The Art of the Good Life #50 : Sturgeon's Law

Ted Sturgeon was a sci-fi author who claims that "90% of everything is crap" and this chapter proposes that the same applies for the stock market. 

This is useful when you decide what kind of media to indulge in. 90% of all fiction is crap. 90% of all Netflix shows are crap. In a moment of self-reflection, perhaps 90% of investment training is crap so I need to constantly improve my training slides.

While preparing stock screens for this weekend's class to demonstrate this concept, I wanted to see how many stocks fall into this category in SGX :

a) Cannot be a ADR, GDR, China Stock or a REIT.

b) Cannot have a market capitalisation below $50M. 

c) Must have revenue above 150% of the average of the remaining counters after step (b).

d) Must have an operating cash flow above the average of the remaining counters after step (b).

e) Must have number of shares outstanding above the average after step (b).

f) Of the universe in (e), choose stocks that give at least 4% dividends last year.

g) All stocks must produce a free cash flow that sustains the dividends.

These set of screens are inspired by O'Shaunessy's What Works on Wall Street so the backtest not just has some utility on Bloomberg, it has a history of working well in US stock markets.

Sadly, Sturgeon's law holds true for Singapore markets

The screens were too stringent to create a working portfolio. Only Jardine C&C, City Developments, Hongkong Land and Dairy Farm made the final cut.

This list is too short to create a diversified portfolio for my students so I need to make adjustments to my model to ensure that a model with more than 10 stocks would result. After relaxing the model, I was still able to backtest 18%+ with a larger set of large cap equities.

Still, the Final Four may be useful in my personal portfolio to anchor my REIT portfolio with some bluechips as we dive into what is possibly a bearish work economy with Brexit and a trade war looming in the horizon.

How to graduate more engineers ?

Singapore probably regrets mistreating technical professionals. You can read all about it here.

Just like the humanities and liberal arts professors in the US who now have to explain why their students can't get decent jobs or pay, I think engineering professors and policy makers are not getting the idea of becoming an engineer right. I remember my professors doing everything they can to counter the fact that being an engineer is uncool. On hindsight, I think their efforts only makes things worse.

To truly understand why we are not getting enough engineers, I think we need to look closely at how a society like Great Britain divides their population into social classes. With that deeper insight we can possibly understand how to encourage folks to do more engineering work.

First of all, we need to understand the notion of capital. Those who read financial blogs understand that financial capital is important. But there are two less common categories of capital. 

Cultural capital is a measure of how cool people are. This form of capital is bifurcated into two separate categories. High-brow cultural capital is based on your understanding of what is considered canon in higher education. Older law partners sometimes assess an associate on how much he/she knows Shakespeare. The other form of cultural capital focuses on what is edgy and hip. This is cultural capital of hipsters who might know the best way to flesh out a website or channel the best memes on the Internet.

Social capital measures how valuable your social network is. The higher one moves up the social ladder, the more CEOs, medical specialists and senior lawyers they know. As one moves down the chain, they are acquainted with more plumbers, electricians and manual workers. 

The elite is defined as the top 6% of British society and master all three forms of capital. They mainly exclusivity not just by growing their wealth. They get to dictate what society finds cool. 

The precariat is defined as the bottom 11% of British society. They lack all three forms of capital. 

The essence of solving the problem of the dearth of engineers is to understand that engineers fall into the social class of technical professionals within the middle class of society. This social class is characterised by having a large amount of financial capital but almost non-existent social or cultural capital. I think I'm fine with having no social or cultural capital since at least 9% of millionaires from this profession in a survey by University fo Georgia in 2006.

So engineers are now scientifically proven to be rich but uncool. But still, they are better than emerging service workers who have social and cultural capital but no financial capital. These are the hipsters who graduate with humanities qualifications.

But social scientists discovered one special thing about the class of technology professionals. This social class is highly inclusive and will admit any member of society who can demonstrate proficiency in science and engineering into the middle class. Another words, no one cares where you come from if you can code or manage big projects. Even in a society where social mobility has dropped, the engineering career path has always maintained a ladder even for the poorest in society.

This gives a society a Singapore a wonderful opportunity to create more engineers and deal with the lack of social mobility at the same time. 

Imagine you have top A level student who comes from a poor family. He can, of course, study Law in order to become a lawyer. But success in legal work is not a mere function of academic intelligence. To get the right training contract, you will need the right social and cultural capital. Also note that you can get straight As in JC but still get average grades in Law School because the competition is so ridiculously tough.

So society should promote the inclusiveness of the engineering profession. The folks who can benefit from an engineering education are often the folks from the humblest backgrounds. 

Perhaps a special drive to get students to study engineering should start with the least privileged members of society. 

Dark Horse - A new approach to personal development.

Seedly approached me give a talk to a crowd of Millenials who are interested in personal finance a couple of weeks ago and I agreed to their request. I told them that I will take the next few weeks to come up with a topic. 

At the personal level, I wanted to give a bespoke presentation because my current previews tend to be slanted toward mid-career professionals and I wanted to really start thinking about how to address the needs of someone who has been working for less than 5 years.

A more concrete outline for a presentation is still quite far but I think I've found a body of knowledge to anchor most of the speech. 

Dark Horse by Todd Rose is, in my opinion, an incomplete attempt to redefine career management and self help for an economy that has already been disrupted by AI. It proposes that instead of following society's script and being successful based on the benchmarks of everybody else, why not pursue a life based on your personal fulfilment ?

While I really like this attempt to come up with a new form of self-help, I believe that actually following society standards do benefit about 30% of the general population so I don't really share the same enthusiasm that everyone attempt to become a Dark Horse. After all, even during NS, all folks wanted is to be a White Horse. 

For 70% of the population, this book does have its value. But the book, as visionary as it is, is plagued by a lack of data and scientific backing. The points raised also seem overly simplistic. 

Nevertheless, you can become a Dark Horse and succeed on your own terms if you do the following :

a) Know your micro-motives

Some things that drive a person can be truly quirky. Some folks not only enjoy work with their hands, some have a knack for aligning two pieces of wood together. My micro-motive all these years is that I enjoy seeking attention by trolling. 

By aligning several micro-motives into a unique combination, you can carve a bespoke career that pays well for yourself. My trolling would have gotten me into trouble until i figured out that if I can back my controversial ideas with empirical data and help people make money at the same time, I would be able to gain for myself a loyal following. Even the folks who hate me would have no choice but to follow my blogs.

b) Choose a vocation or path of development based on your micro-motives

This is opposed to choosing a vocation based on what society values but instead on your unique set of micro-motives. Data-driven trolling put me on track to become a financial blogger. For a start, I made only $150 every year. It was difficult to stop because I liked this so much and it has not exactly been a great boon to my day job.

c) Build career strengths after you found your targetted vocation

It is only after finding a targetted vocation based on your micro-motives would you start to build on your personal strengths. Four years of Law School does not mean just developing proficiency in the Law. I spent 4 years in SMU getting unlimited access to Bloomberg Terminals and my presentations are also graded in a curve. This allowed me to gradually build up a a better approach towards making money that can be backed by empirical evidence. It also gives me a good convincing counterpoint to other investors who adopt a more conventional value investing approach keyed off Warren Buffett.

Of course my journey is not complete yet. To succeed in this endeavour I now need to refine my presentation skills as all trainers need students to sustain their practice. In 2019, I need new skills in Vocal projection and Improv.

d) Ignore the destination

It is this component of Dark Horse that I find the most disagreement with. Even the examples given in the book showed people taking clear accountability for their personal destinies. 

The other reason is that if you engage in commerce, you will know your results and KPIs very clearly and the markets generally reward hard work and innovation. Results are a great guide on how to improve further. 

Rather than ignore the destination, perhaps we should be open-minded to alternative destinations that equally fulfilling. I see that my skillset can succeed as a trainer, consultant or an investment manager. 

All in all, this is a flawed but visionary book that can be improved further. The author probably has some of axe to grand against the establishment and made valiant attempts to vilify what he sees as a Standardisation Covenant. He fails to see that if he succeeds, he will become the new standard that young professionals benchmark on.

The Art of the Good Life #49 : Managing Expectations

To manage expectations, you need to organise your thoughts into three categories.

The first category is something that "you must have".  This is an absolute necessity. On hindsight, one of my absolute necessities is to complete my legal training. This means going through a lengthy practice training and skipping out on a fairly decent job offer. Positioning something as a necessity can be extremely limiting. Only time will tell whether I made a right move in insisting that I be called to the Bar before moving on. For readers, I strongly suggest you keep these limitations to a bare minimum. Pride and ego is expensive.

The second category are desires. Life is not worth living if you have no desires. I desire a Creative Super XFi Air. I also desire a Pixel 3 XL. Since APTV tanked, I have dropped my desire for a new iPad Pro Tablet preferring to buy more stocks with my next round of earnings. You should have desires, but ordinarily, you should not be shackled to them.

The last category are expectations. This causes the most unhappiness because they may be influenced externally and cause tremendous internal damage that can shake our very confidence in ourselves.

This is important for investors. 

My latest back-testing for a portfolio of equal-weighted REITs returned 19+% over the past decade. This is coupled with an extremely low semi-variance of 10%. If you mentally anchor to these numbers, you are guaranteed to be miserable because the past 10 years saw a lowering of interest rates and a recovery from the Great Recession of 2008. Financial figures exhibit non-stationarity. 

To balance against this, I create benchmarks for investment strategies to see which investment strategy is better.

In my opinion, investing in REITs for the next 10 years in an era of rising interest rates is unlikely to return 19%. But at least I can say with some authority that filtering out the REITs with the highest yields and lowest gearing has a large probability of outperforming an equally weighted REIT portfolio or even the STI.

This is the attitude a good investor needs to adopt. Markets will smash your expectations and damped your confidence. 

In fact, I actually believe that the next two years at least will be bad for investors. 

Losing money is almost guaranteed given that investors will sell Singapore stocks when the US markets start to trend downwards in spite of our low CAPE ratio. 

But the good news is that if you double up on pumping your funds into a low volatility portfolio over the next 2-3 years, you have a decent chance of catching the bottom of the market.

The winners of tomorrow are the heroes who conquer their fears in the investment markets for today.

Why men are useless before they reach age 33.

Jennifer Lopez is not known for giving great advice, but this article hit the ball right off the park. In my opinion Jennifer Lopez is speaking a really honest and brutal truth about men in general that cuts across cultures.

I came across this diagram from the Economist which I will share here :

Social scientists have been plundering Tinder and various dating apps for data and, in my opinion, this chart proves Jennifer Lopez point.

The desirability of men actually peaks late, at around age 50 but a woman's desirability monotonically decreases after age 20. The intersection point between the desirability between a man and a women is around age 30. In other texts of evolutionary psychology, it seems that men are into women aged 27 no matter what their actual age is so, we can also estimate from the diagram that a man of age 33 has about the same desirability as a woman of age 27. This is why I'd reason that J Lo is spot on.

At a less empirical level, this also makes a whole lot of sense.

When I was engineering undergraduate, it was so hard to date women. They are fairly demanding and expect a lot from men they date. As I got older, I noticed that the men who stayed single had a much easier time the  longer they stayed single. This because their desirability goes up but the desirability of women in their age cohort goes down. They also started to gain better access to younger women as they got older.

Financial capital obviously plays a major role in the dating game but sociologists have started to examine other sources of capital. Namely, cultural and social capital.

I will only focus on cultural capital today.

Your cultural capital measures how good your personal tastes are. Even though engineers and computer scientists comprise of 9% of millionaires in surveys, they make their money much later in life. In their twenties, it can be argued that they have no capital at all. For example, Arts and Humanities guys have the time and the inclination to develop an eclectic mix of musical tastes, which is what cultural capital is all about. I would even venture to guess that if you look at the Spotify list of engineering majors, you may find a lot of anime/otaku music. But if you look at a Arts guy, it may be a list of Jazz, World Music as well as pop songs. That matters a lot in the dating world because assortative mating, or choosing a mate based on personal interests, educational level and tastes, takes precedence over hypo/hypergamy than in the past.

A man at age 33 also has sufficient time to build up his financial capital and signal how valuable he really is as a lifelong mate. We know that this is also about the time someone in the FIRE movement makes his first $100,000. Also, a lot of guys become discouraged in their 30s and make a decision to become Wizards, MGTOW, bare branches or Ohitorisamas. So your pool of competitors start to drop after this.

I would go further to advise this generation of male readers.

You need to use the solution to secretary's problem to build a "database" of women you date before you make a commitment. This a period of time where you shop around, equivalent to 37% of the time you give yourself to find a spouse. There is ample to do this before you are 33. Only after your desirability goes up should you commit to someone from subsequent dates.

In some other articles I have read, some relationship gurus advise seeing about 16-17 women before you can decide what kind of person you will be happy to settle down with.

This was not too practical during my time since I married my first girlfriend, but we live in an age of Coffee Meets Bagels and Tinder. You can get a date while eating a bowl of ramen noodles at home.

So this is a actually a great tine to be a guy.

Even though you might be worthless until you reach age 33.

Don't mess with the Gods of Wealth

I just want to share the spate of bad luck that has I have experienced over the past 3 days.

If you'll indulge me in a spate of superstition, the thing started with me plundering the spare cash I've been keeping behind my altar of deities because I needed some spare change. While I am an atheist but I collect Gods of Wealth from countries I visit, I populate my altar with the deities along with characters from Pop Culture like Tywin Lannister, Batman, Ironman and Ozymandias.

These are, after all,  various gods and icons of wealth, after I took $100 from their stash, shit started to happen :

a) APTV

I keep APTV not because it's part of any quantitative model I have.

APTV is a legacy holding from my yield pig days before I started upping my investment game after gaining access to unlimited Bloomberg terminal use in SMU. APTV's fundamentals have been deteriorating for a while and my main motivation is to extract it's ridiculously high dividends and to provide a nice kicker to my leverage account.

APTV burned a lot of investors because we had this fantasy that dividends may just be by 50%. We did not expect such a drastic reduction a few days ago. Details on what happened to APTV can be found in other blogs and I lost $20,000 in one day.

This loss is manageable because I can channel it to other REITs which have been battered by the markets.

While $20,000 is painful, it can be earned back quite easily.

I was actually more worried about another counter which I owned.

b) UMS

UMS made me a lot of money over the years because it just kept splitting and spinning off dividends. The music had to stop one day because it is a cyclical business.

I have a cluster of manufacturing counters which have been 2-3 baggers in the past and given the fact that Trump will carry on this trade war with China, I could not hold onto these counters at a meaningful allocation anymore. Thus, I unloaded 90% of my UMS and Valuetronics. This is a painful decision as I think the long term view on these counters may not be as safe as higher yielding REITs in the market.

Rearranging my investments this way was painful. As I removed all the stocks that would give me bad sleep at night and replaced them with the more steady dividends counters, I also lost the potential for a rebound next January.

But I doubt holding onto UMS and Valuetronics may be the right move in the medium no matter how much I liked them. And as it turns out, Advanced Materials just had an earnings miss yesterday.

c) Spent 4 hours in NUS A&E last night

It got worse from there.

Yesterday, my daughter fell on the floor and hit her head. Five hours later she vomited. At midnight, she complained of a headache. We ended up going to NUH A&E last night to ensure that there was no serious concussion.

I was glad that was a false alarm but it clearly ruined my day today so I am not going to do any work today.

Also, I have since returned the $100 I took from the altar.

You can accuse me of the post hoc ergo propter hoc fallacy but I will not taking a lot of risks moving forward, but taking money belonging to Tywin Lanister, Batman, Ozymanidias, Daikokuten, Lakshmi, Frey and other assorted gods is a bad idea.

What have I been spending on ?

Having lived on dividend income for the past 4 years, my household is relieved to have earned income flowing in again. I am personally quite happy, but mainly for the "perverse" reason that I will be paying income taxes again next year.

The big question for financially independent folks who find a way towards earned income again is what should a person do with it ?

My hobbies are relatively cheap. I buy tabletop RPG PDF books and then read I them like a book of Statutes. I have relatively little wants and my household spending is as lean as ever.

My problem is largely solved by the pact I have with my course attendees. I put in slightly more than half my earnings into a leveraged account on a portfolio we jointly co-create together. That still leaves the other half to be spent.

A large part of the remaining amounts is just given to my wife because it increases the quality of life for my household immediately. She has gone crazy hunting for deals online.

One of her most ridiculous coups is a Coffee Capsule machine that was sold by Coffee Bean Tea Leaf on their 22nd Anniversary. This model was supposed to sell at over $300+ but we bought it at $22. After testing it, we loved it so much, we bought another machine for my brother in law.

We have since gone a little crazy during the 11.11 since I am an Amazon Prime member. I've spent over $400 buying stuff from Amazon last week. Even worse, last week there was a rare Moleskine stationery sale where I could get designer stationery at half price, so I did as much Christmas shopping as I could so we don't have to worry about buying gifts later.

One of the problems of adopting a highly disciplined lifestyle but splurging during heavy discount days is that you lack control over how your life will turn out. You basically have to go with the flow and enjoy whatever the stores are discounting at that time.

We only get to upgrade our coffee because we lucked out on a coffee machine. I also got a lot of junk toys, my daughter got silly Operation game with a Finding Nemo theme. My son got a pair of Nerf swords.

If you want something cheap, you don't really have a choice to get what you truly desire. You will need to adapt yourself to whatever you can buy.

Just for fun and to show that I am human, I'm going to talk about what I hopefully will be buying for myself over the next six months :

a) Google Pixel 3 XL

I've been using my OnePlus 2 phone for close to 4 years and even tried to install new batteries about half a year ago, but the phone would still lose a charge after 6 hours and I'm getting quite sick of that. I've been meaning to go back to a pure Google phone for quite a while and this is my chance to do that. Sadly, the Pixel is priced as a flagship product and I expect to pay possibly $1,500 for it. It's probably since I have a habit of using phones for 4-5 years anyway.

b) Creative Super X-Fi Air

There is always a special place in my heart for Creative because I did my engineering internship there and it was one of my first paid engineering gigs ever.

While I'm not really into audio, the idea of adopting sound waves to an image of your ears is really exciting to me. The other reason why I am excited is because I have been introduced to the world of high-end audio by other friends who talk about "auditioning" audio equipment. The potential of getting $15,000 sound at maybe $300-$500 is intriguing and may even lead to a long term position in Creative Technologies.

c) Next Generation Ipad Pro

I am very likely to stick to the Apple ecosystem for my tablet because of Goodreader. I expect to pay through my nose for a 1 TB version because it lets me lug my entire RPG library around.

Of course the prospect of playing Diablo on a tablet is an exciting one.

I will still prioritise developing my human and financial capital over these new shiny toys, so I'm not sure whether I can act on my wants. Ahead of these gadgets is a course on Improvisation and Voice training - since I use my mouth to make money these days, I should be investing to ensure that I get better at it.

The Art of the Good Life #48 : The Secretary's Problem.

I've written about the Secretary's Problem before.

Suppose you are in the look-out for a piece of real estate. Different gurus have a different approach towards buying the house, but the most optimal solution is to first determine when you will need to move into your new house and then spend about 37% of that time looking at homes without committing to any purchase. The purpose of this search phase is to actually get acquainted with the range of properties that are on sale and give you a better idea of your own personal preferences. So if you have 100 days to search for a house, spend 37 days just shopping around without making a commitment.

( 37% being 100% divided by e where e is the natural number at 2.718 )

In practice, you need to be strong-willed to adopt this approach because real estate agents will try to cajole you to make a purchase. You have to hold back and resist an offer until you have a database of houses for sale.

After 37 days is reached, you should have a basic idea of the kind of house you are looking for, so when you view a house after 37 days and you find it is superior to the set of houses you have viewed during that 37 days, you should make a commitment to buy the house.

The Secretary's Problem is designed to minimise regret. It prevents you from being too hasty or overly cautious when you have a search problem.

There are problems with using this heuristic to find something :

Suppose you apply the Secretary's Problem to find a significant other and expect to have 100 dates before settling down with someone. After 37 casual dates, you finally have an idea of what kind of person you are looking for. Even after you find a person that you'd be happy to commit to, she might be also using this heuristic and still in the process of forming her own 37%.

It is also relatively hard to apply this to investing, a good equity screen can easily select the top 10 market leaders in the Singapore Stock Market.

A cursory application may make sense for a beginner. If you want to launch your own portfolio next year, maybe you should spend approximately 4 months reading up on investing and attending classes without committing to a strategy. The problem with doing that is that different trainers are not mutually exclusive to each other. You can launch multiple portfolios and have them fight each other in your arena until you find something that you like the most.

CPF Life Necromancy

We don't really know how long we will live although the projection is currently around 85 years. Of our remaining years, we're not even sure if these years are spent living healthy lives. Quite a decent number of years may be spent in a hospital in a zombie-like state.

So building on the previous articles on 1M65 idea, a question arises as to whether we are confident that we can actually get back that $500,000 that we have so painstakingly saved in our CPF program. 

In my opinion, if you want to get to experience your CPF savings, you need to figure out how CPF Life works.

The best analogy for CPF Life for the fantasy gamer is that it is Necromancy, a Black Art involving channeling the energies of dead people. Annuities channel derive wealth not just from the the underlying bond-like instruments it invests in for the annuity holder but also grants mortality credits from dead annuity holders. The wealth of dead annuity holders are channelled towards the those who are still alive. 

This is why these payouts often exceed that of what you normally get from a bond portfolio. 

a) If you are a confident investor or expect a short life, choose the Basic Plan and keep only the Basic Retirement Sum in your CPF Retirement account.

Even a very naive strategy of buying and holding the STI ETF has yielded annual returns of 6.55% since inception. Bank preference shares and bonds can return north of 4% for retail investors. If you can handle volatility in the markets, it may be better to manage the money yourself.

Another reason is if you expect to live a short life. If you have two or more of the high blood pressure, high cholesterol or diabetes, you are not likely going to enjoy a long life. One way of figuring out whether you will have a long life is to just look at your parents or grandparents. Even being left-handed will give you a lifespan 9 years shorter than a right-handed person. As a diabetic myself, I expect a 15 year reduction compared to most of you readers.

If you belong to this category, then by all means keep the least amount of money in the CPF scheme. The Basic Plan plan reduces the amount of annuities you will buy giving you a lower payout but can maximise the amount of money left for your spouse or kids after you pass on. You should also keep the bare minimum BRS sum in your account which is around $90,500 for those reaching 55 in 2020. The worst case scenario is that your kids migrate and you find a way to follow suit and take out your CPF money.

Of course, if you take this path, you have to look after yourself using your own investments.

[ Note : If you adopt this belief about your lifespan, you should also make sure you buy plenty of term life insurance so your family can "strike lottery" when you pass on. ]

b) If you expect live very long, choose the Escalating Plan and maintain the Full Retirement Sum in CPF.

Some Singaporeans will die before their average life expectancy, but others can outlive the average. If you believe that you will lead a long life, earning mortality credits from the annuity plan is the way to go because you will be sustained by your dead fellow citizens. 

In such a case, keeping the Full Retirement Sum (FRS) and following the Escalating plan is your best bet because payments start smaller but grow over time. If you are not very confident about investing, you can push beyond the FRS so that your monthly payouts would be even larger.

Again, if you are the kind of person who has no health issues even in your early 50s and have parents who lived till a very ripe old age, you might stand a chance to benefit more from your portfolio of life annuities. You will be paid so long as you remain alive. Even if you are in a state of living death like a Lich or a Zombie.

Sadly, we don't really have an idea when we will die. Some of us will luck out, but others may get into an accident and pass on very early in life. 

This is ultimately the biggest problem with CPF Life : It provides options that can only be truly optimised only if we have no illusions of the state of our health, something that most Singaporeans, even those with advanced degrees, are unable to firmly grasp.

It is actually quite cruel to leave this decision making to citizens.

• Can Metformin lengthen a healthy person's lifespan as postulated by Tim Ferriss? 
• Does intermittent fasting help a person live longer? 
• What about early retirement as it reduces exposure to a stressful workplace? 
• How much of health and wellness information is real and not a result of corporate sponsorship or balderdash from MLM companies? 

I suppose health the the domain of an entirely different group of bloggers. 

When the mobile version of Diablo comes out, I expect to play a Necromancer. 

The question is whether it is best to play a Necromancer when you play the game of CPF Life.

The Art of the Good Life #47 : Making Friends with Weirdos.

This is a chapter that resonates with me because I have considered myself as an outcast and weirdo. I grew up playing Dungeons and Dragons which was possibly the geekiest hobby you can have in the 1980s. I also spent the greater part of my life as an Internet Troll on YPAP BBS.

Just last week, I met up with an old secondary school classmate and we large spoke about how alienated and out of touch we were with our classmates.

The chapter concludes that a weirdoes life is not a good one, although they belonged to the group of unreasonable men who made a difference to this world. Galileo supported the heliocentric model of the Solar system but was tried by the Inquisition for his troubles.

The formula for the Good Life according to this chapter is to befriend the weirdoes but do not be seen as one. This way, a person can be one of the first to exploit a paradigm shift and yet would remain chummy with the status quo. It's a little hypocritical, but it is a good way to have the best of both worlds.

Within part of the FIRE community, the BIGScribe Facebook group can be considered the status quo even though we would be weirdoes when you take the view of the average Singaporean.

The two blogs that are canonical for the FIRE community are obviously the blogs written by Kyith Ng of Investment Moats and anything that contains the musings of AK71. This is classic FIRE at its best. Nothing more needs to be said.

But equally important are two "outcast" blogs/bloggers that are often shared in this BIGS group :

Money Maverick

One is the Money Maverick blog which I find highly entertaining because it is written completely supported by commissioned sales interests. I actually treasure its articles of late because it gives me a glimpse of what commissioned sales personnel are thinking and keeps me updated on the products that the industry is peddling to most citizens. While I do not agree with it's logic most of the time, it is at least an attempt to provide a different point of view from the FIRE movement.

Needless to day, whenever Money Maverick appears on BigScribe, it gets a frosty reception from the FIRE fanatics of social media. After some deliberation, I think we're all better off if we encourage Money Maverick moving forward.

I'd rather have something novel to read even though I may not agree with it.

Marcus Neo of Dr Wealth

To be fair, Dr Wealth is generally a mainstream blog that shares decent personal finance articles. But one contributor, specifically Marcus Neo, deserves special mention because he has a gift for polarising readers.

One of my favourite episodes was when Marcus started a shit-storm over whether it was to earn more money or save more money. You don't have to agree with his logic, but it made people passionate about whether folks should buy Starbucks coffee.

My personal wish for the financial blogosphere is for a FIRE troll blog to emerge from our midst. The best guy to do this is a super-successful salesperson or businessman who lives a life completely antithetical to FIRE. He shows off his Lamborgini, Rolex watches, and scoffs at people who buy low expense ETFs. Bonus points if he is short and looks a little like Jho Low.

This kind of blog would be the enemy that our FIRE movement deserves.

 

A gentle critique of Loo Cheng Chuan's 1M65 idea.

Everything I do with my finances is based on my own readings and self-study. I never had a mentor or a Sifu when it came to money. In similar vein, I seldom attend financial talks unless I have to give a talk myself and get to listen to other speakers on that day.

Very recently, one of my ex-NS buddies contacted me after reading about commentary at Channel News Asia and as it turns out, he now works with the Institute of Financial Literacy so he sent me an invite for a free lunch. During that event, I was very fortunate to listen to talk by Loo Cheng Chuan. Perhaps not coincidentally, Loo is also going be featured in Seedly on their next AMA session which can be found here.

On the whole, I enjoyed Loo's presentation. It was logical, and I can relate to him because he spoke candidly about having to cope with the Anti-PAP trolls after he shared his message.

The essence of his message is quite simple : Transfer your CPF-OA to your CPF-SA. Over time, a married couple can accumulate $1,000,000 in their CPF-SA accounts on the 4% interest rate and retire as a millionaire household.

( As a point to note, I myself have maxed out my CPF-SA in my early 30s and can attest to the effectiveness this strategy. The reason why I did that is a humorous anecdote I share with all my workshop attendees. )

a) Is this achievable by an ordinary family ?

The median income of a family is $9,023 per month. 37% of that figure is $3,338.51 or approximately $40,000 a year. Compounding an annual contribution of $40,000 at 4% can allow an account to reach $500,000, or twice the FRS assuming it is $250,000, within 10 years.

Once the CPF-SA is maxed out, CPF-OA returns can be enhanced further with CPF-IS. Putting 35% of your CPF-OA into the STI ETF or the SREIT ETF has a decent probability of achieving 4% in blended returns, so about eight more years of accumulation may be required to reach $1,000,000.

So it is definitely possible for a couple to max out the CPF-OA to CPF-SA over the medium term and attain $1,000,000 over the long term.

Is this achievable before 50 years old ? Very possibly !

b) Why is this not ordinarily done in practice ?

Another point raised by Loo is that this is often not done in practice because we draw out the CPF for many reasons. Most couples use up their CPF-OA to lock into a piece of property. Other couples use it to pay for medical expenses and children's tertiary tuition expenses. So Loo is definitely correct to point out that housing and retirement are trade-offs against each other.

Critique of 1M65

Naturally, even though I approve of most of what Loo shared with us,  I have some concerns over some of the smaller aspects of his ideas.

a) The assurance of millionaire status allows a person to persist through market downturns.

This is a very novel idea, but I'm not sure whether it works in practice.

While I did max out my CPF-SA to its minimum sum early in life, I don't remember having an easy time during all of the recessions. I did survive the 2008 recession and accumulated during that era but I was as unhappy as any other investor.While I was relieved that my CPF-SA could generate 4% during these two years, I persisted mainly because I had data that market downturns eventually end and whoever was left in the markets will be rewarded with an early retirement REGARDLESS WHAT HAPPEN TO CPF.

b) Voluntary Contributions to CPF to max out the CPF-SA earlier may not be optimal use of your money

I felt that a line is crossed when Loo made the suggestion to voluntarily contribute to CPF using his hard earned money. Initially, I liked that this can reduce income taxes, but I question whether in the grander scheme of things, a 4% guaranteed return is such a big deal.

If you are money unsavvy Millenial, 4% looks like a steal compared to what you can get from an endowment fund or deposit account like DBS multiplier. But for most savvy investors, 4% is chump change. Also note that from 2008 - 2012, based on government surveys, retiree households face an inflation above 5% and I am eagerly waiting for 2018 figures to see if this persists.

Getting 4% with a decent probability is child's play if you are willing to guy direct from SGX. Astrea IV Bonds yield more than 4%. Ditto for banking preference shares. Long term returns for the STI ETF is in the region of 6-7%. The CPF is a long term investment and over the long term, it is way better to be fully invested in equities.

c) This hinges on whether the CPF policy remains constant.

Over the short term, I can safely say that we have a stable government. But over the long term, it may be too much to expect CPF policy to remain stable. This may not be a fair expectation in any society.

What happens when the CPF-SA returns get pegged to 1% above 10 year bonds ? This will result in an instant drop in returns.

And what happens if a future government delays CPF Life payouts to 70 years old ?

Nothing under the CPF program is guaranteed for citizens by the Constitution.

d) Even if you do this, you are at best a faux millionaire.

Can you consider yourself a real millionaire if your assets are stuck in CPF Life and the only way to extract the entire set of benefits is to literally outlive your fellow Singaporeans ?

This is the fundamental feature of annuities. Folks who die early end up contributing their assets to support those folks who are left alive. A large CPF Life allocation merely guarantees that you are making other Singaporeans who live longer than you richer.

The real CPF SA millionaire is a long lived Singaporean. I think that is critically missing from Loo's presentation is the importance of staying healthy to beat the actuarial assumptions of those who designed CPF Life.

I have made several controversial suggestions in the past on this blog, like taking Metformin and getting into a regime of intermittent fasting as it has worked to extend the life of laboratory animals and choosing escalating premiums to beat the actuarial tables designed by the CPF folks.

( Note : My suggestion has been shot down by a close relative who is a medical doctor who does not believe that Metformin can extend a healthy person's lifespan. )

On balance, I think Loo Cheng Chuan is the real deal, and I encourage you guys to engage him for his next public appearance.

The Investment Book of 5 Rings

One of the my favourite RPGs of the moment is Legend of the 5 Rings and one of the really cool design elements of the game is that it deviates from Western themed RPGs by not using the typical character attributes like Strength, Intelligence.

Instead your attributes are based on the 5 Rings of Air, Earth, Fire, Water and Void.

The elements are used to resolve dice rolls when you adopt a stance in combat or an approach to solve a problem. As it turns out, this is a pretty useful system to think about investing.

We all have some kind of emphasis and weaknesses when it comes to investing. Sometimes this can come in the form of being particularly strong in an element.

People with the gift of Fire are passionate and inventive but folks endowed with Earth are emotional stable and calm.

Let's run through this 5 element system and adapt this to field of investing.

a) Air

Air is the element of subtlety and precision. We tap into Ring of Air to refine something.

When it comes to investing, Air determines your analytical skill and how deeply you can go into investment research. A person strong in Air can read the footnotes of a balance sheet and determine whether his investment thesis is likely to achieve fruition. Those strong in the Ring of Air know the key attributes of management and how each company department will generate revenue in the next quarter.

Too little Air and your understanding of your investments would be shallow. Too much Air and you will be paralysed by your analysis and would not be able to build a diversified portfolio to meet your needs.

b) Fire

Fire is the element of passion and invention. We tap into the Ring of Fire when we want to form an investment hypothesis.

When it comes to investing, Fire determines how inventive you are. Perhaps cryptocurrencies are correlated with Gold. Fire allows you to make a clear guess on something that is not obvious to others.

Fire is also the element for leverage. Use leverage properly and it can speed up your journey towards financial independence. Use it wrongly and it will spell your financial demise.

c) Earth

Earth is the element of stability and restoration. We tap into the Ring of Earth when we want to defend from bad consequences.

When it comes to hedging, Earth is the element of the historical understanding of financial events. It covers the use of bonds, dividends, insurance and various hedging tools to reduce the volatility of the portfolio.

Too little Earth and you will not have a great sleep at night as your portfolio is rocked by volatility. Too much Earth and inflation will sap your investment returns.

d) Water

Water is the element of adaptation and change. We tap into the Ring of Water to understand present trends and transform our portfolio to meet them.

Water governs the importance of asset allocation and thematic investing. Understanding and reacting to market cycles is governed by the Ring of Water.

To little Water and your portfolio becomes resistant to change, locking you into too much equities in a recession. Too much Water and you lose out to brokerage expenses.

e) Void

The Ring of the Void is about nothing and everything. It is the Ring of meditation.

The Ring of Void governs financial mathematics and the raw theories of economics and finance. At the personal level, the Rung of Void determines how much you can link up your personal happiness with your material wealth. What personal sacrifices you will need to make to attain your target wealth is governed by the Ring of the Void.

Too little Void and your money becomes meaningless to you as you are unable to appreciate your financial achievements. Too much Void and you find yourself motivated by the importance of money but did not put any emphasis on how to actually achieve it.

One useful way of employing this framework is to think about approach to investing based on these five elements.

My approach is has a stronger Ring of Earth, Fire and Void. Earth comes from my emphasis of keeping a portfolio volatility as low as possible and my love for dividends. Fire comes from my new found confidence in my leveraged portfolio. Void covers my willingness to embrace financial theory and tie it my existential needs.

I am weak in Air and Water. I eschew financial statements and have no time for deeper analysis, preferring to read the research reports from others. I am also not very good at assessing the skill and integrity of managers. As for Water, I tend to stick to an equity portfolio even in bad times an experience a decent amount of pain during a recession.

Therefore, my investment journey would be greatly improved if I can improve my Rings of Air and Water.

Try this exercise to figure out your own approach towards investing.