Growing your Tree of Prosperity is an introductory investment guide written specifically for Singaporeans who wish to take their first step towards financial independence.
Sunday, December 31, 2023
The hardest resolution is maybe not to have any resolution at all
Monday, December 25, 2023
Thoughts as I enter my final year of my 40s
Thanks for all the well-wishes coming in from social media.
I'm officially one more year from my 50s, and the latest health scare has led me to think about what will happen soon. Typically, entering the 50s would mean crossing over from the unhappiest moments of your life and reaching peace with yourself. For the folks I know who reach their big 5-0, many take a long trip somewhere to reflect upon their lives. The question is whether I should do the same since I enjoy travel quite a bit.
With almost 2/3rds of a person's spent, it makes little sense to still think about achieving more and hitting more life goals. Only some people can be Colonel Sanders, who started KFC quite late. The over-arching theme for someone who got into life's third trimester is some kind of gentle retreat and reprioritisation of life.
Let's go through some of these strategies I've observed.
a) Compromise
For some folks, compromise is a strategy. As we age, only some get to meet all their life goals. A person who could not get a publishing advance has settled with self-publication, or like myself, I had to pare down my goals of doing legal work to becoming a law lecturer.
A compromise is good because it conserves energy, allows the attainment of small wins, and enables us to refocus on other important matters in our lives.
b) De-invest
While I'm still fully vested in the markets, I have told my community my wish to stop applying leverage to my portfolio because I'm simply too old for this, given that I'm still leveraged with my residential property. This does not mean that leverage is terrible as interest rates drop.
Anyway this is not meant to be a point about finance. We've invested quite a bit in our careers for most of our lives. All it takes is one restructuring exercise to end this. I'm seeing this happen to many folks in their 40s, and inevitably, the strain will cause them to retreat from their peers, isolating them further into loneliness.
That being said, I recognise how difficult it is to do this - it's something that even a five-digit monthly dividend cannot solve. For me, I try to run multiple gigs to maintain my relevance and find something new to do every few months.
c) Re-Focus
Finally, there will be things that you will not like in your 50s as much as in your younger days. I've always enjoyed GunPla, until my trip to Japan when I discovered that the kits here are marked up 50%. Since then, I've realised that Japanese goods are a scam. Just because something is Japanese is an excuse to sell $25 sandwiches and $50 Demon Slayer figurines. I hope someone takes revenge by going to Sinjuku to sell Ang Ku Kueh for 500 yen.
One of the things about getting older is that nothing excites me very much. I'm bored most of the time. Reading is probably the last thing I do with enthusiasm, but turning it into a social event is quite challenging because a lot of the book clubs here are dedicated to the elderly. Many must attract the ambitious and dynamic types I like to hang out with.
While not totally healthy, I am getting increasingly interested in this hobby of solitaire war games. These wargames should not exist as a hobby because they can be converted into software. But it is a thriving hobby for geeks and wonks. You can be commanding the Luftwaffe one day and then trying to survive a US presidential term the next.
d) Re-dedicate
This leads to my point about people. I observed folks in their late 40s begin to tire of others and their peccadiloes. Some friends are talking about just bailing out. In many cases, this move is justified, as I've done this myself a couple of times - some relationships don't add much value. We came from a generation lacking social media, so hobbies were a unifying theme for making friends. Things are very different these days. I don't have to join a D&D group if I don't like their wokeness.
But note that making friends is more challenging as you age, and loneliness can be fatal, so remember to replace this with networking sessions. If you don't want to go alone, go with your remaining pals. And these days, I realise that my students often make my best pals.
So for now, I leave these four points.
Perhaps in the New Year, I will talk about my plans for 2024.
Have yourselves a Merry Christmas and a Happy New Year.
Thursday, December 21, 2023
Personal Update
Thursday, December 14, 2023
More struggles to cap an awful year !
Saturday, December 09, 2023
Letter to Batch 32 of the Early Retirement Masterclass
Dear Students of Batch 32,
It's been a great honour and privilege to conduct a 5-Day Early Retirement Workshop for you.
As I managed to complete successive instalments of this program, we found that the markets have been trending ever lower in 2023. Things have gotten so bad that the equity risk premium we tracked has exceeded 7%. The only time when the Singapore market was cheaper was at the bottom of the pandemic crash which created the most successful class I ever graduated.
If you decide to be plucky and invest this upcoming week in our portfolio your dividend yield will exceed 7.4%, and while there are no guarantees that geopolitics can worsen your performance, there are two upcoming events that may bring your portfolio performance some upsides.
The first is when the FOMC concludes in the middle of next week. If the Fed does not raise rates further, an investment into REITs should enjoy a nice rebound.
The second is after the New Year holidays when markets start 2024 with the Capricorn effect, which will bring further respite to Singapore stocks that took a pounding in December.
Beyond January 2024, I would like to think that luck may play a better role than skill. Things will look more positive if China demonstrates more resolve to stimulate its economy. Or perhaps we will see some glimmer of hope for peace in the Middle East. As far as Singapore is concerned, we’ve played our cards the best we can with a 30-day visa-free travel arrangement, our deep push into AI, and the arrival of Taylor Swift. As I’ve said in class, It’s ludicrous that such a well-run market with such a stable government can sell at a PE ratio of 9.7.
Lastly, I hope Batch 32 will participate actively in the FB group. I look forward to seeing you in the following community seminar slated for end-2023.
Hope
to see you then!
Christopher Ng Wai Chung
Thursday, December 07, 2023
Short Update
Sunday, December 03, 2023
Regular Employment is Dangerous
( If you guys are wondering, the job is a robotic automation apprenticeship. I researched because I wanted to hunt down the headhunter and give him a piece of my mind. )
Today, I won't be covering the primary details of why regular employment is dangerous. We know that folks here have to deal with outsourcing and retrenchment as part and parcel of corporate life.
Before I unpack the statement, regular employment is still the best way to attain FIRE, and I've actually turned away some unemployed potential clients because I'm not a miracle maker. So don't go resigning from your company reading this post.
a) Most economic rewards in Singapore go to capital rather than labour anyway
First of all, according to some economic data, in Singapore, labour's share of GDP is around 40+ per cent, which is about 10% lower than in many OECD countries. This means that in this country, we tend to get less of our productivity from earned income. Most rewards do, in fact, accrue to capital owners. Our attitude towards our work should be a means to generate capital because that's how you earn a larger share of our economy today.
b) All employment is time theft
The second reason is that if you look at your life from a different angle, all employment is time theft. At least in Singapore, we have yet to start to reward employees for results, so some folks are still bound by a 9-5 job. Why can't we leave the office when our job is done? There are also very few laws granting staff overtime after they hit a certain income. I think in this new era, we should beware of jobs that take up more of our time than necessary because you can monetise your after-office hours. This covers conference calls with the US and Europe.
But so far, you are not being compensated for it, and we've normalised the theft of time by organizations and companies for quite a while.
c) Reskilling and Skillfutures will benefit employers and may become bad investments of your time
I'm speaking with a lot of authority here because I was the IT certification king in my 20s and 30s. With Skillfutures, everybody is potentially the certification king of tomorrow, and the supply of skills will begin to exceed demand. Thanks to Coursera, the IT certifications kings of the 00s will have gone into extinction. In my case, the IT Certification King has transformed into the Dividends Pig.
Here's a way to think about certifications vs qualifications. In economics, the Coarse theorem says that companies are better off outsourcing tasks which are well-defined and can be turned into a contract. Companies prefer to hire permanent staff when their tasks cannot be so easily documented and where work requires some flexibility and ability to handle ambiguity.
Here's the rub: In order to be able to conduct a skills future course, the government must define a syllabus and come up with ways to test students on what they have learned. This is not too different from clearly defining a task. This will ultimately make it easier to outsource to another party. The process is very different from a university degree program that invests time into developing a skill but an attitude to deal with and handle novel problems.
In my work in adult education, which has nothing to do with investing, I teach and describe things like HR performance appraisal forms. Students can describe them quite well and identify a system. Students are so-so at figuring out the strengths and weaknesses of these systems, but we do spoon-feed it to them. However, students are bad at predicting what happens to a company culture when a performance appraisal methodology is internalised. You can argue that predicting how employees will game the system is well beyond what adult education entails, but I'm quite passionate about ensuring that my students have some idea of how to do this.
So what does this mean? MNCs and bigger companies will still pay a huge premium for university graduates and folks with qualifications. They can train employees to get skills for their work, but the value in having permanent staff is the general intelligence to gain market share and reduce costs. These guys can use a latticework of models they pick up and apply it to new situations at work ( hat tip to Charlie Munger).
Basically, what I'm saying is that skills can help you get your current job, but to move up would require more than skills and if Skillsfutures makes skills available to everyone, you won't really benefit from spending too much time developing them. The mid-career degree will become inevitable.
If regular employment is dangerous, what is the point of following Millennial career influencers who focus on office politics, leadership and networking? When the ones who see themselves as major players in the office are losing their jobs when interest rates go up?
Fortunately for us, Gen Z is already responding to this devaluation of regular employment.
My favourite Gen Z invention is overemployment, where highly productive software engineers work on two more jobs at the same time. This will allow them to FIRE even faster and cost them just a small part of their youth. Gen Z in Singapore should exploit the low unemployment rate to do this. You can figure out what to do with your life later. The only caveat is that over-employment must be used in tandem with investing to build capital to eventually replace your earned income.
Imagine a new-age worker creating a combo chain of over-employment, dividends, asymmetric investing, and geo-arbitrage. Such an influencer does not exist in SG right now, but someone needs to invent one ASAP.
As much as I am now a sceptic about regular employment, downshifting and lying flat is probably a dumb idea. We should see ourselves as time merchants, selling out time for as much money as we can, then using our capital to buy other people's time to balance things out later in life.
Wednesday, November 29, 2023
When do you give up your dreams for pleasure?
Monday, November 27, 2023
But people do enjoy spending their money !
In the rush to come up with sustainable ways to spend down your retirement assets, we often run into the problem where the thought leadership would reduce the withdrawal rate to achieve a safer withdrawal plan. It is only within the financial blogosphere that this is encouraged and celebrated.
Everywhere else in the real world, we tend to forget that people actually enjoy their money and if you actually want to make your finances sustainable until you are age 120, a lot of your wealth will remain unspent. For me, unspent wealth is fine as I have biological kids, but the FIRE movement is full of singles so this will just result in a lot of extremely wealthy godchildren, nieces and nephews.
The problem is that the conventional approach to FIRE using the Bengen approach, suppose you begin with a portfolio size of $1,000,000, and you designate 4% or $40,000 as your expenses the following year. Then you adjust it by the inflation rate the following year, and so on. The idea is that you won't run out of money in about 30-40 years.
But in reality, folks are living longer, and that fear of running out of money will cause advisors to recommend lowering the starting amount to around $25,000 to increase the probability of sustaining the retirement portfolio closer to 50 years.
I leave it to readers to see how ludicrous it is to tell a millionaire to live within an inflation-adjusted $25,000 a year every year, some people may even think that some work is better than early retirement.
How do we address this critique in a data-driven manner?
My solution is to run a Monte Carlo simulation of a 60/40 ETF portfolio and actually simulate the probability of having cash left after 50 years. However, I also enhanced my code with a measurement of utility.
When it comes to spending money, we prefer to spend it spread over a period of time rather than concentrate on a particular year. Spending more money creates more happiness, but does so with diminishing returns. There should also be a reasonable discounting factor where spending money now when you are young is better than spending it when you are old. The solution from economists is to apply a discounting factor into a class of Constant Relative Risk Aversion (CRRA) equations to amounts withdrawn for enjoyment.
[You don't have to worry about the math because I have already coded it into Python Jupyter Notebook. ]
So let's start with a baseline. 4% withdrawal rate of a 60/40 portfolio. Adjusted annually by inflation that averages 3%. Risk aversion is that of a seasoned but cautious investor. We have a fixed time preference of 2%.
Because we have to draw 2.5% of the prevailing portfolio, the withdrawal system is 100% sustainable over many years, but note that the expected utility is even higher than the Bengen system because where the underlying portfolio does very well, you keep up with spending and enjoy more in that particular year. I repeated the simulation with 3% with no significant change in the expected utility.
Friday, November 24, 2023
Is there Right and Wrong in Personal Finance?
As I continue to run into the rabbit hole of finance discussion groups on Telegram, I'm beginning to see a common phenomenon where useful discussions sometimes get derailed by "peacekeepers".
These peacekeepers often use some common tools like "different strokes for different folks". Some variant argument that says in effect "to each his own". As personal finance is personal, therefore argument of right or wrong or any value judgment is incorrect and affects the harmony of the environment. A variant of this system of argument goes on to accuse people of trying to enforce their views on others, being unaware that enforcing peace is also another form of enforcement and tyranny.
I'm not going to swap one tyrant for another because I actually believe that some financial moves are objectively better than others and just abdicating for the sake of harmony is not just sweeping the problem under the carpet, it betrays a lack of intellectual rigour and creative imagination.
My first argument is that "different strokes for different folks" will not cut it in a finance forum. I notice that when anyone mentions ILPs, almost 100% will agree unanimously that ILPs are a bad thing, so exceptions to the "different strokes" argument do exist.
My second argument is that some very similar strategies can be differentiated with financial metrics, like the Sharpe Ratio. Even extremely personalised and subjective metrics exist in the field of economics like Expected Utility. There are equations that describe their behaviour. We can estimate how much utility a strategy can bring for the user if we can do a bit of coding.
Take for example, that growth investing guru who likes to troll dividends investing forums. Arguments are almost childish. To these guys, Ali Baba and Tesla represent an investment into innovation and the future. Dividends are a dead-end strategy for boring boomers. Using a simple ratio like the Sharpe Ratio, maybe this guru is right, or maybe he is wrong, but at least we will know where he is coming from. It is also more likely dividend investors sacrifice some returns to take on lower volatility.
I hope I can get some time to work on more complicated strategies like the rate of withdrawals in retirement. It may be possible to answer this question objectively using expected utility and time preference discounting.
Current arguments on the rate of withdrawal have stopped being objective in any way. If the author of such strategies is concerned about every single tiny piece of risk in the future, then the only smart thing to do is to reduce the safe rate of withdrawal, blithely ignoring the fact that normal people do get satisfaction from spending some money. What is the point of following these arguments if they keep channelling fear and race to the bottom?
To give everyone an idea of what I'm working on next, I am beginning to suspect that spending 4% and then locking it down at the inflation rate may not anyone any favours if their portfolio actually does well. However, the alternative to spending 3% of the prevalent portfolio size at the time of the withdrawal may be better over the long term.
I don't know which is better, but I have the mathematical tools and programming knowledge to get this matter settled once and for all.
Sunday, November 19, 2023
Rich Dad, Poor Dad, or Ape dad?
It's been quite a while since I had a conversation about Rich Dad, Poor Dad by Robert Kiyosaki. The book had an enormous influence on Gen X but for dubious reasons. It centres around a false dichotomy, where you can learn from Poor Dad and then live a life of indentured servitude as an employee, or you can follow Rich Dad and run a successful business empire.
According to the book, my actual dad would be a Rich Dad. The chain of pet shops he founded still exists today, but my dad's primary mode of wealth creation was real estate. My dad sat on a piece of landed property and resisted all of his friend's suggestions to sell it and propelled himself to multimillionaire status while his pals languished after spending all the proceeds from selling their landed property. Along the way, he bought and sold some properties in JB with mixed results.
In contrast, for the most part of my professional life pre-FIRE I would have been a Poor Dad. My dad never would have wanted me to walk down the road of a businessman because of problems meeting rental payments, staffing issues, and fighting with other business partners. I was exposed to company theft when I was a kid because my parents needed to find a plan to catch a salesgirl red-handed for stealing from the cashier. My dad impressed me as to why deal with so much of life's unpleasantness when I can get a degree and work for an MNC. Expat directors bought a lot of dog food from us and I was able to view their beautiful homes.
The path of an employee is a much smoother road than that of an entrepreneur. While rewards are great for folks who run businesses, one thing Kiyosaki leaves out is the survival rate. I grew up in a retail environment, so I was able to witness the turnover of retail outlets in the 1980s and 1990s. Business failures don't live to tell tales of their successes.
Of course, I was never able to succeed conventionally as an employee in the end because I discovered dividends investing. Why bother even working for anyone if you can find a way to get paid for all your living expenses, and then work for yourself?
The modern approach towards wealth generation cannot be simplified into a Rich Dad - Poor Dad dichotomy.
Thursday, November 16, 2023
Are Financial Influencers spending too little for their own good?
"If you are spending, you are doing something wrong in this life" - Kyith Ng of Investment Moats fame
I caught Kyith making these tongue-in-cheek comments in the financial independence forums, subsequently, the Investment Moats blog published an article here which opened up avenues to analyse the lifestyles of thought leaders of the FIRE movement in Singapore. At the same time, some anonymous commenter called out Kyith for living like a Monk.
The question is: can we resolve this question objectively without getting too personal?
The answer is yes, I built a framework using the equations in The Missing Billionaires book to project the ideal spending percentage for myself (an SG dividends investor using STI as a model) and for Kyith (a more sophisticated globally diversified ETF investor modelled after the VWRA ETF), I've come to the conclusion that Kyith of Investmoats is highly likely to be underspending and the calls comparing him to a monk can be justified objectively.
I'm showing my work here, if you wish to understand the spreadsheet then, read the book that inspired this:
Saturday, November 11, 2023
Why distilling common sense is not enough for investors
Of course, there is a probability that Iwill be wrong, but what is the point of specifying common sense, and backing it up with beautiful illustrations without using it to predict the future?
Wednesday, November 08, 2023
The New China Playbook
Monday, November 06, 2023
The FIRE Journey requires cultivation of Inner Strength (neigong)