Thoughts about the Wuhan outbreak

Other than Wuhan, I am dealing with crisis that has nothing to do with the virus outbreak. I took a blood-test this morning and the results alarmed my specialists so much so that he has to call me up and ask whether there is anything wrong with me. Apparently, I have been working out so aggressively that my Creatine Kinase levels have shot up the roof. I was actually asked by a doctor to STOP WORKING out for one week. In Chinese Wu Xia, this is Zhou2 Huo3 Lu4 Mo2 or "Walk-Fire-Enter-Demon".

Beyond that, let's talk about the Wu Han outbreak. As I am still shaping my ideas, this article is not ready for Dr Wealth blog yet.

Here's what I think :

a) Maybe we should not put so much weight to historical market performance in virus outbreaks.

It is very tempting to make a buy call at this time and it would be really objective in the face of data from outbreaks like SARS and H1N1. Still, I don't think it is wise to start buying now yet. We know objectively that the Wuhan virus has a lower fatality rate, but the transmission rate is likely to be higher than SARs, so I am not about to throw caution into the wind yet. This can still be unprecedented.

Also markets may face another downturn when the first person to person transmission happens in Singapore. I see the probability of this happening in a few months to be very high.

b) Observe the virus, don't fixate on financial ratios

At least Ray Dalio put something up on the virus. HK and China markets are expected to rally if the rate of change of infected becomes zero. Another words, markets will rally when the number of infected stabilize start trending downwards. We're still months behind this milestone.

The problem is publishing this information is that almost every smart investor will look out for stabilization of infected people. So if you want to front-run the smart money, you may have to take the second derivative of the infection over time function. Another words, start buying tactically when the infection numbers stop accelerating, exposing yourself to more downside risk.

Another way to assess the virus is via the basic reproduction number or R0. A precise figure is unknown right now but is now expected to be higher than SARs. If the rate of contact can be reduced, the R0 should be able to drop below SARs.

Coincidentally, I have written about this before.

c) Even if you time the market, the question is what to buy

The simple answer is anything related to HK or China.

If it were me, I'd buy a quintet consisting of CRCT, Sasseur, EC World, MNACT and YZJ, collectively they pay a decent dividend. Still, I think buying anything on the Singapore market will lead to very small gains because we are actually not too bad at controlling the virus.

d) I have suggested to my ERM graduates to stay put and get on with their lives

As the virus outbreak is a significant sea-change in the economy, quantitative models can be invalidated overnight. On the first day of the market reaction, I got worried because our consolidated portfolio lost 2.3% when the blue-chip and REIT market lost about 1.7-1.8%. As our portfolios are designed to be already very defensive, this was very new behavior and I was concerned for a short while. The subsequent behavior on other days were normal and we consistently outperformed the indices on a downturn all thanks to the dividend paying season for the past 2-3 days.

Naturally, some students got stung by their positions in YZJ but I reminded them that they also put in positions in Parkway Life REIT. A good portfolio should have a poison and antidote built-in to counter different situations. Therefore, I think that, net-net, it's better to ride out the virus and be paid dividends for their patience.

So basically, that's it. I am counselling indifference to the Wu Han outbreak for now and rather focus on getting the masks from the CCs over the next few days. I got Book 3 of the Legend of the Condor Heroes - A Snake Lies Waiting and will be binge watching The Expanses.

Even my D&D game tomorrow has been cancelled !

MBA in a Nutshell #22 - Accounting and Finance : The Cash Flow Statement

We're now moving onto the cash flow statement. A problem faced in assessing companies is that they can be profitable but lack cash flow. Sales can be recorded but the cash only comes in after period of delay as suppliers sometimes gives customers generous credit terms. The cash flow statement is, thus, a very recent development, made compulsory in the US in 1988.

There are three main components to the cash flow statement :

a) Cash flow from Operating Activities

Measures cash obtained from direct business operations like selling of goods or services. When cash owed is paid to the business by a customer, it is recorded here.

b) Cash flow from investing activities

When you buy plant and equipment, you record the outgoing cash flow here. Companies that sell their means of production will have to record proceeds here. If dividends come from selling plant equipment, this should raise an alarm bell.

c) Cash flow from financing activities

When you get a bank loan or issue shares, the cash flow can be found here. Dividends paid are also found in this section of the cash flow statement.

The cash flow statement is an enabler for dividends investors. When we wish to see whether dividends are sustainable, we normally calculate the ( Cash Flow from Operations - Capital Expenditure ). If this number is higher than dividends given out, we have some assurance that dividends are sustainable moving forward.

Consequently, when back-testing Singapore dividend stocks over the past 10 years, companies that have sustainable dividends have a much improved performance.

Happy Year of the Rat 2020 to all Readers.

I will be Malaysia in Chinese New Year so I thought I'd wish everyone earlier this year as I continue to find ways to use up the Ringgit I failed to spend in Kuala Lumpur last week.

a) What I will be doing

Very likely I will go to Kulai tomorrow in the afternoon on the second day, my in laws will take a 2-3 hour drive to visit relatives in Kluang region. I will be relying on 1 Gb of Starhub data unless someone can sell me a SIM card when I am in Malaysia.

b) Financial Markets

It is very apt that we're starting the new year with a reminder that rats bring the Bubonic plague.

The Wuhan virus just claimed 25 lives and China seems to be in a panic mode as we speak. The historical literature on pandemics points to neutral or positive market but I suggest that we hold back from bargain until we know more about the Corona virus.

Epidemiologists model diseases based on three variable, probability of contact, probability of infection and probability of recovery. Probability of contact will be lower than SARS because of drastic measures taken by the Chinese government to lock-down actual cities. We are still not too sure how easy it is to contact the virus and what the odds of recovery are compared to previous outbreaks.  Over the next few weeks, we have to assess these remaining variables. If the numbers are milder than MERS or SARS, then maybe a position can be taken in the markets.

In the meantime just stay safe.

c) What I am working on

My course is taking a one month break but I am busy building a new preview format to keep things fresh. My newer preview entitled "Roads to Riches" is ready for beta launch and Dr Wealth sales staff will be working with me to make the message more coherent and palatable. All my effort will be focused on getting this to work over the CNY holidays. "The Four Seasons" is a frank and brutal discussion about our lives in general, I intend the "Roads to Riches" to be a deconstruction on how people get rich in Singapore. The first launch is the next preview in February.

My other project is the Seedly FIRE talk and we're making greater progress with all the solid materials incorporated into my slides. As in all public talks involving thousands of Millenials, I want to inject elements of pop culture into the presentation but the slides don't seem to be ready for that yet.

d) My physical training regime

After getting my flu jabs to ensure that I can run my classes without interruption, right now I am combining intermittent fasting with weekly gym exercise. The primary objective is to lower my blood sugar and arrest my muscle decline (and possible Sarcopenia). I am starting to see some improvements within 2 weeks of work, but I have a long way to go.

My body is still weak from years of neglect. After a workout with my trainer, I can't even feel my legs. Two days later, I would get really bad muscle pains but after that, I feel fitter than before and walked 9 hours in KL non-stop with a full pack of second hand books. 

My trainer is quite appalled at the state of my physical fitness. He kept saying that I should have showed up years ago. If you really want to deconstruct my life right now, it's all about making money early and then using the money to sort out the areas you have neglected earlier in your life.

I don't think this is a smart thing to do but I should enjoy my better body this CNY. Resolutions lose their momentum sometime in March and I won't be surprised I start to slack later this year.

The jury is still out whether my diabetes control will improve, workouts make my hungry and I went to Five Guys to have a burger last night !

e) Leisure and Hobbies

Took me damn long to start following The Expanse on Amazon Prime. This is a serious hard sci-fi story that has spawned at least one RPG. I am taking it slow and prioritizing my work.

I am still on figuring out Machine Learning in the finance domain and reading a book on it. The book has gotten really hard core but the insights are amazing. I think ETFs combined with AI will get fund managers into serious trouble.

The future looks bright for the retail investor though.

MBA in a Nutshell #21 - Accounting and Finance : The Income Statement

Today we will meditate upon the Income Statement.

The most important relationship within an income statement is simply :

Gross income - Total expenses = Net Profit (loss)

It is obviously not so simple :

Operating income = Sales - Expenses, expenses being cost of goods sold, sales and general expenses and depreciation.
Income before taxes = Operating income - interest charges
Net income (loss) = income before taxes - provision for taxes

From an internal management perspective, this is a precious data on how to improve the bottom line :

• Can we improve sales by marketing harder ?
• Is the rise in cost of goods outstripping inflation ? Can we negotiate harder with suppliers ?
• Are general expenses increasing faster than inflation ? Can we cut down on labor costs by outsourcing ?
• Are we reducing depreciation by playing with accounting rules ? Are we depreciating more because of more equipment we are buying ?
• Can tax and interest payments be optimized further ?

These are actually questions an investor can ask when they drill into a company's financial statements. But this is much harder for an investor who has 50-60 counters to manage, many are investments with conglomerates that have a finger in every pie and therefore hard to analyse.

Investors however can piggyback on analyst reports and have someone else analyse the numbers full time for them. 

I've always been wary of investment styles that drill so deeply into company statements and ignore the overall picture of portfolio construction. Even if you can outperform the markets, the lack of diversification means that you will suffer crippling losses if you do not foresee an inflection point coming. 

On my latest trip to KL...

I just came back recently from KL.

The objective of my trip was to accompany my mum to visit relatives, do some shopping and eat local food. My mum observed 100 days from my dad's passing so this is the first time she can unwind and relax after close to a decade of being my father's caregiver.

Here are some highlights of my trip :

a) Went to an Avant Garde arts event and hated every moment of it

On the first day when my cousin brought me around, he asked whether I'd be willing to attend an Art event so that he can meet up with an old university buddy. Since I am a big fan of bad B-grade movies and that my policy is that a bad event can also be a memorable one, I agreed to give it a try.

The event did not disappoint because it really pissed me off :

I found myself in an abandoned warehouse surrounded by KL hipsters. The audience is particularly entertaining to watch : One guy with long hair was wearing some kind of Han costume and spoke with the accent of someone who is rich enough to waste his father's money to study some shit design qualification in Australia. Some edgy patrons wore a Yayoi Kusama T shirt - that was cool because I always thought she was the mother of modern hentai and medically insane.

During the performance, a long haired musician dancer was aping Sun Wu Kong on a tambourine while a female dancer tried to wrestle it away. One dude ( who looked so much like Dan Lok ) painted black ink over the lady dancer with a brush in some weird interpretive dance move, I thought he might be creating a new search category on Pornhub.

The dance was incoherent.

There was no story.

There was a lot of light, sound and 450 gallons of wasted water. Tons of granite were lifted to the location of the stage. One was 650 kg.

You can look at what I suffered through here.

Still, Singaporeans need to be sympathetic towards the Arts scene in KL. The artists here have got real balls and have little or no government funding. I've always thought that Malaysians are practical people and no sane Malaysian will pay $50 to waste so much water and construction equipment.

I was clearly wrong and will cherish this as one of my worst but best experiences of 2020.

b) Almost kena cheated by a KL restaurant

Are Singaporeans stupid when they currency bloats to 3x the size of the Malaysian Ringgit? YES.

But are Singaporeans that stupid to countenance to endure a bill of $1,158 to feed a family of 11 ? MAYBE, This is a subjective question. The meal can be a good one and we are really feeding 11 people.

Should Singaporeans tolerate the restaurant double-counting the receipt and recording the meal items more than once? HELL FUCKING NO !

My aunt alerted me to an added item in the bill that my mum did not notice. We got overcharged. To keep drama to a minimum we asked for a dessert to balance out the overcharge on our meal. Seriously, the bill was over $1,000 and you still want to overcharge us ?

The meal was ok for the price but terribly executed. The rice was served first and we were too bloated to enjoy the rest of the meal. The prawns, the star of the evening, were overcooked. The negatives far outweighed the positives.

The next few days, I took revenge on KL and brought my mum to all the street eats near KL Sentral.

In spite of going to multiple top restaurants ( I strongly recommend Nasi Kerabu in Serai Pavilion ), we never succeeded in blowing half the meal budget for that one meal. In fact, the picture above showed the best meal we had and we spent 10 ringgit.

c) Bored while shopping in KL

I think Carousell has finally ruined shopping in KL for me.

Because the Malaysian government does not invest in having good libraries the way we do. KL is supposed to have seriously good bookstores. Their Kinokuniya is huge and has a role-playing game section that stocks weird titles.

I like second hand game-books, so I love going through old second hand bookshops to hunt for them.

The collection in Junk Books can no longer compete with Singapore's few bookstores with Carousell. The game shops in KL has also become Singaporean-like, almost singularly focused on brands that sell easily like Warhammer and Magic the Gathering. It only perked up when I visited Books Xcess at Farenheit 88 that had books that are cheap and not sold widely in the bigger bookstores. Good news for Singaporeans is that their store at Sunway Big Box should be open this year.

My mother had a slightly better time at Sungei Wang that sells clothes for as cheap as $14 MYR.

Overall, I think Singaporeans should go out into other countries every now and then to enjoy how strong our currency truly is. Over the years, we have become jaded and nothing beats waiting for 20 minutes for a KL monorail without an announcement to understand how much work it takes to create systems that actually work.

With more compelling bookstores and gameshops flourishing in Bangkok, I doubt I would be visiting KL for a while after this trip.

Personal Update

It's time for another personal update.

a) No classes until end-March 2020.

My next ERM is quite a while away on 28 March. This is to have a short break for Chinese New Year but I will be keeping myself  busy. At the top of my agenda is to create an alternative preview for my course to keep things fresh for myself as well as for folks who need another preview to make up their minds.

This year we are going to push the envelope further and one of the things I want to disrupt is the idea that  preview is merely sales vehicle to drive more conversions. With an alternative preview format with different content, I am trying to embrace the idea of the course preview as "theatre", an opportunity not just to inform, but to entertain.

So we will still have the current play (super-successful so far I might add) which is entitled "The Four Seasons", but I will performing in February a different preview called "Roads to Riches" next month.

I think the crux of my drive is to do less selling and to do more edutainment. Expect to see more research and data in the newer talk that will be relevant for your financial life. The idea is that if you can learn so much in 2 hours, imagine how much you can pick up in 2 days.

b) Work-life integration of Netflix

As part of the drive towards a new theatrical performance, I have made it a point to integrate Netflix to my personal life. I have started binge watching on stand up comedy - trying to integrate some aspects of it into my work. I've not managed to go very far, having only managed to repurpose a few quips from The Witcher into my last finance talk.

I would just like to say that of all the stand-up comedy I watched, Ricky Gervais' Humanity is the best one so far. Do watch it if you can. Also, if you want something Singaporeans can relate to, you can follow Ronnie Chieng.

c) Starting work-outs with a personal trainer

This has also been a painful week with my first session with a personal trainer. My trainer has experience with diabetics patients and started with a rigorous workout targeting my leg muscles on Tuesday. The work-out were ok on that day itself, but I ended up taking painkillers on Thursday.

I have just recovered and will go back to normal exercise later. Hopefully the pain will pay off dividends in the form of stronger muscles as I suspect that I am suffering from sarcopenia or accelerated muscle loss.

d) Travelling this weekend

There will be no update this weekend as I will be travelling to KL with my mum. We will be travelling to KL to meet up with some relatives and I need to get some second hand book shopping done.

e) Books I am reading

I am currently reading a Wiley Finance volume on how to integrate Big Data and Machine Learning into Quantitative Finance and am really shocked at the new sources of alpha hedge fund managers are currently using, many involving non-traditional sources of data.

I am pretty certain now that almost all of us are really in the stone age when it comes to investing and I suspect even these hedge fund analysts will be rendered obsolete by newer ideas in a year or two. Maybe the only way to keep being in the know is to become a perpetual student and never leave cutting edge.

My first dumb trading move in 2020...

Occasionally, I do something that is so dumb that it's worth putting up a blog article to warn readers not to do the same thing as I did.

I am currently in the process of cleaning out my father's portfolio and slowly removing his less promising investments from the family portfolio. One of the items I was eager to get rid of is 80,000 shares in Neratel. So two days ago, I put a sell position on 80,000 of Neratel and cycled the position into an equivalent amount of Netlink trust - I needed my mum to get dependable dividends moving forward so I can afford only the safest investments moving forward.

This would have been fantastic move.... if only I actually had 80,000 shares of Neratel !

So I got a call from the broker the next day telling me that I sold stocks that I did not actually own in my CDP. This was the first time it has happened, and it was the shock of my life.

The broker then sent me an email explaining what happens when an idiot like me sells stocks he does not have in his CDP account.

• SGX will attempt to buy back the stock with this idiot's account on due date and due date + 1. Due date being T+2 where T was the date the original transaction took place.
• Here's the scary bit. If the buy-in on due date and due date+1 is unsuccessful, a penalty of 5% of the transaction value or $1,000 will be imposed (whichever amount is larger).
• A buy-in fee of $80.25 will be imposed along with fees that scale with the size of the transaction.
• SGX will slowly ratchet up the offer price by 2 minimum bids during the buy-in attempt.

So for the next two days, I was gritting my teeth and staring at Neratel stock. Adding to the suspense, Neratel was illiquid and there were several offers at $0.285. Making matters worse, my broker advised me not to buy into the counter proactively to lock in the price earlier because the settlement would be too late and SGX would still perform the buy-in on due date based on the rules they established earlier.

To make the long story short, this stupid attempt to trade Neratel cost me about $800-$1,000. The pain was bearable because the amounts were small compared to my greater portfolio and the past two days has been rather good for the stock market. Also, the results would have been more catastrophic if I did not have about $20,000 in my cash account - I initially wanted farm my proceeds into Netlink Trust, so now I have to pay for Netlink Trust using cash at T+2 !

Nevertheless, this amount of money would have gotten me several good meals in KL.

If I had simply opened my CDP account on a browser tab and made a quick check before I sold my stocks, I would have saved myself from a world of pain.

Anyway, please learn from my mistake and don't be like me ! 

MBA in a Nutshell #20 - Accounting and Finance : The Balance Sheet

Interesting the section on balance sheet is only two pages long.

In a nutshell, a balance sheet is a snap-shot that summarizes everything the company owns (assets) and owes (liabilities). The difference between what the company owns and owe belongs to shareholders and this is called equity. The following equation must hold for all balance sheet

Assets = Liabilities + Equity

Beyond this very simple discussion on the balance are some items investors need to be aware of.

Assets minus Liabilities is also known as a company's Book Value. Dividing the market capitalization of the stock by the total book value will generate the P/B ratio. Value investors buy low P/B ratio companies because they are in essence buying up assets at a price lower than its value. Interesting, if you have gone for a lower P/B ratio in the Singapore stock market, you would get a return of 10.11% over the return of the entire universe of Singapore stocks which was 8.2%. This return would have been obtained at a lower risk.

The other interesting ratio is the debt to equity ratio which is total liabilities divided by total equity. I never do back-testing on this metric for equities because in all the tests done in the US that stretch back 50+ years, having a high D/E ratio and a low D/E ratio both lead to under performance. The sweet spot is to be around the 30% percentile. While I do D/E ratio back-testing for REITs, strategies targeting low gearing are no longer profitable in our stock-market. 

No one ever said investing is easy.

Letter to Batch 11 of the Early Retirement Masterclass

Dear Students of Batch 11,

It’s been a great honour and privilege to be able to conduct a 2-Day Early Retirement Workshop for you.

One of my worst fears came true when teaching this class. I fell sick and was running a high fever throughout Day 1. Because I previously had a flu vaccine, the symptoms were so minor that I was able to use Panadol to still get away with a decent program run over the weekend. The lesson I would think we can learn from this is to get a flu jab wherever possible - A $30 intervention can prevent the loss of not just my trainer fees, but also the valuable time of the students of this program.

Otherwise, a lot of things occurred outside the classroom. DPP won the Taiwanese elections. This means that Chinese tourists would continue to visit Singapore since they are probably not welcome in Hong Kong or Taiwan, which in my opinion, should make this a bullish event for hospitality trusts with Singapore assets.

This is also the class where I begin my attempts to introduce investments outside our quantitative models. For the blue-chips equity portfolio, I made sure that only household brands were admitted into the portfolio mix. This is consistent with the idea that 2020, investors will be willing to take on more investment risk as it is the last year of the Presidential cycle. I am glad that after review, the class has accepted both proposals.

For the income portfolio, the class took a different tactic compared to previous classes, voting for a portfolio that gave higher returns but at a higher risk. Given that yields of such a portfolio is low, I had to insert two counters to uplift the dividend yields and am glad that one stock was chosen. The final product would yield 6.55% and over 10.02% when leveraged with an equity multiplier of 2.

I felt that the class did it’s best today and we were careful and judicious about eliminating stocks from the quantitative models. I will be investing $17,000 into the 17 counters that you have selected over the past two days. As I might be travelling to KL this week, execution will be at latest next week.

Finally, it is heart-warming is that I am seeing students leave the classroom and chatting in groups after class. Please don’t forget that the ERM Class is a significant investment on your part and you should network aggressively – maybe a fellow classmate may become a springboard to better things in the future.

I will see you folks at the Facebook group.

Christopher Ng Wai Chung

MBA in a Nutshell #19 - Accounting and Finance : Risk management

We're opening a new year to discuss Chapter 2 of the book MBA in a Nutshell. As it turns out the accounting and finance section of most MBA sections are structured very differently from the CFA syllabus. CFA charter-holders assess an investment as an outsider looking in whereas MBAs use their knowledge to manage a company from an insider's perspective. The author also disclaims that the book focuses on the managerial aspects of accounting and not the financial aspects of accounting that focuses more on compliance.

The chapter opens with the most important tasks performed by Chief Financial Officers or CFOs - Risk Management. As it turns out, doing risk management for a company is a complicated task requiring the support of a multidisciplinary workforce.

Risk Management covers the following :

a) Business Partners - How dependent is the company on them ? This requires knowledge on legal aspects of the relationship as well as an understanding of their culture.

b) Adversaries - What is our competitor's market share ?  Do we have intelligence on them ? Are they spying on us ?

c) Customers - What credit risk do they pose ? Do we have product liabilities ?

d) Intermediaries - Can the intermediaries deliver ? What is their cost of distribution ?

e) Financial considerations - How much forex risk are we exposed to ?

f) Operational - This occupies a lot of time as it covers issues like systems downtimes and physical security.

g) Human Resources - What are our staffing needs ? What are HR policies like ?

h) Political - Is there a risk of terrorism or war ?

g) Legal - How do we protect our intellectual property ? Is there ongoing litigation ?

h) Reputation risk - Is the corporate image vulnerable to attacks ?

i) Strategic considerations - How are resources planned and allocated ?

I was actually quite surprised at how broad this subject matter is. In fact, it is plain unfair to make risk management under one CFO - the whole company should play a role in risk management.

Another way of looking at this list is that the more anal investment analysts can use this framework to cover all the bases when analysing the future prospects of the company. But if you resolve to analyse the company using this framework, at what point does an investor stop and conclude that data gathering has ended and a decision needs to be made ?

Readers need to stop doing this in this new decade !

With 2020 in full swing and anti-goals being in vogue, maybe it is time readers of this blog stop doing the following :

a) Gawk at the CPF interests earned by other bloggers.

Incidentally, Brian Halim was the first to call people out on this.

I think it is a great practice to check your CPF statement first thing in the new year. If we emerge from a bear market, your CPF will be the only account that will give you something to smile about.

But waving your CPF statement on the Internet like it is your big giant 12-inch penis is dumb. Some folks start out at higher salaries. Others had the benefit of compounding over many years and are old enough to remember Fitzpatrick supermarkets and the grisly Sunny Ang murder case.

Also, as much as I like a nice payout from my CPF as any other Singaporean, having $1 million in your CPF means money to spend only after age 55. Maybe you should find a way to have a million before you are 55...

b) Whine about the revision of T&Cs of the new-age bank deposit accounts

I think the bloggers who shared this news are doing a great public service, but I have been very leery of these deposit accounts for a while. In my opinion, signing up for these accounts is like buying a curry puff, and then finding out that it has no filling inside.

First of all, Interest rates on SSBs have been dropping throughout 2019, it is no accident that banks will tweak the T&Cs of these accounts. Secondly, banks clearly want control over your financial destiny so they can offer you a higher interest on deposits if you buy insurance or invest with them. Thirdly, these interest rates are de minimus compared bigger issues on your plate - the rest of your investment portfolio and your human capital that comes in the form of your day job.

So use your common sense - Higher interest rates are a rebate for paying hefty management fees.

Instead, buying a bank stocks can easily fetch you 4% in dividends. If dividends get slashed, you can even KPKB at the AGM or even get more food during the buffet.

c) Stop bothering about your miles or cash back schemes

While I do pop into some apps before I buy from Amazon to get discounts. I do not take a lot of pains to optimize my purchases. The financial equivalent of  improving your aim when flicking your Pi Sai is thinking about miles and cash back schemes.

When I discussed this issue with a friend, he said that a lot of Millenials actually think that finding out loopholes to optimize miles and cash back is a significant component of personal financial planning.

It is not.

Stop majoring in minor things.

You are better off not spending in the first place.

So what should we think about ?

Let's just start with one thing to think about this year for most blog readers who have yet to FIRE.I don't want to get into a discussion on investments because it largely depends on the size of your portfolio. Also, after a great year, I doubt defensive investments would repeat its performance this year.

So I googled "wage increase in Singapore" and the projection for 2020 is 3%.

If you draw $50,000 a year, that is $1,500 more money every year thereafter. What if you find a way to get an increment that is twice as high as someone else ? If you find a better job that pays an additional 15%, that's a $7,500 increase every year hence. This will significantly increase the the flow of money into your CPF.

Maybe in the grander scheme of things, you might want to take steps to make yourself more valuable to an employer. This can be farmed back into the markets to make even more for yourself.

My talk on the Seedly Personal Finance Festival 2020

Time and date of event: 7 March 2020, 10AM-6PM

The venue of the event: Suntec Hall 405 & 406

The following topics will be explored in this event :

This time round, I have been invited to speak on FIRE during the Seedly Personal Finance event this year.

As you can see the working title is still a little generic at the moment as I have yet to start planning my presentation. I expect the final material to be totally new and different from my usual course previews. Maybe one way of predicting the material I will present is to read this blog and see where my literature review is heading over the next few weeks.

You can now book your tickets here :  https://Seedly.sg/events/personal-finance-festival-2020 

There is even a promo code to get a 50% discount here.

Details on the specifics can be found here.

Just remember that last year, tickets were sold out very quickly so get yours as quickly as possible.

A brand new decade - Happy New 2020 !

This wishes to congratulate all readers on reaching a new decade.

Here are some personal thoughts this new year.

a) 2019 is about a rare successful personal transformation

The hardest part about a FIRE journey is to transform your identity post-retirement. Can you accept your personal identity without your pre-FIRE career ?

Compared to even other FIRE aspirants, I managed to pull a once in a lifetime transformation to  freelancer/businessman. Although I don't really believe that this is something many financial independent folks should attempt (because they might just want to find more meaningful and relaxed employment for someone else), there is huge psychological pay-off when you transition out of getting paid for time spent into getting paid for results.

The business world is unrelentingly results-oriented but if you have something that benefits other people, the rewards are aplenty but you need to market yourself well to make things happen. I consider myself a pretty poor marketer and salesman but I am glad my partners can make up for these weaknesses.

This may be one of the rare instances in my life where I can get paid a new magnitudes more while spending way less time compared to working for someone else.

b) 2019 is also about letting go and moving on

As we transform, we have to let go of our own lives. I begin this new decade without my dad who has been a great support for me throughout my life.

At the career level, placing more bets on becoming a successful trainer means giving up on the idea that I can marry tech and law and disrupt the legal industry. I think this is fine industry to get into regardless of whether you are a computer scientist or lawyer.

c) Some things stay the same no matter which realm or decade you belong to

Within the personal domain, I realized that in spite of transformation, nothing really changes. As I move from the D&D Wulin into the Investment trainer Wulin the same characters and archetypes always repeats itself from the sour boomer who thinks he knows better than the younger punks to the bitter person that is always ready to convert his lack of success into a moral high ground. Some personalities are just like literary tropes.

For the first time in my life, I think my health may potentially raise an issue as I get older, as a defensive maneuver I have decided to hire a personal trainer to help me build up enough muscle to maintain my lifestyle. This means going to the gym like all the jokers who have made new year resolutions this year. Maybe I will start later this year as resolutions will start to lose some power sometime end-Feb when I can start my regime.

For the financial discussion on investments, there should be a three-part discussion on the Early Retirement Masterclass portfolio as we open 2020 on the Dr. Wealth website.

Changing one's approach to life to create more opportunities

I had a discussion with a friend on why are there so many failures today who see themselves as polymaths  - folks with wide knowledge or learning. It was suggested that these people should not be labelled polymaths, but dilettantes - folks who cultivate a little bit everything without making a real commitment to develop knowledge or skill in a field.

As I've always feared becoming a dilettante myself because I have both legal and engineering degrees but never really did any serious legal or engineering work, so I thought it be better to read the latest book that pits generalists versus specialists.

This book exceeded all expectations and, unlike other books in its genre, did not spend too much time defending a liberal arts education, a very pathetic feature of most works written by philosophy or English professors with little real life working experience. Instead the book focuses on empirical data on forecasting and innovation and showed us why the most wicked problems can only be countered by multi-disciplinary thinking.

I am going to share one useful nugget I picked up from this book which I felt is useful to readers here.

Apparently the dominant paradigm to live our lives in Asia is the "plan and implement" paradigm. Most of us lived lives that are planned by our parents. You decide that you want to become a professional, then you move towards your target by planning all the intermediate steps to achieve your desired outcome. This "plan and implement" approach is what makes Singapore so successful today. Our streets are orderly and a lot of thought and pre-planning goes into government policy.

The classic "plan and implement" model is the Gantt Chart and the certification program is the PMP qualification. The financial analogue is the Markovitz Portfolio theory. The legal equivalent is our statutes.

Where the "plan and implement" approach fails is when it comes to law students, the very folks I met and studied with during my JD program. Getting into law school requires decades of planning. You need to get excellent A level grades to qualify for law school. After that you need excellent grades and connections to get into a law firm of choice. Life outcomes between lawyers who get the biggest firms and the smallest firms can be very different.

The "plan and implement" approach fails if the entire legal industry gets upended by technology and oversupply. Imagine working hard only to end up in an industry that also admits Australian graduates all thanks to a free trade agreement Singapore has with Australia. Soon, NUS and SMU law graduates will have to contend with the new SUSS graduates.

Thus, I may be the few very unfortunate PMETs who had to compete against Indian IT professionals via the CECA and Australian law graduates via our FTA within a single lifetime.

There is an alternative approach to life.

This the "test and learn" approach. You take small bets to see what you can learn from doing something. If the bets work, you can scale it, otherwise you start doing something else with the experience picked up after a few false starts. The classic model behind the "test and learn" approach is the Kelly Criterion approach to bet sizing and the Agile methodology in software development. The legal equivalent is our common law.

It is very hard to use the "test and learn" approach to get into a professional vocation because picking up professional skills is a huge investment of time and money. Our education system also does not have any feature that gives people exposure to this alternative paradigm although reforms are happening quite fast in this area. However, this is the ideal approach for entrepreneurship and investing - keep your position sizes small and always be pivoting into a better option.

My move into the training industry came after multiple failures at planning and implementing professional career changes. As it turns out the skills I picked up from all this time in school can be combined into a career that is more profitable and time-friendly than an engineering and legal career combined.

Of course, readers should not view the two paradigms as being mutually exclusive. Many areas in life can benefit from more careful planning and agile pivots. I remember when I was in P&G the IT project managers that came in from China view P&G Singapore only as a stepping stone. Openly displayed on their computer screens were Gantt charts on how to eventually obtain Canadian citizenship. But Singapore was mere the first in many moves to gently pick up some skills in moving from country to country.

I think as Singaporeans, there is too much emphasis on planning and implementation. This is why so many of us are stuck working 45 hours a week in jobs that make us unhappy. Let's have more "test and learn" in our approach towards life so that we can make small incremental changes to make our lives better.

Which Financial Martial Arts Manual is the best ?

The financial blogosphere is very much like a Wu Lin. Different investors practice different forms of investing and, now that I have a dojo of my own, like Ip Man, there is always the risk that someone will come and pick fights with you.

While I did not study my Kung Fu from a specific master, I spent more time doing degree programs and certifications to pick up my financial knowledge. If you had done formal study, you'll understand how difficult it is to bring your investment knowledge into the jurisdiction of your choice. Another words, how to the rules and regulations work in Singapore and what products are really available for the man on the street. Particularly important are details on insurance schemes that always seem mystifying to me because insurance agents were very skilled at making insurance planning more complicated than it should be before the age of where all this can be easily found on the Internet.

Fortunately, in 2004, the really good folks from Providend Pte Ltd published what I think was, at that time, the most powerful martial arts manual known in the financial planning world even right up till today. I say this as I have even reviewed local university textbooks on this subject matter.

I remember 15 years ago, this amazing tome was selling at $110 at Kinokuniya bookstore. I waited months for a 20% sale to occur only to be told that textbooks are not entitled to the discount. After I read this book, I went on a Kung Fu rampage, trolling commissioned sales agents with knowledge that they should have known, and shaming them for not knowing more than a "mere IT server administrator". My weapon of choice then was "Buy Term Invest the Rest" - nothing pisses them off more than this fantastic idea. The only equivalent these days is to watch "Mad Dog" Xu Xiao Dong beat up fake Tai Chi masters with his MMA moves.

Of course, reading the book many years ago also instilled in me a very healthy respect for non-commissioned financial advisors. Good guys do exist ! If Providend Pte Ltd can publish such a useful guide for a layperson, I'm sure their paid financial advisory service would be way better. Even today, I work closely with Money Owl directing my students to them (without accepting commissions) to solve problems that I was not licensed to do.

Sadly, this tome is in dire need for an update to the latest securities legislation as well as government schemes. "Buy Term and Invest the Rest" has also become a blunt instrument that agents are now very skilled at handling this class of objections. I doubt other than intellectual curiosity, there is a need to hunt down old copies of this book as it is better to get a University textbook on financial planning that contains more recent information.

Even today, every time I get an opportunity to speak to Christopher Tan, I would beg for a new edition of this book. Also, I welcome readers to recommend the latest incarnation of the martial arts manual that can be used to give grief to the modern equivalent of the commissioned insurance sales agent.

Read a book and you can piss off one commissioned sales agent.

Write a book and an army of retail investors can piss off an entire industry of commissioned sales agents.

Thoughts on my 45th Birthday.

I arrived at age 45 a little sad as it is my first birthday without my dad being around.

It feels a little strange to think that I managed to reach the mid-point of my 40s. That means that my first CPF payout is expected within 10 years. This also means that a voluntary contribution to CPF would make a whole lot more sense than buying a 10 year bond as 2.5% is nothing to laugh at.

Instead of making resolutions, 2020 should be about creating new systems :

a) Some personal hobbies can make a come-back in 2020

There is just too many leisurely things to do these days. This holiday season alone, there is the Witcher and Mandalorian to watch. Rick and Morty also makes a comeback. There are too many shows trying to compete for you attention.

The best I can hope for is some form of RPG gaming in 2020 that is sustainable.

This is possibly the hardest system to keep up because it is so inconsequential but a person needs hobbies to sustain himself.

b) Need to beef up my physical fitness.

I am very worried that I am losing muscle due to a new class of drugs I am taking last year. I have already lost the ability to sit lotus position or even cross my legs when sitting down.

To deal with this issue I have to admit that DIYing my physical fitness does not work and my fiscal discipline doe not translate easily to my physical discipline. A new system needs to be created where I get some outside help to teach me how to use my condominium gym to build up my muscle. I probably will seek to have gym sessions for at least 12 weeks so that I turn it into a sustainable regime.

c) PhD feasibility continues

Truth is that I don't need a Phd.

I need cheap access to a Bloomberg terminal and a structured way to improve my own investment skills so the university environment and a gruelling thesis defence is the best way I can up my game as an investment trainer.

This is going to be a long road where I get back to the basics and pick up some really solid memory and speed reading skills. Then I will have to give myself a major math revision. To make this self-learning journey work, I will end my Economist subscription early 2020 so that I increase the books I read. I have a 50-60 book KIV list that I hope to clear.

There is a good chance that I may select an easier target like a research masters instead at the end of 2020.

Or I might even get distracted by something else.

d) Yes, there are still some goals in 2020.

My success moving forward will be based on systems I create but I still have goals to meet. Income-wise I am seeing if 2020 can top 2019 for me. From a total income perspective I want to see if I can top a junior non-equity partner of a law firm.

Investment-wise, I am not expecting my low beta high yield portfolio to repeat it's 2019 performance. I would be happy if I do not lose money in 2020. 

There is also a decent chance I can be mortgage free after mid-year, this is something I have been working on for many years and freeing up my first mortgage can hopefully lead to another property before the year is over.

MBA in a Nutshell #18 - Marketing : How to know how well you are doing ?

[ Today also marks the 100th day anniversary of my father's passing. My father would like me and my mother to move on with our lives. In 2020, I will be looking forward to travelling with my mother after today. ]

It took 18 articles to complete the section on Marketing. This is a broad subject that can allow a person to sustain a career for an entire lifetime.

Let us now summarise at a strategic level, what a marketer would need to do to measure his performance :

a) How does the organization deal with inquiries?

The marketer needs to track enquiries and find ways to address them. For my own business I have a Whatsapp group with my sales team to answer questions that come from potential conversions.

Outsourcing the common queries is something that is continuous but can be rewarding.

b) How much does the organisation pay per unit sale ?

The first metric is the amount spent for each lead or inquiry. The second metric is how much is spent per conversion. I am fairly confident my partner does this well although I do not have full visibility on this.

c) How much is spent on media and production costs ?

All the FB videos you see by other trainers cost a lot of money and erodes their earnings. I wonder whether they know that, not only do these videos it erode their earnings, they also annoying the hell out of the public.

All that being said, my production costs are not zero.

d) What are the characteristics of your customer ?

The company needs to have an idea of the age, gender, profession and psychological makeup of their customer. I am still grappling with this because I serve multiple segments. Millenials have different needs from retirees but both groups attend my program,

e) Are we hearing from decision makers ?

There is a difference between a key decision maker as opposed to a preview seminar junkie. We know the names of those who will attend every preview but have no intentions to sign up and we are fine with this, one or two actually count as my friends.

As this is a statistical game, we will  have to keep targetting a population who are happy to convert.

f) Dollar value per customer ?

Once we obtain a customer, the customer will have a long term value to the business line.

Actually, I actively avoid doing this, preferring to build a closed community that will function as a "portable brain" to support my investment portfolio moving forward. With enough smart people and a burgeoning portfolio, my community should pay for itself.

Maybe one day I might be able to develop an advanced investing class for existing members of my community.

g) Percentile analysis 

This part analyses the spending behaviour of existing customers to isolate those who can be up sold to for future offerings. A company should give these customers VIP status and find creative ways to part ways with  those that cost more than the value they bring to the bottom line.

h) Bottom Line.

Ar the end of the day, a business owner should know how much they contribute to the bottom line. Those should come in the form of an income statement. 

I was able to get visibility on my numbers recently for 2019 and I think I can bring this year to a satisfying close.

Why is it so hard to sustain a financial blog in Singapore ?

Done right, conversations should get some people thinking...

Two decent conversations occurred this week.

I was asked what keeps me going on in my career even though my dividend income has reached a point that I don't need to do anything to sustain over double my total expenses. Is there anything I really want out of my personal wealth ? While I know what motivated me to carry on, I can't seem to figure what I actually would do with my investment earnings this year beyond buying even more investments.

Another conversation was about why so many financial bloggers have either quit or downgraded their operations over the years.  We went through the roster of bloggers that were prominent many years ago when we launched BIGScribe and it seems that more than half have moved on with their lives.

I think as a blogger, I am stronger than ever although I am more "dis-corporated" as of late. The serious articles go to the Dr Wealth Blog and I push myself to make 2-3 articles for each preview I run, so the volume is very high. I am also starting to write a different kind of article for TheFinance.SG. This blog remains as a place for my personal musings and I may document my "PhD feasibility study" that may take the entire 2020.

Here are some of the points about the blogosphere:

• A fundamental issue is that blogging is a haven for introverts, but monetisation is the province of extroverts who can speak in public and put up a live performance. If you try to support yourself via the intrinsic motivation of write about what you like, you are not going to get a lot beyond a pat on the back. If you make too much money, trolls will come and mess with you.
• Thought leadership is hard even if you are willing to self-study. I don't think you can sustain something if the overall level of your general ability remains static. Some folks may be stuck at the personal finance level and will parrot Robert Kiyosaki for a while. Even the better investors are parroting Warren Buffett. These materials have been around since the 1990s. As of now, no financial blogger is exploring machine learning that is slowly creeping into finance book-shelves. I think Jim Simons is the new Warren Buffett, but no one has a firm grasp of Markov Chains to talk about different ways of looking at the markets.  Here's this : Extroverts suck at thought leadership.
• Finally, life gets into way. Money is not going to dominate your life as you move through different stages. I bet some financially independent folks will lose their status if they had a spouse with kids. This is natural. In my previews, I spoke about losing my FI status multiple times in my life.

Here is what motivates me right now to carry on:

• There is a class of baby boomer bloggers who do not have nice things to say about my career progress. Unfortunately for them, I seem to get a high every time someone disses me on the blogosphere. I don't think there is a need to start WWIII on the Internet but it just happens that I get nourishment from negativity as much as positivity. I think these losers should not be picking on a young punk like me - internally, I benchmark them against dad who made one landed property purchase and left the world a multi-millionaire. And these clowns actually think they are special because they survived the Asian Currency Crises.
• There is some residual unhappiness I encountered before my current training career. Some people have spent too much time bragging about their career accomplishments and cultural superiority when I was very vulnerable and needy on the career front. 2020 is the year of pay-back. I want to beat their highest salary earned over a year with 1/7th of the time spent at work. 
• The stark reality is that we don't have true friends or enemies. We're surrounded by hordes of frenemies whose interests are aligned and disaligned at different time periods. Because of this, if we are rising in this world, we will always face saltiness wherever we go. A lot of folks cannot contend with this kind of negativity but I seem to love it.  
• The crusade against commissioned insurance agents has to continue even though I see individual commissioned agents as my allies who provide my useful intelligence. I think a better outcome is to use political influence to Thanos snap the whole industry, removing the safe harbour clause that makes insurance sales an exception to a pyramid marketing scheme. 

If I take a step back and look at what motivates me, I come to a very brutal conclusion.

I have never really been motivated by any upside from all this that I do. 

I think the negativity keeps me going.

How to beat this class of people.

How to silence my critics. 

How to wage war. 

Maybe one day when folks decide to stop feeding the troll, I will look at what I have accomplish and enjoy the fruits of my labor.

But not today.

What am I trying to learn before end-2019

I thought this would be the right time to share some of the personal projects that I have. I have written some time ago that I will be spending a year to assess the feasibility of getting a PhD in a topic related to quantitative investing. Assessing the feasibility does not mean actually doing a PhD but to just see whether this is a project that I can succeed in doing in the future.

a) Brief tour of Quantitative Finance 

I tried to begin by reading a Dummies guide to Quantitative Finance. I figured out that this cannot really hurt as I can adapt some of the niftier concepts into my ERM programme.

Turns out that the Dummies guide is hardly for dummies and I really struggled to make sense of the subject.

A lot of arcane formulas do not come with proofs and I find myself trying to recall the eigenvectors and eigenvalues I picked up during JC and my engineering days. There are also models I am unfamiliar with like GARCH which can be potentially useful to investors if they are bloody minded enough to pick it up. It is also quite damaging to figure out that I can merely parrot an equation like the pdf of the normal distribution curve, but have no idea how mathematicians even arrive at that thing.

The best I could do right now is to gain a qualitative grasp of what I read.

So far, I have at least one motivation and super-audacious goal : Use principle component analysis (PCA) to figure out what are the best factors that produce superior equity returns with a data-set of local stocks.

I know that if I succeed in doing this, I can at least strengthen my ERM course with new insights or get started on a thesis. I cannot imagine that Bloomberg does not already do this.

b) Studies on Memory

To keep my morale up, I can't just keep doing stuff that stumps me along the way. It is time to really understand how folks memorize materials for study. In all my three degrees including even Law, there is no real need for rote learning. So I started to investigate how medical students remember all their materials. I can now summarize it into three separate processes :

• Using ANKI to produce software based flashcards. 
• Using MNEMONICS like S.M.A.R.T goals.
• Method of Loci - I decided to zoom into this because this is super-cool and allows amazing feats of memory.

In the medium term, I want to memorize the components of the STI using a Method of Loci. 

This is a vital skill missing from our education system.

c) Speed Reading

I read fairly fast compared other folks due to sheer practice so I do read clusters of words rather than individual words.  Eliminating sub-vocalization makes me read faster but pleasure is rapidly being lost once I do this.   

In February 2020, my Economist subscription will lapse and I can finally clear my 60+ books on my KIV list. If I can can finish the economics non-fiction books on my shelves, it might well be a PHD on it's own.

d) Starting a Bullet Journal

If I am going to pick up all these micro-skills, might as well go full retard and start Bullet Journalling as well. 

While I am quite conscientious on work or money related matters, I am screwing up my social life, missing out gatherings and neglecting my RPG hobby. This is increasingly illogical because, in my financial freedom, I realise that I am being tied even further to making more money and building up my training business. Success is addictive !

To maintain my hobbies, the folks I play with should be entertaining but I also need to make time so maybe a Bullet journal will help. 

I will be back in the DMs seat this weekend.

  

Thinking deeper and overthinking about Gift Exchange

As the year draws to a close, I will limit the investing articles to Dr. Wealth website and something I am working with from the folks of Finance.sg. This allows the blog to showcase the more mundane elements about my life.

Last preview ended late and I was able to witness Dr Wealth sales staff conduct a pizza party and a gift exchange.

There are 4 girls in the sales team and they wanted to conduct a gift exchange. Each girl was assigned a number from 1-4 and then these numbers were written on slips of paper. Each girl would draw a slip of paper randomly and take the gift prepared by the girl who was assigned the number on the slip.

You will soon be able to see a problem with this arrangement : During each draw, somehow, one girl would end up drawing their own number, eventually resetting the whole process and requiring a redraw.

Seeing this occur a few times, I suggested that girl simply take the gift from the girl from her left but the girls rejected my idea, saying that the process I proposed was not random enough. ( Which should not matter since they don't know what gift each girl prepared at that time. )

Eventually, through a lucky draw, every girl managed to draw a gift that was not prepared by themselves.

Back at home, I thought perhaps I should have proposed a system that will eliminate the reset but would still seem random enough to be implemented by the sales team.

I would need a six-sided dice and the girls to sit in a circle.

Roll the d6:

• On a roll of 1-2 : Girl will take gift from girl to the left
• On a roll of 3-4 : Girl will take a gift from girl to the right
• On  roll of 5-6 : Girl swaps gift with that from the opposite girl

This solution should work, but there is something amiss about my analysis. I consulted my sociologist friend who is probably just maybe one or two souls who can have this kind of ridiculous conversation with me.

What if the resets were a feature and not a bug ? 

There is something I do not totally understand about the all-female sales team. My friend said that, as frustrating as a reset is to me, redrawing slips is a pro-social event. I suspect it is likely because the anticipation of a gift lasts longer when the girls have to reassign the gifts over and over again.

This opens up a greater mental experiment.

I was not invited to the gift exchange (it's a girl thing) but the girls did tell me that their budget was $5.

What if I tossed a $5 note into the mix. 

Would they prefer my gift or something prepared by their friends ?

For me, it is obvious, I'd jumped at the $5 because I can convert it into anything I want, even something the girls would never buy like a sponge turd from Donki that I can use to troll my kids. 

I'm not too sure how the girls would react because some of the gifts had a lot of heart and I would not be able to buy at least one gift with $5 even if I tried.  

Maybe we should just enjoy the spirit of Giving and not intellectualize too much !