Failing to spend is DEFINITELY NOT spending to fail.

The holiday season is a time to spend more money, but this holiday season my spending was a little impaired.

I was supposed to spend money on some gadgets but was somehow thwarted.

a) Creative Air SFXI

The Creative Air was supposed to be released before before 2019, but it never did. Creative instead released a non-bluetooth version called Create SFXI Air C for gamers that failed to excite me. In fact, I got buyer's remorse and cancelled my order forfeiting $20 my trouble.

Instead of buying the headphones, I went to the Popular Bookfest to test drive the system. The system performed as promised, converting a stream of sound into something that seemed like it came from multiple directions. There was a major problem with the test drive. The headphone is a $800 EMU Teak headphone that already sounded awesome even without the enhancements.

This reminded me of the those HMV days when you buy CDs by listening them to a first class sound system at the Heeren only to be sorely disappointed when you play the CD at home from your craptacular sound systems.

b) Pixel 3 XL phone

Prior to buying a Pixel 3 XL, I decided to wreck my 4-year old One Plus 2 phone by rooting it and performing horrible experiments on it until it possibly  died. So I decided to teach myself phone rooting by watching Youtube videos.

I ended up with a super phone that ran Android Pie that can last an entire day on one charge.

With a "new" phone I can postpone my Pixel 3 purchase for possibly one more year. Hopefully by then, the Pixel 4 phone would be out.

c) Ipad Pro

A new iPad Pro can give me a capacity of up to 1 Tb in size. Even I was tempted by the offer, the Apple ecosystem has become too expensive for normal users and it is time for me to leave this ecosystem completely.

It might be some time before Android tablets can offer 12 inches of screen size with 1 Tb of space. My current first generation iPad Pro should last long enough until that happens.

But, in the end,  my most significant purchase is this :

d) Mentimeter subscription for 1 year. 

I learnt about this software service when I attended  a close friend's wedding when I saw a program that could launch multiple choice questions and create real-time word clouds to excite and engage an audience. Mentimeter immediately made me feel a little insecure when I learnt that some MNCs have moved into this class of SaaS tools to engage employees better during in-house presentations.

My biggest fear has always been losing touch with all these small productivity tools after leaving the workforce, so I promised myself to restructure my training sessions with these latest tools.

Combined with a little bit of understanding of psychology and financial knowledge, Mentimeter becomes super effective tool effectively making Powerpoint an artifact of a bygone era. I have already created pages that allow an asset allocation of a portfolio to be jointly built by a crowd of investors. I have also built a simple tool to figure out the MBTI personality of a crowd.

My first trial run of Mentimeter would be this coming 3rd January 2019 when I will be polling the audience on their work lives and attitudes towards personal finance. This is going to be extremely cool because I don't have a lot of control during the outcome.

Generally, my talks fill out within moments, but readers who fail to get tickets can write to me privately at waichung.ng@gmail.com for a seat.

In the end I did spend more this holiday season because I bought a new bookshelf and populating it with the newer deluxe D&D books I picked up from the game-shop.

The Problem of Financial Knowledge

Here's a better depiction of the Financial Knowledge stack I proposed last week after reading an article on Psychology today. Based on this diagram, I think I am better able to appreciate how much a person needs to know in order to put his financial house in order.

Let's first talk about the problem at each part :

a) We are not adequately trained at the theoretical level to address financial problems.

At the top-most layer of the FK stack, we have to deal with theoretical knowledge that comes from different disciplines. This can be diverse as the use of partial differential equations to derive the Black-Scholes model as well as legal knowledge on the structure of a business trust. This means that unless you spend years in school studying finance, you probably have holes in your knowledge to make financial decisions.

b) Market Knowledge is unwittingly outsourced to folks who do not have your best interests in mind.

At the middle layer is where the biggest problem are. The financial markets are so dynamic that teaching it in an academic environment would not be productive as the information would be worthless when you finally get out of school. Investment strategies come and go out of style, so even if somebody were to conduct studies on something, it may well be invalidated when there is a change in the position of the market cycle. It is also more profitable to keep some investing secrets to yourself.

Enter various entities in the finance and insurance industry. These institutions have the resources to fill the void - provided that the education you received would make you more susceptible to their marketing messages. This is why a lot of members in the investing public is stuck thinking that 3% returns is acceptable even when they may end up paying 3% in management fees.

[ You should note that, as a trainer, I mostly operate on this level too, but I get paid upfront to teach the material and no further commissions are made on trades. ]

c) Personal knowledge remains...well... personal.

In an ideal world, everybody making an investment decision would know their risk appetite and personality. However, people are often blind to their own biases even though the duty really falls upon them to know their personal circumstances and what they really want in an investment plan.

There is a lot of exploitation at this level as well. Sales professionals want to influence your propensity towards risk. A person who sells forex trading plans obviously want you to lean towards more risk-taking, the insurance salesperson wants to share plenty of horror stories to scare you into transferring your risks to the companies they are tied to.

Finally, the academic circles do not seem to have some sort of model to unify financial risk taking with standard academic models of personality. Even if this daunting task succeeds, some care needs to be taken to integrate the actual financial situation of a person for this to work properly. 

Right now financial institutions prefer to use "astrological signs" to determine what kind of investing style suits you best. One novel approach ( I joke about in private to other bloggers ) of late involves identifying what kind of animal you are to determine your investing personality.

d) Actionable Financial Knowledge is like Drilling for Oil.

The best analogy I can come up with right now is that acting on financial knowledge is like oil drilling.

We start out with some academic grounding in maths, accounting, economics and law when you are fresh from university. We also have some idea about what kind of risk appetite we have, how disciplined we can be and possibly what kind of life we want in order to feel satisfied with ourselves.

So the drill bit comes from the top and the oil resides at the bottom.

Unfortunately, most of us have to navigate through the rocks at the middle layer to reach the oil at the bottom. This means learning about the broad categories of assets we can buy, what kind of performance to expect, as well the risks of purchasing a security. Most importantly, how to get an account is opened and the kinds of orders we can issue to the stock market.

e) Financial Literature for Beginners

As I operate primary at the middle level, it is imperative that potential students of my class can have a reading list so as to benefit the most from my lessons.

For broad theoretical knowledge, I am glad to say that Wiley and Sons have recently launched The Conceptual Foundations of Investing. I have this on my Kindle but have yet to fully digest it so any feedback is welcome.

At the personal level, I have always recommended George Clason's The Richest Man in Babylon. It is motivating and lacks the MLM bullshit found in other popular finance books.

At the middle layers, there are multiple books covering the US markets but do not do an adequate job of covering our local stock-market. A Random Walk Down Wall-Street by Burton Malkiel and The Intelligent Investor by Benjamin Graham are useful references to cover this middle layer fo the FK stack.

( The fact that this layer is not covered adequately is the reason why I can operate as a financial trainer. This is also the reason why coaching someone financially is so lucrative. )

Expectations for my 44th year.

Ok, with my birthday celebrations with my family over and the presents all opened, the next step would be to start thinking about what I hope to achieve next year. There are some complications with goal setting this time round, but these might be good problems to have :

a) Learning Goals.

My learning goals are complicated by the fact that next resolutions were met before 2018 ended. Flush with some earned income, I was able to attend one Improv class and a 2 hour primer on looking after my voice.

The Improv class was fun and possibly more useful for my D&D game sessions but it does not really have synergies with my new training career. I told some friends who were interested that I would join them for subsequent classes but only for social reasons.

Voice acting probably made much more sense for me right now given that I make money with my voice so much. The investment is non-trivial though and I've narrowed down my choices to two instructors.

Becoming more persuasive is likely to play a major role in 2019. I have started reading Robert Cialdini's Pre-suation seriously with a view of directly refining my sales message.

b) Investing Goals

Investing will not play a major role at least in the first half of 2019. I expect to go on heavily on the defensive and expect my portfolio losses to be 30% of the losses faced by the DOW. Beyond the bespoke portfolio built in my ERM Masterclass, I expect to go heavy on investments like Netlink Trust, Keppel Infrastructure Trust and, very possibly a very much diminished APTV Trust.

Maybe in 2H 2019, things will start to turnaround.

At this stage everything turns on having a successful career and earned income to do some bottom fishing in the next 6 months.

c) Career Goals

The price to pay for being a trainer is that I no longer have a predictable income. I will need to continually improve my materials to reach the highest earned income ever in 2019. This is going to be one of the hardest goals I ever set in my life because I can't even foresee how I am able to meet it even tough I can somehow smell this coming into 2019.

Another difficult objective i need to meet is to find another course to teach, likely legal in nature so that it can complement my financial courses. This makes it imperative that I find a smaller law firm to hang my coat and possibly do some legal practice on a locum basis. Right now, I don't even know where to start, if you are a lawyer friend reading this and know of a law firm that can accept a legal professional who can practice on a locum basis let me know - I do expect that my pipeline of contacts who need legal support should expand significantly so that I can do some rain-making work and bring revenue to a law firm. What I cannot do, however,  is to be stuck in a legal office and do work on-demand by my firm.

d) No easy way

As a collective I am definitely more confident of meeting my learning and investing goals than my career goals. I am entering this strange territory of having a portfolio-based career, finding the most efficient use of my time based on who needs the work the most.

One major positive complication is that at the back of my head, I believe that I have a financial course targetted at Milllenials that contain material not covered by anyone before. This is something I will build into a short 30 minute presentation that will be launched with Seedly in March 2019. A lot depends thereafter on whether Milllenials are willing to give me enough feedback to turn it into a compelling course for folks in their 20s and 30s.

Powering all this is, of course, my passive income that generates a level of predictability for my family. This allows me to go on long periods of time without pay allowing me to work long lengths of time for a satisfying pay-off.

My 43rd year in retrospect.

Since I will be celebrating my 44th birthday tomorrow, it is about the time to check-out what I have set out to do in 2018 and see whether I succeeded in 2018.

a) It turns out that predicting the market is a Fool's Game.

Although 2018 has been quite a good year for me, it was quite humbling to see how badly my predictions went. I thought the markets would go up by around 0-5% in 2018 but it dropped by over 10% much to the consternation of everyone in the blogosphere. Even worse, my prediction for crypto-currencies to go up after a massive downward movement turned out to be totally false. My only saving grace was reading Barclays bank's bearish prediction for crypto-currency markets and then sticking to the idea that Cryptocurrency markets will never have another spike in the foreseeable future. At least that has held true right up till today.

I will carry on to predict the markets for 2019, just to see how bad that prediction will turn out by 2020.

b) Upheaval in my personal career turned out to be better than I thought.

If my prediction of the markets turned out to be bad, my prediction for my own career was even worse !

At the beginning of the year, I basically had two plans : either do IT Governance or Law. I ended up doing neither. As it turns out, by mid-2018 both options would have resulted in a massive pay-cut of at least 30% from my peak earning power prior to law school and it would have taken up 12 hours of my time everyday.

I thought that by becoming a trainer, I would have only given me some kind of allowance to give myself just a small allowance to supplement my passive income. Perhaps after a workshop or two, I would need some kind of plan B. I would never have guessed that I was able to ramp up on my game to earn at least the equivalent of previous IT life during the last 3 months of 2018.

More importantly, taking this extreme detour has given me some hope that I might be able to achieve my highest income ever in 2019. And that's doing something I am really passionate about in relation to the financial markets.

c) Leverage account still too raw to start offsetting mortgage payments.

2018 should have been the year that my margin account could start to offset the full amount of my home mortgage. I got close by the end of year, but unfortunately, the downtrending markets will make this only a reality next year.

The higher interest rates have increased my mortgage and margin financing payments. I have determined that it would be wiser to spend 2019 attaining this goal instead, while keeping my margin ratio at a more reasonable number. Fortunately, my CPF can sustain two more years of mortgage payments.

As I have both passive and earned income sources, I can now go for lower and safer yields so I have been targeting the more defensive counters in anticipation for the trade war to get worse. This will be reflected in the co-created portfolios I create and subsequently invest in for my ERM Masterclass.

d) Wrong but happy in 2018

So there we have it for my 43rd year.

• My market predictions turned out all wrong. 
• My career careened off the predictable track. And I ended up doing neither IT nor Law.
• Even my margin account did not manage to confidently offset my mortgage payment by the time the year ended. 

This should have been a dismal year. But strangely enough,  I ended 2018 much happier and in a stronger financial position. I guess life is sort of random that way - I've had years where I met every goal and I was unhappy as hell.

By conducting a class on Early Retirement, I am starting to meet a whole new group of people, who like myself, may have experienced rejection in the corporate world. Many of my students share my passion for Finance and have the same determination to overcome the Death of the Singaporean Dream. 

I am also growing in areas that I was unable to develop before, having just attended Improv and Voice classes to see if I can improve my engagement with my students. At my age, I need to constantly find a new fields to get into or old age will catch up on my quite quickly. 

Finally, if the market really goes south in 2019, I can repeat the feat I sustained in 2007-2009, scoop up all the bargains by using my supercharged income and leading a frugal lifestyle. 

I will be 44 tomorrow. 

Half of my life has already been spent.

My second act has begun.

Predictions and goals for 2019 will be up sometime on New Year's Eve.

Merry Christmas Everyone !

On BDSM, SG Gov Bonus and Bursa Malaysia.

Do you know what financial bloggers talk about when invited to a casual meal by a broker ?

BDSM, of course !

BDSM is not too different from investing. In investing there are TA investors, FA investors, Quants and crazy folks who buy anything based on what their broker say. We found out that BDSM is equally diverse - you can be a Dominant, Submissive, Switch or Curious.

Financial bloggers also teased me about my affinity for Malaysia. This holiday, everyone is sharing about their wonderful holidays in Hokkaido, New Zealand or Prague.

Unlike all the beautiful people on social media, I did not take the high road.

In fact, I spent so much time in Kulai eating beef noodles, the financial bloggers proposed that I adopt a BDSM nick with the word "Kulai" in it, like "KulaiBeast666".

Tomorrow I will begin my third journey to Malaysia this holidays to finally use up my SG GOV bonus. So far,  I have about $150 MYR left after two trips. The plan is to meet up with my kids in Kulai and then journey with my in-laws in KL. Over in KL, I will split from from the main party and take a few relatives on my mum's side for a meal or two. I was hoping to visit a 24-hour bookstore in Cyberjaya to see if they have a credible finance book section.

On a more serious note, I was able to backtest to see whether if some valuation factors translate to Bursa Malaysia because my brother in law asked me to figure out how a Malaysian portfolio would look like if I were to buy stocks in Bursa Malaysia.

( Take this section of the article with a pinch of salt because I have no interest in taking on Malaysia's political risk right now. )

Investing in all 942 counters in Bursa Malaysia in equal shares, a 15 year backtest with annual rebalancing would result in fairly good returns. You will get about 8.56% with a downside risk or semi-variance of 12.51%.

Suppose you are a yield pig and want a similar portfolio in Malaysia. You then invest in the top 30 dividend counters in Malaysia. My backtests show that the Malaysian markets will punish this behavior - your returns would drop to 6.93% with an increased semi-variance of 18.02%.

Clearly it does not pay to be yield pig in Malaysia. Apparently, they have their own APTV-like stocks within their own markets.

In BDSM, there is a concept of the "safe word". This is word use you to stop being punished in a BDSM activity. We discovered that safe word SG BDSMers use is "Yellow"

In dividends investing, the safe word is "FreeCashFlow". If you do not want to be punished for picking high dividend Malaysian stocks, you need to select counters where Free Cash Flow exceeds Dividends issued.

Once we filter out for companies that give out dividends that are bounded by their free cash flow, we end up with only about 200+ counters. Taking the top 10 dividend yielding stocks, we get a much nicer return at 16.11% with a semivariance of 13.45%.

It is good to know that a good quantitative methodology translates across national borders.

I'm sharing a screen shot of the 10 counters not to encourage anyone to buy them since I do not have Malaysian brokerage account myself.

I would like to encourage Malaysian investors and gurus to comment on this this list.

Let me know whether these are shit stocks.

This blog will take a short break and we will continue during the Christmas holiday season.

The Financial Knowledge Stack

I came across a very interesting article on financial knowledge from Psychology Today which made me think deeper about the financial knowledge that is required to make good financial decisions. For those who might be curious, you can access the article here.

The author created an epistemology for financial knowledge and created six categories of financial know-how. The moment I read this article I had this eureka moment about about the kinds of the financial knowledge that is out there.

To me the closest analogy to financial knowledge is the TCP/IP stack that underlies all Internet-working traffic. Financial knowledge comes in layers.

At its most basic level, we need to have the statistical and mathematical tools to understand how money works. This broad theoretical level of knowledge would cover concepts like compound interest and net present value discounting that is taught in many classes. But clearly operating at this level is not enough.

At the second layer is category level information - information about various asset classes and what their properties are. Information like general returns of equities and how business owners are prioritised compared to debt owners in an insolvency event belong to this broad category. If you know that generally speaking, stocks provide better returns belong to this layer of information.

At the third layer is where you learn about specific investment options. At this level, you know that buying some ETFs in SGX can provide a diversified exposure to global equities. You will also know that a diversified commodities ETF does not exist in SGX. It is also at this level that become aware that stocks like SPH gives you exposure to a media monopoly.

At layer four is where you learn about procedural matters when it comes to investing. How do you open a CDP account ? How does a margin account work ? How to you execute a limit order trade ? Education at this level is best done by an individual broker.

At layer five is what I would consider the harder aspects of your investment capability. At this level, you need to be intimately familiar with how much you can earn a month, how much you can save and whether you might qualify to be an Accredited Investor status. This is the level of knowledge where you determine your ability to maintain a proper budget.

At layer six is where you learn about the softer aspects of your investment personality. What does retirement look like to you ? What values do you attach to money ? What is your personal risk appetite. At this level, you ask really personal questions as to whether can money make you happy.

At the lower levels, the human population would be bound by the same rules of finance. The Rule of 72 is consistent no matter who you are. But as we move towards higher levels, the knowledge you gain becomes much more personal and training takes on a bespoke quality.

I think this model is useful for someone who aspires to be a good trainer for financial concepts. Creating a program that covers all six levels of financial knowledge is a difficult because, at the higher levels, it is really up to the individual to determine what they want out of their financial decisions - this may not be in alignment with an individual trainer.

We should also be clear about which layer we are operating at.

In the last blog post, I looked at the issue of what a good REIT sponsor is.

At the surface level, it really looks like a level 3 problem because a good REIT sponsor looks initially like an objective exercise that can be gleaned from reviewing balance sheet numbers. But after a round of discussion, the question of whether a a REIT sponsor is a "good" one may be a function of the investor's personality - a REIT sponsor is good because the investor feels comfortable investing in the REIT.

The next time someone spouts a truism in value investing, you might want to take a step back to review whether what to look out for is something that can be objective determined and can be universally agreed upon, this is knowledge that operates on layer 3. Question the person further and you might even come to the conclusion that value investor is operating at layer 6 - subconsciously making a decision that is ultimately based on their own personality and feelings towards a particular counter.

But don't look down at Layer 6 - George Soros is known to develop some kind of back pain before knowing that a position may turn out a wrong way and is able to develop a sixth sense of an inflection points in financial markets. 

Ultimately, it is hard not to operate on multiple layers at the same time when making financial decisions.

Should you buy REITs based on a "Good" Sponsor ?

This started because a student felt uncomfortable with the portfolio of REITs selected by one of my better REIT screeners. He examined the list of REITs proposed by the stock screener and said that my portfolio contained REITs with "weak" sponsors. Separately I've been told on other occasions that investors should simply invest in REITs with good sponsors. Of course, these conversations seldom delve into how to actually determine what a good REIT sponsor is.

I've always felt uneasy about investment strategies like this - an intellectually dishonest investor can simply define a REIT sponsor as a good one if the REIT has performed well historically, otherwise the REIT sponsor cannot possibly be a good one. This is tautological reasoning and useless to serious investors.

So yesterday, I went back to the library during my break to get this out of my chest once and for all.

For the purposes of the rest of the experiment, my baseline is an equal weighted portfolio of Singapore REITs. Buying this and rebalancing every year would have resulted in 10.51% annual returns. The downside risk or semi-variance is a modest 13.09%. Experiment was performed 14 Dec 2018.

I made a decision that my proxy for "good" REIT sponsor is larger market capitalisation. I admit that this may not be the best way to conduct the experiment because my backtesting tools do not have a filter for sponsor.

So bear with me for this, for I have reason to believe that my proxy be valid.

Suppose you filter out the top 10 REITs in terms of market capitalisation would get a list that looks like this:

I can only convince you that the list of largest ten REITs should generally have what most retail investors would subjectively consider as "good" sponsors. They do seem to have more prestigious names.

But let us also look instead at the smallest ten REITs :

This list very likely contains REITS that have sponsors which may be less prestigious ( at least based on the subjective opinions of most retail investors ).

So, I backtested two strategies : The first strategy invests in the top 10 largest REITS on SGX for 12 years rebalancing every year. The second strategy invests in the top 10 smallest REITS on SGX for 12 years rebalancing every year.

Investing in the largest ten REITS would result in superior returns compared to the baseline. Returns are 11.42% and a semi-variance of 14.30%. Perhaps a smaller subset of stocks resulted in a higher volatility.  This modestly superior performance may be the reason why so many people believe that a superior strategy can be had by picking superior sponsors.

But investing in the smallest ten REITs also resulted in superior performance. In fact it was tad higher than the first strategy at 11.43%. The counter-intuitive result comes from a lower downside risk - semi-variance was 12.77%. Investing in smaller REITs would have resulted in higher returns and lower downside risk compared to buying all REITs in the stock market.

I think these results cast doubt on the hypothesis that investors should choose "better" REIT sponsors.

Instead I propose the following hypothesis about the REITs market in Singapore - most investors gravitate towards REITs with better sponsors so much so that they become more expensive, resulting in performance that is actually sub par compared to REITs with sponsor who are less prestigious.

Investors who actually follow the crowd and pick the "better-run" REITs are not just handicapped based on returns, they end up with a more volatile portfolio.

As always I am open-minded to any counter-arguments because I am constantly second guessing my own approach towards investing in REITs.

Let me know what you think.

The Art of the Good Life #52 : Inner success

You can achieve inner success by concentrating on what you can control and influence and ignoring anything that we can't. Essentially it means controlling our inputs and not our outputs. If you can do this consistently, you can attain ataraxia - tranquility of the soul. External events that are out of control cannot really affect your inner state of being.

This I can accept.

The entire basis of FIRE and FU Money is to employ an unnaturally high savings rate at the present so that one can be inured to events like illness and retrenchment in the future. Dividends investing through rigorous savings is the financial manifestation of Stoic philosophy.

The harder component of this chapter focuses on eschewing external gains and going straight to inner satisfaction.

This, I can say that I currently lack the maturity to practice in my life.

I get my internal satisfaction from external validation. I always felt that without an external validation of your success, you may as well be masturbating yourself to a personal state of ecstasy and personal smugness. It is also very easy to fall into state where you set yourself low standards in your life.

Nothing pisses me off more than people who make claims about wanting to achieve something and then, after that, finding an excuse to explain why the price of success was not paid - hours not spent refining a product or executing a personal project.  I think when someone does this, it is a terrible waste of psychic energy of your friends. This cannot go unpunished - a personal promise, even to oneself, has to be rigorous enforced by friends.

Otherwise, you devalue your closest friends because we are the average of the closest people around us.

So just like that, we've come to the end of our year long journey. It has been great fun nibbling this book chapter by chapter for the past one year. It has been very beneficial summarising these mental models on this blog. The not so good side effect is that it has made me brutally assess the quality of my own life and I am now very sure that I lack the wisdom  and maturity to truly live a Good Life.

Maybe I will be wiser with the passing of more time and see the benefits of attaining ataraxia without external validation.

Next week we will be moving onto a new book.

The Art of the Good Life #51 : In Praise of Modesty

To have a good life, you need to be modest. This chapter provides three reasons to do so.

The first reason is that Self-Importance is very tiring because you need to broadcast to the world how awesome you are 24x7. Influencers have to do it. Over the years, the successful financial bloggers we see today ar those who can attract as many eye-balls as they can.

The second reason is self-serving bias. I don't really like the example in the book because it says that self-importance causes some investors to buy sexy companies that improve their self image. I largely disagree because I think even the loudest investors would avoid glamorous stocks because returns on investment is a better long-term way of signalling self-importance.

The last reason is that having a big ego attract enemies. This largely supports my own observations during my legal training.

While I have no problems projecting my sometimes oversized ego, modesty is out of the question for folks who are trainers. If I even project any modesty and play down my achievements, not only would it affect my bottom-line, it would have an impact of the earnings of my business partners who have mouths to feed. This is a natural consequence of our attention driven economy.

Naturally, I have no issues with this because I actually believe that the quality of my life will be much poorer if I have to keep my achievements to myself all the time. I'm just surrounded by assholes who talk about wanting to achieve something and not getting much done almost all of the time. I think a big ego makes failure more painful and pushes a person to deliver on what he says. Otherwise, it's just someone making a lot of bold projections and not following up on them.

So how does this blog try to get ego out of the picture so that other angry Type A people would not come after me with torches and pitch-forks ?

Simple - science the shit out of every assertion you make. Research papers and government statistics give credibility to everything a trainer is saying. So when other high ego guys in the blogosphere wants to disagree, make sure that they have the numbers and studies to prove their assertions.

Sorry, making a rambling post just won't cut it. If you can explain your case properly in good English, as a fellow investors I will  examine your criticisms carefully so that I can improve the composition of my own portfolio.

How did you spend your SG Bonus ?

A number of friends on FB were upset to know that $300 arrived in my bank account this week because of SG Bonus 2018. I got $300 because I was still a student and Part B candidate in 2017. Regardless of how you feel about investors maxing out the SG government bonus, many of us dividends investors already have $300 extra in the bank.

I took one step further than many guys who got $300. I converted it to $906 Malaysian Ringgit and spent a day in Johor Bahru. My relatives put me up in a nice Bed and Breakfast at Replacement Cafe.

While $300 would possibly disappear within a day of Christmas shopping in Orchard Road, I only spent about a fifth of my SG Bonus in JB. I will be back to attack Malaysia with my SG Bonus next week when I start the Kulai leg of trip.

While we are on the topic of spending our hard-earned money outside Singapore, I should also share the results the my class exercise on emigration.

As part of my Early Retirement Masterclass, I make the class crowdsource data and estimate how much they would need to retire in that country. This exercise helps to reinforce some of the key lessons in Day 1 so please do not see this as a definitive guide on emigration. Each individual country may also have very stringent criteria on allowing a foreigner to settle permanently there and this was not discussed as part of my lessons.

This time round, I ensured that the class extract expenses information based on expats expenditures and not the expenditure of locals. This is because you can't expect a Singaporean who emigrates to Indonesia to settle down as a padi farmer.

The class came up with the following data :

	Hong Kong	Indonesia	Portugal	Taiwan
Median Income / Monthly	$10,000	$3,700	$2,345	$2,334
Expat Cost of Living	$6,200	$1,700	$2,000	$2,038
Portfolio size to retire with expat living expenses	$1,860,000	$510,000	$600,000	$611,400
GDP Growth	2.90%	5.20%	2.70%	2.70%
Inflation	2.40%	3.20%	1.47%	1.20%
Unemployment	2.80%	5%	6.80%	3.70%
Business Cycle	Contracting	Contracting	Expansion	Contracting
P/E Approach	11.59	12.735	10.2	14.5
Asset Allocation Plan (E/B)	70:30	50:50	90:10	70:30:00
Proxy Stocks in SGX	HPH Trust, Fortune REIT, Hong Kong Land	Lippo Mall, First REIT, Wilmar, Golden Agri, Indo Food	Cromwell REIT, IREIT	APTV, UMS, Micromechanics, Global Testing
Proxy ETF	Lyxor HK ETF	Lyxor Indonesian ETF	Lyxor EMEA	XT MCSI Taiwan

The time the class was very conservative and decided on a larger fixed income portfolio due to the fears of a trade war.

At the end of the exercise, the class voted overwhelmingly to move to Taiwan, impressed by it's low cost of living for expats and it's cultural proximity to the Chinese population in Singapore.

I think there was still some bias in this set of results because prior to this exercise, I made the class discuss the possible implications of China's brain drain of Taiwanese workforce and what would happen to Singapore if Taiwan opens up their economy to South East Asians.

The student will now get to suggest the countries that my third Batch would investigate as part of the exercise in Day 1.

The problem of Financial Pornography

You encounter quite a bit of financial pornography once you are engaged with folks in the fund management industry. Imagine how hard it would be to peddle funds that return 7% a year. I can imagine the pressure for folks in the financial industry to tout returns north of 20%.

I do my level best to avoid engaging in financial pornography but it's not as easy as it sounds once you start to conduct some investment training of your own.

In my latest class, one of my strategies "unfortunately" backtested 21% returns with a semi-variance of 10%. In this same period if you bought every stock in Singapore in equal proportions you would have only made about 8% with a higher semi-variance of around 12%.  

If I present these numbers to the public, it is pretty reasonable to say that given that the backtest covered the recovery from 2007-2009, returns moving forward may, perhaps, not be as fantastic as the tests indicate. 

This is how, I think, a reasonable trainer should present his results. 

The problem arises when you also teach leverage in the same course.

With an equity multiplier of 2 and lending fees of 3%, you may be looking at returns of 21 x 2 - 3 or 39% a year. If you put $30,000 a year into this leverage portfolio and assume the same historical returns, you will have close half a million within 6 years. Enough for a single person to generate dividends to cover basic expenses at the end of the period.

It does not take a genius to figure out that the strategy on hindsight, could have made someone fabulously rich within a ridiculously short period of time, so I have some kind of ethical dilemma in my hands - the last thing I want is to over-excite my own students.

I don't think my solution to resolve this ethical dilemma is the best one. You can't avoid the truth once you learn a bit of simple mathematics and do some basic sums of your own.

This is how I resolve the problem :

I have to manage the expectations of my students and have them realise that money making is not as easy as just deploying a quantitative model and then leveraging it. 

Instead of using these backtested models, I get the students to focus on dividend yields. In this case, my portfolio has a forward yield estimate of  a relatively conservative 7.31%. Leveraged, it returns 7.31% x 2 - 3% or 11.62%. High but definitely not pornographic material but still plenty of good stuff to look forward to. 

Using this lower number, a consistent $30,000 contribution will still allow someone to have close to half a million within decade.

This is possibly the reason why I am so eager to invest in the portfolio my class has built. At the back of my head, once I considered all the risks, it is a pretty solid selection of counters such that even without even accounting for capital gains, I would sitting pretty on gains in the future. 

While quantitative investors do not really abide by the "margin of safety" principle, by assuming dividend yields to be the only returns for this portfolio, I am, in essence, doing my best to limit the downside of this portfolio.

Just completed a full house Retirement MasterClass

I think the best way to learn about investing and finance is not to attend my Early Retirement Masterclass.

The best wat to learn about personal finance and early retirement is to teach my Early Retirement Masterclass. As such, beyond the financial aspect of being a trainer, I can say very frankly that I probably learnt the most from my students.

This time, I had a full-house with 50 pax. The thing about having a large class is that it is actually easier to project your energy when class is going on, but for some strange reason the tiredness kicks in much harder when the class ends. For now, I think that the reason is because I stopped coffee on the course day itself and was going through some withdrawal syndrome. I am writing this blog article because I just had two cups of coffee!

This class is slightly different from Batch 1. Batch 1 has CFAs, wealth managers and even a government regulator.

As I start to refine my marketing message, I realise two things about the kind of folks I am attracting to sign up for my course. A large number of students are engineers like me with many coming from the IT industry. I'm not sure whether this is a good thing or a bad thing - engineers and IT guys naturally warm up to my quantitative investing style and are much easier to teach, but I would always question whether I my message is getting through to those folks who are not as quantitatively inclined. 

One incident was actually quite funny - A student asked me to reseat a few engineers into her group because she felt she may need more assistance to understand the numbers before class began. I was thinking to myself that this would have been great if engineering undergraduates were equally popular in university campuses two decades ago. In future classes, I will try to detect the CFAs and STEM guys and try to spread them out so that every student can benefit from the team work exercises in class.

Another very interesting observation is the number of students who have an MBTI personality profile of INTJ. My best friends in life are INTJs but I am not an INTJ myself, half of my life as an engineer was spent as an ESTJ but after Law School, my MBTI shifted to ENTJ as I started to get a more strategic perspective in life.

As it turns out, INTJ is possibly the best MBTI profile to have if you wish to FIRE early in life. Many financial bloggers, such as Jacob Lund Fisker, belong to this personality profile. 

I will try to reproduce my letter to this batch of students here. Unfortunately, I can't share details on the co-created portfolio we built together as a class. For this batch, I worked them pretty hard to come up with the portfolio as I will be eating my cooking next week.

< Letter to Batch 2 >

Dear Students of Batch 2,

It’s been a great honour and privilege to be able to conduct a 2-Day Early Retirement Workshop for you. 

One of the repeating themes of this workshop is the mention of Asia Pay TV. I felt a certain closeness to a few students because we’ve all lost a bit of money on that counter.  It is comforting to know that there are folks out there who are sitting on bigger losses than me for this counter.  Interestingly, in Batch 1, the class was asked to extract the fair value of Asia Pay TV as projected by professional analysts and tha price was projected to be $0.35. 

This is an important lesson for not just for the class but for all investors. Creating a strategy purely based on dividend yields is the surest road to personal tragedy. Therefore, no matter how attractive an investment is, try to keep your portfolio well diversified, this means developing a sense of intellectual humility. No matter how good your quantitative models are, you will still end up making a lot of investing mistakes. 

This class has taught me a lot about personal finance. Topping up the CPF-RA to the Enhanced Retirement Sum or 3 times the Basic Retirement Sum is a rare move to increase annuity payments beyond age 65. Healthy and live-lived folks benefit a lot more from annuity payments. I recommend that you do so only if you are in good health and have long-lived ancestors. 

It should also be noted that that during the workshop, too much depends on the outcome of the Trump-XI talks in the G20 summit.  The US and China have agreed to a ceasefire in the trade war which is likely to result in a nice boost to the markets in December 2018.

As of now, I continue to believe  that the markets are entering into contraction in 2019. A ceasefire on tariffs does not signify an end to a trade war. As such,  I continue to adopt  a defensive stance for most investors. 

Finally, I attached our co-created portfolio in Annex A of this message. I look forward to investing $20,000 of my own proceeds into my margin portfolio at a equity multipler of 2. 

It has been fun teaching you guys and co-creating new leverage portfolios together as  a class !

Christopher Ng Wai Chung