Saturday, April 29, 2023

I Hope Your Heirs Want to Manage Your Dividend Portfolio


If you have been following what's going on in the financial blogosphere, I had the pleasure of rebutting every single point except one that was made in Investment Moats on the Dividend income approach. I strongly suggest that you go read that article if you wish to appreciate this post. 

You can follow this link.

I left the final point for a full-blown blog article because it is a good point that simply cannot be refuted by a well-written Python program or a stream of data downloaded using APIs. 

Points like this are what make personal finance personal. Readers are free to see whether the point resonates with their personal experience.

Logically, the ninth point of the original article does not really make a real point. 

When an investor dies, the beneficiaries of his will get control of their assets and will deploy their assets in any way that they please because it is now their money. As it is now their money, they will find a way to manage it using whatever means that they already have. This can mean putting it with an investment expert, or financial advisor or punting it in the cryptocurrency markets.

The real point Investment Moats is driving at is that a stock-based dividends portfolio has many parts and idiosyncracies, so it is more likely that the heirs will not be able to manage it in its current form.

If we take this as a real point, then I think Kyith successfully touched on one of the fears of a real-life dividends investor. In such a case, I don't even need to talk about my kids, I'm pretty sure my wife and my mum will struggle with this if anything happens to me.

This is what I think a dividends investor reader can do if this point really scares you:

a) Don't Die

The first point is obvious, if you don't die, you don't have this problem. 

But your days being alive need to be put to good use. The moment your kids turn 18, you open a CDP account with them and train them on dividend investing. If they want to shift strategies then they should educate themselves first. For me, as early as any family can get a CDP account, they need to know how dividends work.

( IMHO, Dividends are not the best way to pass things down, I think a residential property is better. But I don't want property ownership to prevent my kids from getting an EC next time they start a family! )

b) CDP is quite good if you know how it works.

Your heirs should know your CDP number and allow themselves to be guided by lawyers on how to transfer the stocks out of your account if you do die. When my dad passed, I moved all his stocks to a joint CDP with my mum. The transfer fee was $10.80 per counter and we had 50+ counters. I remember it was really smooth and the counter staff said I was one of the smoothest clients they had ever seen.

I think this technical detail from probate to CDP stock transfer is very smooth and elegant, but I am open-minded to understanding how funds managed by an FA can be moved in a similar way.

c) Nothing wrong if your dividends counters get sold by your heirs.

Every generation works differently when it comes to managing money. I was the one who shifted my dad from real estate to dividend stocks. My kids will have a different way to look at wealth. 

Just because you like dividends does not mean that it's the best for their generation. 

Similarly, your heirs should be free to sell any property to deal with more immediate lifestyle needs.

My wife should sell the house to educate my kids.

d) If there is anything to pass down, prioritise financial education first

I'm not trying to sway readers to send their heirs to attend my training, but there is definitely room to pursue a financial education in a tertiary institution if they are expecting to inherit wealth. But they need to know that they will eventually inherit wealth.

I was an only child who lived on landed property most of my life, my priority after my first degree was the CFA. My secondary priority was to get as much overtime as I can in my first job so I use my CFA knowledge.

To me, there was a lot I had to manage and I can't just outsource it to an FA. This DIY mindset is what I consider the most challenging value to pass down. My kids need to know that a 1% annual fee is the real thing that will really hurt your safe rate of withdrawal.

Lastly, I like to address the point Investment Moats made about CreateWealth8888. In the financial blogging circles, there are murmurs that Jacob's kids were not fully aware of Jacob's approach to trading. I absolutely do not think that there is anything unusual about this when wealth needs to pass on. If anything, Jacob successfully sent all his kids through a local degree program. 

That is the more important thing. 

It will take some time to figure out Jacob's finances, the final outcome may not be dividends driven.  

But I won't count his kids out. 

Friday, April 21, 2023

Q1 2023 - ERM Community Webinar - 27 April 2023

I know that I'm late with the planning and coordination of the Early Retirement Masterclass webinar, but I've been held up not just by the planning of my new course that is supposed to be out by this year, but my voice, which has been ravaged by a dry mouth caused by a hyperactive thyroid,  has just recovered.

So it is now time to conduct our next ERM Community Webinar which is customised for course participants but totally open to members of the public who want a glimpse of what we actually do.

Date: Thursday, 27 April 2023, 8pm

Registration Link :

We will be discussing the following topics:

a) How robust is your retirement plan?

Showcasing a new Monte Carlo Retirement Testing tool that will be shared with the community. This will lead to my greater ambitions this year to introduce more Python Jupyter Notebooks into investment training. 

b) Update on the economy and what investors should look out for

I will also be updating everyone on the economy and what I think the community needs to think about over the next 3-6 months.

As usual, I will be showcasing a lot of tools that I have created for my new course launch.

c) Performance Review

ERM portfolio performance review. We look at some of the not-so-good investment decisions we made so that we can improve in the future.

d) The ERM Q2 Community Face to face Meetup

The most important announcement details how to sign up for the ERM Community Q2 Event which is a face-to-face meeting in Raffles Place. This is a sponsored but paid ($20) event for 50 ERM Alumni where refreshments will be provided. 

I will be previewing and conducting a full chapter of my All-Weather Masterclass course, so it will be a substantial learning session, but the real aim is to see how everyone is doing since the pandemic.

So if any alumni members are free, why not come down for a friendly chat on Thursday !

Tuesday, April 18, 2023

Will ChatGPT disrupt the retirement planning space ?

When a pal heard that I'm developing an investment course focused on exploring finance through Python code, he expressed scepticism because he knows a trader who uses ChapGPT to craft basic code to make investment decisions. I did not bother to refute this argument because even with the best code, you still need to make the best trades, and programmers don't make the best investors.

I was unable to verify the argument yesterday until someone on the forums tried to use some keywords to generate some Python code on ChatGPT. His claim is that the code is able to simulate Monte Carlo portfolios and give a percentage of the number of portfolios that make it under an assumed withdrawal rate.

Perhaps this was a great moment for learning for me, I took the code for a test drive and it was horrible.

  • First of all, the cut-and-paste process in Facebook lacked indentation, so I had trouble with the different loops in the program. Nested loops can become consecutive loops if the Python indentment was lost. I lost maybe 15 minutes sorting that out.
  • ChaptGPT programs also produced stub files like a CSV file containing historical returns without really telling you how to find them. The contents of these stub files are very consequential in retirement planning, but ChatGPT does not supply them. I had to inject my own code to download data from Yahoo Finance in real time and generate annual statistics to resolve that issue.
  • The next problem was logic errors in the code even after correcting syntax issues. The code would grow the portfolio using, say, 10 years of returns every year. So every retirement portfolio works in 10,000 different alternate universes because they could be getting 90% returns annually. Worse, the code sees an annual withdrawal rate as a percentage of evolving portfolio value and not as a fixed expense moderated by an inflation rate. Theses are fatal flaws.
  • Finally, after troubleshooting everything, the code would still provide an uneasy number to bring confidence to any investor. I had to add an inflation generator to bring the success probabilities down. 

Ok, now let's look at the positives. ChatGPT wrote a fairly bad program, but it can be corrected to work with better prompt engineering, and about 2-3 man-hours and I'm not even a professional software developer. This can be a huge productivity multiplier for many software engineers. 

But, as it stands,  I don't think someone without a basic understanding of the domain in both finance and IT can petition ChatGPT to come up with something that they can run to make fairly important investment decisions and there should be revenue in my upcoming course.

For now, the software engineering types will have serious concerns about how ChatGPT will change their working landscape. Eventually, some untrained manager with a general degree will pretend that he can issue a prompt to ChatGPT and then he will dump the entire source code to you, claiming that a huge bulk of the work is already done on your behalf. All you need to do is to 'operate' it. 

This is going to be a real problem in the workplace because many MBAs are poets.

Getting to run is already a chore. Troubleshooting the business logic will take more time. Enhancement to make it viable as a product will take even longer. 

This nifty Monte Carlo tool will be refined and given to folks in my ERM Community. Hope this can provide them with a new tool to test the effectiveness of their retirement portfolio.

Using 10 years of data, a 60/40 portfolio has a 34.2% surviving 40 years based on the 4% withdrawal rule.

Sunday, April 16, 2023

The value of being consoled in market downturn

As I've been writing code to turn trading ideas into an advisor that any student can be trained to run, it is now time to review some financial advisory practices. 

For this new course, I've chosen a fairly high bar to beat. 

The 60/40 portfolio is a hard benchmark to beat and, in reality, more clients should be actually put into this portfolio rather than expensive products like ILPs. Bet recently as interest rates have gone up, the 60/40 is not a good place to be. I think at this stage, even the reputable FAs will kick in a process to up the level of hand-holding for the customer who is seeing double-digit percentage losses in otherwise safe bond ETFs.

For those who hand over their wealth to experts, maybe they actually enjoy the hand-holding, I will not fault that. 

But what if you expect more from the industry? 

Well, the truth is beyond hand-holding, the best advisors would rather you stay put. There are strong financial incentives to sit this out. There is a strong belief that the 60/40 portfolio will rebound.

For folk who DIY, there is no one trying to stop your funds from fleeing, so there is the possibility of learning about market edges that can do beyond the 60/40 portfolio. 

Based on my investigations, traditional portfolios are 60/40 and can produce one unit of return for two units of risk, which is admirable. But armed with a number of market edges, it is possible to do better, maybe 1.5 units of risk to 1 unit of return, or even 1 unit of risk to 1 unit of return. This would generally higher ETF turnover, but these days we have very cheap online brokers to play with. 

Even if you do not achieve these gains, you are in essence earning your own commissions and fees, which is not insubstantial.

I won't spend too much time talking about what sorcery I am working on. I'm still writing out the preview of the sales workshop.

I like to leave you with some final thoughts about financial advice with respect to the value of empathy and consolation. To do that, I subscribed to ChatGPT and got it to write a consoling email to a client who lost money. I added a nice touch on interest rates.

Dear [Client], I'm sorry to hear that your portfolio has experienced losses over the past year. I understand how frustrating this can be, and I want to assure you that I'm here to help you navigate these challenging times. While short-term market fluctuations can be difficult to weather, it's important to remember that investing is a long-term game. Over the long run, markets have historically rebounded from downturns and provided investors with solid returns. While we can't predict exactly when this will happen, I believe that we can remain optimistic about the future. In addition, it's worth noting that high-interest rates are unlikely to last indefinitely in this economic climate. While they can present challenges for investors seeking yield, there are signs that interest rates may begin to decrease in the coming months or years. This could present new opportunities for investors as market conditions shift. In the meantime, please know that I am constantly monitoring your portfolio and making adjustments as needed to ensure that it remains aligned with your goals and risk tolerance. If you have any questions or concerns, please don't hesitate to reach out to me. Thank you for your continued trust in me as your financial advisor. I look forward to working with you to achieve your financial objectives over the long run. Best regards, [Your Name]

Monday, April 10, 2023

Farewell to CreateWealth8888


I've always believed that if I ever achieved REAL retirement, where I no longer have any hustles, I would reinvent myself as a troll on CreateWealth8888's website. He's always had issues with my investment ideas and this was apparent to anyone who knew us both. But he never articulated these ideas in depth so I was never able to rebut him.

The truth is this: He did succeed in irking me quite a big deal, but in his own passive-aggressive way, he never provided an opening that would be making attacking his ideas look good. 

So over the years, I have fantasised about giving him a piece of my mind:
  • He lived in a different generation and should not compare his circumstances to younger bloggers. If anything he needs to be benchmarked against others his own age.
  • His ridiculous fixation with Keppel Corp flies in the face of prudent diversification and would set a bad example for younger folks who can apply his technique to Tesla or even LUNA in the future.
I don't think that if a clash were to really occur, I would be assured of winning the hearts and minds of the public. I might have an edge in logos, but he will hands down win in pathos. I remember speaking in the same panel as him under BIGS and admit that his pull as a speaker was very strong because of his earnestness and emotional appeal. This is one man sharing his investment story totally unbiased by the financial industry. This almost never happens in a financial seminar.

When I visited his wake yesterday, I realised that CW8888 was vindicated by several things which make him a great role model at the end of his life :
  • While it is imprudent to focus on Keppel Corp, it did perform fantastically in the final years of his life. 
  • All his children have managed to earn local degrees and have grown into successful adults.
  • He disengaged from work at 60, was unapologetically so, and enjoyed managing his investments right up till the very end.  
Jacob Ng has departed the world a big winner.

If the cosmos is willing, I will definitely clash with him if we ever meet again.

Friday, April 07, 2023

I may need to plan for Involuntary Retirement

One medical issue I'm grappling with is that I have dry lips, which means I'm not producing enough saliva when speaking. Dry lips make every lecture I present a chore. Beyond one hour of speech, I have difficulties as my throat becomes dry. The use of lozenges like Fishermen’s Friend can backfire as it makes your throat even dryer. 

I do not know whether my dry lips come from Graves' disease or poor blood sugar control, but I can say that I'm already on medication to resolve this problem. The question is when these dry lips can be solved which can take a month.

If I can't resolve this within a month, I must retool how I conduct courses. If I fail to restructure how my class will be conducted, it's game over for me, and I will ironically be involuntarily retired. I won't be able to teach my ERM class anymore. I also can't find a job that relies on my tongue, which I spent decades honing on public speaking platforms. 

I want to discuss some steps I am taking in case the worst scenario happens this year. 

As expected, my finances are the least of my problems, but I have already started planning for having no income since the end of last year. I've expanded my cash reserves to hold one year of expenses and extended it by three months using the dividends earned this month. For me, the problem is not eating into my capital but being unable to grow it for the following year. 

I can return to the D&D gaming circuit, but sadly the hobby is undergoing massive changes as a new edition is launched next year. The bigger problem is my social life. If I no longer work, what kind of hobbies will I need to fill my time as I get my voice back? I'm also not sure whether I am as sociable when socialization comes without any agenda other than having fun. Nevertheless, the demand for DMs is as strong as ever, and so long as I'm willing to run games, I should be fine. 

The final point I want to make, my biggest fear is what kind of books I will read and what frontiers to explore when I no longer earn anything from work. My favourite books are those on office politics, wielding power, and climbing the corporate ladder. As an employee, I used to devour any of the management books I could get my hands on. It gave me a competitive advantage as I could anticipate changes in management work like the Balanced Scorecard. 

You can guess what happened after that - Financial Independence was the best power move in any office environment as you no longer need to suck up to anyone or fight for the best appraisal. 

You may think that I can subsist on finance books. That is actually quite hard. A lot of finance books are not written with the real objective of helping the reader make money. Value investing, when badly written, are tales of investment victory using esoteric knowledge of specific companies that cannot be transferred into another market context. While I prefer quantitative works, they are pages filled with equations and rarely supplemented with source code that allows verification of the authors' assertions on the stock markets. As an investment trainer, I help clients bridge theory and practice. 

Going beyond one finance books is a big challenge because a good book will give your some direction to code a back tester to verify what the author has said. So reading is really just the easiest step in a long journey to understand how markets work. 

If you leave the realm of money but still wish to engage in personal development, all that remains is self-help. These books are touchy-feely, and I've already read most of the ones which are backed by research. 

This leaves me with philosophy and books where the author engages in intellectual masturbation. While I try to read as many philosophy books as the Economist recommends, I think some philosophers need help. Why do you need so much prose when the ideas can be condensed into a paragraph? Maybe I can get ChatGPT to help me with summaries in the future.

I guess if I really want a solution to my problem, I will need to read deeply into the history and biographies of famous people. I've not explored famous people's stories beyond Erwin Rommel and George Patton. 

And of course there is fiction, if only to finish the Game of Throne series if it ever comes out. 

Saturday, April 01, 2023

More medical misadventures


One of the better things I did was to become the resident troll of a BBS called Lothlorien. Basically, it was a gathering place for geeks and outcasts who owned a decent modem. 

Last Friday, we had a small gathering and they straight-up told me that I lost a lot of weight and this could mean that I might have cancer. Fortunately one of the gang is now a doctor and we reduced this to the possibility that my hyperactive thyroid has relapsed. This was really helpful as I have a medical appointment that afternoon to get my problem resolved once and for all. I've had dry lips and lost 4kg of weight and get tired very easily when exercising. 

Unfortunately for me, I was the last patient at the government hospital on a Friday evening and there was no way anyone could administer a blood test and wait for the results to be out. My doctor was apologetic and suggested that I go into A&E which I was highly reluctant about because of the long waits and the possibility of getting something else if I get hospitalised like pneumonia. So sadly, even though I suspected I had a relapse of Graves disease, I can't confirm it and cannot get medication.

It was at that time, I had an epiphany. I told my doctor that it may be time for me to go private and there is not much a public hospital can do for me at this point. My doctor kindly a very long letter to summarise the situation I was in.

The question is how can I get an appointment in the private clinic on such short notice?

I was desperate so I decided to pop in early in the morning without an appointment. The clinic is packed, but if any patient is late, I will get to see the doctor. 

The private clinics are truly very efficient. 

Within 10 mins of reading what my govt doctor wrote, she eliminated the possibility of Diabetic Keto-Acidosis, which was such a huge source of relief. They sent a runner down to draw my blood and I was out of the clinic with my thyroid meds by the afternoon.

Was this really expensive?

I think the $400+ plus consultation and blood test was cheap because it got to the bottom of what I've been experiencing for the past half a year, where I was feeling extremely tired for no reason and felt that I lost my zest in life.

I think what happened so far is really the power of social capital. I'm glad I have a doctor friend who can just help me narrow my problem just before my official consult. My introduction to the private sector was through my ERM student who is an insider in the private hospital system and has spent months asking me to switch to a private clinic.

I'm finally convinced that a significant part of my dividends will end up going to a private doctor. 

If my meds work and I get my smile back, I'll stop contributing to the queues in the public clinics.