Before Happiness #4 : Increase Signal to Noise Ratio

Ok, managed to squeeze in some time to post on this blog. Exam preps are really insane this week.

This section of the book is the hardest to achieve for me because I take on a lot of information sources and, combining my blogging hobby with my legal career switch, I am almost always swamped with information or crazy ideas.

a) Identify the signal from the noise

Noise is unusable, untimely, hypothetical and distracting. I consider The Independent a website dedicated to noise. 

Otherwise, I struggle with this section a lot because the book explicitly says that a lot of financial predictions are noise and Jim Cramer was even singled out as one of those information sources that an investor  better off without. The more important differentiator between the signal and noise in investing is that, for me, I am more interested in the working than the answer. I read a lot of broker reports and what is important is the reason why someone is recommending whether we buy or sell. 

As I have been generally profitable after reading these reports, I doubt they can be classified as noise. Macro-economic predictions are also hardly noise since the justification of the predictions make interesting reading and highlight important trends investors can follow. 

For non-investors, I think if you tune out the motivational bullshit that always say that you will succeed if you put your mind to it, it should save enough bandwidth for you to really figure out techniques to help you achieve you goals. 

b) Reduce noise by 5%

Once you identify the signal from the noise, you can reduce the noise by 5%. This comes from reducing the intake of TV and Radio. On the internet, installing an Ad Blocker will also help. If you are me and rely on an RSS feed, maybe you may want to trim the blogs that you are subscribed too. 

The author has also managed to convince me to start considering the purchase of Bose noise cancelling head phones. 

The hardest part about making this work is the fear of missing out. I subscribe to almost every financial blogger because I am so worried about losing out on a great investment idea. 

But these days, I just read the headlines and then decide if it can improve my bottomline. 

Otherwise I move on.

c) Eliminate pessimism

This last idea is very useful and I urge you guys to try it. Pessimism is something that we've adapted in our brains due to millions of years of evolution but too much of it can prevent you from achieving greatness. You can reduce it my adopting the following three maxims :

a) Keep your worries in proportion of the likelihood of the event.

b) Don't deny yourself 10,000 good days just to be right a few times when the days turn bad.

c) Worrying should not be equated to being loving or responsible. 

I think there is too much pessimism after my talk about leverage but if you were a PAYING CUSTOMER, you will know that I advocate responsible leverage with a view of always being aware that there is a chance you can go completely bust. ( In fact, I even show my working to everyone. )

But if the projected chance of going bust is going to be less than 2.5% and the extent of the bust is capped at 60% of the margin account, I doubt it's rational to refuse leverage at all considering that I already limit the margin account to below 20% of my total net worth. 

Of course, markets being hardly normal, critics may one day be right, but I will not ruin the possibility of many good years ahead just to feel smug when there is a rare market collapse. 

Maybe by then, I may have already pre-paid my mortgage and no longer have a margin account.

After Action Review : Supercharge your REITS investments.

Ok, as I am preparing for my bar exams next week, I would only start writing about yesterday's session only after I am done with all my revision work today.

Here are some points of interest from last night's "non-debate" between myself and Teck Leng :

a) The lack of real debate last night.

The event was promoted somewhat as a debate between an ETF-driven approach versus a DIY approach to REITs investing. When we did the event on the ground, Teck Leng and I probably had much more points in common than actual disagreements. This is what happens when put engineers together, we're more keen to cooperate to find better ways of making money for everyone. Also I really liked his guts because he is quite an earnest guy.

[ If you really want a fight, put me against a legally-trained or marketing-trained ETF fund manager because I know the gloves can get off without things becoming too personal - then I'll thrash him with my superior numbers. ]

You can definitely leverage the Phillips S-REITs ETF and my current Maybank broker offers it at the lowest rate.

b) That 17% tax on REIT ETF dividends.

Even if there was a debate, the biggest elephant in the room that is in my favour is the 17% tax that is levied on trust income. This effectively lowers the dividend yield of the REIT ETF from 5.5% to around 4.6%.

But, let's be reasonable here, it's not the fault of REITs ETF issuer. I was told some readers of this blog forwarded what I wrote about these taxes to some bigwigs at Philips Securities and accused them of pocketing 17% of dividends. This is really unfair to these guys who created a relatively cheap product for investors who want to spend less time micro-managing their REITs investments.

Readers should be glad to know that the industry is lobbying hard to waive these taxes so that less sophisticated investors can benefit from higher yields.

c) Someone shared with me a better way of obtaining leverage.

The cool thing about unbiased bloggers giving talks is that some attendees may have better ideas on investing. After the talk, one cool dude came up to me and proposed a superior approach to getting margin financing from a broker.

He proposed using proceeds from a home mortgage instead to buy equity.

According to him, you can get funding at less than 2% (my current home loan is SIBOR +0.68%). After some thinking, I figure out that if the funding came from the mortgage bank, you can practically buy any stock you want or even buy cryptocurrency with the proceeds. The downside is that you will end up servicing a bigger mortgage instead of trying to pay a mortgage down like me.

I need every reader's help to verify whether this strategy would work or might even be legal in the first place. Banks, for sure, would not give a mortgage above the market value of the property and employing home equity as collateral actually attract higher interest rates towards the tune of 4-5% based on what I know.

But I think this is a good share regardless.

Before Happiness #3 : Goal Accelerators

The third section of the book is also the most practical component of the written work because it summarises in one chapter what most motivational books would take entire volumes to do. Tips offered in this chapter are useful and backed by heavy-duty research. If you can practice this on a daily basis, you would save thousands of dollars on motivational seminars and get ahead much further in life than your peers.

The first strategy is to get as close to your target at the earliest opportunity. Once people perceive that they are closer to their goal, they work faster and harder to wards achieving it. In your quest for financial independence using the dividends approach, one way to push closer to your goal immediately would be to take your upcoming year-end bonus and start buying dividend counters with it.  Just begin with a bang and don’t wait for the new year to set your new year resolution. If you can immediately attain 30% of your first financial objective, it would be easier for you to save your next paycheck to hit your target of financial independence.

The second strategy would be to find ways to convince yourself that it is easier to attain your target. In fact, it is recommended that you shape your goals to have at least 70% chance of success within a resonable period of time. One way of doing this would be to break your financial goals down into micro-goals. Financial independence is a daunting goal that takes decades to achieve, but attaining $100 per month of dividend income is fairly easy. At 7% yield, you will only need a portfolio size of $17,500 to get $100 a month to offset part of your utility bills. This is something that can be achieved within one year of graduation for most local graduates. Having $100  coming into your bank account will create the motivation to save more and attaining the next $100 per month would be very much easier.

The third strategy is to manage your personal energy so that you can focus on attaining your goals much faster. This is powerful approach towards achieving greater focus on goals that truly matter in your life. We are all limited by our willpower that gets sapped when we are forced to make decisions. The key is to routinize as many decisions as you can and focus only on a few important decisions every day. One advantage of my new vocation is that men have really one work uniform and I have already started wearing only black and white for my lectures and tutorials. I do not have to agonize over what to wear everyday. Amazingly, uniformity in the way lawyer’s dress is more extreme than in IT. We had one day when all WINTEL engineers in my team came to work in a blue shirt and the admin staff can’t stop harping about it. Great engineers think alike, get over it !

Similarly, I try to use simple heuristics for food, such as choosing vegetarian for every breakfast whenever possible and plain black coffee. 

This third strategy can get really complicated in practice. Some issues like minimizing regret when searching for a home to buy can be resolved quickly through an algorithm like the solution to the Secretary’s Problem. Other issues can be resolved via economic Tit for Tat strategies. The more mental models you develop and internalise, you reduce the mental burden required to process the issue. 

Anyway, my willpower is saved for decisions that only matter - like whether to unload my Religare Health Trust in light of the discussions of asset disposal that was announced today.

After a day of painful consideration, I decided that there is some way to go for the counter if the negotiations succeed and we our well deserved exit. 

And what a tiring decision that was !

Before Happiness #2 : Mental Cartography

[ I am slowing down my blogging as I am 2 weeks away from my Bar Exams. It is quite harrowing as we have to complete 8 papers within 4 days. It will be a struggle to have one update a week with an exception made when I complete my next talk with BIGScribe. ]

The mental cartography component of this book also composes of three strategies.

First, you need to find your true meaning markers which is just another way of figuring out what your goal are in life. In my own example, a lot of engineers start out in their career wanting to solve interesting technical problems because this is something they are passionate about. Others may simply be hedonists and want to extract as much pleasure out of life as possible.

Second, you need to reorientate your map around these meaning markers. For this same engineer, this creates an interesting dilemma in Singapore because if he focuses on a meaningful career solving interesting technical problems, he would not be able to take on better paying roles in project management or leading teams. Singapore is just not a place for interesting technical problem solving although genuine effort is being made to correct that. I actually believe that if you solid coding skills, hedge funds may be the place to develop programming expertise because you might be able to work on issues like network latency when co-locating servers with those of the exchange.

If money is also one of his priorities, every engineer needs to ask himself whether it is worth sacrificing doing something meaningful and interesting to make more money. For me, I'd just go for the money because financial freedom is more meaningful to me than hammering out cool programming code. The books advises that you set your priorities right before you look at nitty gritty of career planning. Maybe I can hammer all the programming code I want after I retire from the work-force.

Thirdly, you should map your success routes before your exit routes. It just means that a person should be trying to live a life to attain their success and should not live their lives trying to avoid failure. While the scientific evidence is that people who more motivated and aligned with their personal goals get fatter pay-checks and promotions, things would not be as simple as it seems in a conservative Asian society. The books still has a point -  a lot of older project managers or team leads eventually regret their career choices as taking on a management role meant no longer working on interesting technical problems as they get used to higher pay after a couple of pay-checks. 

Singapore exacts a huge penalty on a person when he fails - A failed startup can cost a technical engineer about 7-8 years of his life as he pivots to a more stable career. Even if he can accept such an unpredictable lifestyle, the question is whether his parents will support him. Thereafter, there will be concerns from potential spouses and girlfriends who may just choose someone more stable financially. Even if the girlfriend is willing to make a sacrifice, his potential in laws will have concerns.

If you are a risk-taker, you have my full respect. Just don't underestimate the influence that an Asian society can exert on your penchant for risk-taking.

The past is not dead; it is not even past.

[ The title of this post is actually Q1 of this year's AO level General Paper. It has been long time since I have written a GP essay so it's high time that do one given that I am also preparing for the Bar Exams.  ]

The past is not dead; it is not even past.

The past is persistent.

It shall forevermore, be embedded in the present.

It will always influence the future.

This is not merely  a metaphysical assertion for if you, dear marker, have a case of herpes. You should know this fact very well.

The past can be like a herpes infection from your last unprotected sexual encounter - it just keeps coming back. In fact, for herpes, the past is not even past, because herpes is like a trust fund that keeps giving, vital parts of your body that had stopped itching would periodically itch again in the future. Herpes will never die, it is not even past.

Also, no debate on the idea of the persistence of the past should be without the discussion of economic ideas which, also like venereal diseases, are spread between people who don't really know any better. As in turns out, the idea that the past is dead is subject to decades of debate by economists.

Proponents of the Efficient Markets Hypothesis argue that the past is irrelevant. The act of looking at technical charts ,which encapsulate historical price movements, do not lead to extraordinary profits. Entire erections of a theoretical nature were dedicated to the Efficients Markets Hypothesis in academic institutions. It is almost as if the older economists were on a permanent course of Viagra. Phds in economics must have felt their egos masturbated with with each additional citation they receive from another freshly published research paper. In fact, if you found a market anomaly and argued that historical prices can be used to achieve extra profits, you would in for a smear campaign. You would given more tongue lashings than a gimp in BDSM sex orgy if you revivify the past in a thesis defence.

But the past does make fools out of even our greatest economic minds.

People eventually discovered many market anomalies that do exploit past data and they were able to establish very successful hedge funds by exploiting these anomalies. One example is that momentum trades do result in extraordinary profit. A stock that has increased in value for the past 12 months has a propensity to keep on increasing in the markets. This results in a profitable strategy of going long on a basket of stocks which has done well in the past 12 months and going short on a basket of stocks which had done badly. This anomaly is likely to have arose due to the nature by which market agents react to the news. A first, a lot of people under-react to fresh news, but subsequently they overreact to it.

Whether it concerns money or venereal diseases, objects in the rear view mirror may always appear closer to where they are. The past is not dead; it is not even past. Those who do not remember the lessons of history, are doomed to repeat.

Those who remember the lessons of history, will have plenty of great stories to tell in the VD clinic.

Before Happiness #1 : Choosing the most valuable reality

The first skill in the book Before Happiness by Shawn Achor is the skill of choosing the most valuable reality.

This skill is broken down into three specific strategies.

• The first strategy is to understand that there are many alternative realities you can have. 
• The second is to keep shifting your vantage point so that you generate alternative realities. 
• The final strategy is to pick the most valuable strategy.

This is useful in finance.

Many academics adopt the reality that markets are efficient and there is indeed a lot of academic literature that reinforce the efficient markets hypothesis. This effective rules out Technical Analysis as a means of earning extraordinary profits from financial markets. But somewhere along the way hedge fund managers like Victor Niederhoffer and Kenneth Griffin found objective evidence that the contrary is true and they took steps to build a fund to exploit these inefficiencies in the markets. By shifting into a more profitable reality, it became possible to find new and interesting ways to make money from financial markets.

Similarly, you can notice that the realities of some people around you can certainly be improved.

During my reservist days, I met a lawyer who claimed that saving money was impossible because of his ridiculously high family expenses. He probably makes twice as much as what i made in those days. Even during my Part B training, I was stunned when a very senior lawyer told my class with a straight face that it is impossible to become a millionaire doing legal work. Ideologically, he must come from a different planet from me. If I accepted his reality, the situation would have been hopeless for an engineer who is facing a low pay and the risk of getting outsourced on a daily basis.

So I choose a different reality - I believe that making a million is not only possible but may be easier if you do not have a five figure monthly income. An engineer has nothing to prove about his economic status and can wear Decathlon from head to toe and dumpster dive for free organic food. Other professions have to keep up with personal appearances.

Some realities I adopt are admittedly hard to accept and this is especially so if you lean to the political left.

For example, I believe that Singapore is a very generous welfare state.

If you make $100,000 in dividends annually and dividends are not taxed at a personal level, isn't that some form of welfare for people who train themselves to save and invest money well? ( Feel free to disagree, tax professionals ! )

There are certainly some points which I felt are interesting and should have deserved deeper exploration in the book.

The book exhorts the reader to choose a reality - this is in essence an objective evaluation. The question as to what reality is available is should be determined empirically. We have to constantly remind ourselves that the book does not ask the reader to choose their own delusion, which is what other books like The Secret and various religious texts seem to espouse.

The other point I wish to make is that powerful people and public policy can warp your reality - that's why we have laws. Some bosses and corporate environments can be so oppressive that even if you try your best to put a positive spin on things, it would be hard not to be depressed by the happenings around you.

It is probably not realistic to think that the choice of reality is something completely within your control.

Sometimes you just have to work for in a horrible environment because you need to pay your bills.

New Series : Before Happiness by Shawn Achor

Starting tomorrow, I will start talking about this book called Before Happiness by Shawn Achor. The last series of articles on Efficiently Inefficient was rather complicated and, as a result, attracted attention from fewer (but more hardcore) readers.

I thought it might be appropriate to not just shift to a lower gear and discuss issues which are a lot more accessible to readers of this blog but to also try to interpret Shawn's ideas from the perspective of someone who is trying to seek financial independence. After all, I'm quite sure that the freedom to pick and choose what you want to do with your life that is unfettered by financial obstacles could result in a much higher level of happiness.

Of course, the other reason why I chose this book is that Shawn Achor is a Harvard-trained researcher and whatever he says is backed by research. This is vastly superior to majority of motivational books that tend to have dubious support or, worse, rely very much on the wishful thinking of their readership.