Saturday, October 24, 2020

Letter to Batch 17 of the Early Retirement Masterclass


Dear Students of Batch 17,

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

So many things could have gone wrong in Batch 17.

First, we launched the ERM crowdsourcing tool, but I found out last minute that the web-hosted database will reset all recent input information whenever the website goes into sleep-mode. I had to run my web program from my personal laptop as a last-minute hack.

Second, the fundamental back-testing tool was not running properly as a code-fix made last night bungled up a data download from the provider. Fortunately, Ivan Fok, founder of, was able to fix it 20 minutes before we started on our practice session.

This is my first taste of the ERM Masterclass as a startup where we often have to learn to eat failure for breakfast. If we survive, we will get capabilities beyond anything done in the past. Today, we can witness a taste of how a class can crowdsource qualitative information on investments and build an investing hivemind. My vision is for the students of my program to function as collective intelligence – the opposite of artificial intelligence that is trendy is startups today.

The most exciting part of Q&A concerns a million-dollar question that I can’t answer adequately to anyone’s satisfaction. How do we anticipate a downturn and avoid losses to the portfolio?

If I were to have a definitive answer to the question,  my personal Dunkirk moment, when I had to deleverage my margin account aggressively, would have been avoidable, and I would have been able to buy the markets at its bottom after that. While we do teach four possible ways to predict a market crash, not a single predictor allowed us to anticipate a pandemic in 2020. This failure is the reason to be humble and avoid hubris when investing with leverage.

One solution is in budgeting our risks. We keep loading a portfolio with bonds until the effective-shortfall metric on the Stocks Café dashboard becomes a number that we can tolerate moving forward. But this will inevitably lead to sub-optimal returns if markets rally aggressively when a vaccine is approved.

Being a retail investor will be challenging even if you are trying to fish for dividend yields. The choices were quite stark today, with every safe dividend-yielding counter producing meager yields. This is why we have a Facebook group to guide our community towards a higher level of investment proficiency.

Moving forward, I hope that Batch 17 would participate actively in the FB group. We should be able to see each other again soon as I am preparing for a webinar for all ERM graduates in November.

Christopher Ng Wai Chung

1 comment:

  1. "How do we anticipate a downturn and avoid losses to the portfolio?"

    I think its is *mostly* possible but hard. You can't calculate it.

    Some I've seen do it successfully in real time are experienced traders. Even when they have quantitive models, they still watch the market action carefully for corroboration. They look for clues in the market action (eg: rising implied volatility). And there are caveats. One group got me out of the markets before corrections this year in Jan and Sept. But didn't really get back in again. Another guy got back in perfectly after March, but hes a trader - some of his calls are wrong (and he says so a short time later).

    Seems like the only thing that matters these days is market timing & macro. If you bought in March you're a hero, if you didn't, you're a bum.

    I've subscribed to a lot of services over the years, to learn new things and for investment ideas. One day I'll get to yours :)