Sunday, May 09, 2021

Direct your umbrage at the system, not the person

As I am somewhat anti-woke and pro-PAP, I find other PAP loyalists jumping to the defence of SPH CEO Ng Yat Chung. This is puzzling because Ng Yat Chung is not a politician. 

In fact, Min Shan has spoken somewhat against him. 

I will not describe the immense and consequential damage that was just inflicted on SPH shareholders as this is well documented by many bloggers. In fact, I will try to figure out why so much damage control was done over a few words of someone who is a non-politician. All I can say is that my ERM students were burned by SPH's foray in Orange Valley in the past and buying SPH counts as one of the poorest investment decisions we have ever made during the life of the entire program, second only to the disastrous position in Eagle Hospitality Trust for one batch of students.

From the point of view of someone who actually worked under a statutory board, the words uttered by the SPH CEO were mild. I had supervisors in the public sector who asked my Indian IT vendors whether took part in the Little India riots during a team meeting and loudly voiced concerns over female employees about the possibility that they will get pregnant and go on maternity leave ( the supervisor being a mother herself )

For me, if I want to direct my umbrage at something, it would be the amakudari system that parachutes top Admin officers into private sector roles that may ultimately damage the capital that belongs to us hapless shareholders. This is really something that we investors do not deserve. As brilliant as a top civil servant is, I liken their experience to twenty years as a goalkeeper for a soccer team. When their time runs out, they are forcefully put in a position of a striker. There is no way you can hone the kind of adaptive entrepreneurial thinking from a formal rules-driven bureaucratic mindset of the civil service sector. Some may succeed due to luck, but many will fail.

This is the kind of arrogance hinted at by many old-timer government officials. Just because someone has high general intelligence, they can thrive in any environment, even a highly competitive one like the business sector. 

I think the true damage done by SPH has nothing to do with losses shareholders suffered on Friday but the consequences it will have on amakudari moving forward. Voters should not be shy to pressure the PAP to revise this system. ( I will happily troll my new MP Mr. Edward Chia on this issue the next time I see him hanging around in Segar Road. )

I want to offer a cautionary note on our religious fetish for government scholars. This comes from an unlikely source. 

Two issues ago The Economist published an obituary of Bernard Madoff, the man who built the largest Ponzi scheme in the history of mankind.

If you peer into the mind of Bernard Madoff, you will find some fundamental truths belonging to all Humanity. Bernard Madoff had no need to enrich himself at the expense of his peers - he was financially independent before setting up his fund. Things began to fall apart when his fund underperformed slightly and I suspect Bernard has so many strings of personal successes, he was unable to cope with his first failure in life, so he doubled up using fraud to cover up his mistakes. 

Introduce failure to a person who has been successful all his life will induce cognitive dissonance and it takes a very strong mind to resist doing something underhanded to keep his self-esteem intact. 

I struggle with this on a daily basis as well - I have three degrees in Engineering, Finance and Law. I have passed almost all the major investment exams. But every day, I see a 20-something year old become a multi-millionaire by buying Dogecoins or staking their coins in a Liquidity pool. Fortunately, I have done much worse and faced my own demons on this blog on March 2020. 

Today failure is my best friend and I often have a drink with it. 

I suspect many Admin service officers, being the Apex Predators of Academic Hunger Games may also never experienced a major failure in their lives. This can lead to disastrous consequences as they try to rationalise or even scold their way to avoid personal accountability. 

To assist them in coping with failure, perhaps a Gen Z crypto bro should flash a Lambo at their scholar pal every now and then to teach them a bit of humility. 

Singaporeans should actively promote someone who has a humiliating failure in his resume. 

Therefore,  it comes as no surprise that my favourite PM candidate is Ong Ye Kung. I think the Aljunied elections in 2011 has shaped his character for the better. 

Direct your umbrage at amakudari and the CEP system. 

This can be something that unites both PAP and Anti-PAP supporters. 


   

Tuesday, May 04, 2021

Eternal trends and how to spot them

 



I always enjoyed reading books about the future. Future studies are the discipline about how to predict future trends and I'm gradually training my brain about how to think about prediction. Naturally, this can be a really inaccurate exercise and a lot of predictions turns out to be wrong, but imagine how much can be earned if somehow someone gets it right.

I'm still in the process of building a library of books on future studies, but this highly accessible book by Magus Lindkvist talks about a number of trends that are eternal for Mankind.

a) Wellness, health and convenience

We've always been trying to make ourselves live longer and easier lives. Many of the trends that affect us, such as eating in a healthier way, have been obsessed by even our ancestors. Someone will always be thinking about some form of exercise, diet or medication that can claim to result in better longevity. 

b) Self-expression

Everyone wants to be noticed and leave a mark one day.  Another parallel trend is the desire to belong to something.  Our ancestors have been using cave paintings to communicate their ideas, today they use social media. This is another trend that will not end, as an investor someone will produce the next Clubhouse or anything that allows folks to interact with each other and be heard by the larger community.

c) Sensory stimulation

People crave sensory stimulation so they will always be trying to experience new things. Ancient carnivals and theatre have evolved into the Disney Plus and Netflix channels of today. A parallel development is that new ways of grabbing someone's attention will always be in development. 

d) Technology

Enabling all the above eternal trends is mankind's ability to tame new materials and processes for his personal benefit. We're now right in the middle of the Information Age, the question is what kind of age will arise out of all the new internet technologies. 

Unfortunately, we might be quite far from Future studies becoming a serious discipline with its own methodologies. The book is also quite chaotic and disorganised. One wish list is that the author would look at these eternal trends and dedicate a chapter to the evolution of each trend and make a series of wild guesses on what to expect on the horizon.  

I'm personally betting that a Quantum Age is upon us soon enough that will make most information technologists obsolete. 


 

Saturday, May 01, 2021

Why policy makers may not plug the CPF Shielding Lifehack Abomination



Ok, this will be my last article on this issue as I've managed to get other bloggers chiming in on this issue and hopefully, the matter will take on greater prominence over time.

One interesting point to note is that matters will not have gone viral if I had not used the word "abomination". The inspiration behind this word was from the third book of the Dune series (Children of Dune) is this character called Alia who is a child savant witch-like character. Alia was imbued with the power of ancestors who lived before her. In the story, her conscious thoughts were like a battlefield where her good and evil ancestors fought to gain control over her mind. When the spirit of her evil grandfather Baron Vladimir Harkonnen took over her eventually, Alia became The Abomination and was the major villain of the third book of the Dune series.

In my opinion, the CPF Shielding issue belongs to the same class of problems known as "The Problem of Evil" that theologians and philosophers have to confront. 

  • If God was good, why does evil exist?
  • If government regulators were that good, why do commissioned FAs exist?
  • If the CPF was so good, why do Singaporeans need to resort to CPF Shielding?

CPF Shielding has been known for a number of years and nothing much has been done about it, I can speculate that authorities have not acted for the following reasons :

a) The impact of this hack was too small to warrant action

This seems to be the best reason for inaction. 

Very few Singaporeans have enough money in their CPF to need this hack urgently because their CPF-OA is normally exhausted by housing needs during their financial lives, so it easy to just shut off one eye and keep things status quo. In this sense, it's useful for us bloggers to keep driving awareness towards this issue so that more people may actively manage their CPF to be able to exploit this shield.

b) The government simply does not want you to get an extra 1.5%, so you need to work for it

Some folks argued that the government just wants to limit the number of folks who can max out their 4% so there was no incentive to make getting that 4% easier for citizens. 

This is less persuasive to me because they can cover up this hack entirely having all accounts flow to CPF-OA at age 55 before CPF-RA is constructed. But I think this will cost another GRC in the next elections for the PAP if carried out. 

c) The technical and operational change may be extensive

Changing the system to allow citizens to elect to top up of CPF-RA via CPF-OA first may require system changes. We really cannot tell whether the systems allow the priority to change. 

If someone hard-coded and compiled it years ago, the expense may not be justified. But it would be really dumb to hard-code the order money pours into CPF-RA from a software engineering perspective. 

d) The CPF Shield is a part of a complex system of compromises with the Finance Industry

This is a most interesting idea. 

If you think about it, allowing citizens to use up CPF-SA to buy select investment products is already quite a dangerous idea given that 4% riskless returns is rather high. CPF currently allows CPF-SA to be invested in balanced funds. From a risk-adjusted perspective, it's giving folks the option to trade off a product with a Sharpe ratio of infinity to maybe something with a Sharpe ratio of 0.4 - 0.6 in the best case. 

I'm totally fine if it's an option folks can refuse. But CPF also does not want to drive out the finance industry or trigger massive unemployment for FAs as well, many count on financial advice as a rare route to millionaire status without a degree. 

So maybe this hack is a series of compromises to keep some career paths open to Singaporeans. 

I like to think about compromise when I put myself in the shoes of a policymaker. There are a lot of things about financial advice that can be improved instantly for the good of most citizens, primarily ensuring that FAs have, at least, a relevant degree since financial planning is not a joke.

But this has not happened, so you've got a bunch of advisors claiming to be doing work as important as medical doctors as taught by their handlers but having no need to meet such standards.  

Sometimes I wonder if financial advice is really based on intelligence and knowledge, then how many Singaporeans will be out of a job if we reform the law to align with this reality?

In summary, I'm not trying to remove the freedom for Singaporeans to invest their monies. I just want the freedom to earn my 4% without resorting to third-party funds, hence I think giving Singaporeans a choice to populate CPF-RA from CPF-OA should be provided by the CPF Board itself. 

If a savvy FA can convince someone to invest their CPF-SA somewhere else, good for them. 

I see our role as financial educators to make sure that folks understand the price they pay when this happens.

CPF Shielding is merely the tip of the iceberg. There are plenty of reforms to the Financial Advisors Act that will benefit the people of Singapore and I hope one day I can convince an Opposition party to take up these issues one day. 


 

Tuesday, April 27, 2021

More on the CPF Shielding Lifehack Abomination !


The previous article was a humongous success with so much interaction, I actually had to censor some comments from some angry FAs. This clearly means that citizens can be passionate about the CPF programme without resorting to unreasonable antics like those of Roy Ngerng. 

Seeking a solution to plug the CPF Shielding loophole is not too much to ask for.

Today, I would like to raise three points after readers have provided their feedback on my initial post :

a) $40,000 / $20,000 of the CPF SA/OA cannot be shielded

One reader pointed out that certain components of CPF-SA and CPF-OA cannot be shielded, so in my example in the first article, the advantages were overstated. If you have $280,000 in CPF-OA, you will are prevented from dumping $20,000 from CPF-OA, so you will have an extra 1.5% x $260,000 or $3,900 a year from successfully executing the hack. 

Still a fairly consequential amount of savings, so if you are reading this, please read my previous article on the hack and figure out what you need to do when you turn 54 years old. 

b) The lifehack itself contains some hidden risks, so it is not foolproof

The recommended funds tend to produce low returns but contain a lower amount of credit and market risk so when the hack is being carried out, you can lose the difference between the 4% and the amount returned by the funds over the short term. Some readers also commented that the hack should be performed using higher risk-balanced funds to minimise this difference, but this increases the volatility of the fund when it is in transition.

Ultimately there is no free lunch. 

You can lose money from the balanced fund or even the bonds in the short duration bond funds. The Sharpe ratio of CPF-SA is infinity with a 4% fixed return. No living FA can recommend an alternative to CPF-SA which is why having an option from CPF Board remains the best solution for everyone. 

As such, readers who recommend completely banning investments using CPF-SA may even have a point.

c) Why some commissioned FAs were baying for my blood while complaining about low commissions from executing this manoeuvre

Fortunately, I have FAs out there who are my allies who can assist in interpreting the antics of the angry commissioned FAs who read my blog. The fact that FAs earn low commissions from implementing the hack was explained to me by my allies. In fact, many of them are happy to assist my readers who need this hack but emphasised to me that a certain level of DIY is still expected because this is a really low margin service. 

So the question remains: why are some FAs so mad with my proposal to nerf this hack when they earn so little from this?

One possibility is that this hack gives commissioned FAs a foot in the door to the client's trust. If a client can save $3,900 a year with the hack, there should be no issue buying a couple of extra ILPs bundled into the service. 

I'm not done talking about this issue. I should have one more article from the policy maker's perspective that I will launch if I am still alive after my second Pfizer jab tomorrow.

Do keep your comments coming...




Friday, April 23, 2021

CPF Shielding Lifehack is an Abomination that must be ended by the CPF Board



So a few really smart CPF hackers discovered this CPF lifehack that you can read about here

Apparently, authorities will populate your CPF Retirement Account with your CPF Special Account first before drawing upon your CPF Ordinary Account. If you allow the default action to take place, then you can lose out on thousands every year because you can't boost your CPF-OA's 2.5% to 4%. So some guy suggested that you buy third party products with CPF-SA just before your CPF-RA is set up (at age 55) and then sell these securities off to return the money to your CPF-SA after your CPF-RA is set up. This ensures that the bulk of your CPF-OA will be pushed into your CPF-RA and the CPF-OA monies will work hard for you from age 55 to age 65. 

The difference in returns is non-trivial, suppose the Enhanced Retirement Sum when you retire is $280,000, hacking the difference of 1.5% interest will net you about $4,200 every year.

Personally, I'm all for CPF shielding. I suspect that I may not need to do so because my CPF-OA is kept small by my mortgage, but this is a serious penalty for folks who do not understand or fail to perform this manoeuvre just before age 55.

What I'm upset about is that authorities actually allow the hack to even take place. 

To execute the hack, I am forced to buy third party products, earning them a little bit of kopi money through fund expenses and commissions, otherwise, I may have to sacrifice an extra $4,200 every year in free interest from the government.

To me, the fact that this hack exists is a failure of policymaking. 

The finance industry gets to earn something every time this hack takes place and thousands of uneducated citizens may not be able to execute this hack in the first place because they don't really understand our CPF system.  The pushes the importance of having a financial education even more. 

As a voter and citizen, we should not remain silent about this. 

The CPF board should simply ask the citizen whether he would prefer the CPF-OA to be used to top up into the CPF-RA first with the status quo as the default option. 

Give us a choice in the form of an online survey at age 55 instead of greasing the palms of the private sector (or some commissioned FA who would happily sell this hack to retiring customers. )

I think the problem is that very few citizens are aware of CPF shielding hack, why it exists, and why it's a consequential hack for us. 

As of this moment, it falls to financial bloggers and CPF ambassadors to provide feedback to CPF board employees and tell them that this is an issue that should be addressed ASAP. 

CPF board probably would not want to talk to a troublemaker like me, but if you are a CPF ally, please let it be known that Singaporeans are getting smarter and are less tolerant of weaknesses in our social security system.    


     

Monday, April 19, 2021

Personal Update - The Future is Quantum


 I'm in between books, so it is time for a personal update.

a) Business

The rule I apply to this current life is that I need one win out of every initiative I have every year. 2019 was a win on all fronts. 2020 was a bad year for investments but it was ok for my training business. This year my training workload has been cut by a third so training takes a back seat, but the market recovery has been really fierce so far so I should do ok in 2021. 

To ensure that things will not go as bad as 2020, I am farming my excess time into the Introducer collaboration with iFast. As in all things, there is a lot of work for very few rewards at first, but it's something that can potentially grow over the next 5-10 years. 

b) CPF and taxes

I'm finding it hard to spend money this year as my leveraged portfolios begin to gush dividends faster than I can spend them ( I can just Netflix and Disney+ all my excess time ). So my finances have taken a very strange twist that readers should probably not replicate unless they know what they are doing.

First of all, I invest my training proceeds into the portfolio built by my students, so I don't really earn much money. Second of all, I finally figured out that sole proprietors can avoid taxes up to 37% of earnings if they farm earnings into the CPF and have it distributed across all CPF accounts like a working person. So instead of putting making SRS my priority as in previous years, I have been farming my dividends into my CPF! The numbers will cap at around $37k, then I am likely to farm the rest into my SRS. A guaranteed 2.5%-4.0% is a beastly return when you consider how low bond yields are. Add the tax benefit and it becomes better than most endowment programs off the shelf considering that I only need to lock it in until I am 55. 

This combined action is likely to push my taxes to an all-time low in 2022 unless my business picks up in 2H2021. 

I think you really need an existential vacuum to forego 37% of your earnings and then on top of that $15,300 in SRS every year. I suspect most sole proprietors would rather farm it back to their own business than have it locked in their CPF. If you push me on spending, I probably have only one discretionary expense this year which is the iPad pro coming out in 2021. 

Otherwise, I'm waiting for a good colour e-reader from Amazon.

c) Learning and Education

As an IT guy I feel really threatened by Quantum Computing, so to conquer my fear, I took a break from learning AI to pick up the basics of Quantum Computing. There is only one programme from a Russian University on this topic on Coursera so I pushed myself through it. 

Amazingly, I can do all the MCQ questions and score quite well without understanding barely 20% of what quantum computing is really all about. This is likely due to the heavy dose of maths courses I did during my JC and NUS Engineering days. 

I still feel overwhelmed by the topic but studying it is strangely motivating. My guess is any paradigm shift beyond quantum programming will not be my problem anymore and it's something my kids may have to deal with. 

The good news is that Quantum Processor Units are not available in Sim Lim Square yet, when that happens, expect the NUS Physics degree to become the most sought after degree in Singapore. 

d) Future Projects

RI has invited me back to talk about personal finance again in 3Q2021. By then I would have worked closely with my three RI interns so should be able to create the next version of my personal finance presentation for young adults. 

I continue to look for such gigs as a means of giving back to society. 

e) Hobbies


I'm barely clinging to my D&D hobbies, having run a game just yesterday. Fortunately, thanks to Ryan Toy review, I started playing Dungeon Mayhem by Wizards of the Coast with my kids. My kids are starting to get familiar with fantasy tropes thanks to card games and Mobile Legends.  

Hopefully, the card game can be a gateway drug to a full-fledged RPG experience. 

f) What I am reading

As I just picked up the Dune RPG, I decided to continue with Frank Herbert's Dune series starting with the second book Dune Messiah starting in the second book, the Dune storyline no longer looks like the real-time computer game beloved by Gen X and becomes more like the political board games we used to play in the 1980s.

I should finish this book before attempting to read Jordan Peterson a second time. 


Thursday, April 15, 2021

Is Blue Collar work feasible in Singapore ?

 


America is disillusioned about getting degrees. Unless you are going to an Ivy League university, the odds don't look good as you'll probably be saddled with crippling loans after graduation. If you study for some shit degree like Gender or Ethnic studies, things get even worse because the university is where you'll spend 4 years blaming all of your problems on white men. 

So Ken Rusk, a successful contractor, wrote a book to exhort Americans to consider good old-fashioned blue-collar work. The logic is quite compelling in America - if you are willing to get your hands dirty, you will be able to find a job that pays quite well and avoid getting into crippling student loans. Some statistics are super interesting. An air traffic controller does not require a degree but can earn an annual income of $108,000. Even an electrician apprentice can earn $48,250. Plumbers are also worth quite a bit at about $60,000.

Another compelling reason to consider blue-collar work is that about 4-5 years of work will make you an expert and you are more likely to upgrade by starting your own business. This is really all about the American Dream.  

I was attracted to Blue Collar Cash because I was wondering why polytechnic grads want to study for a private degree so much. The latest numbers look very bad on the mainstream news. Getting a private degree in Singapore is like putting a sticker on your head to tell the HR company to throw your resume away. So why not do blue-collar work in Singapore instead, start saving money earlier, and become a contractor towkay later in life?

Three words why this is not possible in Singapore - Cheap Malaysian Labour.

Half of my family is Malaysian, but I want to say that Malaysian Chinese contribute quite a bit to our economy. By keeping the fees low, Singaporeans pay less for contractor services and haircuts and a larger proportion of our workforce do supervisory and management work. The fact that a Malaysian can pop into the country to cut your hair, then go back to JB to spend their hard-earned SGD makes it impossible for blue-collar work to pay as well in the US.

So the bad news is that this book cannot be contextualised in Singapore :

  • Local universities are not expensive.
  • Blue-collar work does not pay well as there are plenty of Malaysians willing to do the work for half the pay because they spend in Ringgit back home.
If policymakers solve this problem by creating a licensing regime for work like plumbing and electrical services, it would be welcome by Singaporeans who love blue-collar work but it is highly likely that Singaporeans will end up paying more, so this is not something that can be solved without a proper study. 

Sadly the rest of the book is motivational in nature and lessons about grit, accountability and setting goals is not something specific to blue-collar work and too generic to be novel for the reader. I might be better off reading Angela Duckworth's Grit instead. 

Also, the author shared that his own daughter has advanced degrees in Architecture, so there was no attempt at eating his own cooking by making his kids follow the advice from his book. This is a major turn-off for me because I believe in having Skin in the Game. 

Nevertheless, it is very refreshing to read self-help for a segment of society and I will look for more books in this genre. 

Having an involuted society like Singapore that focuses purely on managerial and knowledge-driven work is unsustainable. We need good career pathways for folks who are good with their hands with numbers similar to the US.  

The salaries in the US look really yummy - maybe ITE grads may wish to start planning to emigrate and go work in the US with the aim to start a business before their mid-30s. I would not mind executing this plan if my kids are academically disinclined in the future. 

It may be a happier life as your work is less desk-bound and there may be less office politics.