FIRE and Friendship

The genesis of this article came from this idea that Financial Independence will lead to a drastic overhaul of friends. The literature on FIRE focuses on attaining FIRE and little has been said about what FIRE actually does to friendships.

To confirm this, I went to a Telegram group of FIRE aspirants and asked them what impact did FIRE have on their friendships.

The usual answer I got was " I hope to find out. "

Without any specific data-points, I can only guess by piecing together my own personal experience and what I think logically follows the different stages of financial independence. I doubt that my attempts to answer this question would be as accurate compared to the input from a community of folks who have attained Financial Independence.

To answer this question, we have to assume that we start out as normal people with a circle of friends from work or the educational institutions you start out at.

a) Discovery phase

Most of the time, FIRE folks will need to discover FIRE and make a decision to adopt it as a lifestyle choice. This is not an accident. I did not read books on FIRE, but my own experience was triggered by investing in dividends and reading research papers.

At the discovery, nothing much changes to friendships unless the person is silly enough to make a proclamation about his new lifestyle. Then the FIREr will just be as annoying as a born-again vegan and alienate his pals.

There is one point though - we FIRE folks are boring.

What is more interesting to you?

• A guy who wants to accumulate $100,000 before he reaches 30.
• A guy who wants to fuck 100 different prostitutes by the end of the fiscal year. 

Boring people attract boring people.

b) Adjustment phase

The adjustment phase is the phase that first changes in personality will begin. FIRErs need to create a more frugal lifestyle and find ways to supercharge their careers. This requires discarding superfluous aspects of living and becoming "leaner". At this stage, I think FIRErs will begin to associate less with their more YOLO peers.

I began to associate less with my peers when I discovered how flaky and stupid they can get and limited my engagement to work-related matters. It did not make any sense to hang out with colleagues who want to talk about spa and scuba diving all the time.

But this does not make one a hermit.

There are plenty of ambitious colleagues who are preparing for GMAT and planning their MBA journeys when I started on my own CFA/FI journey. I find it easier to relate to the more ambitious colleagues. I also spent more time with operations folks because we work closely together, tehy are down to earth, and they don't seem as vain as management-level staff.

( I still hang out with operations colleagues today. They are still full of shit, but its the kind of shit I approve of. )

 c) Investment income phase

The investment income phase is when dividend investing starts to bear fruit and you can extract about $300-500 each month. It means that you have a working portfolio that pays a significant part of your bills but you still need a job.

Nothing changes friendship much at this phase. Internally, you might want more monthly income, but you could not really care about responsibility or power.

Some friends may be shocked at internally how ambitious you have become. I consider my $300-$500 years the best years of my life - scoring 21 IT certification exams a year while doing my Masters and authoring a book. My own body gave way and I developed hyperactive thyroid shortly after that.

I had at least one old friend who tried to pace me and developed hypertension as a result of that.

d) Financial Independence

For me, I think the jadedness really begins when investment income exceeds expenses. Your work salary stops being a necessity but becomes a tool to corner more investment assets. I developed a flippant attitude against colleagues and maybe friends who hold a higher position than me, because I know I am truly free but they are not. Problems also become smaller - a manager can cut my pay but he can't cut my investment income.

Another thing that changes are your political views. As your capital can be moved around, nothing fazes as much and I can't participate in discussions about normative aspects of law and society anymore. My position is that react to changes if I cannot predict them and I always take the high ground.

So for example, some folks think they can bait me by talking about evil and greedy landlords and why landlords have to waive rents for tenants. The truth is that a REITs investor can channel his funds into a manufacturer within a day to offset the new bill to take on the more advantageous position. He can shift from being a landlord to a tenant in a heartbeat. In fact, we investors are both.

The bottom line

Some friends will become frenemies when the problems you are facing becomes too different from what they are facing. Many Singaporean struggles with mortgages, raising children and the lockdown. You probably are on the other side of the mortgage if you own enough bank stocks. Even your child's academic outcome will not play a big role in your own retirement adequacy. Sometimes you might even fail to see why your friends make such lifestyle choices - this can cut your ability to empathize quite drastically.

The things you look at will also look different. Others want to know when they can go back to work, you might want to guess whether MAS will recentre the S$NEER next. May have knock-on effects on your stock holdings.

Even with the Internet, it's difficult to find friends who understand our problems. After the shutdown of libraries, I lost access to Bloomberg which explains why I ended up doing so much Python programming!

Which brings me to the next point.

It is unwise to vocalise your issues to 99% of your friends. Unless you have something like Stage 4 cancer, your problems are first world problems. If you can make yourself a multi-millionaire, you should be able to resolve them on your own.

The remedy

I think the difficulty with befriending FIRE folks is that after a while nothing really fazes them and they are impervious to usual arguments in Singapore about inequality and how absolute power corrupts.

Do this long enough and your friends can only argue that your financial independence is a moral failing. This is something I have always encountered in my entire life - when someone loses a argument and gets overwhelmed by a combination of facts, data science and the common law, they will just raise their hands up and declare that you are immoral.

Then you know that it is time for a friendship overhaul.

As I'm not really in the FATFIRE zone yet, I may not have a complete solution to the problem.

All I know is that there are many different achievement levels that are recognised by Humanity and all you did was conquer maybe just one mountain - the financial mountain. It is also a small mountain.

You can befriend the folks who are undisputed in other domains. Because I lack cultural capital, I find it fascinating when literary figures come together to talk about their artistic interests. I don't understand 95% of it, but sometimes I learn things when I google them. My best buddies have always been in the social sciences and the humanities.

When I finally FATFIRE, maybe I will just surround myself with supermodels just to hear them bitch about their fashion tastes and make fun of other people's body shape! At this stage, there is no argument that I can win, and no consequences if I lose.

That other NLP - Natural Language Processing

I'll blog again tomorrow but I've just finished one community webinar where my students fought off two trolls that stayed on for my entire presentation!

I can't seem to shake off my excitement at my latest Python abomination.

Natural Language Processing is an advanced part of data science that allows us to write programs that can gauge the sentiment of a stock.

I took some code fragments and I spent two days figuring out how to do the following :

a) Parse an XML file because Yahoo Finance data feeds are in XML format and it produces a link to an article.
b) Parse an HTML file and strip out all the Javascript code and HTML tags so that the text can be read by a computer program.

My code came from an old data science textbook and I had to rewrite the code for it to run.

After this, it gets really exciting.

a) My program has to read an investment article and determine whether it is "good" or "bad".
b) To do this, we must find a way to strip out all the 'useless' words in the English language like 'the' and 'an'.
c) Interestingly linguists in the University of Princeton has a library of words that are synonyms of words like "good" or "increasing" so coding this was much easier than I thought.
d) We can compare the frequency of good words versus bad words to determine whether the article is bullish or bearish on a counter.
e) Combing through the Internet, we can measure the number of favourable articles versus the unfavourable one use it as a measure of the sentiment against a stock.

Sadly what we think might work in theory does not work in practice.

I wanted to try sentiment analysis on a truly shitty stock so I chose Luckin Coffee.

But my program flagged 13 favourable articles against 3 unfavourable articles.

Well, we can't win all the time. I have to adjust the program's use of vocabulary. Obviously, unlike a human being, it can't detect irony or the context of the situation.

Still, I am so happy I am writing a blog article few would understand after a busy evening conducting a webinar. I imagine levelling up in NLP may equip me with the ability to summarise legal judgments in the future.

I promise an article in simple English tomorrow!

ERM Community Webinar - 27 May 2020 7.30pm

It is time for the next ERM community webinar, I committed to my ex-students that while a lockdown not lifted, I will do my best to have a community meetup every month. It's also a way to make up to my newer students who keep getting their face-to-face practice sessions delayed as education centres remain shutdown.

Like the last community webinar,  the ERM community meetup will be available to the public and you can sign up here:  https://www.drwealth.com/ermintro/

This time around, the coordination came a little too late for my students to make a presentation of their own, so I will be making two presentations on coming Wednesday :

a) Introduction to FIRE (30-40min)

This was a talk that was meant for the Seedly 2020 Personal Finance Festival. I am probably the only speaker to have a full set of slides ready when the event was cancelled. I have dusted the material and will be presenting it for about 30 minutes. This is a simple introduction to FIRE for novices and millennials.

I am pretty sure if I have done the presentation at a Seedly event it would be better because they have a solid design team that can work on my slides and I get to refine my materials after multiple rehearsals, so expect the presentation to be a little raw.

My ex-students will probably use this as a quick revision on some FIRE basics.

b) Exploring the Straits Times Index (45min - 1 hour)

The second presentation that currently has about 40 slides would be more interesting as, once again, it builds on the knowledge my students already have. Still, I took the feedback from the last community event and a third of the audience was struggling with the concept of a Z-Score. I may go easier on the audience but the talk would still challenge many intermediate investors.

Nevertheless, the session highlights my aggressive push into building more visualization tools using Python. This time around, I am reaching a tipping point whereby I can start sharing some useful insights for veteran investors to understand some of the statistical properties of the STI better. 

Naturally, the challenge is never to intimidate investors but to see how far I can bring a complicated concept to life for the lay audience. Once I refine the slides, it will go towards new training materials for future batches.

Here is one last slide I will be showing on that day :

While the event is conducted as a preview seminar to sell my course, the sales pitch will be much shorter than normal.

The main focus is to build the knowledge of my community but give a potential customer a glimpse of the standards that can be attained after my course.

Every community webinar is unique that will never repeat itself again, do show up if you are looking for a novel finance talk that features pretty unique material. 

( Materials like spreadsheets and Jupyter Notebooks will be shared within the community of ex-students. This is one of the big value propositions of my program. )

New Early Retirement Master Preview - Three Icons of Investing - 21st May 2020

Since formal ERM classes ended last week, I've been hard at work.

The truth in this business is that as the lockdown stretches onwards, it becomes harder to continue to capture the attention of the investing public. The upside is that consumers and members of the public can benefit from more investment talks.

I've always wanted a different kind of webinar that is intellectually stimulating and would be appreciated by intermediate investors. As an investor myself, I also detest the "I have a magic formula to allow to shake leg in Bali with a margarita in each hand" that made investment training programs a plague in the 1990s when I was starting out as a retail investor.

This is the crisis to make such a purely informative webinar happen.

Three Icons of Investing is designed with no life stories and narratives - a significant violation iron-clad laws of customer conversion. A lot of folks sign up with me because they suffered through the same injustices in the work-place, they want a chance to fight back and to give the middle finger to their corporate master. My ERM course is built upon that foundation - our workplaces suck but here's how to deal with it.

A few months ago, someone challenged me to create a presentation that gave minimal narratives and just explained an investment process with as little BS as possible. I had months to think about over the lockdown and decided to take a slightly different approach. 

What if I can do a quick 60-80 minute presentation that just spoke about the best investors in the world, deconstructed their techniques and best moves, and explained how a retail investor can channel some of their powers (albeit at a much smaller scale).  What if I can attempt a presentation on the great Jim Simons, where very little has ever been written about his investment strategies. This would have been an intellectual feat that may intrigue even the more skilful investors in the community.

I will launch my third preview in my series this Thursday night at 7.30pm. 

If you are free, just sign up for my webinar here. 

For the folks who follow my journey as an investment trainer, know that I approach this business in a very different way. I adopt the freemium model.  I present three different webinars to generate sales for my ERM, combined together these free webinars are getting almost as crunchy as a paid 1-day programme.

• The Four Seasons - A financial journey through the life of an ordinary Singaporean
• Roads to Riches - Answers the question as to how most of us get rich
• Three Icons of Investing - How to channel three of the greatest minds in investing

My talk is very beta this Thursday but I think some folks will appreciate its raw charm. It has less than 60 slides and I have yet to unleash the full force of infographics. Normally, I do a dry-run with Dr Wealth staff and the sales personnel would pound me quite aggressively so that I can sharpen my presentation, after all, it helps with the selling later.

If you are an intermediate investor, just come right down and listen to it. 

Anyway, I suspect my alumni may be out on full force because it is almost a revision lecture for them!

As usual, this is still a sales presentation to generate revenue for my class in June, but my reputation is that I will give you fair value for the time you invest with me. 

So folks who have no intention of becoming customers are welcome to come to the webinar. 

On the cultivation and destruction of Enablers in your life.

I was taught the insight of Enablers in the Gaming World. When we were growing up in the gaming world, we don't have many choices when it came to making friends. Whoever was willing to be the Dungeon master can basically psychologically leech off the gaming community because few have the time to be willing to plan a TRPG session. So in the 1980s and 1990s, we basically had a lot of jerks running D&D games that were basically 4 hours of killing monsters and then bullying the younger players because of the mistakes they made in-game and making them feel worthless.

My position was that these DMs were assholes but as I reflected on gaming history, a more guilty party were the enablers.

The DMs needed the players as punching bags. But to make the group viable are other RPG players who are older who tolerated the DMs, but brought a lot of goodwill and wonderful snacks so that the group would stay together. Consequently, the punching bags tolerated the group because there were nice guys who made the game happen. So the D&D group became a fertile ground for psychological bullies and losers who can extend their dominance by volunteering to become the dungeon masters.

Even today, we see instances of Enablers in modern groups, like the mensch who paid and bought the board games all the way the gaming venue. Everyone who loves the enablers was willing to tolerate the jerks they enabled.

This insight on Enablers can be transplanted into the Financial Wu Lin.

A lot of drama happened today and it led to a popular forum banning a very vocal blogger who is also a commissioned sales agent.

To me, creating a forum that focuses on personal finance content is hard and requires some trade-offs.

• If a forum makes a claim to provide unbiased content, it generates a lot of traffic and can grow very fast.
• A fast-growing forum then attracts hordes of commissioned based advisors who use the forum as a location to generate leads. 
• These FAs then use "half-fuck" responses to "help" potential customers. The responses are "half-fucked" because it sort of answers the question, but invites the person to PM privately for more details. Do this to 10-20 forum participants and you are likely to land a sale eventually.
• Many FAs figure this out and start doing this on the forum to generate commissions 
• Forum develops a reputation as being overrun by FAs.

Here's the deal - The original forum does not make a single cent from the commissions earned by the FAs. 

I really like the management team behind this forum and all my projects with them have been immensely profitable to me, but this bothered me for many months because I think that the forum has become an enabler to the commissioned sales industry without any consideration for their community-building efforts.  

Actually, I might even venture to say that I run an even more successful finance community myself. My students have a closed FB group and we are small enough  (400+ in size) to be totally unprofitable to commission salespeople. Our engagements are personal, and I do not need funds from members as training fees earned a long time ago still fetch some dividend income to support me so that I can basically work for free.  My students do not really participate without giving something in return, they update each other on news and vaccine developments, they also share their insights with others. 

Bigscribe, which I administer as a shareholder, also does not have that problem because it is non-profit and extremely small. Regular members seem to be converting it into some kind of relationship discussion website!

Here's what I think the larger forum should do :

a) Understand that bias cannot be removed.  But best effort is enough.

If you understand the pattern behind the lobbying by FAs. What they are trying to do is to force you to set hard rules so that universal standards can be applied to all participants. This is fatal to any forum. 

Ultimately, You have to be biased towards your own business model and survival. If you feel that FAs can poison your well, then you need to apply your banhammer more aggressively against FAs, the same standards should not apply to anti-FAs who do not hurt your business model.

b) Find a profitable alliance with the insurance/banking industry that does not compromise your standards

One way to independently research the cheapest term life insurance available, approach the company that sells it and ask whether you can work together to launch a campaign for a fee through a non-commissioned arrangement to cut off the commissioned FAs. Rinse and repeat for H&S, Disability and accident policies. 

If anyone suggests a competing product in your forum, you can ban them because it affects the economic interests of your ally. The loss to their earnings is colossal!

Yes, you can do the same with training providers and even ban me! 

( I do divert my students to a non-commissioned outfit like MoneyOwl for no consideration. I too am an Enabler )

c) Know your value which is immense

Lastly, a big forum that provides tips in personal finance is a powerful force in Singapore. You have a bargaining chip that many other businesses, including mine, would envy. As of today, I can't summon 3000 Millenials to attend my webinars. I will listen very carefully if you pitch me something that can make that happen. I know the exact value of such an alliance. 

I have challenged the commissioned FAs to create their forum on Facebook so that they can prey on forum participants without anyone stopping them. They are even backed by the billions of dollars from agencies. 

But no one got the balls to get it done. 

In short, I think the FAs need you more than you need then and your latest actions have gotten many FAs quaking in their boots. 

I cannot believe that a profitable scheme cannot arise from this piece of knowledge.

 

CB Prosperity Diaries #11 - What was I doing while you were breeding

Here's something that our MOE-trained English Literature trained teachers do not teach you in school.

When reading a book by a male author, read his biography. If he is an academic who has spent too long in the social sciences or the humanities, the book will have a heavy left-leaning bias and inevitably, it will slant towards some utopian ideal with social welfare or universal basic income. If the author is a businessman, studied finance, or engineering, then the reverse occurs, the bias will be towards personal responsibility; sometimes callous to the point implying that some people are not successful because they are not trying hard enough.

For a female author, google her pictures on the web. Women who look very pretty will have life experiences that may be skewed. Beautiful women have it much easier in life because the men around them are fighting to give them a helping hand. This lent me more depth when I read books by Amy Chua the Tiger MILF and Laura Huang. For a counterexample, google the author of an old favourite Thick Face, Black Heart.

I quit What I was doing while you were breeding after 5 chapters. Then I googled Kristin Newman and found out that she's quite good looking for someone one year younger than me.

After reading Radical Uncertainty, I wanted a lighter read so I decided to go to the humour section and found this book on top of the Amazon charts.

I don't know why I did this.

It is the ramblings of a single woman who can't seem to get married and settle down so she compensates with the life of a travelling vagabond, going to different countries and having dalliances with the men found in them. The stories almost always involve alcohol and drugs. Nothing novel if you've spent your years in law school listening to the alcohol-infused drinking tales of your classmates.

Some insights are interesting. Some men who dated Kristin did not level up the relationship because she was too successful and threatening to them.

Another useful insight is to assess a potential female mate by the kind of men they spend their fertile years with. Like many girls I know in Singapore who are now old spinsters, there is always the one that dates losers. These girls spend their time dating guys who are persistently under-employed. Young women readers of my blog do not have to go so far for negative examples, there are plenty of Gen-X women to review.

You know what would make a really good story?

A friend told me that he knew someone who wanted to fuck 100 prostitutes in Geylang in a year. Apparently, it was his life goal after a long-term relationship ended. From a second-hand retelling of his tale, I heard that he made it to about 85 at the year-end and became on the first name basis with all the pimps in Singapore.

I volunteered to ghostwrite for this person immediately, knowing that I will become the next Gerrie Lim who wrote Invisible Trade, but after conveying my requests, the person believes that this is a tale that he can write about on his own.

Anyway, I think I've been writing too much about Python programming and investing on this blog.

Hope that you have a fun weekend reading this !

Letter to Batch 13 of the Early Retirement Masterclass.

Dear Students of Batch 13,

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

In the West, 13 is an unlucky number but to the Chinese, 13 is a number that signifies “assured growth” or “definitely vibrant.” 

This course is the hardest course ever conducted as markets has rendered previous back-tests meaningless as historical precedence does not play too well with two possible futures. A significant part of the investment community believe in the V-shaped recovery, and a large number of bears are holding back in case things get worse. If we tacked too aggressively to a market recovery, a downturn would wreak havoc in investment results. If we play a conservative game, there will be significant regrets if markets rally further.

This is the first batch to consider more than three factors in our stocks selection and factors chosen as a compromise between to scenarios. Our blue-chips, bonds and business trusts were conservative, so I expect it to hold up when the slump gets worse. Our REITs, being cheap and high-yielding may fly if markets do get better. Although I am fully invested in both, you can pick the portfolio that suits your view as to what will unfold in the future.

The unifying framework to allow multi-factor scoring is the Z-Score calculation taught for the first time in my programme after I tried teaching it in one community webinar. Covering this method would make it one of the most challenging investment training programs for retail investors. The decision to incorporate this would have been risky from a business perspective because weaker students may feel lost during our sessions and drop out after Day 1, but I am glad that drop-out rate for this class was even lower than previous batches.

This course is also seeing a lot of changes as I developed better coding skills. Thanks to my exposure to Python programming, we are now starting to be able to visualise financial markets in much more novel ways and answer questions that are different from those that we could address in the past. Imagine a small R&D lab forming within this community to get sharper insights into investment questions in the future.

You should pat yourself on the back as surviving this program is a significant personal achievement.

See you folks at the next community webinar and lab session.

Also, I look forward to your active participation in our Facebook community.

Christopher Ng Wai Chung

CB Prosperity Diaries #10 - More coding goodness

Apparently, some friend has started coding again thanks to my efforts levelling up my Python skills. And I still have a long way to go.

One of my students from Batch 1 sent me a file with a strange extension. I did some googling and found out that it is a Jupyter Notebook file. I immediately gave myself a 30-minute tutorial and starting installing Jupyter on my machine before digging into the code my ex-student wrote.

My student's code was very compact and elegant. It was also able to generate a Markovitz Efficient Frontier within various stock instruments chosen by the coder. Thus began one of the toughest tutorials I ever had where the trainer now get to be the apprentice.

My most immediate instinct is to make sure that the work my student did was not wasted and I can add value to his Python program, so I made some modifications to it to reflect actual instead of logarithmic returns. After that, I added some code to figure out which combination of security weights could maximise the Sharpe ratio.

The final product is an efficient frontier consisting of STI index, local government bonds, the Gold ETF and an S-REIT ETF.

I would not advise anyone to actually invest in this portfolio, as it has an underwhelming proportion of equities.

More importantly, we have the basic code snippets to play around to generate efficient frontiers, something I guess not all CFAs or Master students are able to do.

We're well within striking distance of a program that can produce a Risk Parity Fund upon command with a few keystrokes.

My student hopes to build a series of Web Apps for my community.

This will really allow our community to have tools that have never been accessible by retail investors before.

After my class tonight, I will have more time to plan a major community webinar that will unleash our full financial programming skills into the world of investment training.

I hope this will put the ERM program as a leading one in the very competitive market we have for investment training.

How Finance/Programmer Bloggers can work with each other.

Recently, a really nice blog article caught my eye. The Boy who Procrastinates has written an article where he shared some of his Python source code where he wrote about the "Sell in May" phenomenon in Singapore.

You can access his article here.

The beauty about articles like this is we can learn from his code fragments and build on them further to add more value to our readers. So I took a chunk of his code and spent an entire morning modifying it to accept a list of stock indices as input and compiled average the returns of the indices over a history of 20 years. You will find a nifty use of Python Pivot Tables in my solution.

The worst STI month I teach my students is never May but in August as it falls on a Hungry Ghost Month. This is probably the best month to get some bargain hunting done. It is just interesting to see that this is true based on 20 years of stock market history.

Surprisingly, for the Dow Jones, worst gains come September. As my code can accept any index, I interposed results on the VIX index and the largest increase in volatility happens to be August as well.

( I'm sure a reader might know why options volatility would grow in that month! Please enlighten me !)

Before these insights are compiled to future course materials, I naturally would need to put in in a nice chart but at least the data frame containing all the pertinent information can be generated by my program.

After today's exercise, I suspect that financial/programming bloggers in Singapore may be able to cooperate with each other by picking up useful fragments of each other's code. Once I finish my classes this week, I may want to explore how we can work closer together, maybe even incorporate a company together to solve financial problems from various institutions. 

For engineers who wish to improve upon my works, my source code is as follows:

from pandas_datareader import data as pdr
import pandas as pd
import yfinance as yf
import numpy as np

yf.pdr_override()

# Indicate start and end date
start = '2000-01-01'
end   = '2020-01-01'
months = ["January","February","March","April","May","June","July","August","September","October","November","December"]
stock_counter = ['^STI','^DJI','^VIX']


# Create the base dataframe called 'dummy' to contain all monthly data.
dummy = pdr.get_data_yahoo('^DJI', start, end)
dummy = dummy.groupby(pd.Grouper(freq='M')).tail(1)
dummy = dummy.drop(['High','Low','Open','Close','Volume',"Adj Close"],axis=1)

# Generate stock price data and put it in dummy dataframe
for counter in stock_counter:
  stock_data = pdr.get_data_yahoo(counter, start, end)
  monthly_stock_data = stock_data.groupby(pd.Grouper(freq='M')).tail(1)
  monthly_stock_data = monthly_stock_data.drop(['High','Low','Open','Close','Volume'],axis=1)
  dummy[counter] = monthly_stock_data["Adj Close"]

#print(dummy)

# Generate monthly returns from raw index levels
monthly_returns = round(dummy.pct_change()*100,2)
monthly_returns['Month'] = pd.DatetimeIndex(monthly_returns.index).month
#print(monthly_returns)

# Use a pivot table to average up all monthly returns
table = pd.pivot_table(monthly_returns,index=["Month"],aggfunc=np.mean)
table["Month Names"] = months
table = table.set_index('Month Names')
print(f"\n\n***** Monthly return comparisons *****")
print(f"Counters compared are :{stock_counter}")
print(f"From {start} To {end}")
print("**************************************")

print(table)

CB Prosperity Diaries #9 - Thoughts on Stationarity

I just completed Radical Uncertainty by John Kay and Mervin King and I would just like to touch on a concept explained in the last few chapters which had a significant impact on me.

Since almost the beginning of conducting the Early Retirement Masterclass, the one bugbear that myself and my entire community is trying to fight against is non-stationarity. And I admit that it's a losing battle most of the time.

Non-stationarity is that property of financial markets that say that measures of volatility are itself unstable across time and the models we build to simulate the markets have largely an unknown shelf life. This keeps myself and my community humble because we will never know when our models break down.

For example, when we were leveraged in the REITs markets, we knew that it was a very smart decision at that time since returns exceeded 12% and the standard deviation was only about 10%. During the start of the COVID-19 crash when we retreated from leverage, annualised returns for 1Q2020 dipped towards -60% and standard deviation jumped to 27%. And I was ridiculed for doing so.

After the retreat, I became optimistic again after volatility has dropped and I am now taking an aggressive stance again, being a minority who believe that betting on a V-shaped recovery would not be all too bad even if we turn out to be wrong. Of course, I continue to attract the possibility of further ridicule in the future, but that's a price to pay for having skin in the game.

Non-stationarity is the Great Humiliator in financial markets. The only investor who can benefit from it is the great Nassim Taleb. Anti-fragile portfolios go really long on volatility with options bets, but such funds are hard to build because for long periods of time it may be unprofitable and I doubt I can teach this in a program.

Back to the book, the book was enlightening because it gave a different view of non-stationarity. The book compared a country like Denmark, a paragon of stationarity and the US, which is all about Chaos led by a Lord of Chaos. Countries that exhibit stationarity with social welfare systems and big government can be boring to live in with entrepreneurs that can't really move the needle. One possible reason why the US has Silicon Valley is that the US government refuses to go big on social insurance so US citizens are willing to bet the farm.

I don't want to get into an argument about which country is better because the book also reminds that countries like Zimbabwe exhibit even greater non-stationarity and the US may suffer the consequences of a small government over the next few months.

( Singapore is quite balanced in my view with a big government and healthcare system but disdain for welfare. )

Instead, we can examine stationarity at a personal level.

My biggest career failures came from a working environment that was stationary. When I as in government, I was buried in procurement paperwork and I had a shitty CEP as I was not a scholar. Opportunities to develop technical skills were non-existent, and the only guys I can have a good tech conversation with were vendors and partners but never fellow colleagues!

On the other hand, my years in SMX, a commodities exchange with Indian origins was chaotic and I had to survive a Hindi-speaking environment as an IT governance guy who frequently did audits,  but I played a role getting an exchange approved in Singapore, which is something not everyone can claim to be able to do. Transitioning into self-employment was even crazier but for the first time in my life, I can be financially rewarded for just being myself and solving interesting problems with all my skills. In my current environment, I am only as good as my latest ticket sales, but I can do a lot of crazy things to meet that objective so long as they are legal.

COVID-19 is the ultimate event that makes a stationary life non-stationary. A lot of folks are not making money right now, but if you know how to exploit non-stationarity in your life circumstances, life might even better in lockdown.

I am now reading faster, my Python skills are developing to the point I can start enjoying reading the source code produced by fellow programming bloggers. Pivoting to webinars allows me to have crowds of unprecedented size every week with almost the same level of business but with dramatically lower costs. Even as I return to face to face classes, webinars will be a permanent strategy moving forward.

Also, I have returned to my Otaku BBFA roots since I paint miniatures, play D&D and watch anime.

At the end of the day, some folks exhibit stationarity, these are the guys who need a structured environment to survive. A lot of civil servants are like this. They will make it because they are protected by a powerful bureaucracy. After a while, you can smell a person who is like this.  These guys may wear some uniform, have a tendency to be highly conceptual, with a lot of emphasis on what systems and policy ought to be like.  It's always, "Things would be better had the government done this instead."

At my age, it's tiring to discuss conceptual maters with some of my friends, no one has the balls to place bets on their beliefs and I do not know of a single soul shorting this market due to W-shaped recovery beliefs.

Other folks are the opposite. They either attract Chaos or find ways to thrive in it. They don't challenge reality and often just want to know the best thing to do given such a situation. They may cut corners but they will act and live through the consequences. These guys prefer to think about what society is right now at this moment. Bonus points if they can predict how society will evolve. Many of these guys will ultimately be destroyed by the Chaos they attract but those that survive can become highly successful.

I am 45 years old right now and after a string of career failures and some minor successes, I am starting to have a clearer idea of what kind of person I am and how I need to evolve moving forward. I have gained a portfolio over my career stint, and it remains 7 digits till this day, my days answering to a corporate machine is over.

CB Prosperity Diaries #8 - More personal updates.

Right now I am busy preparing for the next run of my program beginning tomorrow. I'm quite grateful that I still have a decent business this COVID-19 season. Course materials are slowly expanding to account for changes in the economy and my burgeoning coding skills.

a) Progress in coding - Correlation Matrices

I've stopped Python classes at the moment to consolidate what I have learnt by writing useful code to deepen my understanding of our local markets and come up with superior lecture slides. My latest development is that I wrote a short script that can generate correlation matrices.

Apologies if the above printout does not look user friendly at all, but it has interesting insights in that it tries to arrange correlations between local banks against the STI ETF. Predictably the numbers are quite high with banks performing almost in close tandem with each other. With these numbers, I'm not too sure whether a thorough analysis of net interest margins or NPL analysis would add any value to cherry-pick one bank against the other two. May be better to buy all three banks and project their performance as a whole. This can be as basic as anticipating interest rate movements.

A different situation arises if you generate the same table for REITs that are found in the STI.

REITs have a much lower correlation against the STI and when you look at the correlation of REITs against each other, they don't seem to move in tandem amongst themselves. So based on this table, there is definitely some value-add when cherry-picking some REITs using bottom-up techniques. I suspect an industrial Ascendas REITs and Capitamall Trust would really have a different behaviour across time. 

By the time I reached this level of coding skill, I can cut and paste fragments of previous code I written to come up with some new functionality that can resolve some intuitions I always had about local markets. 

I just need to expand my code to allow me to group stocks into equal-weighted portfolios to see how they behave against each other. 

b) Dungeons and Dragons

We played 5 hours of Dungeons and Dragons yesterday using Roll20. The software was glitchy and I did not expect to face bigger problems than my webinars. My campaign is largely homebrew with the latest rule additions from Unearthed Arcana. In this game, I play a Paladin of Conquest.

After sharing my problems with my RPG friends, I was told that some gaming groups use two web apps to run a game. 

c) One Book I am reading

With course prep and coding, there is little time to read. John Kay Mervin King has written and an excellent book called Radical Uncertainty. While a little short on practical market advice, this class of books remind us to go back to first principles when thinking about randomness in financial markets. 

I particularly enjoyed the author's musings that link legal judgement to statistics and thoroughly agree that law school is basically about taking a very ambiguous situation and slowly using our thinking tools to make order out of chaos - it's a powerful skillset to deal with non-quantitative aspects of investing. It helps me cope with the pain of folks telling me that I have wasted four years of my life studying for a Law degree in SMU when I am doing quite ok on the financial front. 

d) Leisure

I am currently following the anime Demon Slayer and find the characters extremely relatable with regards to my RPG gaming hobby. My behaviour in a D&D game is very similar to murder hobo Inosuke shown above. The show is also quite fun given that I can map the neuroses of several demons to actual people I know in the gaming/BBFA community. 

There are some pacing issues in the story and I still prefer One Punch Man, but this is something anime fans should not miss. 

My class is currently broken down into four sessions that run across four different days, this means that I can actually devote some time into coding to deal with some unanswerable questions from my students and even update this blog. 

There is a good chance we can catch up on Sunday evening so I will see you then. 

CB Prosperity Diaries #7 - If you can't afford to buy, build !

Here's a short update.

I've been busy preparing for classes this weekend and I've been so busy that I was not even able to promote my webinar later with a useful article on the Dr. Wealth Blog.

In spite of my lack of articles, I have been getting really decent progress on my coding and I can claim that I managed to recover some functionality of a Bloomberg terminal that I lost when COVID-19 closed all libraries down last month. Here's a background, when the libraries closed, I wanted to purchase a backtesting terminal from Factset and was quoted a ridiculous $48,000 USD annual fee. As I am just a humble investment trainer and not some high flying hedge fund manager, this idea was thrown out of the window quickly.

If I can't afford to buy, maybe I can afford to build instead!

So one of my major missions is to see whether I can write enough code to replace the backtesting functionality I used to enjoy when the libraries were open.

And just today, after weeks of experimenting with Python, I am finally able to do simple backtests with code that I wrote myself that invole APIs that download datasets from Yahoo Finance. 

This screen-shot is the result of a few weeks of attending online Python coding classes and reading programming guides. This program creates an equal-weighted portfolio of STI component REITs and compares its performance against the STI ETF.

It confirms a lot of my suspicions about the markets.

• A large proportion of gains in the STI over the past 2 years came from REITs that are now slowly being injected into the index in the future to maintain its relevance. So much so that a simple subset of REITs could have a ridiculous Sharpe Ratio over 1. Of course, as some of the REITs were only injected the index recently, a lot of these gains are due to index inclusion. 
• Another surprise is that the correlation of the REITs from the greater index is also surprisingly low at only 0.37. 

Naturally, my program is inferior to Bloomberg in many ways. It does not account for survivorship bias and I need another program to screen stocks based on stock fundamentals.

But the potential of what a simple Python program can do now quite significant - I can now select any meaningful subset of stocks and compare the performance across different eras limited only by data availability on Yahoo Finance.

Sadly, I only finished my program today after struggling with some coding differences behind geometric and arithmetic means of daily returns. Combining insights from multiple domains like statistics, finance and computer science is hard but I think this is where I can really add value over the next few weeks.

As such, I am unable to integrate this program to my presentation tonight.

If you are free, come and attend my webinar anyway by clicking on this link!

Anyway, I know some engineers are reading my blog, I include a screen-shot of the first few lines of code as some software developers will ask how I invoke the command to fetch prices from Yahoo.

WIll more peacocks become BBFAs this COVID-19 season?

A link was sent for my consideration on the Financial Independence Telegram group lately. You can read this old paper here. The paper concludes something which we already have been aware for quite some time, a guys' reproductive success is tied largely to his economic power. 

But in many cases, economic power is invisible. No one gives a damn about my cash flow if I all I do is watch anime, paint miniatures and play RPGs the whole day. So males find ways to signal their economic prowess - they buy flashy watches, go skiing in foreign countries, and drive European cars to demonstrate their economic prowess, sometimes using credit to do so. Sadly, statistic shows that these peacocks do succeed in modern society. Surveys find that 'peacock' males wind up having more sexual encounters over time. Our dating websites confirm that Singapore women love Singapore men who ski.

Some of my other discussions concern the effect of COVID-19 and one effect hypothesised by my pals is that things will become so bad, it may permanently leave a scar on many guys when it comes to spending money. 

This, I heartily agree. 

In the Great Recession of 2009, the US discovered a lot of men who withdrew themselves from the mating pool after losing their jobs. They took up minimal gig economy roles and live lives of playing computer games in their parent's basement and generally beating a hasty withdrawal from mainstream society.

As far as I remember the impact of the Great Financial Recession was not that great compared to what we are currently going through. The economy continued humming and we were not locked down at home with nothing to do. 

This time around, a lot of guys will realise that :

• Even though it may be hard to divine the cause behind a downturn,  a major economic event may happen every 10 years.
• When this happens, survival is paramount. This means having cash reserves.
• The bare minimum lifestyle is actually quite liveable.
• Being a peacock that wastes economic resources to seem like you have plenty just does not make any sense. 

If not for my signing up with Datacamp and buying stuff for my daughter's birthday, my credit bills would have been reduced by 66%, less than the dividends cut I am experiencing this quarter. 

Furthermore, Netflix has been keeping BBFAs really busy lately with Season 2 of One Punch Man and Demon Slayer. Combine this with the newer games like Animal Crossing, there is really nothing preventing guys from volunteering to adopt a BBFA lifestyle instead of the sexually exhausting peacock lifestyle. 

The long term ramifications for the economy will be earth-shaking. Generation Z will find their economic power permanently impaired as they will graduate into difficult times and will have a very different way to look at their economic spending. They may be as frugal as the generation that emerged from the Great Depression and beyond an Amazon Prime account, have few material belongings.

Marriage will take a major hit as a lot of guys find it more feasible to withdraw from the mating pool and just live for themselves. A life of gaming and binge-watching is more enjoyable than managing kids and working from home at the same time. Ultimately, it is very tiring to keep trying to show off your eligibility as a provider by buying pointless jewellery and useless knick-knacks.  

So Singapore's problems are actually threefold:

• We need to get COVID-19 behind us and minimise the loss of lives.
• We need to restart the economy and minimise the loss of livelihoods.
• We need to somehow stem the withdrawal of men from the dating pool a decade forward and minimise the dearth of future Singaporeans in the far future. 

I suspect we will succeed in the first two and fail the last mission.

This is because as I connected with my hobbies and see the endless possibilities in the virtual world, I believe strongly that my single friends will get never get into forming families after this incident. 

I am working hard and accumulating wealth for two generations now to prevent my kids from taking this path. 

Super busy for the next few days, catch me at my webinar later !

I got a preview "Roads to Riches" webinar later at 2.30pm.

You can sign up here if you are free!

Updates will slow down a bit as I start planning my lesson for next week's class which will be lucky Batch 13 !