From Chai Png to Haidilao

 

In case readers are not aware, I stopped being frugal when it comes to food quite a while ago. My 20s were basically all about eating chai png and the occasional vegetarian bee hoon breakfast to keep my expenses low but after I became financially independent, I started eating like a normal person again. 

Recently due to COVID-19, I have been eating rather well and as I can't restock Dr. Wealth's pantry after a successful run of my program ( a pre-COVD habit I developed), I decided to buy a meal for the Dr Wealth staff who supported me faithfully during this rally tough period of the business. Furthermore, this is not a personal expense but a business one, with mini-meeting included, I can go all out on the meal budget. Also, the fact that the STI has rallied and I am getting November dividends clearly made the expense negligible.

I've always wanted to eat at Haidilao but somehow could not because my pals do not like eating there when we have gatherings claiming that it is expensive. Instead, I eat at a lot of Mala outlets in Chinatown. 

My curiosity about Haidilao is two-fold :

• What kind of service and food offering makes it command such a high premium?
• Is the company worth investing in if we just see it as day to day business?

For the service, there were two points which I liked. I was served drinks and snacks while waiting for the table to prepared. The staff really behaved almost like air stewardesses and even informed me that someone else will take care of us when there was a change of shift. Sadly, I was not able to witness the manicure offerings for the ladies because of COVID-19 measures.

For the food, I can only say that it is generally of high quality. Beyond the iberico pork and sliced beef, the beancurd skin stood out as well as sausages made of flour and mozzarella cheese. Against common sense and warnings from the staff, I chose the most unique spicy beef tallow soup-base, which was not that easy to stomach but the food was really fragrant. I ended up retreating to the tomato and chicken soup base to reduce the pain on my tongue.

Beyond the bells and whistles, was the $75/pax worthwhile? For a business meeting, definitely. But for me, I'd prefer to eat at a cheaper outlet at Chinatown. I can forgo some snacks for a 50% discount on prices. 

But Haidilao may be decent as an investment, the management has systematised great service and have been able to scale it around the world. I can imagine the same business system delivering Swiss Fondue or shabu-shabu to other parts of the world. 

Still, I will convince my family for another meal. But I think no spicy soup base for me the next time round. Spiciness can be delivered via condiments. 

Random perspectives on emigration

I don't have very much to talk about today, I just want to share some friendly perspectives on emigration. I had an update from an old friend and I thought his experience was interesting. As it turns out, some of the folks I gamed with over a decade ago are no longer located in Singapore. 

One, in fact, had left for Australia. Personally, I was kinda glad he did so because he isn't a big fan of Singapore and, if he stayed, I thought he may be a target for radicalisation.  

But my old friend had a much more interesting story. 

He left for New Zealand after securing a job posting there and spent a year or so enjoying the suburban life there. He tells me that he lives in a small town of 50,000 and there's a game shop serving the Warhammer and D&D communities there. Even more impressive is that kind NZlanders open up their large homes to gamers on weekends and six to seven tables of gaming groups can be joined if you contact the community over social media. 

Sadly though, my friend was unfortunate as he was on a business trip in the middle of the pandemic lockdowns and was shunted out of the country. The company failed to renew his work permit but managed to transfer back to Singapore. 

The whole process seemed demoralising and his family no longer wishes to settle down in NZ. A lot of money was wasted as he paid NZ taxes and contributed to their economy before failing to get his PR there. My friend tells me that when his family is ready again, he will attempt another country but this time his wife will insist that it would be Asian with Japan as a number 1 choice.

The second story is more interesting. A top data scientist friend is planning to come back to Singapore from Japan after spending many years in Japan. I really look forward to his return because somehow I think we can think of some interesting project to do together as we have mutual interests. 

The trigger is also the pandemic. After living in Japan for quite a while, my friend feels that he is not getting enough for the taxes he pays and it is much better to get back to Singapore where we get to save or spend more of the money we actually earn. 

For every course I conduct, students are invited to assess the feasibility of living in a foreign country with dividends picked up from REITs and other income investments. Over the months I have witnessed the power of our dividend stocks powering retirement plans in foreign countries, sometimes enabling retirement lifestyles in Western countries if students are able to stomach some leverage in portfolios.

Our paper exercise does not capture the difficulties and adjustments needed to settle down in a foreign country and pay taxes that we Singaporean PMETs will never get used to. In the case of NZ, you need to work for at least a decade before you can be entitled to a pension. 

If you have emigrated or are planning to emigrate, do share your perspective with me. 

I'm now sitting pretty in Singapore, but I will always be prepared to go in case my children can't make it in a highly-strung society like this.

ERM Community Webinar - 24th November 2020 7.30pm

 

On 24th November 2020 at 7.30pm, the ERM Community would conduct another Community webinar that is open to the public. We will be doing one such session every quarter where we showcase some of the more advanced concepts to share with our graduates. 

For the session on coming Tuesday, we will cover the following :

• ERM students are taught traditionally to buy and hold dividend counters. We will examine how to employ a data-driven TA trading methodology can be used to minimise regret. This will be reinforced by a demo by Ivan Fok of Pyinvesting.com to show how his tool can assist in this regard. 
•  An update on the ERM along with some concerns on the possibility of underperformance for the next 3 months as investors go risk-on. 
• There will be a 1-hour presentation that will rehash the presentation made to Republic Polytechnic entitled "Financial Independence!". This is a motivational presentation for absolute beginners on how to win the game of life.  

You can sign up for the talk by following this link.

Money is the Modern Equivalent of Monkhood

There is a spiritual dimension of Financial Independence Retire Early or FIRE that mirrors Eastern Religions that is hinted in Naval Ravikant's Almanack which I would like to explore in this article.

First I'd like to explore two concepts :

a) The Lesser Wheel of FIRE

The Lesser Wheel of FIRE is what we would typically associate with the FIRE movement - you have a history of basic expenses that you hope to care of with your investment income. When your investment income begins to cover your basic expenses, you gain Nirvana-like freedom from the capitalist world and it opens up whole new possibilities in lifestyle design. 

For REDs, you can start a business for world domination. For the rest, it can range from a cessation of corporate ambitions, farming entire salary to stock portfolios, or leaving the workforce entirely for personal hobbies if you are Green.

In many cases, investment income continues to rise after financial independence. Adherents to the Lesser wheel of FIRE may improve their quality of life and spend based on what was lacking during their FIRE pursuit, normalizing expenses to that of a normal Singaporean.

It is difficult to go beyond The Lesser Wheel if you conduct retirement courses because the bulk of the aspirations of Singaporeans probably stop here.

a) The Greater Wheel of FIRE

I tried hinting at the existence of the Greater Wheel of FIRE in many speeches I made in the past. The pursuit of the Greater Wheel is to strive for total independence from material wants. It is theoretically possible that a person not goes beyond quitting a day job, future increases in investment income come without an increase in expenses. 

You have transcended materialism. 

I'm not at this level, I may not even be at the Lesser Wheel because my life-energy exchange is so high, it would be irresponsible to my future generations if I stop my training work. My children may not be able to have a career that is a more optimal life-energy exchange. 

The Greater Wheel does not stop spinning until investment income reaches infinity. The highest need is to have no need for anything at all beyond daily survival. 

Still, I have a few rough ideas on developing this level of FIRE to this level of proficiency: 

• Break the contradiction between frugality and hedonism - If you have cold baths for a week, a hot bath will feel good. I take cereal with yoghurt for lunch so that dinner feels a lot more enjoyable. 
• Having children to inherit your wealth will lessen the desire to spend it down - Imagine being single and have over $10 million, you may not have the years to enjoy it till the end. Children solve that problem because it is natural for human beings to want to benefit their loved ones. 
• Personal accomplishments, not material goods, should form a bedrock of your identity - If you have your self-esteem tied to personal accomplishments and not material goods, you will have fewer wants that can be attained by spending money.
• Observe folks who study the Humanities - There was a joke that says that with a liberal arts degree you can be philosophical about the fact that it attracts such low salaries. You can be philosophical without a liberal arts degree.
• Leave one material weakness - If you know what you truly like and spend on it out of passion, you would come very close to reaching the ideal of the Greater Wheel, spending on everything else is superfluous. Don't feel bad if you have a weakness of PS5 Games. But avoid watches as they can cost a king's ransom. 

If you explore the duality of the Lesser and Greater Wheel, Money actually becomes a new kind of Monkhood. 

I'm not spiritual, but I have the potential to pursue a pecuniary form of enlightenment. 

Singapore's problem is encouraging Lifelong learning for "Green" personalities

This week I did something unthinkable in my 20s - I switched universities just before completing a course specialization. 

As it turned out, I no longer wish to pursue my studies in Digital Marketing. The University of Illinois has a decent program on Coursera but the material was too macro and high-level for me. I just wanted to bring more readers to this blog and then figure out how to start a better social media campaign. To continue this agenda, I will continue by reading some technical texts on content marketing. As I dislike marketing and prefer Dr.Wealth to handle the bulk of it for me, I prefer to keep this kind of selling to a minimum.

EDHEC Business School, however, has a program that is just designed for my skill level in Investment Management Python. The program dives deep into financial programming and expects students to be proficient in programming. This program is designed to be just challenging enough for me. 

For a Dominant RED personality like me, I take charge of my learning and will jettison any project that no longer gives me any ROI. My current course allows me to develop insights and improve my web app with new features every day, so my product grows in functionality and I grow in developing market insights on local stocks. If you study under a MOOC under Coursera, you should be familiar with thousands of ambitious RED and super smart BLUE personalities hustling to get their scripts marked, many from India and Sri Lanka. 

Singapore's policy-making cannot about REDs unless it is to get REDs to create jobs - something we'd like to do because it gives us some minions to boss around. 

I think Singapore's lifelong learning problem deals with GREENs. The steady, warm and accepting citizens that are the majority in Singapore. How can you convince unambitious GREEN folks who are contented into becoming unhappy, discontented, or worried enough to sign up for a program. 

There are many dimensions to the problem that is not within my pay grade to solve :

a) The first problem is that the majority of human beings hate programming which is where the best paying jobs are at the moment. Some startup guys can even know when someone gives up on Computer Science - at the point recursion or pointers is being taught. During my JC days when computer science was an A level subject across all JCs, the dropout rate for the first three months of JC ( even in a top JC ) is about 50%. 

b) GREENs may take the easy way out even if they come from the right industry. You hardly hear of 40-something guys talk about Tensor Flow or Keras, but there's always a way to escape via project management, AGILE, Enterprise Architecture or Scrum qualifications. Stuff that does not involve copious amounts of mathematics that is in high demand today. Mickey Mouse bullshit that does not add value to the world today. 

c) The only time a GREEN gets desperate to upgrade is when he gets retrenched, then all the years to pick up foundations for harder skills are lost. Government struggles with this group because they cannot fit into the jobs available in the market at the moment. 

So here's the thing : If the government fails or sees it as something beyond their pay grade, the private sector picks up the slack. 

Here is one thing I know: My course has a very BLUE/RED dominance.  It is, after all, fairly rigorous for a fun weekend that could have been spent in a zoo. I know my constituency -  ambitious RED guys want more money to push their ambitious into the investment and business realm, they are here to improve their own investment models, not to pick a new one up from me. The analytical BLUE guys want the tools to secure their portfolio so they can sleep better or sound more intelligent in their analysis. 

RED wants FIRE to kick ass. BLUE wants FIRE so they can stop their asses from getting kicked by REDs in the office.

If I follow the industry, I think I can make myself 2x richer if I shift my focus to GREENs. Just water down the course and promise a tool to generate a portfolio at the press of a button. Just teach folks how to press the button, then triple the price and focus on legal disclaimers. Focus on motivation, creating a subjective feeling, and engender a ruinous desire for money. Any simple TA strategy will do, the important thing is that you feel good about yourself. 

I know - I can rent a Lambourgini and stop wearing bermuda on weekends replacing it with suspenders and a bow tie. My motto should have been "Shake Leg your way to Retirement". 

Does that sound familiar?

You know what prevents me? 

I'm not a saint, so it's not my conscience. 

What stops me is the fact that my community will then be full of GREENs Jonesing for stock tips every day without really develop the wisdom to disagree with me every now and then. 

It's not a community. It's a cult. It's the reason why you guys hate all these Youtube guru videos. 

If you think about it, what the fuck is the discipline of marketing all about?

Having slogged painfully at my Digital Marketing Certificate, I think that marketing is all about getting  data from GREENs over and over again using cookies, so you can fuck GREENs by making them unhappy and inadequate because they are too lazy to know any better. 

We know that the majority of humankind is bogged down by personal inertia, they are agreeable and naive, why don't we track their movements on the web and hit them when they are most vulnerable? 

Let's show them a sportscar and make them feel bad for not having one!

I actually think it started with Procter & Gamble, where I learnt how to be a loyal employee. How to make housewives envious so they buy detergent. Hence Soap Operas! 

Now bloody copywriters are telling me to tell the angry customer that the reason they fail is that they're not diligent in following my formula. I think this disclaimer works if the customer is GREEN, the argument that they are not diligent will almost be universally true. You did not do enough qualitative research or read 10 years of financial reports, that is why you lose money.

I can't do that because my customers are smart. They know that they may lose money. But their only guarantee is that their trainer is leveraged so he stands to lose more, so he has tried his best.

So, maybe instead of listening to a copywriter ( who probably imbibed the same drivel from the 1990s Internet Marketers ), maybe you can bet on the portfolio customers have built and try to make a living out of that.  

Republic Polytechnic Talk : After-Action Review

At 4.30pm yesterday afternoon, I gave a 1-hour talk to students of Republic Polytechnic. This talk was attended by a decent number of lecturers, adult-learners and possible a smaller cohort of actual RP students, as the talk was voluntary, numbers are not big - the audience was between 30-40 attendees. If you measure that against my previews - I often get over 100 attendees every week. 

Here are my thoughts on that event :

a) On hindsight, the material should have been more technical as I had a fairly savvy crowd

I think the idea when we came up with the program was because 50% of RP students were on financial assistance, but here is what I learnt from giving out free seminars: If attendance for the talk was made voluntary, only the most self-motivated and moneyed students will volunteer to attend, and the quality of the questions asked would be of the highest quality. 

As such, I feel bad after Q&A because I should have prepared for a more technical talk. I had very good questions on robo-advisors, derivatives and one required an in-depth discussion on why standard deviation matters in measuring portfolio performance.

If I do get a gig with Singapore Polytechnic next year, I will stop pulling punches.

b) That single best martial arts manual for Singaporeans

One question that took me off guard was which book to read to get to grips with investing in the Singapore markets. I recommend several books in my preview but I struggled to recall the title that answers the question. In fact, I think I got the author wrong in my talk yesterday. I said "a book by Ben Fok" who has a few decent book, but it should have been Fong Wai Mun. 

Anyway, the book is here :

Fong Wai Mun taught my MSc cohort in 2001 and I recall my classmates saying that his exam was quite formidable. Other than that Christopher Tan book I gushed about in this blog but was seriously outdated, Fong Wai Mun and Benedict Koh's textbook is still used in local universities. 

This is the closest thing to a beginner's manual for local investors. 

c) How to become a millionaire at 30 

My favourite question came from a plucky RP student who said that he wants to become a millionaire earlier than me at age 30 and ask me what advice I would give to him. 

He does not know that as a troll myself, I love entertaining troll questions:

I told him that I was unqualified to answer as I made the first million way after that age in my late 30s. But I told him that I have a few educated guesses. 

My first answer is to join sales. Sales is a tough job that does not rely on educational qualifications and being in the top 20% of the sales pyramid can command salaries several factors that of a degree holder. I did remind the audience during my talk that 80% sales professionals earn next to nothing so they have to be outgoing and really like interacting with people to be top 20%. My second answer is to start a business and aim to IPO or exit before his desired age. 

No, I did not ask him to sell drugs.

For members of the public who are curious about the talk I gave to RP. 

On 24th November 2020 7.30pm, I will be repeating that performance to my ERM Community. 

You can sign up on this link here.

Personal Update - Several projects I am working on

 I did not manage to really enjoy a short one-week break I had last week due to a nasty bout of gout on my right knee. Nevertheless, I was able to advance a few items on my agenda :

a) Talk with Republic Polytechnic

My secondary school talk with Springfield Secondary has been enhanced by about 25% and will be performed with the Republic Polytechnic audience tomorrow. I was told that several lecturers and adult learners will be attending the talk, so I eagerly await the participation from lecturers. For folks who do not want to miss out on the performance, I will be conducting an ERM Community Webinar on 24th November to members of the public. 

More details will arrive on the blog later.

b) Retirement Simulation Tool launched to ERM Alumni

I guess an Early Retirement Masterclass would not be very much if alumni do not have retirement planning tools, so I deployed a tool to simulate and calculate the rates of retirement success if the student can provide information on their retirement portfolios. Use of the tool requires some training as users need to know not just the risk-return characteristics but the program accounts for skew and kurtosis as well. 

The ERM program already employs a significant number of bespoke tools I wrote using Python, Django and Streamlit :

• Simple Stock Analysis Tool.
• Retirement Simulator.
• Qualitative Data Crowdsourcing Tool ( For me to conduct classes )

The problem is that I currently use the free hosting on Heroku so the tool is not even close to final. I intend to migrate to AWS once I get the yummy $5,000 computer credits from Amazon. I suspect many founders would be unable to exploit this perk since larger startups may already be hosted in a different provider. 

c) ERM Preview attendance is off the charts 

The market recovery is not the only thing that's happening. I think investment course previews are having a mini-resurgence on its own. I will be having a preview tonight, so if you are interested just Google "ermintro" and take the first link to come to my talk tonight.

With the US elections over, the bulls are back and I expect students of all my latest to do well especially those with leverage. 

d) My journey with an incubator has begun

Last week I attended my first session with SMU's Incubation unit, I would be getting my meeting with a mentor this week and I will be mostly focused on admin matters like getting my Pte Ltd company set up.  Hopefully, some government funding should not be too far away as I would like to launch more retirement planning tools for my community. 

The aim would is to launch tools to replicate a significant portion of what a professional advisor can do for my community to strengthen DIY investing and retirement planning in Singapore.

Different Personalities in FIRE

 

The idea of this article started when I having a shit. 

I was using the Coursera iPad app and attending lectures on Digital Marketing by the University of Illinois and wondering to myself what excuses other 40-somethings have when it comes to reskilling and Skills Future when you can actually attend university lectures and even complete some quizzes which taking a crap in the toilet. This led to other crazier ideas, like whether someone can actually debug a computer program or compose legal documents while making some brownies in the outhouse.

The book Surrounded by Idiots by Thomas Erikson added an extra dimension to my thought experiments. For years, I have heard of a personality profiling system called DISC but no literature was accessible in the bookstores. This book was the first one that brought this simple personality profiling system into popular business non-fiction medium.

I suppose from the DISC personality profile, people who attend university lectures while taking a shit can be pigeon-holed into folks with the "Dominant" personality. Folks who are Dominant or those with a Red personality are also the same kinds of people who will wonder why other people are so inefficient and will not consider writing computer code or even make submissions to the court while bombing Hiroshima in the privy.

But maybe this blog should not be fixated with the topic of shit, let's leave that to some forums with commissioned financial advisors and instead focus on how the DISC personality profile can be applied to FIRE. 

a) Dominant - Red personalities

A secondary reason I joined the public sector was that they are willing to water thousands of tax-payers dollars on profiling the personality of civil servants. My friends knew I was Dominant but no one could figure out my secondary mode, so I eagerly jumped at volunteering to coordinate a vendor to test my department. I was sorely disappointed to find out that my secondary mode - was also Dominant! This led to the conclusion that working for the government is really bad for my mental health. 

Not all Reds get to lead in organizations. We just end up getting frustrated at the navel-gazing, inertia, and cheap talk in most organizations. Ultimately Red's strength is that thought and action are the same things. This is also their biggest weakness in FIRE.

One of the things I had to acknowledge even after concluding my FIRE journey is that regardless of my 5-digit monthly investment income, I will always somehow do better by exerting my effort to make more money. Some simple truths are obvious, labour is cheap and amenable to leverage at a more profitable rate in a serious pandemic - hence my joining of the SMU startup incubator in the search for interns.

On the other hand, I still have some really bad Red habits when investing in the markets, many which I am happy to admit but will not teach my students because rookies cannot afford to be so cavalier about investment research:

• Generally, I prefer to buy the stock before I start my research on it.
• Also, I hate long drawn discussions on details like the WALE of REITs, the profile of REIT lending preferring to "spray and pray" a REIT sector which I expect to out-perform. I favour broader statistical odds of a portfolio of 10-15 stocks. I currently have 60-70 stocks and I can't track them all.    
• I really hate long-drawn arguments about safe withdrawal rates, I prefer to aggressively attack the problem head-on. One Python program is one page long and takes half a day to write, maybe another day to host on the cloud.  If there's a weakness in my methodology, I debug and amend in 20 minutes tops. Then everyone in my community can figure this out on their own with my tool.

In summary, I can move very fast but can be a disaster where the details matter. 

This is the primary reason why I actually fear becoming a real lawyer. One tiny clause can get me into trouble with a client. I spent my training contract worrying over comma placements and documentation.

I suspect Reds will not like FIRE that much because they may prefer to run their own companies. FIRE also involves a degree of number crunching that reds may not have the patience for. My initial attraction to FIRE was because I was competitive and thought an additional income can put me silently ahead of my savvier colleagues even if they get promoted earlier than me. 

b) Influence - Yellow

Yellow personalities are eternal optimists and the best salesmen in the group. They are often the most popular folks in any click. You can identify the Yellow guy when the Hokkien Peng calls him "Siao eh ! Ho bo? " My best buddy is Yellow and I suspect yours is as well. Yellow is often extremely eloquent and persuasive.  

Unfortunately, pathological versions of Yellow can be exasperating for Reds like me. They can't keep to time and, when they start talking, you will not be able to get a word in. Worse, hardly any conclusion can by when a group of Yellows come together to make a decision. Extreme Yellow personalities are least likely to able to maintain their attention span in an investment class and even if they spend thousands on it, would not have the discipline to carry out FIRE. 

I had a quintessential Yellow friend who was well-loved by everyone but his personal life was a thick mess because he attracted a lot of drama. He passed away some time ago because he could not maintain his medical regime. We miss him a lot today, but we have to admit what a train wreck his personal life was.

Yellows probably make better investment trainers than Reds because of their charisma and personality, but this may not be in the investment realm because investment requires a basic level of numeracy and discipline. If I scale my business, I will ensure that I maintain my syllabus and hire a Yellow to conduct the lessons. 

Students probably will enjoy the classes until they realise that the instructor has money problems of his own.

c) Compliance - Blue

Holy shit, Blue guys can be intimidating because many end up being my customers and fans. Where Yellow is all about the Oral, Blue is all about the Anal. 

If you want to audit someone, hire a blue. If you want audit matters resolved, hire a red. 

Make no mistake, Blue is the color of FIRE. If someone FIREs early, my bet is that he is primarily blue. 

Blue guys are natural accountants. I teach Factor investing with Z-Scores and I can spot a Blue student  a mile away. The Blue guy wants more investment factors into his model, he may want to toss PB, PE and PS factors into his model at the same time. He also wants to adjust factor weights in Z-Score calculation. One of the ways I catch up with Blues is to use my leisure time writing Python programs to answer the questions they pose which cannot be answered by experience or by hand, which often are the most challenging intellectual questions I grapple with. 

That being said, Blues can be crippled by their inability to make decisions when investing that are often time-bound. By the time you are 100% sure that a REIT is safe, the RED would already have Parkway Life and Keppel DC REIT at 2x leverage in his portfolio and laughing at the Blue's shitty yields. 

My customer base is strong Blue and I lose a lot of sleep to keep them happy by repeatedly updating my preview and lecture materials. It's thanks to the blue audience customer feedback of my course has gone from 6-7 to about 8-9 over the past few years.

d) Steadiness - Green

And then there is a deep forest of Green that dot the entire population. Green is a stable, supportive and sincere part of the population and forms the largest number of your colleagues. 

Nothing much can be said about Green because they make the bulk of your acquaintances, the world would be a horrible place if we're all Reds and Yellows, it is the Greens and Blues that keeps systems running and are happy and content with the status quo.  

The problem with Greens and FIRE is that Green's often lack drive and ambition. FIRE requires a ramp-up of adrenalin at earlier parts of your life so that you can ramp down earlier but Greens will argue that they already feel quite relaxed now. 

It is very difficult to overcome the inertia of Greens, but the question is whether do we truly want to?

One of my priorities is to hire some administrative support to improve the design of my slides and keep an eye to attention and I think I should be finding a Green to be my first employee. I am very afraid of hiring a Red to my team. It's always some guy with poor paper qualifications who keep wondering why is he surrounded by so many idiots and why I can't run my business properly. 

All this being said, an investment course would keep in mind to consider Greens when marketing themselves. A very ultra-Green pal told me that my course actually has a fairly decent component for "lazy" investors and walked me through how he would employ his learnings in practice without doing a single minute of stock analysis, I added his feedback to my previews and manage to improve conversion rates. Maybe this is something I need to look deeper. 

Let me end by sounding out a note of caution. 

Humanity is fairly diverse and the simplest personality profiling techniques used by academics involve five factors like Conscientiousness, Agreeableness, Open-minded, Neuroticism and Extroversion. If you can reduce a friend to one out of four pigeon-holes, you are running into the bias of stereotyping. The context determines which personality a person adopts - just try observing your Green friend turn Red after getting retrenched if he has a mortgage.

I suppose the idea of rapidly positioning someone into one of four neat categories is something a Red like me would love because it is just such a better use of my personal time. 

FIRE parallels in other domains of self-help.

 

One of the things I picked up from Naval Ravikant's Alamanak is that there are parallels of FIRE in other domains of self-help. To assist the reader of this blog to do this, you need to understand financial independence from two key processes that determine its success :

• A reductive process you apply to expenses. 
• A multiplicative process you apply to assets via compounding. 

Driving these processes is, first of all, will-power or the ability to delay gratification. You need to put in some mental effort to motivate yourself to save money to commit to the reduction of anything in life. Secondly, you need some open-mindedness and knowledge to multiply your money better. This requires a degree of risk-taking and trying out new stuff. 

Because you seldom find a combination of willpower and open-mindedness in the same person, this is probably why so many folks fail in the self-help domain. It is also the reason why authors and trainers can thrive in these areas: demand for training and books is perennial but it seldom leads to people being able to solve their own problems completely. 

Here are two areas that I still struggle with  :

a) Health and Nutrition

I am still recovering from a nasty gout attack that struck my right knee for the past few days. A week ago, I went to meet a few friends in the pub and had a really nice $17 ribeye along with some alcohol. The result is over a week worth of pain and a $50 medical expense. If I can exercise the same discipline to FIRE as health and nutrition, I would not have to go through all that suffering. 

Intermittent fasting the equivalent of budgeting in FIRE. You reduce your intake of food to 8 hours out of every day and get to burn fat the rest of the 16 hours. This led to a 0.5 point improvement in my blood sugar. 

While you can't grow your nutrition, you can multiply the variety of your food intake. This, I do not do well in my life right now because I think a diabetic at my age should find a way to get better nutritional supplements. What prevents me is the sheer amount of MLM and corporate-sponsored research out there that confuses a lot of issues. 

Personally, I hope this matter will be resolved soon with a proper meal replacement like Soylent which can be a hit with hacker types in the US. This is almost the equivalent of a nutritional robo-advisor.

b) Knowledge and Meditation

 I can tell that Naval Ravikant is a really spiritual guy because he promotes meditation a lot.

Meditation is the reduction of stray thoughts. As someone who failed in picking up meditation quite a few times in my life, I am aware that this is something that requires quite a bit of self-discipline. This is possibly something I need to pick up again soon. It's getting harder to keep my mind clear as I always have a financial programming problem I have to solve every day. 

The second process is of course reading and the accumulation of knowledge. Reading is probably the most important skill in the modern world, but I see many problems even with folks who self identify as voracious readers. In this sense, we should try to aspire to what Navikant or Munger does which is to multiply the mental models that you have. Over time, you will have a number of models in your toolbox to tackle life situations - it can compound your personal effectiveness. 

Doing this is hard. You have to read stuff out of your usual comfort zone or you may disagree with politically. I have issues even with financial experts who read only finance books - you get this tool blabber on and on about Warren Buffett but lack the historical depth to know that richer folks like Jacob Fugger exist.

Reading opens the mind.

These days, I find my own personal disdain for English Literature unsustainable once I realised that the obsession of Mr. Darcy by Victorian era chicks was due to the passive income he derives from Pemberly Estate. Sometimes when I mention this to English Literature types, I do not know they are impressed or totally disgusted by my ability to reframe their holy religion solely in solely monetary terms. 

The trope of female hypergamy is so big I wonder why this is not taught to boys in secondary school. 

The Mr Darcy of the Past is the Christian Grey of the modern era. 

 

The Final Word on the Safe Rate of Withdrawal

This is going to be a rather abstract post on the safe rate of withdrawal because too much ink has been spent on this problem. 

I think the bigger tragedy is that too little code has been written to address this issue.

As of this week, I have been able to inch closer to resolving this for retail investors by combining several programs I wrote on Python. 

Here's how I think the issue can be resolved once and for all:

a) Define a retirement portfolio that generally works and is uncontroversial.

This can be done by any advisor. I did this with a 50/50 portfolio of VT and AGG. A large global equity ETF combined with a US Govt Bond ETF.

Once we have defined this, we can look at historical returns. In such a case, we programmatically find out the statistics of using such a portfolio over the past 10 years. My program output looks like this.

The numbers are not too bad for a 50:50 Stock:Bond fund. Even better, the period coincides with a recovery from the 2009 recession so it's not too different from the current climate. 

b) Generate a probability distribution function with the same statistics as the numbers obtained.

This is the hardest part of solving the problem. 

If we assume that returns are normally distributed, we will not be able to account for the skew and kurtosis (fat-tails) of financial markets. I was googling for an answer and managed to find a function that can do that on Python. 

However, mathematicians are warning that it can be inaccurate, but I'm an engineer and not a mathematician and really don't give a flying fuck.

Source-code is attached. It was a bitch to debug the code done by the original guy. 

import numpy as np

from statsmodels.sandbox.distributions.extras import pdf_mvsk

import scipy.interpolate as interpolate

def generate_normal_four_moments(mu, sigma, skew, kurt, size=100, sd_wide = 3):

    variance = sigma*sigma

    f = pdf_mvsk([mu, variance, skew, kurt])

    x = np.linspace(mu - sd_wide * sigma, mu + sd_wide * sigma, num=1000)

    y = [f(i) for i in x]

    yy = np.cumsum(y) / np.sum(y)

    inv_cdf = interpolate.interp1d(yy, x, fill_value="extrapolate")

    rr = np.random.random(size)

    return inv_cdf(rr)

The pdf turns out to be really unlike any distribution of a balanced portfolio proving that mathematicians are not really jiak liao bee and are worth listening to, but such are the limits of what can be done using Python at the moment:

c) Build 1000 imaginary portfolios and see how many are successful and how many fail.

Once the pdf is defined, the question comes from generating 1000 portfolios with random returns from the probability distribution function. I start with a capital of $100,000 and I spend the withdrawal rate every year for 40 years but subject the capital to randomly generated VT:AGG market returns.

An example set at 5% withdrawal rate looks really pretty.

From the analysis, in 1000 alternate universes, 982 can sustain a VT:AGG portfolio with 18 fails, failure defined as a portfolio 80% lower than the starting value ( < $20,000 )

Clearly, spending 8% is asking for trouble :

There are a lot of problems employing this approach and I'm not sure whether professional tools actually have a way to resolve it :

• If you take a 20-year backtest, the return statistics of the retirement portfolio changes too drastically and can impact the number later. 
• Mathematicians say that it is not straightforward to generate a PDF with four moments of return, variance, skew and kurtosis. So the function call itself is suspect. 
• No one really withdraws a percentage value. Your cost of living is likely a fixed number. 

I don't know how professional tools do it, looking at some spreadsheets on the web, it may sample from actual historical data. This can be a problem for local folks trying to retire using Netlink Trust and ABF Govt Bond Fund which does not have a historical track record. 

But with whatever I have, I should be able to launch a web app for my community to play with soon. 

But right now my stand does not change, if you don't feel secure, aim for a withdrawal rate of 3.5%. The field of mathematics and computing may not be ready to solve your problem.