because they ate hipster food like Avocado Sandwiches. The article was particularly damning last week and featured one special snow flake whose life can only be complete all thanks to a $50 bowl of Negitoro don.

I am less inclined to bash Millenials, having work with them rather closely as peers in the last 3 years and I personally never saw anyone from SMU eat an avocado sandwich. I don't really appreciate folks labelling my classmates as avocado eating hipsters ( although there is a persistent problem with the $7 kebab because the SMU foodcourt has to pay fairly high rents and wages to the disagreeable aunties who work there. )

It's strange to claim that Millenials cannot retire given that they have all that time before retirement age shows up on their doorstep. Even retirement is evolving - I can imagine my friends retiring as a single hermit gamer - forever alone but forever satisfied with imaginary achievements in a virtual world. Furthermore, Gen-X guys are not doing this retirement planning thing particularly well.

I'm going to teach Millenials how to fight back when Gen-X and Boomers start shaming them. Gen-X can also use this framework to audit their own personal finances, it's less distracting than talking about hipster food.

When it comes to an audit, fixating at a person's small expenses is a cheap shot. Retirement viability largely depends on how you manage your large expenses because eat expense item can be worth quite a number of avocado sandwiches.

Start from big to small :

a) Did this Gen-X buy a house which is too large for themselves ?

If your head is not large enough, don't try to wear a large hat.

A general rule of thumb is that a median income person ( Household income of $9,600 per month ) would be able to replace 61% of his earned income if he opts for a low cost 4-room BTO ( Simulation by academics Chia and Tsui 2012 ). A large house means for retirement. For CPF use, it's a trade-off - house or retirement.

Most Gen-X guys tend to over-invest in real estate because of that belief that they can emulate the financial success of the Boomer generation. But we live in different times, real estate prices are determined largely by how much foreign talent we accept and the government does not really want to pay the political price of immigration anymore.

If they are wrong about real estate prices, putting in too much real estate will be the single dumbest move they have ever made in their life.

b) Does Gen-X have a car ?

A car can cost $2,000 per month which, in avocado sandwich terms, could mean serious diarrhea after an avocado sandwich overdose.. Folks with a car have no business really kicking the ass of a hipster.

c) Does Gen-X have recurring expenses which are too large to handle ?

Next a great place to audit is this person's insurance. How much savings in annual premiums can a persona save shifting his protection from whole life to term life ? Does he really need an integrated health plan for a Plan A ward ?

Does he over-invest in his child's enrichment education ? Maybe his child will only provide less than 4% return on human capital and it is better to invest at 8% then give it to the child at a later time than yet another stint in some special tuition agency. ( This is a nice move because it always riles parents when you say that investing in the stock market may be better than investing in their children. )

After that, you can review his telecommunication expenses. Why does he need cable TV when all he needs is broad band plus maybe a Netflix subscription ?

Does he spend time in Geylang with prostitutes, one shot at $150 a week with a PRC freelancer is $600 a month. This is an avocado sandwich every day.

Does he smoke ? Does he drink ?

d) Does this guy have a watch or something he indulges in ? He must have a sin. 

My indulgence is RPG books. I pay for almost every new RPG book which gets out in PDF format. I also hunt ruthlessly for vintage gaming books for nostalgia's sake.

Guys generally do not have permission to indulge in themselves with the exception of a luxury watch. A luxury watch is the Birkin for men, some way of telling himself that he's arrived when an Ah Beng can just get the same thing with the right kind of credit.

Does he really see his watch as an investment ? To look after it for the next generation ? Go to Carousell or Ebay to confirm whether his claims of his watch preserving its value is true.

e) Now look at his daily expenses

It is only at this large stage when we look at his daily expenses. At this step, David Bach's latte factor come into play and you can see if he is spending over-lavishly on Starbucks or expensive meals.

Gen-X should not distract themselves by poking fun and shaming Gen-Y.

Their biggest threat towards their own retirement and financial independence is themselves.

Many of us will spend the rest of our lives working not because we want to but because we have to.

Friday, May 26, 2017

On scarcity, $10,000-a-month internships and capping graduates to 30% of the Singapore population.

Given that I turned down five-figure a month job to carry on with my $500 a month internship, I thought I should share my perspective on $10,000 a month internships article that recently appeared in the Business Times. Statistically speaking, $10,000 internships are special with the average salaries for permanent workers being around the region of $4,000 a month.

It's easy to fall into the trap of becoming envious of folks who get such lucrative internship stints but I expect only a few such positions to be so financially rewarding. Even if there are $10,000 a month internship, they are usually reserved for the smartest, most well-balanced, and possibly the most well-connected graduates from top universities around the world.

The root of this phenomenon is scarcity.

This is the same thing which drives the controversy over Singapore's policy to cap graduates at 30% the cohort population. A lot of unhappy Singaporeans, are angry that the government wants to limits degrees for only 30% of the population.

Here are some ugly truths which I'd like to share on this blog.

a) Captain Obvious : Degrees are more valuable when they are limited to a few.

Degrees are not for everyone because the value of a degree is tied to signalling rather than skills development. To put it in a nasty way, a graduate is not hired based on his ability to do complex tasks in the workplace. He is valued for his general intelligence relative to his cohorts. This is why a Medieval History major from Oxford can command a bigger pay-check than a Masters in Engineering from local university.

This is the reason why JC and universities are such perverse places which seem more obsessed with evaluating someone rather than training them. For example, in both law schools, students would rather study the notes left behind by our seniors rather than the slides presented by our professors.

( I actually think that my daughter's jotter book is better organised than the notes from some professors I encountered in University. )

The best jobs in a capitalistic economy do not require any skills but prefer to select a person based on his ability to pick up new concepts and present it to others in a coherent way. MNCs want smart people who can be moulded to fit their company culture through a rigorous management associate training program. Skills can be easily taught once you have the right recruits.

Otherwise our top companies would just recruit from our polytechnics instead and save a lot more money for their shareholders.

b) Limiting degrees protect the interests of capable non-degree holders.

Less obvious is how this benefits the non-degree holders.

The first benefit is that for non-degree holders is that they are not pushed to over-invest their time for just another piece of paper with low signalling value anyway. Why pay $70k-$80k and 3 years of your life to study a local private degree just to get by with a $2700 starting pay ? A degree will not magically catapult you to a comfortable middle class lifestyle. A diploma holder may start with a lower pay but they also start earning money at a younger age which also gives them more time to compound their investment portfolios.

The second reason is that it improves the signalling value of non-degree holders. If only 30% have degrees and you do not have a degree, it can mean that you could be in the (top) 31st percentile which is still not too bad in the grander scheme of things. Good SMEs may treat their best workers like gods and may still groom you for the C-suite because no sane company would discriminate against 70% of the population.

However, if 90% of the population have degrees, no one would happily employ a non-degree holder without a nasty chat their HR manager. The big firms would simply recruit candidates with a strong honours classification. The population would then start to demand for for more distinctions to be granted to graduates.

So we don't really need more degrees than the jobs that MNCs and a large part of the public sector provides. A better question would be how to promote a comfortable middle-class lifestyle for folks with a diploma ( Maybe we can talk about this in a later article or a talk ).

c) There is a solution out of this obsession with signalling for degrees - Engineering school !

After reading this, a lot of folks who get shafted by the education system will then bitch and whine about its obsession with signalling and why higher academic institutions simply don't focus on developing skills instead and have companies hire for folks who can do their jobs.

There is a class of degrees which has more skill than signalling value. In surveys done in the US, the branding of engineering degrees matter the least in labour statistics.  Because folks who want to be engineers are so rare, most engineers will face little discrimination from branding of their degrees if they can graduate with an engineering degree and are willing to do technical work.

But how many Engineering degrees are actually being offered in private local campuses ? You can google that yourself but I expect the supply to match the demand.

d) Lifelong learning will trump IQ, EQ and our obsession with degrees.

If you accept my argument about signalling of degrees, you might become even angrier at the government for pushing for more skills development. Is this drive for life-long learning a scam?

Life-long learning is not a scam. It's a only way forward for survival.

Degrees have signalling value but the depreciation of a paper qualification is getting faster with more technological disruption. For degree holders, the value of their paper will be much lower in a few years time and have to spend the rest of their time picking up new skills and following industrial trends.

Because quite a number of degree holders will be unable to maintain the value of their professional credentials, the employment market will be a hot place for a non-degree holder to compete by a committing to a lifelong learning regime. The dropout rate for a Coursera course is 90+%, finish one data science specialisation and you are signalling your value to a potential employer.

Last words : It's about the middle-class lifestyle, what it takes to get there and few will succeed in the end.

You know what the Hard Truth is ? The middle-class lifestyle will remain elusive regardless of your efforts to get a degree.

The final problem for a lot of folks I met ( many who do come from local private schools ) is this paradox which, I think, will doom them to a mediocre lifestyle forever.

On one hand, they demand that some kind of free access should be given to them to get a degree which I think is understandable.  But on the other hand, they see it just as a piece of paper with no intrinsic value. A degree is just a paper to set them free. They are being held back for the lack of one paper. Otherwise, they would already be as rich as Warren Buffett.

What about knowledge ? What about cultivating an open mind ? What about seeing connections between different disciplines ?

Without that innate curiosity and an open mind, I observe that many fellow Singaporeans will just regress to the most heavily marketed lifestyle choice on social media which is based on credit and conspicuous consumption.

But a life of the material is a lot harder to sustain than the life of the mind.

For these people, a degree is just a route to a nicer handbag and better car.

They don't get it,

They won't make it.

Tuesday, May 23, 2017

Equity Management #13 : How to think about leverage.

We are at Chapter 27 of the book even though this is the 13th installation of the series. For the reader's sanity (and mine), I have skipped over the mathematical components of the book to try to generalise some of the ideas on this blog.

Leverage is something I intend to try out over the next few weeks.

During my last talk, Maybank was kind enough to sponsor a room for BigScribe which would have the effect of improving our razor-thin seminar margins. In return, I signed up with Maybank for a brokerage account which allows me to leverage some of my REIT and business trust investments for a very low rate of 2.88%, in effect guaranteeing them at least one customer for that free room rental.

( I've been meaning to dabble with leverage since the 2009 recession but never had the guts to start until I learnt about the 2.88% interest rate. And this is not a sponsored post BTW. )

Once my account is opened, I will create a very small leveraged portfolio to experience what it is like to trade with leverage. It starts at a small size of $10,000, but I will buy about $20,000 worth of REITs and business trusts. This arrangement is expected to yield about 13%.

As I start my new career, I intend to farm my entire pay-check into this leveraged portfolio moving forward and see how long it will take for me to (a) Accumulate a pay-off high enough to off-set my mortgage payments, thus, giving my CPF-OA a well-deserved rest. (b) Actually pay off my remaining mortgage.

As I have a main portfolio of stocks feeding my family, this is still using money that I can afford to lose.

Back to equity management, the text-book has a few philosophical things to say about leverage.

There is an equation which measures an investor's utility function which incorporates leverage and volatility which I will not show on this blog.

In English, it basically means this :

An investor is always hunting for active returns but this greed is balanced by his fear of portfolio volatility and leverage. Because every investor has a different tolerance towards volatility and leverage, the optimal leverage and volatility of his or her portfolio is something unique to every investor. Traditional models employ only the investor's tolerance of volatility. Newer models incorporate someone's tolerance of volatility so an optimised portfolio may have a degree of leverage in them.

With this small portfolio of income investments, I hope to discover my own tolerance towards leverage. Of course, if my portfolio collapses within weeks or faces a margin call by the end of 2017, it might turn me off leverage for good !

Sunday, May 21, 2017

Some insights from Psychology - More loose ends from the previous talk.

There is one loose-end from the last talk.

Apparently, my presentation slides were not the latest version which I sent to the company admin. This turned out to be a good thing because, this way, my talk ended on time and it might turn out out to be more draggy otherwise.

Just thought I'd share information about the missing slides and in the meantime showcase to the more intermediate readers the depth of research we go to prepare our slides. This is not something you can read about even if you combed all the Wiley Finance books or read all the self-help improvement books on Amazon.

The material is from KB Chan's "Work Stress among six professional groups : the Singapore Experience" written in 2000 in the journal Social Science & Medicine.
  • The most stressful profession is Teacher followed by Lawyer followed by Engineer. Maybe after a couple of years you will find me getting a diploma in NIE. ( Just kidding !)
  • Generally speaking,  folks hate a workplace where the boss does not support your work and you have horribly political colleagues. 
  • The year 2000 was 17 years ago and, therefore, ancient by social science research standards. In those days, the general trend faced by working professionals is the de-professionalisation of knowledge. We respect professionals less now because we can google answers prior to consulting them. I've constantly switched doctors for my diabetics treatment until I have an awesome Associate Professor who advises me knowing that I show up prepared for my appointments. ( I think he will have concerns over the Montgomery test for negligent medical advice in our next meeting, haha ! )
  • Doctors and insurance agents remains the happiest professions in Singapore. Yeah, yeah, you guys know how I feel about the latter. 
  • Both professions are happy due to the high locus of control experienced. So if you can't switch professions, find a corporate culture which gives you the highest level of personal autonomy if you want to reduce stress. This may rule out the public sector and some uniformed services.
Ok, that's it !

We're back to regular programming next week and look out for out next talk in July.

Saturday, May 20, 2017

JD Aftermath #6 : LLBs

Interactions with LLBs are the fundamental difference between SMU and NUS's approach towards legal education for mid-career professionals. SMU prefers that mid-career professionals interact with themselves first with limited exposure to LLBs to come later. NUS would thrown their JD-equivalent to swim with the sharks from day one.

JDs will generally begin to have encounters with LLBs when they start picking up elective modules in SMU. Its generally  a great experience.

On the surface, LLBs are the ideal children of Singapore Tiger Moms. Perfect in every way. Straight As for their A levels. Future lawyers and bright shining lights of the legal industry.

The Elite of the Elite.

That's until you get to them better.

The cynical will say that SMU has a dual-track system for LLBs. You know which 'caste' an LLB belongs to after just talking to them for a short while.

a) Tee Kong Kias 

Hokkien for Heaven's Child, the Tee Kong Kia are the true beneficiaries from SMU's brutal legal education system. These guys are excellent in class and also have plenty of options to represent SMU in Moot competitions. They are mature, articulate and intelligent.

Half of the time I think their lives will be wasted in the Law because I imagine how many jobs they can create if they go the way of the Razer's CEO who was also a law undergrad.

Nevertheless I expect their impact on the legal system to be large in the future.

b) Tai Ko Kias

Hokkien for a Leper Child, I was so glad to have buddy LLBs who are  Tai Ko Kias.  ( I use this term in an affectionate manner which shows my appreciation of them. )

They are still brilliant because its still Law School, but they are chill and prefer to use their high general intelligence for things other than beating the shit out of other Universities unfortunate enough to face SMU in competition. ( Recently, we beat the crap out of Oxford. )

It is the Tai Ko Kias who remind of my days in Raffles Hall 20 over years ago and my Toastmasters days when somehow most of my friends were Law Students. The lecture tutorial system in NUS gives more room for slackers who typically pick up tempo only a couple of weeks before the exams.

LLBs are simply better than JDs because, unfortunately, the JD program accepts graduates with no working experience allowing others to cast the JD programme as a 'second chance' for those who do not qualify for the LLB the first time round. This is why in previous posts, I propose provisionally alloting a seat for JDs but insisting that they use their first degree for two years in the work force before admission.

Advice for JDs is to avoid classes with many Tee Kong Kias when you choose an elective.The shift in the grading curve is brutal and two of my modules International Moots and Civil Procedure took a nasty hit because my classmates were too brilliant and can survive on 4 hours of sleep a day.

[ Tip : Tee Kong Kias take the more substantive and litigation driven modules because they are damn zhai and want to kick everyone's ass. You should avoid International Moots, Civil Procedure and super-hard modules like Insolvency.

Tai Ko Kias take the modules which my friends claim are more relaxed and gentle like anything related to Mediation and Arbitration. Subjects with low legal content like Project Finance also attract Tai Ko Kias. ]

Do enjoy working with your Tai Ko Kia buddies because they are possibly the only students who don't mind giving JDs a chance to work with them as they are friendlier and less grade optimised. Take into account that they have just completed JC or NS so may not be as conscientious as full working adults.

Due to the generation gap, you can really benefit from trying to understand how they interact and use their apps. It's not what we 40s do, even if we are tech savvy.

That being said, I really benefitted from studying alongside young people : Yesterday in my office, I schooled the 20-something associate on the latest album by Harry Styles.

Friday, May 19, 2017

Personal thoughts after last night's talk on Stress-free investing

Ok, I've finally recovered from last night's talk. Let's talk about what happened last night from my perspective.

Last night, Lionel gave passionate speech about automating one's investments using ETFs and Alvin Chow spoke about implementing the permanent portfolio.

As for me, I was barely sticking to the original intent of the company directors when they set out the topic for the event. I really wanted every single talk I give to feature unique material that cannot be found in financial blogs and popular books on personal finance so I tried to craft a talk which attempts to link a person's financial capabilities to psychological well-being, fortunately there was a study made in the UK which allowed me to conclude that raising one's financial capabilities will also improve a person's psychological health.

The second component of my talk was about insurance. I reminded the audience that risk is almost synonymous with stress and can be active managed by either tolerating, avoiding or transferring it to someone else. Then I shared my minimalist framework on how I manage my personal insurance.

The third component is about dividends investing.

What was really amusing during the talk for me was Alvin asking the audience whether they thought my approach to investing was stressful and about 80% of the audience raised their hands.

I don't really have a defence if someone thinks that my approach to money management is complicated. If you are a regular reader of my blog, my approach to Life is complicated. The important thing, however, is that the audience acknowledges that dividends investing is the reason why I can be financially independent today. I have been feeding my family without a day job for almost 4 years while paying a full home mortgage and my net worth has even gone up since the day I entered law school.

The only thing I might add is that life sometimes demands that a certain amount of attention need to be paid to managing money. This is a cerebral exercise and can be very stressful.  If you do this earlier, it can give you a much more comfortable life in your 40s. If you choose an alternative which is less stressful during your 20s, you might have to pay more attention to money when you get older. The problem is that for Gen X, by the time they really start to think about managing their money, their main income stream becomes threatened by economic disruption. It gets even worse when you are sandwiched between two generations and have to support your parents and kids at the same time.

One final point.

I think we did not address a good question last night.

The question is whether are there are simple ratios that can be used for bond valuation that resemble the P/E and P/B ratios. The short answer is no.

This is a complex technical question which we could not answer last night.

To get an idea of how this is done at the professional level. You may click on this link here.

Bonds are valued relative to each other by looking at different spread values relative to a fixed benchmark.

I would be surprised if any financial blogger were to employ one of these approaches to determine whether a particular bond is over or under-valued.

Sunday, May 14, 2017

Personal Update - Turned down monthly 5-figure job to pursue my legal ambitions.

If you google the word "decision" and you will know that the roots came from an old Latin word which literally means "to cut off". This is the central theme of my personal update today.

a) Just crossed the Rubicon - a legal career it is !

Two days after my final exams, a headhunter contacted me to look at some fairly attractive IT roles in a large MNC. I was willing to look into it because I have yet to begin work on my internship. I thought it may be interesting because I have been out of touch for 3 years and do not expect an attractive offer. I tried to prepare for the interview and just for fun, tried to enrich my previous IT audit experience with some of the stuff I learnt in school about MAS regulatory practices. From a compliance perspective, I walked the interviewee through areas of a MAS compliance which would benefit from legal analysis.

I did not expect the interview to turn out so well. The job which was originally being put on offer was set aside for a larger regional role with a full team to manage.

At the same time, things started out rather well in the law firm I interned in. I troubleshot financial spreadsheets to assess a divorcee's assets, resolved IT problems and researched on fairly cutting edge areas of a law and was actually listened to when strategising litigation with my boss ( All within 2 weeks ! ). It was hugely positive experience and the opposite from the horror stories from many of my peers.  

So I have a dilemma in my hands. I can take on a 5-figure job and would be able to hold out for 3-4 years to resolve my condo mortgage decades ahead of time. Or I might be able to build a legal career and be able to solve complex multi-disciplinary problems every day but at a fraction of my IT salary.

So I crossed the Rubicon and submitted my application for Part B. Having consulted a few friends, I realised that no matter how things turned out, there will be regret either way but my family's wisdom makes sense. An MNC can let me go anytime, but a legal practising certificate belongs to me and follows me wherever I go.

I credit my financial independence for allowing me to make this decision. Every single financial blogger I consulted would have taken the job rather than stay on with legal work.

b) Inflicted with buyer's remorse.

Talking about decisions, I was hit with buyer's remorse lately.

The Onyx Boox Magna Carta reader is a large 13.3" e-reader that is loaded with an Android 4.4 operating system. When a ready set was available on Carousell, I plonked two months of internship salary to buy the device up and was almost immediately disappointed by its performance.

Moral of the story - You can't really graft an Android OS onto an e-reader becare e-ink screens have a lower refresh rate. The system feels very slow and key android apps like Adobe reader and Dropbox are not compatible with the system.

Still I am in the process of getting it to work better. I managed to put Kindle on the system and can now read my Feedly RSS news on it.

c) Prepping for the talk this Thursday 

I'm really hyped up for the talk this Thursday.

We have novel material that just can't be found even if you pay $5k plus to other financial gurus. I bet you cant even find a book on the information I will share on Thursday because they came from social science research papers.

Hint : Once and for all, I will tie up all the scientific evidence which shows that improving your financial capabilities will reduce the psychological strain in your life.

Of course, I also will be talking about getting more dividends.

Saturday, May 13, 2017

JD Aftermath #5 : On Foreign Students

And I am not done ! 

Today I will do an article on foreign students and tomorrow I will talk about LLBs.

My JD experience would not have been such a positive experience without foreign students. Older candidates tend to be minority and tends to get sidelined due to the generation gap. This makes them excellent partners with foreign students who can also be marginalised but for different reasons.

a) Group work grading makes it hard for a foreign JD student to fit in.

The problems faced by foreign students are institutionalised into the SMU education system. Singapore students who get into law school are straight-A students (in both Universities) who have high expectations on themselves and others. 

Coming from a different culture and university, foreign students are unlikely to be used to the dedication and fervour that locals are used to so over the years have developed a reputation for being slackers. Foreigners from particular countries might also be prejudiced for not having English as their first language.

It does not help if some seniors advise juniors in any program to stick to locals because the locals still have a better reputation for getting shit done. The Russian hacking scandal in SMU which affected my exam scripts does not help because locals might just lump all foreign students into the same 'slacker' category.

b) Foreign JD students do buck up after a semester or two. 

The problem is that locals are too quick to condemn and a bad reputation sticks for foreign students. It's actually quite hard for a foreign student to qualify for the JD and every batch has only around 4-5 of them. 

They do catch up after a while and do so in fairly remarkable ways because they are quite smart and streetwise to begin with. 

Most group collaborations I have with foreign students are successful because we are able to come up with novel solutions to unconventional problems. The dividends paid by having group diversity will pay off if someone is patient enough to tap them.

c) Fortunately, the foreign JD students will get the last laugh in the legal industry

Life is unfair and will continue to be so regardless of the wishes of the rigid, neurotic Generation Y local. 

The economic downturn for lawyers does not affect foreign students. They are prized for their language skills, rarity and possibly the ability to attract more business for their companies. Many are able to join the more prestigious law firms with moderate grades. 

Before I end, I'd like to give out some not-so-nice comments on Foreign Exchange students which can be a nightmare for our LLBs to deal with. Not all of these students come from reputable universities and many are here to party in Bali and Phuket. I have never heard of a happy or successful collaboration from my LLB friends and University administration really needs to look into the academic disadvantages of being paired with a foreign exchange student in campus. Perhaps those who who only need to pass a module should be segregated for marking purposes so that local students would not be so terrified of them.

NUS was the same 20 years ago. A bunch of foreign students were unable to take their final exams because they lost their passports in Thailand, got a failing grade and were sent home in disgrace.


Wednesday, May 10, 2017

Equity Management #12 : Enhanced Active Equity Strategies 130-30 Portfolio.

If you can imagine a long-short market neutral portfolio, it would be quite easy to imagine a 130-30 portfolio.

The first step is to find some sort of a prime broker.

[ Some helpful folks pointed me to foreign brokers Ameritrade to see if it is possible to construct such portfolios which facilitate the shorting of stocks. Based on I have been told,  prime brokerage services are not available to local retail investors but coming with something similar might be possible with some leverage and using CFDs. ]

1. The first step is to put in say $100 with the prime broker.
2. You then sell $30 of stocks short, creating $30 from the proceeds of the short sale.
3. You can then buy $130 of stocks.

You have net exposure to the market and will tend to do well when the market does well but some extra earnings can come from selecting the right stocks to buy and sell.

This form of enhanced active equity strategies relies heavily on the ability to pick stocks and value can come from ignoring, underweighting or even shorting stocks which are expected to do badly over the medium term.

Prime brokers generally do not provide stock lending services for free, but in the US, there are tax and regulatory  advantage to this arrangement.

Personally, I think it would be nice if Singapore can find ways to facilitate such trades in the local stock markets. Professional investors should have the ability to find new sources of outperformance given that we retail investors are really leveraging on what we read of the blogosphere to make our own investment decisions. It's also a great way for the better retail investors to start pushing their portfolio management to new levels.

Over the next decade or so, I'm not even sure if fund managers would have a place in the investment ecosystem once robo-advisors start to be adopted by a new generation of investors.

First investment knowledge has become de-professionalised of late.Second, retail investors might soon be armed with pseudo-Bloomberg like capabilities to build up their wealth their own way.

If you are an investment expert who found a way to establish a 130-30, do share your wisdom here. I am thinking of ways to up my game as well.

Sunday, May 07, 2017

JD Aftermath #4 : Generation Y Lower Division ( 20-something year olds )

A lot of what I'm going to say about 20-something year olds might be coloured because of the ridiculous generation gap between myself and them.

And this often leads to hilarious interactions when I work with them in a team :

In one instance, when a classmate's boyfriend showed up to pick her up, I told her that her "BAE" is here. She told me to stop using that term because it's very mushy and she feels like vomiting when hearing that term. In response to that, much to her irritation, the other Gen-Ys in the team started using the term Bae to describe her boyfriend.

[ Much later, I found out that BAE is not a Korean term but an acronym "Before Anyone Else" ]

a) Gen-Y lower division are the best performers in the cohort.

Academically the Gen-Y lower division folks gets the best academic results because they did not lose any momentum from completing their previous degrees. Those from SMU are also very seasoned with SMU's class participation scoring system.

b) Gen-Y lower division are, unfortunately,  the most unnecessary part of the JD Program

I am not saying this because I want to show disrespect for my classmates - Many of them deserve to be in the course more than I do.

I say this because I feel very strongly that JDs are not meant to compete against LLBs but to complement the legal industry with a separate set of skills. Having working experience prior to the JD programme should have been made compulsory for the good of the industry.

While I certainly admire and respect my younger classmates, I would have derived so much more from the program if the administration were to require two years into the corporate world before letting them start the course. Alternatively, those without working experience should be allowed to pay lower fees and take up a legal education as LLBs.

c) Gen-Y lower division is an uptight,  neurotic and anxious mess.

I really blame the Singapore education system for making our youths so uptight. These poor guys gotta survive PSLE and the A level system before getting their first degree. If they mess up any of paper qualifications, the work place can be very unforgiving and they can lose access to the best jobs in the market. ( That being said, I also blame myself for occasionally being swept into this fervour, but those were not my proudest moments in SMU. )

The lack of experience in the real world creates the most neurotic and uptight bunch of classmates you can possibly have. For example, it is ok to start building a study group early but to do it the previous semester prior to the exams is clearly insane. Some working experience might  be able to teach some students the value of "chill" and remove that piece of mahogany wood which is shoved up their asses.

This generation is also very quick to condemn others with foreign students being generally at the receiving end largely because of cultural differences which on hindsight, should have been celebrated rather than something which polarised and plagued my entire class.

d) Gen Y lower division will regret not changing their ways.

I sound like a really bitter uncle when I say this but I have backing in the form of the book The Complacent Class by Tyler Cowen.

If you think about it, my generation was the one which started out creating this mess. We were ultra-competitive and we knew that examination results have an implication on our career and life outcomes.

Youngsters today are different.

The proliferation of search tools and web apps now allow the younger folks a chance for more curation and customisation which unlocks different and more varied lifestyle choices. So a 20-something year old is not constrained by societal expectations as much as Gen X.

For example, in my generation,  as an alpha-male, you want bag hottest chick in campus because that is what winners do. Most capable guy gets hottest chick. Today, you don't aim to bag the hottest chick, you use Tinder or any dating app to get something which suits your fancies. If want a chick that digs Overwatch and cosplays Zarya ( if you have actually a weird thing for Zarya *wink* *wink* ), there is an app to find chicks that look like Zarya.

The ability to live your life as a niche is a feature and not a bug of Gen-Y living. A customised career can be found with the right search portal.

One conclusion from Tyler Cowen is that a lifestyle of competing to be the best would eventually be supplanted by finding an ideal niche that suits your personal inclinations.

This is my final beef with my youngest classmates.

If my generation can be out of touch, it can be forgiven because we are in our 40s.

If folks in their 20s were to still act like the old fogies of my generation and be competitive as shit over getting the "best" jobs in a sunset industry where they might end up using their 3.7+ GPA to do electronic discovery, audio translation or end up photocopying documents.

The final joke is on them.

Saturday, May 06, 2017

JD Aftermath #3 : Generation Y - Upper Division ( 30-somethings )

My post for today is about who the JD course should really be intended for - 30-something folks who have a wealth of experience who want some legal training either to supplement their professional careers or wish to bring their professional expertise into the legal industry.

This is a very wide demographic so my comments are going to be fairly general. The good candidates are highly sought after in team projects and the bad ones are avoided like the plague because it's such a large population the variance in quality of 30-somethings is rather high.

a) They are super-vested in their studies

If you are in your 30s, there is no business or portfolio to back up your standard of living, so this category is moderately enthusiastic about the course. Getting a good grade may still net them a decent increment if they can get a training contract with a top law firm. Even if they return to their old jobs, their companies will welcome them back as their last drawn salary is not particularly high.

These guys have a reason to excel in school.

b) Good ones are "chill"

The biggest lesson I learnt in law school is the concept of "chill". It is somewhat like "ease", either you have it or you don't. A chill classmate, unlike academic out-performers, are a lot more well-loved by the rest of the class and a lot of effort is made to maintain friendships with them.

When you are chill, you exude confidence and have less of a need to prove yourself. In a team you excel because you do enough to get the job done without stressing our your fellow team workers.

The problem is that we are in Singapore and Singaporeans are not very chill when it comes to their studies.

c) Bad ones are bad in their own way

Like a Tolstoy epic, bad 30-somethings are often bad in a unique way. Some do really shoddy work and forces you to question the selection process of the course. Others focus on individual work and leave the project group to do the heavy listing for them. Some have really bad communications skills. Some think they own your notes, resources and time and even expect you to double up as their tutor.

After two semesters of study, a class will generate a personal "black-list" of sorts. Everyone has a list of condemned classmates they'd rather die than work with. Some, like me, will speak to other cohorts to trade information on the black-list to avoid working with such folks.

On hindsight, perhaps a black-list would not be truly necessary. Every group project team can survive with one social loafer, but often a group can often be destroyed if it contains two. If a class can agree to share these hopeless team workers,  everyone will do fine. Problem is coordination and classmates are forced into some sort of a prisoner's dilemma situation to monopolise the good workers every year.

d) Things don't look good for 30-somethings in the JD Programme

It is unfortunate for my batch that things do not look so good for the 30-something year olds.

They are on the wrong side of a bet, sacrificing three of the highest earnings period of their lives to get a degree to qualify for an industry that is facing an unprecedented downturn. If it takes 3-4 years for fresh curbs to clear the over-supply of lawyers, my classmates would have written off 7 years of the best earnings years of their lives.

If they can't get a training contract, the joke is that SMU would have been merely a "Kidzania for Adults" moment for them. They would have spent 3 years pretending to be lawyers without an opportunity to carry on with their career aspirations.

Nevertheless, it has been a great honour to study beside them.

Friday, May 05, 2017

JD Aftermath #2 : Folks you will meet at the course - Generation X.

By the time I can write this, I feel a lot better. My grades are finalised and I managed to just squeeze north of the equivalent of an honours classification.

This closes another chapter of my life.

To discuss the folks who you will get to meet in Law School, perhaps it is better to break it down into three separate articles. 

First before I start my fairly candid write-up, I'd just like to say that overall the people in this program are great folks to be associated with. I am honoured to be part of the cohort of 2014 because only a select group of 40 students are chosen to join the JD program. A lot of unhappiness between all of us stems from the fact that people from different age groups are forced to work together to achieve a common grade and we find ourselves under the mercy of someone who may not have the same work ethic as we do. 

Ok, I will start with my own cohort which is Generation X. 

a) Gen X has no rational reason to be signing up for the JD.

The first fact which screams at you is that folks in my generation have no reason to be in law school given the disruption the legal sector is facing. The opportunity cost is ridiculously high at around half a million dollars and training contracts is much harder to come by. We are also saddled with many personal responsibilities at home making it a fairly difficult undertaking. If you interact with folks in their 40s, perhaps it would good to figure out what's their motivation because it is often interesting and even contradictory to common sense.

It is probably easier to imagine folks in their 40s taking an executive MBA because it's just a very expensive networking session with a requisite amount of intellectual masturbation. 

[ If you are mid-career and need some legal knowledge just to carry on at work, seriously consider a part-time LLM instead. ]

b) Gen X may be the hardest folks to work with in teams because of the generation gap.

Because of family commitments and a general lack of a credible reason to be in law school, we may not make good team-mates. This can be very frustrating for folks who really need a degree to get ahead in life. Some of us have different priorities and can't put grades above everything else in our lives. We have kids, spouses and parents. Some of us even continue to have careers throughout law school.

There is also a jaded sense of entitlement amongst us older candidates. One junior was talking about being scolded for not sharing his notes on FB. I replied that it is as if some people have a constructive trust over your hard work ( inside joke ).

Of course, I receive a lot of candid feedback about folks my age across all cohorts.  We 40-something years olds really need to listen more and direct team-mates less. 

c)  But working with Gen-X is fairly rewarding when it comes to grades. 

Older candidates may be harder to work with because of the generation gap but I have yet to actually experience bad grades working with my own kind.

One possibility is that being older allows us to project more gravitas when we make a presentation. Another possibility is that we bring a wealth of experience into the team. Another possibility is that we simply have been reading newspapers for a much longer time and can surprise the professor with our insights.

While it might piss some people off to say this. At least I am proud to be part of the group that does not defer to someone because of their GPAs. We can be outvoted by our peers but, similar to a work situation, respect has to be earned when working in a team. 

[ One of the problem in law school is that it's very hard not to become an asshole if your GPA is high because a lot of folks engage in hero worship. It's part of being a society that is meritocratic and hierarchical. The environment then shapes these people into the guys who were so arrogant, engineers like myself eventually enter law school so that we can provide our own legal support.  ]

Thursday, May 04, 2017

Equity Management #11 : Alpha Transport with Derivatives

First, a short personal update, I am still acclimatising myself to a 9 to 6 routine and struggling with a 6.5 hour daily sleep cycle so I am still tired after work. Given time, I should be able to return to my old blogging momentum.

So far, I am enjoying my internship. At least I can spend my time on public transport reading investing books and not some legal case or textbook. I don't miss reading legal cases because that's what I do in the office all day !

Anyway, today I only have a short insight to share which is the idea of an Alpha transport with Derivatives.

a) Defining Alpha Transport

This is basically the idea that you can combine long positions in equities with short positions to generate alpha which is superior performance arising from better stock picking skills. This alpha can then be transported to another portfolio which is an optimised based on different asset classes.

b) Derivatives

There is this opposing idea that most portfolio returns do not come from stock picking but from asset allocation. For example, you can have a decent enough portfolio when you construct your portfolio using ETFs in a 60/40 proportion in equity/bonds and you will not really make very much more by cherry picking your stocks.

One effective way of constructing a portfolio which gives average index returns is to buy futures or options. For example, a future on DJIA derives it value from how much the index is currently doing.

There is even a way of replicating an index using swaps.

c) Alpha Transport + Derivatives

The book proposes that a long-short portfolio be combined with a series of derivatives which are created to simulated index returns.

This way you can get the best of both worlds. An optimal asset allocation between stocks and bonds as well as the opportunity to select stocks for superior performance.

d) Shortcomings of long-only fund managers

This might be useful for regular readers of financial blogs. Alpha Transport with Derivatives is an alternative to the traditional active fund manager.

The first shortcoming of fund managers and quite a few super-serious financial bloggers is that the work put in to think about just one stock counter is quite labor intensive. Some analysts start with SWOT analysis and look at the industry the stock is in and then they drill into various accounting ratios to determine whether a stock should be bought. The labor intensiveness of this form of fundamental analysis hurt these fund managers because it limits them to a small pool of investible counters. The consequences may also include under diversification. This makes FA quite unwieldy for retail investors.

The second shortcoming is that traditional active management is super-subjective. How do you know that management is great ? What makes you think that the industry is going to survive technological disruption ?

To a certain extent, I deal with this problem by reading second hand research I can find from the web and polling the thoughts of other bloggers. I can possibly comb through 5-6 reports a day. The other way I deal with the problem is to simply ignore reports on stocks which do not provide at east 6% dividend yields.

In my next talk, I will show you guys a quick and dirty way to create a system that generates stock picking suggestions so that you will always have more investment ideas than the money you have for making investments.

Monday, May 01, 2017

Quick Personal Update : Leisure Phail !

I don't really have anything substantial to share today and some readers from SMU Law School may be eagerly awaiting for my "kiss and tell" article on this blog.

Right now, I am not in the right frame of mind to complete that article because our professors are slowly releasing the results of the final semester, as I am teetering on the brink of losing a decent degree classification, my state of mind in a huge mess. For the past two nights, I have been getting nightmares about getting shitty grades but there has been a small measure of good news. Just now, I checked the SMU website and I cleared my hardest subject last semester and I now have only 0.5 modular units of grades to report and I currently have a decent probability of scrapping through.

Still, it's not over until its over and Law School release of results have always been a nasty episode of Game of Thrones for me.

But onto happier things...

Unfortunately I did not succeed in meeting all my leisurely KPIs during the past 2 weeks.

I was supposed to finish two fictional novels which does not have anything to do with law, engineering or finance. I was partially successful and completed Thrawn by Timothy Zahn about who is possibly the coolest villain in the Star Wars Universe. But yesterday I was only able to finish half of Death's End by Liu Cixin. I strongly recommend the Liu's award winning Three Body Problem series of science fiction novels which came from China. It was truly epic in scope and its brilliance is only matched by the TV Drama Serial Fires in Nirvana.

Interestingly, when I face a constraint and have to make a trade-off during a period of leisure, the first thing I drop are computer games, so I did not download and install the enhanced version of Planescape Torment. I also did not manage to start on any anime series even though Gundam Iron Blooded Orphans Season 2 is number one of my list right now. One reason is that I am an extrovert and prefer to hang out and talk to people rather than indulge in manufactured flow. The other reason is probably due to the amount of literature I consumed on how computer games have become the number one drug for unemployed non-degree males around the world.

One of the biggest conundrums of my life is that my best gaming ideas and insights only pop up when I was academically stressed. In more peaceful times of my life when there are no cases to read or exams to pass, I actually am actually quite lethargic when it comes to doing things I enjoy, I only started doing up logistics for my Bangkok trip about 5 days before we flew.

Anyway, sorry for the pointless ranting. Over next week, I will fleshing out the details of my next talk which is shaping out to be quite cool and you'll be bale to read the next instalment of Equity Management.

Tomorrow I begin another round of internship but with a REAL law-firm.