Letter to Batch 36 of the Early Retirement Masterclass

 

Dear Students of Batch 36,

It's been a great honour and privilege to conduct a 5-Day Early Retirement Workshop for you.

The markets are still experiencing a roller coaster ride after the conclusion of the US elections, and we are seeing some evaporation of previous gains as markets begin to digest what a Trump presidency might mean in 2025. In Singapore, banks advanced, and REITs retreated as there was this belief that Trump tariffs would generate inflation for the US economy. Interest rates continue to trend down, giving Singapore investors an extended bargaining period to collect high-yielding counters for a longer period.

The current yield of this portfolio is 7.35%. Once again, as the batch size remains small, we have created a very focused portfolio of 12 stocks, not counting Bank of China, as we welcome our first Singapore Depository Receipt (SDR) into the ERM portfolio. In future batches, we will gradually increase our exposure to high dividend-yielding SDRs, which will see at least one high dividend counter coming from Thailand in March 2025.

Also, for this batch of students, students employed ChatGPT on SUTL Enterprises, and an AI-generated analyst report is also attached to the materials herein. ChatGPT is getting better and better with each iteration, and it is our wish that we can decouple our program from analyst reports one day.

Lastly, I hope Batch 36 will participate actively in the FB group.

Hope to see you then!

Christopher Ng Wai Chung

Are you part of the CDP Master Race ?

 

[ The concept of the CDP master race is inspired by the idea of the PC Master Race, gamers who game on their PC. It is not inspired by WW2 Germany. ]

For modern investors who are younger Millenials and Gen Z, there is no need to understand what the Central Depository or CDP is because modern brokerages that run on the custodian system are very competitive. Trading on an old-school broker usually costs $25 per trade, while online brokerages like Interactive brokers, if charged at all, can often execute for around $2. 

Despite cheaper trades available, I still prefer to park most of my net worth under CDP, and I imagine many older investors may also like it. 

Here are my reasons for doing so. 

a) Singapore Savings Bonds or SSBs

SSBs should still be the safest investment in Singapore. Based on what I know, the only way to buy them is that you will need a CDP account to do this. SSBs are the closest thing to investing in a risk-free rate, and this should be noticed if interest rates spike one day in the future.

b) Shareholder activism

Shareholders need to know what their companies are doing, and when you own shares in CDP, they are held under your name. You can join shareholder meetings and fight for scraps at the buffet table. Shareholder activism also means voting down ideas that you do not like. While this is nothing much for younger investors, it gives the retired elderly something to do - you can also meet other people.

c) Dividends on payable date

This is a massive deal for me. For a successful setup, dividends will arrive by 5.30pm in your local bank account on the payout date. The money will come even if you do not have a recognised degree, study in a neighbourhood school, or might lie in a hospital in a coma. For custodian accounts, they will show up the following day on your dashboard, and then you need to issue an instruction to pull the dividends into your bank account. 

This causes delays and is generally more active than people think passive investing should be.

d) Easier on your beneficiaries and gifting your children

When you pass on, knowing that the bulk of your funds are in CDP will make it easier for your trustee to handle the stocks. For my dad's case, I opened a joint CDP with my mum and then moved the stocks into this joint account at $10.70 per counter. When my kids reach 18, I intend to pass on some blue chip counters while I am still alive.

For folks with online brokers, do realise that chasing freebies will result in many brokerage accounts that can give your trustee a logistical headache trying to distribute your investments. I've not done such cases, but I suspect if it is an online brokerage, it may be better to sell everything and then distribute the cash to all beneficiaries. (Ensure your kids know how many investment accounts and which brokers you have.)

Bonus: Not so much about CDP but the Supplementary Retirement Scheme or SRS

By opening an SRS account with a bank, you can set aside sums up to $15,300 to invest in the local stock market and reduce your personal income taxes the following year. These can be huge savings for folks in the high-income bracket. Amounts saved in SRS can be invested into the local stock market until you are about 63 years old. You must require a traditional brokerage account to trade stocks by drawing sums locked in the SRS account. A correct setup will give you a conventional brokerage that uses funds in your bank account or SRS at the same time.

Of course, employing CDP with a conventional brokerage is only practical in some cases.

As traditional brokerages charge more for each trade, you may only wish to use stocks you intend to buy and hold. Bluechips like DBS and low beta REITs like Fraser's Centrepoint Trust and Netlink Trust rarely make sense in high turnover portfolios, so they naturally would make a great fit with CDP. I generally employ high dividends and low beta in my core dividend-paying portfolio in CDP.

Online brokers are better for high-turnover investments. My algorithm-driven trades are all done exclusively via IBKR.

Share this article, as CDP gets little praise on social media. I think all serious retail investors should have one account.

Curse of the Hummingbird

 

This article arose from a series of discussions in the SGFI telegram group. I thought I'd share some deeper thoughts on it, as it is relevant to self-improvement and investment.

The person who started the conversation spoke about the advantages of being a jackhammer. A jackhammer has a narrow focus on hobbies; all they can do is focus on one thing and happily lead their lives. The opposite of the jackhammer is a hummingbird—something that flits from flower to flower without ever discovering what they are meant to do. The original inventor of the concept believed that the world needed more hummingbirds because hummingbirds can bring a cross-pollination of ideas and create innovative breakthroughs.

You will find many more metaphors in business literature, such as the hedgehog and the fox. 

As far as my own analysis goes, folks with an S in the MBTI, like the dreaded anal ISTJ, are jackhammers and do pretty well in Singapore, especially the government. In contrast, folks with an N tend to be hummingbirds, as they have big ideas and can apply mental models across domains. I tested ESTJ in my teens and ran with it throughout my engineering career. Still, once I started to pick up investing, the S had no choice but to give way to a more N or intuitive approach towards problems as I began to see investing as a form of liberal art where analysis can come from multiple angles. I was influenced by an old book called Latticeworks by Robert Hagstrom in the early 2000s. 

Are there investing styles for jackhammers? Indeed, using broad index ETFs to construct a 60/40 - VT/BNDW portfolio can be very effective because it can compound between 6-8% over multiple decades. Then, it's just researching ways to reduce expenses and finding more ways to optimise your day job to accelerate wealth creation. Picking this up remains the best defence against financial advisors and paying high commissions to get your money to work for you in the markets,

Dividend investing could be slightly more sophisticated, so it can be suitable for jackhammers. Just target sustainable yields between 5-7%, then stubbornly build up a portfolio of local stocks in a CDP account to reap hundreds of paychecks yearly. It's more complex than 60/40, but the folks who do this are so loyal to this approach that influencers still get cheap eyeballs by provoking and disrespecting "dangerous" dividend investors.

The transition from jackhammer to hummingbirds starts when you become dissatisfied with the Sharpe ratios you are getting. This happens when you interrogate your data and find factors that outperform. Factor investing is very rewarding for hummingbirds because when you see a new factor that works, it is interesting to explain why. Like why do low Beta strategies work? Do people take stock bets based on excitement, so boring stocks are cheaper?  

Technical analysis and charts take hummingbirds slightly further. Some folks love reading tea leaves for different patterns to emerge. I enjoy coding to discover trending ETFs and buy them for better results - that's a very technical investing approach. I've finally moved all my Terra coins into ETH, and I'm developing a momentum-driven algorithm to see whether I can juice my cryptocurrency portfolio in Binance.

However, some strategies only appeal to extreme hummingbirds, and I dislike them. I don't like derivatives and zero-sum games, so sacrificing an upside to juice dividends using covered call strategies is just there to make some folks feel really smart. I'm sure they can make money, but I don't have the time for it. 

Maybe the solution is not to be dualistic about the jackhammer-hummingbird divide.

Based on our personal resources, conscientiousness and intelligence, we have a pool of attention to devote to various interests. 

The jackhammer will narrowly allocate his attention and get deep into a few areas.

The hummingbird will speak thinly and have a passing interest in many fields.

However, many approaches need to be broader and more profound. 

• One way to moderately go into two fields and synergistically use them at work. 
• Another is to supplement a broad interest in many things with one narrower focus on one area you are passionate about.

There are several principles to guide us when determining to pick up a new area of interest:

• If you decide to pick something, a hobby or a field like finance, the opportunity cost is not picking something else, like brewing hipster coffee or writing sonnets. 
• If you keep focusing on one thing, the payoff may achieve diminishing returns. If you have a 6-7% dividend portfolio, and some folks are raving about dividend growth as a better approach, they might be correct, but how much better? Dividend yields are more visible, and dividend growth requires projecting into the future.
• Some things have a J-curve. A project may generate negative returns and frustration but pay off later after you allocate more time and effort. A 1-month violin course is a bad idea. 
• The amount of resources a person can allocate is limited by wealth and talent. Life is not fair.

Because SGFI groups have so many INTJs, it's normal to think that it's a curse to be a hummingbird, as INTJ's significant weakness is the inability to stick to a hobby. At the same time, everyone else can settle with something profound that they are passionate about, so many will die and leave a lot of half-pursued interests for their beneficiaries to plough through (how come your recently deceased uncle got a bongo drum next to a Raspberry Pi?). 

Thoughts of shallow engagements and half-complete hobbies might be a sign of high intelligence and giftedness.

Maybe to be blessed, you need to be an imbecile.