Sunday, October 17, 2021

Why middle-aged men are destined to be lonely

As an extrovert, I participate in several chat groups that are mainly populated by Gen X men like myself - uncles. I have about three main uncle chat groups - one primarily PMET, one middle income and one full of investor hot-shots. 

These days I don't participate much, I prefer to observe and I realise that these days the uncles are getting more and more disagreeable. This article my attempt to understand why and predict the outcome of these male relationships over the next few decades. 

I will begin with this idea from Jordan Peterson's writings - that when men come together they start forming hierarchies, which brings up important questions. How do middle-aged men decide who is at the top and bottom of the totem pole when they come together?

Maybe some anthropologist can chip in, but I suspect that men rank themselves the same way I teach my students to rank stocks. We basically pick a few factors, normalise them to estimate how many standard deviations they deviate from the mean, called a Z-Score, then we sum up the Z-scores. Just like the way we rank PSLE students under the old scheme. For stocks, the factors are easily found by backtesting. For human beings it is much harder. 

What factors do middle-aged men use to rank each other ?

Sociologists like Mike Savage who talk about social classes in the 21st century provide a hint on how scoring is done. 

We use three main sources of capital to rank each other. Financial capital or wealth probably takes the biggest score or weightage, that is uncontroversial. Social capital comes from how prestigious the careers are and may even cover things like family and personal relationships. Cultural capital is a function of taste and divides various clique from each other.   

The implicit score uncles rate themselves, T, therefore can be governed by the following mathematical relationship :

T = A ( Z-score Financial Capital  ) + B ( Z-Score Social Capital ) + C (Z-Score Cultural Capital )

The dynamics of each group will vary the weightage of the scores. A middle-class group will have a high-A. A group of poets or writers will have a high C. Investors who are all 7-digit level will actually weigh A less and focus on B where a lot more problem solving can be done. 

Ok, so we now have a working model on middle-aged men rank against each other, let's apply this to what we see on the ground :

a) Highest and lowest scores are always in danger of leaving the group

Every group has a norm and acceptable a score range. If you are the smartest guy in the room, you may leave because you might not derive the maximum benefit from being there other than getting your ego stroked. You may join a different network where you can get a sense of belonging and you have some way to learn from others. 

Similarly if you score really low in a group, there is serious pressure to leave because you feel inadequate. 

I think insight on this explains why people drop out from a group over time and why some classmates will never show up for a class gathering.

b) The higher your score, the louder you can be without disrupting norms but if your score is not high, STFU.

I call this Jack Ma effect. 

In every group, the top scorer gets to be Jack Ma. He gets to dispense worldly wisdom and generally the other guys will refrain from correcting him. The opposite happens, if due to middle age, Jack Ma does not have particularly strong career outcomes, them he becomes the Jack Ma after being chastised by the Communist Party. Sometimes I try to eavesdrop on uncles in a kopitiam to find out what their version of Jack Ma is saying - it's often rather humorous, very anti-PAP, and completely unbacked by the real world.   

If my model describes male interaction well, it does not bode well for all of us uncles. It means that we will not be able to stay in some groups that we have cultivated over the years. At older age, a lot of older men can only interact with their families. 

There are one or two ways around this problem. 

The first is that our self-esteem can be divorced from our groups if we simply join diverse groups. I do hang around in investment circles, although the discussion can get very trite and boring sometimes, but the most value add to my life is when meeting writers and content creators who operate by a different scoring system. This also means I will get back to the RPG community one day.

Another solution is to hang out with much younger people where ranking is impossible because of the generation gap. To do that, you need to be open to new experiences and withhold judgment when you see younger people make life changes. If anything, forces of progression and change will likely render your judgment wrong anyway. Of course, you need to pull your own weight, try to keep conversation engaging and always entertain your younger friends.

Of course, at the end of the day, I prefer my model to be wrong than right. 

But you can be the judge of that.

Wednesday, October 13, 2021

Is CPF really the equivalent of a 60:40 fund ?

Sharp readers from BIGS forum and this blog have raised an issue on my last article which claimed that the CPF was equivalent to a 60:40 fund. The readers were rightfully incredulous. How can the CPF program which returned a fixed amount of 2.5%-4.0% be the equivalent of a 60/40 fund?

I went back to trace the origins of the reference and found this link. You can take a crack at reading this paper.

As it turns out the readers were right. The original paper was full of spurious assumptions that do not gel with our observed reality. 
  • Singapore cash rates to be as high as 4% from 2014 - 2024.
  • Singapore government bond yields to be high as 5.3% over the same period of time.
  • Global equities to return 5% above inflation over that same period of time. 

The collective effect of these assumptions was that it overestimates returns of cash rates and in turn, CPF returns as it is tied to bond yields once it is above the floor, but it also downplays equity returns - I recall Professor Jeremy Siegel of Wharton offering a different rule of thumb suggesting that equities return 6.8% over inflation. 

Once the right assumptions are in place, any conclusion can be made. 

The paper goes on to construct an efficient frontier and magically lines up CPF returns horizontally against a 60:40 portfolio. 

It then concludes that Singaporeans get the best deal because they get 60/40 returns at low risk. 

Now, I want to take it one step further. 

I was able to repurpose my Python code that produces efficient frontiers and I can extract actual historical data for the past 20 years for an equity (VT) and bond (BNDW) ETF. Using the same methodology, I pegged my CPF returns as a sole proprietor who performs an actual voluntary contribution spread over CPF-OA, SA and RA. 

My returns, not counting my tax benefits, are fixed at 3.3%.  

The resulting diagram from my program is as follows :

This makes more sense in practice, there is no way CPF returns can line up against an efficient frontier of a real global equity and bond ETF. But that's not a big deal given that CPF investments are risk-free.

All these raises issue that vindicates what a reader "Unknown" has said. The truth lies between Terence Ho and Teo You Yenn. For every left-winged fanatic hell-bent on raising taxes, there may be a staunch government apologist out there with their own "alternative facts".

There are, of course, other issues that raise eyebrows when we study the paper further. 

There are very credible academics in our local universities like NUS, why invite four westerners to author the paper under this entity called Towers Watson? 

I guess the next thing to do is SOP for this blog. 

You have friends in CPF. Tell CPF staff to read my articles and maybe even explain this strange working paper. 

Monday, October 11, 2021

Coffee shop talk and trade-offs


Just the other day I was at a kopitiam at Bishan, I overheard two heartland uncles having a whingeing session about the Singapore government. The louder guy has slightly more white hair than me, but my guess is that he is also Generation X. 

At first glance, he sounds fairly intelligent. After some time, I realise that he's just very entertaining.

He argued that there are three types of citizens in Singapore.
  • Those who are slaves and voluntarily subject themselves to slavery.
  • Those who are slaves and actively rebel against slavery.
  • Those who are slaves but do not know that they are slaves.
I could help but suppress a chuckle because you can't have slaves unless there are masters, but I had to suppress my urge to correct him. On social media, I get a lot of half-fucked commentators who contradict themselves all the time. The two uncles went on to say even more ridiculous things like how NTUC Union Membership will take away a perk once the perk was found out to be too good to be true. 

A lot of my disagreeableness comes from becoming quite old myself. Even Millenials who are a generation below me are hitting their 40s and suffering from being part of the sandwiched generation.

Political questions can be much better argued if there is a baseline understanding of key issues facing us. For example, CPF can be used for housing and retirement - if you opt for bigger housing, you will wind up with a lower income replacement rate when CPF Life comes live at age 65. 

If we do not have a reference book to understand the trade-offs policy makers face, we will fall to simple narratives such as those espoused by left-winged academics like Teo You Yenn and our discussion will forever be trapped at the rhetorical level where the government will always "give you a chicken wing but take away the whole chicken" 

As such Refreshing The Singapore System by Terence Ho, is the best book that I can find that sets the minimum benchmark for intelligent conversation to take place. The book highlights the major trade-offs that the government has to deal with and all its attempts to resolve these dilemmas.  
I'm going to highlight a few useful points I picked from the book which is not too obvious to me :
  • After adjusting for income transfers, Singapore's GINI index while high is actually still lower than the United Kingdom. And yet Tories still get re-elected.
  • Singapore wages are not really high compared to our GDP per capita, but once we factor in CPF contributions and the high taxes in other countries that are levied on their middle class, we beat the USA and Finland. So we're paid well not because we are good, but because our government is very lean.
  • A study in 2014 concluded that CPF returns are broadly similar to a 60:40 equity:bond fund but with a lower downside risk due to our high credit rating. There were only three periods where returns fell below the inflation rate. Those morons who think that the Malaysian EPF is better are free to get out of this country. 
Even as I deeply enjoyed reading this book for leisure, I can feel a tinge of sadness because one thing that jumps out at you is that most Singaporeans will never be able to appreciate the trade-offs the government has to make every day. In my view, Opposition parties with bite-sized zingers and simpler narratives are guaranteed to gain more ground in Singapore.

Even the author of the book is aware of this, our government has made our programmes so complicated and have fine-tuned our systems so much, even a basic degree may not be enough to understand all these issues. I know of friends who worked in MAS who has queries on the intricacies of CPF Life. I'm not surprised if CPF employees have the same questions as well. 

This book is a difficult read and it would be rare that a citizen will buy it so that he can more productively engage in political discussion. 

Nevertheless, I expect my readers to be a cut above the rest. 

Buy this book and keep it as a handy reference. Worse case you can give a social justice warrior a nasty concussion on the head as it is also a fairly hefty volume. 

Friday, October 08, 2021

Raising a Math God


The latest rant from a Tiger Mom complaining that her "Math God" son ended up crying after the first PSLE maths paper raised some eyebrows on my social media feed. 

I think we're a long way from cultivating a love of mathematics and difficult problems, so instead, I want to spend a little time on what the endpoint should be for mathematics training. Of course, having a strong foundation in maths is important to develop money-making skills, but a good intuitive grounding for mathematics should be seen like developing the sensitivities when studying the humanities, you are learning something that can guide you to solve problems you face in daily life. Maths formulas are a great addition to your toolkit of mental models.

The Ten Equations That Rule The World by David Sumpter shows the way and opens with how to use Baye's Theorem and why basic decisions can be enhanced from an understanding of it. Sadly, while the book is a valuable read for me, it does not seem accessible to laypeople, yes those that were emotionally scarred by the PSLE. The chapter on betting, possibly the best read in the book, is on the practical applications of logistics regression.

But I don't want too harsh, the work is beautifully written for a book on maths, but it is a long way from solving Ivan and Helen's issue with coins towards what's discussed in the book. I can barely cope with the chapter on Markov processes even though I really enjoyed it.

If I get to write something so ambitious one day, I would start with the first chapter with a formula that's way easier for layman audiences. 

I'd go with this :

The continuous compounding equation is how we grow wealth, but it does not look like what we normally learn in secondary school where there is a (1+r)^t term that we normally use to calculate compound interest for banking deposit problems. This exponential equation arises occurs when the frequency of the pay-off gets smaller and smaller, from a year to a month to even compounded values every second. So if you find stake a shitcoin for 20% APY but get a few cents every 3 or 4 seconds, this may be a better way to calculate how much you can earn after 5 years.   

Maybe in my financial training next session with Raffles Institution, I should actively teach this version of continuous compounding. If anything the math teacher should be happy that I'd open the first-order differential equation for them. 

I'd also have a novel way to teach this. I'd remind them that their rivals from Barker Road who called them a "lousy school" have the motto, "The best is yet to be".

This equation capture the essence of that motto. Wealthy people understand continuous compounding innately and find ways to collect some dividends, not just every year, but every second if possible. This is done via business ownership where goods can be shipped out every second. But the canny businessman knows that to do better every year, r needs to be positive. 

If r is negative, the motto will become "The worst has yet to come." There will be no hope for a better age.

Then maybe a RI opposition party member can reverse the quip and say "Oh you come from the school of paupers."

The Ten Equations That Rule The World by David Sumpter remains a top read for folks who want to develop a mental toolkit. Almost the same way Gun, Germs and Steel is the opening read for folks who want a grounding on anthropology.

Maybe one day, I'd list the reads for folks who aim to get a basic grounding in every subject. 

But maybe 2-3 readers of this blog will appreciate it.

Tuesday, October 05, 2021

Keeping up with the times

One of my inspirations in my current career is the Charismatic churches of Singapore. 

As I am still very staunchly atheist, you might be wondering why I follow the movement of these evangelical movements here. I read in a book once before of a group called the Saddle-backed Church that somehow had this ability to attract non-Christians to attend their sessions and I wanted to obtain this power for my own benefit. So when I was in the Toastmasters movement, I did a few rounds of church hopping to see what drives these massive crowds. 

The truth is, after a few visits, I wasn't impressed. Beyond just references to one holy book, there is really nothing for free-thinkers and non-believers.

I remain unimpressed until I stumbled upon a video on Rev Kong Hee of City Harvest talking about Postmodernism. This impressed me because his deep understanding of it was really unexpected for a religious person. Kong Hee is a really smart guy! Kong Hee was able to communicate with folks who are unlikely to be Christians because philosophers take a lot of pride over their secular values. At that point in time, I knew that Kong Hee's power would grow and, if left uncontrolled, tragedy would follow.  

The rest was history.

When I designed my training preview, my primary purpose was to generate sales. Once we stabilised the numbers, the question was what we can learn from Evangelical pastors to make the preview as valuable and entertaining as possible even for most non-paying customers. 

I realised that the best pastors keep a lookout for what's happening in pop culture and try to be relevant to young people. 

And, more importantly, I can adopt this without causing religious people any offence. 

Pastors and trainers all rely on a little bit of faith. For pastors, it is the faith in a religious being. For secular trainers like me, it is faith that a market bear can turn around to bring profits to the investor. A lot of work I do is provide assurance in the face of the Unknown. 

Right now, my students want to know whether Sasseur REIT is a sell call given political events in China. 

Here are two amendments I made to my slides for tonight where I will be talking about current events :

Of course, we won't have a proper preview without this new slide :

Over time, I have made a few friends who occasionally drop in to attend my previews for fun without ever signing as a customer. After all, when I attend these evangelical sessions, I do not donate any money.

I intend to grow this non-paying audience, who do add value and make Q&A livelier. 

If you are free later at 730pm, why not just drop in and ask me a few questions during Q&A, follow this link :

While it is not this blog's position to say this, I think all religions in Singapore can afford to be more plugged into pop culture to remain relevant to young audiences. 

Sunday, October 03, 2021

Helen, Ivan and a new way to think about Inheritance

The Internet has exploded with memes on the latest PSLE Math question involving Helen, Ivan and the number of coins that they have between them. I'm not particularly bothered by super-hard math questions because the same question was administered to the entire cohort of Primary 6 students. If the questions were any easier, it would be much harder to determine who should get into that "lousy" school. 

You can say what you want about the question, but there will be 12-year-olds out there who can solve it.

Closer to my personal life, some trolls have been attending my previews and asking me whether I have a privileged upbringing. My answer to that question is YES. My dad was a founder of possibly one of the most successful pet shop franchises in Singapore today and I lived in landed property for over three decades of my life even though today I take public transport and wear decathlon most of the time - a testament that there is social mobility in Singapore.

Strangely, I noticed that folks who harp bout my background are generally less dismissive about my array of academic qualifications. I have a strange way of building my educational portfolio - I don't like to go deep, but I sure love going broad when it comes to lifelong learning. But as of now, no one has complained that my material may be too alien to laypersons because I have engineering, finance and a law degree.

If you broadly look at Singapore, we generally start getting defensive about inherited wealth. ACS is the school that tends to get the most of the brickbats given that students often get chauffered to school in the 1980s. But RI was never the target of jealousy because the idea is that RI kids earned their place because they are smart. 

I think this is illogical. 

What gets ignored is that intelligence and conscientiousness are can also be inherited and the rise of assortative mating would mean that professors who marry each other will have kids of above-average intelligence ( even though the kids may not be as brilliant as their parents statistically speaking. ) Conducted over time, assortative mating is known to significantly contribute to income inequality, but sociologists continue to target inherited wealth in their diatribes against the political right, but as academics themselves who do commit a lot of inbreeding, they are less willing to target inherited brains.

If we arrange inherited wealth and inherited intelligence/conscientiousness, we can get a nice 2x2 matrix.

If you are smart but not that rich, maybe you can go to RI and run Singapore. If you are rich but maybe not that smart, then owning Singapore is your birthright as ACS master race. But the 2x2 matrix will reveal two hidden categories of Singaporeans. We have a Precariat, much like myself, who do not inherit enough money or brains. And we have the Elite - masters of the universe who have both money and brains. 

2x2 matrices are great because they let you think about what to do with four categories. I propose the following :

a) Inherited Brains but not Wealth - Professional

If you inherited brains but not wealth, then your best bet is to join the top professions. Top professions like medicine and law are not just academically draining - for a number of years doctors and lawyers work the most brutal office hours. If you can survive the hours, the legend says that medical specialists can buy one private property every month. 

Their children can be elite.

b)  Inherited Brains and Wealth - Join Government or run a Startup

These are the masters of the universe who have it all. Money and Brains. The challenge for society is convincing these folks to serve the nation. The Admin Service pays almost as well as Goldman Sachs but the decisions can impact all Singaporeans. Alternatively, being a startup founder is no sweat for elites because there is already a safety net against failure, the payoff is that thousands of jobs can be built.

The question is, as a society, how can we convince the elites to serve? Elites don't really have to if they don't want to.

c) No inherited brains or wealth - Play the Squid Game

This is where the precariat comes from. They have limited financial, social or cultural capital. In this case, I have channelled the last article and suggest they join the Squid Game - any vocation that is based on a tournament system like a career in sales. 

In sales, 80% of the income is earned by the most charismatic 20%. This can be insurance or real estate sales. 

I am in this category as I do have to sell myself every week.

d) Inherited Wealth but not brains  - Patron of the Arts

My ambition is for my kids to at least qualify to join this segment. At least getting the alumni privileges is not taxable by the government.

It is easy to just dismiss these guys who inherited just money because they can go through life in a coma. But I don't believe that wealth should necessarily lead to an existential vacuum. 

If you have a lot of money and maybe not so much brains, you can still be a patron of the arts and bring more beauty into people's lives.

For readers who have just finished this article, which quadrant do you belong to? Do you agree with my recommendations?

Share them in the comments below. 


Thursday, September 30, 2021

Are FInancial Advisors playing their own Squid Game in Singapore ?


A few days ago, Ivann Fok of beeped me on Messenger and told me that I should watch the Squid Game, he thinks there's at least one blog article that I can write based on this show. 

Turns out he is right. 

If you have not watched the Squid Game on Netflix, do it ASAP. If you can't afford Netflix, maybe skip the next 2-3 years of drinking bubble tea to build a self-sustaining Netflix subscription with local stock dividends.   

The Squid Game will mean different things to different people but primarily people will resonate with it's very gloomy critique of capitalism. 

I'm going to do my own spin on the Squid game and you are free to decide where it is a commentary about financial advisors in Singapore. 

This article assumes that you have watched the entire series.

To me, Squid Game answers the question as to what happens to folks who are (1) unlucky or (2) lack intelligence and conscientiousness. Every society has such folks - folks who may not be able to survive the academic grind or, somehow, met the wrong people at the wrong time. The result of this is a precariat - folks with zero financial, social or cultural capital.

In Singapore, a sales role exists to allow the precariat to turn their lives around. This is usually in real estate sales, entrepreneurs or in insurance sales where non-degree holders can end up living in a GCB. 

For now, I'm going to zoom in on insurance sales for this article because, well, a lot of my haters are in this industry. A similar argument can be made for all sales and entrepreneur lifestyles. 

Insurance is a second chance industry with, in my opinion, fairly lax academic pre-requisites. The minimum requirement is an 'A' level certification, polytechnic diploma or an IB cert. For a wider perspective, note that about 56% of 25-29-year-old Singaporeans have a degree today. You don't even need to meet the median academic proficiency level to sign up to be a financial advisor Singapore.

So with this example in mind, let's compare the experiences of an FA with various courses of the Squid Game.

a) Slapping game

The first encounter with a recruiter results in a slapping game. I think that is one of the key skills of being a successful FA or any salesman. Can you deal with rejection? I find it really accurate that you need to get slapped a few times before you get a cash payout. Imagine calling countless pals to meet up for lunch but getting asked whether you are FA and then getting rejected by someone whom you knew for decades. 

But most of the folk who carry on are those who can swallow these few rounds of rejection so they can move on to the next round of the game.

b) The Squid Games

The Squid Games have six-rounds, all of which has brutal consequences. I will quickly run through each round and which areas, in my opinion, are similar to financial sales work.

  • The first game is Red Light, Green Light. 

To me, this is a game of compliance with local laws. Non-compliance is fatal. When you take on client's money, there are established steps that are not negotiable. Especially if funds come from overseas. 

  • The second game is using a needle to remove a pattern from a honey-combed sweet. 

This is a test of speed and precision. Conscientious folks are better at this and every shape is a triangle for them. Those who are not born to be precise will see every shape like an umbrella. This could mean keeping up meetings with prospective clients and making the right recommendations for them. The complexity of products that are being sold can be high.  

  • The third game is tug of war. 

This is a pure test of strength. Insurance and investment products often have to deal with substitutes. Previously, for FAs it was a fight to the death against Buy Term and Invest the Rest. Now Financial Advisors right now seem very concerned about Robo-advisors. Almost every day, a salesperson needs to deal with objections, very often from products that levy a fraction of the expense. 

  • The fourth game is a game whereby you find ways to divide marbles between yourselves

This is a test of conscience and the most heart-wrenching test I my view. I teared when Ali died after being tricked by Sang Woo. 

I will illustrate this with only one data point as I think a story is better. A very competent and ethical FA once told me that he sold a long-dated lock-in product to uniformed personnel who seemed to have an iron rice-bowl job. A few years later, he was dishonourably discharged and had to surrender his policy. The guilt from making the sale made him switch to primarily AUM career. 

There will always be a conflict of interest in the FA industry. Commissions are fixed but outcomes are not. Someone will always lose their marbles when a transaction is being made.

  • The fifth game of crossing the glass bridge with random panels made to collapse. 

This is simply about luck and timing. Maybe you started in a pandemic and got a few friends to buy a policy but you get MDRT because the threshold was lower in 2020. Others entered at a bad time and had to quit. 

  • The final game is a Squid Game which is just a game of tag played by two guys. 

At the end of the day, the FA industry, like real estate sales, is a Tournament. The large number of folks at the bottom can barely eke an existence but there is very little room at the top. This is why only one person can win the Squid games.

c) Old man and VIPS

 If you are good enough to be a VIP, then it means that you've joined the directors of these FA companies that essentially get to bet on rookie agents like horses. Get the right kind of agent and you can profit from the sales commissions. VIPs are portrayed very negatively in the series.

But the real winner is the Old Man or player 001. He's free enough to play the game and yet exit in safety no matter what the outcome is. To me, any one of us can be the Old Man if we own shares in Insurance companies. As of now, I'm still holding onto my China Pacific Insurance and Suncorp shares.

The overarching question

Finally, I think Squid Game as a series does pose the question for policymakers. 

To reduce the financial burden of the middle class, it is very easy for a policymaker to press a button and ban commissioned sales and enforce fees for financial advice, and raise academic standards at the same time. 

This will mean the end of the Squid Game.

But why do people continue playing the Squid Game even when the police have all the evidence that such a game exists?

The show answered that question and the answer should scare you. 

For the folks who are drawn into the Squid Game, the game is a rare moment of personal agency and fair play that has been denied to them by society at large.   

As such, I leave you with no answers as to what the policy intervention from MAS should look like.