Time for a Strategic Retreat

 

I had a health scare this week. 

After a routine blood test, doctors found that my Lipase level was elevated at 200+. This can be signs of pancreatitis which can be quite painful and requires an IV drip and hospitalisation if symptoms crop up later. Naturally, I carried on googling the symptoms and worse scenarios can occur. I will be doing another blood test tomorrow and already have an appointment with a different specialist.

With medical problems, and an attempt to pivot to part-time legal practice, I have little cognitive bandwidth to entertain a margin call if it happens in the market, so when markets dipped by over 1% on Monday, I told the ERM Community that I'll be getting out of all leveraged positions built by my students, and then I ran a webinar last night to justify my decisions and answer questions in my community. 

The essence is that it's impossible to fight the Fed. 

Repeated 75bps increases to the interest rate will not be remedied even if landlords raise the rent so my fear is that REITs will behave practically like bonds over the short term. If my community were to remain leveraged until 13 October when the US publishes the inflation report, an adverse report will push Singapore stocks lower, even though we are quite insulated and riding on the COVID recovery. 

With yesterday's action, I'm happy to say that we're out with some diminished profits and it's not so much a panicked rout. This is contrasted with my actions on March 2020 where I stubbornly held on until we began suffering losses. It also puts us in a position to leverage again when markets face a recovery, which can be as late as Q3 2023.

In my case, I did not stop at just selling enough to deleverage my portfolio. I sold everything into cash and will be consolidating my holdings over the next few weeks. I will be just 10% cash, but will enjoy my immunity to margin calls. If my calculated gamble that markets will continue to drop, I should be able to do some bottom fishing into the year-end. 

While I do entertain the possibility that I might be wrong to run, this is a whole new era that is similar to the 1970s when Paul Volcker was Fed Chief. To battle inflation, the hawks pushed interest rates all the way to 17+% and triggered a recession in 1981. None of my quantitative models predicts what will happen even if we pick a conservative portfolio of banks, and high-yielding REITs. 

Suppose my factors models outperform the average by 3%, and markets dip by 30%, my community will still be hammered by 40%+ losses on their margin account. I can't have my student's blood on my hands, so my leverage is now about x0.9.

Now we are in a very strong position to watch what happens to the markets here.  

I would caution making any false move until mid-October to see whether inflation can really be tamed. 

Some experts even say that November will see another 75bp rise. 

At this point in time, I will continue to invest funds into student portfolios in my unleveraged CDP account. But this will look more like dollar cost averaging moving forward. 

This is not the time to play hero. 

I hope history will vindicate this move of mine.

[ I put an Advanced Squad Leader graphic because US squads actually have very low morale for a victorious Army. As it turns out they take cover very frequently, but they recover very quickly as well. German forces on the other hand are quite brave but once they rout, it's hard to recover. ]

ERM Community Event Q32022 - Running your own Robo-advisor

 

Pretty sure by now, folks who regularly attend evening investment webinars are sick and tired of discussions on inflation and the latest series of interest rate increases by the Fed. So when I was thinking about the next Early Retirement Masterclass community event, I wanted a seminar that has some link to the current macroeconomic situation, but it's really about something else. 

For quite a while, I did not comment on robo-advisors because I see them as a "lesser evil" compared to getting a commissioned-based financial advisor, but over time, the lack of transparency over how these algorithms work on the back-end eventually began to grate on me. Worst, there are robos that just could not beat a naive strategy of buying, for example, every REITs in equal shares. 

So I thought I would discuss robo-advisors with my community. We will not discuss specific product offerings in the market, but we will look into various approaches to allocating assets among different ETFs. I will round up a discussion with three theoretical frameworks for algorithmic asset allocation, and I will round up with a software demo of a Jupyter Notebook I wrote combining code snippets from different authors around the world that, when combined together, can be used as robo-advisor for ERM alumni and students. 

We will be looking at numbers for traditional asset classes and crypto. 

Date: 27 September 2022 7.30pm

Format: Webinar 

Programme :

·        ERM – Running your own Robo-advisor – 30 min

• Core portfolios with ETFs.
• Different algorithmic approaches to asset allocation.

·        ERM/CCI – Demo a Robo-advisor in Python Jupyter – 15 min

• Demo on a beta tool that will be deployed to all ERM students in the future.
• Demo will cover main asset classes ETFs and major cryptocurrencies.

·        ERM Portfolio Update

Registration link : 

https://us02web.zoom.us/webinar/register/3816560529405/WN_HlQhcGioQk24E9lDmImPaw

This seminar is open to everyone but is pegged at the standard of someone who has already attended my programme. There will be no recording for the session but a video will be shared on my Youtube channel soon after the event. 

Beta Jupyter notebooks will only be made available within the ERM Community.

The Three House Investment Plan

 

There are some investment ideas that really enable some really out-of-the-box thinking in this book. My favourite idea is the Three-House Investment Plan.

When a geo-arbitrager settles in a foreign land, one useful rule of thumb is to ensure that rental payments are about a third of total expenses. So logically, after living in a new country for a while, you may wish to make a rent or buy decision in your adopted country. 

If you actually like your new country and have made a decision to buy one home, why not buy three houses instead? 

You live in your first home, so that takes care of the rent. Your two other homes can be rented to others at one-third of their expenses, so if you charge a fair rent, your own personal expenses can be met by rental payments from two houses. 

Of course, the author does not take the pain of coming up with one actual example of employing this in a real country. There are tax laws to contend with and a subsequent home beyond the first may require a different set of calculations. This clearly rules out doing this stunt in Singapore thanks to low yields and ABSD.

But the author sets useful boundary conditions - where rental yields are 2% or below, just stick to renting, as houses will be too costly. This option should only be seriously considered where rental yields exceed 4%. 

In my classes, my students can easily build tax-free portfolios that yield 5%, so Singaporeans can opt to keep their assets at home while renting in a foreign land. There is no pressure to actually buy three homes, but home ownership in a fast-growing economy can reap high capital gains in the right jurisdiction. You also have an advantage as real estate markets are highly inefficient and your area may be popular with other ex-pats. 

Readers who managed to pull this stunt in Vietnam, Bali or Malaysia can share their personal experiences in the comments section below. 

Letter to Batch 27 of the Early Retirement Masterclass

Dear Students of Batch 27,

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

We’re getting into deeper bearish territory as the Fed is about to raise rates by another 75 basis points. This will dampen demand and make it harder for growth strategies to flourish. Correspondingly, every factor model built by this class has shifted to favour a value-based strategy. We are slowly changing from a course that invests in high dividend and low beta stocks. Now we buy cheap stocks with decent momentum.

One consequence of a shift to value is that the factor models will start to highlight stocks that are unpopular with investors, so the rejection rate this round was much higher. Another anomaly is that, for the first time, the factor models did not flag a single bank or REIT in the final STI portfolio which may need getting used to. DBS was added as a bonus stock since banks do benefit from higher Net Interest Margins as interest rates go north.

The second consequence is that for the REITs segment, I’ve added the large STI REITs into to REITs universe for backtesting and this ended up favouring the very same 7 REITs in the STI. Choosing REITs with strong sponsors, while reducing volatility has resulted in lower yields for the final portfolio.

Students have commented that the dividend yield of this batch is on the low end at about 5.4%. For students who wish to have higher yields, they are welcome to research US Office REITs like Keppel Pacific Oak REIT, Prime REIT or United Hampshire REIT and make a discretionary investment on their own. I‘m not adding them into the batch 27 portfolio as I have a large allotment in my family fund.

The important takeaway is that the model portfolios built by ERM do not bind student decisions in any way and they are free to invest as they wish. The model portfolio exists as a tool to track the investment performance of all ERM students and bind the instructor into investing his training fees into choices made by the students. Poor investment decisions on the student's part are meant to affect the instructor first. This is the unique selling proposition of the course - I have skin in the game.

Lastly, I hope that Batch 27 will participate actively in the FB group. Sometime in Q3 2022, we should be meeting up for an online community webinar.

Hope to see you then!

 

Christopher Ng Wai Chung

Who is the Seven Dollar Millionaire ?

 

To maintain thought leadership, I can't stick to just the advanced finance books, I have to read the basic guides as well, and often I get some enlightening reads that change the way I look at my own personal finances. 

Happy Ever After is the brainchild of Michael Gilmore who goes by the moniker Seven Dollar Millionaire. Every local finance influencer who has not heard of him should be ashamed of themselves as I was when I discovered that this foreigner came all the way over to Singapore to teach personal finance to migrant workers here! It's a brilliant rationale, the migrant workers are the lowliest paid workers in a nation that probably have one of the highest standards of living in the world. This alone should make a trainer like myself feel a little inadequate and uneasy.    

I'm going to do a review in two parts, for now, I'm going to just explain two simple ideas from the book. If you want more, I suggest you buy the book from Amazon Kindle. If you have influence over Kino, I think this book should be on every shelf in a local bookstore. If anything, more volunteers to teach migrant workers is not a bad idea. 

a) Your target portfolio size is 25 x Annual Expenses

The first idea is probably quite familiar to most readers and it is to imply use (25 x Annual Expenses) to determine the size of a portfolio to gain financial independence. It's simple and elegant. If you want to reach your target faster either save more or spend much less.  

b) How investing $7 at 7% makes you a millionaire in 50 years 

The second idea, while less practical, has great elegance. If you can save just $7 a day, compounded at 7%, easily achievable with a 50:50 Global Stock: Global Bond ETF, you will have a million dollars in 50 years. 

I've attached the evidence here:

The main point of the idea is that becoming a millionaire is not hard if you compound your investments over time, the question is perhaps how much is $1M worth in 50 years' time, and whether you can retain your good health when you finally get it. For a guy who starts work at age 25, he would have to funnel his CPF Life into his portfolio from age 65 to 75 to get this right.

I'm in the middle of conducting a class. I hope on Friday I can talk about the more counter-intuitive ideas from this book. 

If you can, try to support the author and the book, he's already done a lot for migrant workers here while most of us hadn't.

On developing new personal hobbies

 

I'm not posting something too hardcore this weekend as I've just returned from Kulai JB where I spent a fun weekend with my in-laws for Mooncake Festival. 

Instead, I want to just share with readers what's been happening on the personal front. Mirroring some of the changes in my career, I'm also making some drastic changes to my personal hobbies.

I've been playing Dungeons and Dragons for about 38 years, the game has its ups and downs. With the 5th Edition rules, the game has peaked in terms of elegance and playability, but of late, with more adoption by mainstream players, the game has also become more political. Extremely woke elements have entrenched themselves in D&D culture and it has become a lot more intolerant to campaign elements which were welcomed in the past by my generation of gamers. Recently, the game designers created a new race of monkey men that were supposed to be a slave race to an evil wizard. The player base decided to become offended because it reminded them of real-world slavery and game designers had to retcon the origins of the race. 

I don't think game designers can do a good job and tiptoe around fragile players at the same time. The whole point of fantasy is that there is some kind of evil to defeat. I suspect if we push this to the logical conclusion, we will end up with mediocre campaign settings that will be politically correct but bland. I don't Game of Thrones would be so popular if every scene was censored by a woke fanbase.

So I continue to just buy D&D books online but I've almost given up on actual gameplay. My job as a parent is to get my kids involved in RPGs because it's still a healthy and educational hobby, but I think it's time to move on.

But as one door closes and another opens. By some stroke of luck, I bought some old-school hex and counter wargames and got in touch with the guy who actually taught me D&D 30 years ago, and he's looking for folks to play this seriously arcane wargame called Advanced Squad Leader (ASL).

ASL cannot be considered a game. It is a ridiculously complicated simulation of squad-to-squad warfare in WWII.  

You control a few sections of men and have missions to take a few building objectives. Everything is resolved by a pair of dice and it takes maybe an hour of real-time gameplay to simulate a few seconds of WWII combat. 

Like in real life, moving in open space to enemy fire is lethal. Not throwing smoke before advancing is lethal. Not trying to take a stone building with at least 3x the headcount of the defender will see you routed. There are tables for different types of ordnance and armour. The psychological makeup of US and German forces are totally different and matter in the game. The tutorial for the game is 133 pages long and recommends actual study like a university module. Rules are more complicated than our Penal Code. Worse, understanding the rules mean nothing as figuring out how to tie your strategic intent into successful mission objectives. 

ASL also cannot be politically correct. Sometimes, one of the players actually controls the Nazis. The other player often controls the Rusian Communists. I hope this keeps the woke snowflakes from even trying. 

Even right now, I don't understand why anyone would play a game that is more painful than building a diversified portfolio in real life, but I'm happy to meet a few like-minded souls, all guys in their 30s-50s who have the game at home, and did not have a gaming buddy for decades. So all of us are learning the game for the first time in our lives. 

After two sessions, I can finally appreciate ASL as a metaphor for life.

We don't have an operating manual for real life or finance, and we can learn the fundamentals for decades before someone comes along and explain FIRE to you which provides the over-arching strategic intent of investing. And many folks who understand FIRE may not know how to invest to make FI a reality. It takes decades to get your finances to work and have it provide a positive impact on your life. Like ASL, finance also requires a knowledge of odds and statistics, but things often go wrong in practice. 

With my increasingly heavy involvement in ASL, I'm also changing the way I look at the games I play. 

For me, games should be hard. Hard games sharpen the mind. It also attracts a bunch of hardcore geeks and weirdos that I really missed in my RPG sessions in the 1980s. In the 1980s, AD&D players were almost hunted by the local churches. I kinda miss being persecuted actually, it shaped my life as a troll.  

If you spend more time thinking deeply about tactics, you will adopt the same habit with your life and your investments.

I'm not sure how many readers will appreciate this post, but I think I'm going to dedicate my hobbies to the Big 3 hardest games with a fanatical fanbase around the world.

• Advanced Dungeons and Dragons ( 1st Ed ) - Just declare a grapple and see your DM's face
• Advanced Squad Leader
• Star Fleet Battles

I've not started Star Fleet Battles yet but my gang will join me after we master the use of Armour in ASL. They've already started sending me the game tutorials. 

 

BaliFIRE and Geo-arbitrage - The case of Jean Voronkova

 

RGS girls see themselves as "daughters of a better age". 

Sadly, we live in the Age of Incels, where anonymous trolls seem to be extremely salty of her in various chat rooms. Jean has now joined the ranks of Female financial influencers who somehow, rubbed many single men the wrong way. You can read about her here (link).

Criticisms of her are largely unjustified. I find it quite unfair the incels picked on elite school status and concluded that she had a lot of privilege. Others were fixated on her childless status, only to admit that their own male FIRE role models are also single and childless. 

I don't think  Jean Voronkova is privileged personally, wealthy families will not be so fixated on their daughter's professional status. My bet is that she's firmly middle class.

With so much hypocrisy around this case, I think Jean deserves a more balanced analysis of her approach to FIRE, so this is what I intend to do with this article. 

a) How Jean earned her money

The first point of analysis will always be the way someone who succeeded was to earn her money. There seems to be some jealousy of the fact that she's a lawyer. Her salary was $120,000 after six years so my guess is that she's some kind of senior associate-level lawyer. While the pay is high, the hours are brutally long, and most importantly, we have to accept that logically Jean would not have saved that much given only 6 years of work. Folks who worked longer with lower pay may have more due to the effects of compounding. 

The second phase of her life is not bereft of income, Jean started multiple businesses which I doubt were roaring successes because, in the end, her passive income was around $2,000 USD from various properties she has. 

If we look at the complete picture, FIREing in Singapore would be hard for the Voronkova couple even at this point in time, which leads us to the second point of the analysis, which is about saving money.

While I am not Jean, I thought exhausted senior associates should try in-house legal counsel work first for more pay and less work before jumping to any conclusions about the profession. But that's just me.

b) How Jean saved her money

It is this second point that is the most instructive for readers. Too little credit was given to Jean for the fact that she is GEP by the incels from social media. It takes a high intelligence to understand that a situation is unsustainable and an even higher one to adapt to a new country to solve a problem. 

Jean is outstanding she shopped in multiple jurisdictions like a good lawyer should. 

Getting out of SG is smart because you leave that toxic workplace where divorce lady lawyers battle with Chanel bags. In class reunions, you also would have to put yourself in groups where other lady lawyers start to talk, and compare lives and spouses.  If she is a classic INTJ FIRE seeker, she would actually really hate doing this. ( NB: We cannot conclude her MBTI with such scant data )

Geo-arbitrage in Bali is smart, but ERM students know Kuala Lumpur is even smarter these days as digital nomads have started to really ramp up the prices in Bali, but Jean obviously puts a lot of emphasis on lifestyle and Bali really looks good. According to research from my students which I do every course, you need about $1,500 SGD per month to lead an ex-pat lifestyle in Bali. 

But Jean is smart, she shopped for a future home and has spent time in Vietnam and Bali, so this is something we can all learn from. 

c) How Jean Invests

This section is one that had me the most stumped. We have very little data on how Jean derives her passive income. 

Overseas property generating $2,600 SGD would barely support the couple as a family unit even without kids, so I suspect they are running thin. Bali is also a favourite place for digital nomads so I expect inflation to be increasingly an issue. With this amount of information, it seems that Jean's version of FIRE is threadbare, so the content creation on Youtube may be the start of a new business initiative. 

Personally, I think the forex risk and inflation should justify maybe adding a home into the rental mix but I admit that rents can increase in tandem with inflation. This is an area of risk I would not like to get myself into.   

Is there a way for the couple to load up some REITs in SG and wire dividends to their expenses account? I think it's worth exploring that move. 

All in all, I'm glad young folks are coming out of the woodwork with their version of FIRE. Hopefully, the older folks will have their back when they come under FIRE from Incels. 

I'm definitely biased towards Jean as she is almost an inverted version of myself.

She pursued Law to become Financially Independent.

I pursued Financial Independence to do Law. 

 

 

Overemployment as a method to achieve your FIRE ambitions

 

I lost an interesting bet lately. 

The structure of the bet I made was this : 

Which will be gone first, s377a of the Penal Code or SAP education? 

I offered the bet to some regulars in finance forums and one guy decided to bet on s377a being gone first, so I naturally took the other side of the bet. The forfeit was a meal. 

I was not anticipating the bet going to be resolved within a decade so when s377a was repealed, I made good for my loss and since "losing with grace" is an important value to me, to make it more fun, I decided to give a meal to everybody who witnessed the bet taking place. 

It's always nice to occasionally give a meal to young people because they are often well-informed on things that we might not noticed and one of the major things I learned from the event is the concept of overemployment. 

Overemployment is an important concept because it is the opposite of lying flat, quiet quitting, letting things rot, and all the reactionary movements to the toxic workplaces in the world. 

The concept is simple, for folks who work from home, it is possible to sign up for two jobs at the same time and do both competently. This works better if the work consists of processing IT tickets and choosing a different time-zone. From an employment contract perspective, it's possible contract breach but some folks tell me that the secret is not to get caught doing it. 

As an ENTJ, I'm very attracted to the idea of overemployment because it would allow a smart, young IT professional to rapidly reach FIRE and possibly FATFIRE within a decade because not only are you earning more, you have less time to spend away your money. By the time you FIRE, you would be so young, downgrading to work on one job would already seem like a holiday. 

This allows some folks to get into a situation where they can have money-time-energy all at once at a fairly young age. 

With overemployment, I have managed to arrange all the reactionary movements, the pursuit of FIRE and overemployment into a single framework where you can pick and choose which part of the continuum you wish to park yourself at. 

At a personal level, I want to implement some form of ethical overemployment into my life, I will be seeing whether I can sell my time to a law-firm during normal working hours and still run my training business with my current hours. My variant does not provide me with a base salary though, I prefer a larger share of hourly billings so that I can control my exposure to work to do justice for future students.

I think what is interesting is how folks with more than one formal job can contribute to CPF. I want to know once and for all whether the $37,740 limit can be busted by taking on more jobs. There are folks claiming it can and some saying that it can't. And whether tax deductibility applies if it does bust the limits.    

Overemployment cannot become too common in Singapore. If this happens, employers will force workers to return to the office and returning just 2 days out of a week can make balancing two jobs a much bigger hassle. But in the case of some folks in software, getting 50% of an ace is often better than team of goons. 

 

Why we need to resist the idea of SAP Polytechnics and SAP Universities.

 

Of late, I've been catching up with secondary school pals to organize dinners with our secondary school teachers. With nostalgic reminisces of the past, there was also the digging up of more unpleasant memories in our secondary school days. My friend complained of a clique of classmates who were very insular and who sought to exclude him from recent social events only to have me remind him that there are real social outcasts like me who would never be in contact in the first place. 

Over time I realized that there is common thread of such cliques when we were growing up, so much so that a sociologist pal of mine calls them the "basketball team". I was even unfortunate enough to manage such a IT Team before but that's a story for another article. 

There are some traits of these cliques. The are mainly introverts, exceptionally traditional and conservative in outlook, lack openness to new experiences, quite agreeable, and prefer strength in numbers. They eat at the same places and almost always engage in the same activities like karaoke. 

Most importantly, they are always monoracially Chinese and speak mandarin. These cliques are part and parcel of our society and as the majority, we often forget that they exist.

For folks who grew up in the 80s and 90s, some of you who are unfortunate may be like me who joined a uniformed group and the basketball team always create trouble for minorities, sometimes just by being themselves. I remember Malay girls felt excluded in St Johns Ambulance Brigade in my secondary school and they lodged a complaint. The response was always ham-fisted, prohibiting the use of Mandarin, and enforcing the use of English always had the effect of making minorities even more unpopular with the basketball team. But this was the 80s and 90s, complaining often gets you nowhere and you get marked for your troubles.  

What is not known is that in a neighborhood school, as a potato eating Chinese who prefers Rick Astley over Wang Jie, we don't have it very much better than Malays, Indians or Eurasians, it's just that we are overwhelmingly minor in such environments. 

As such my social life only picked up after joining NJC.  

George Yeo had his book launch today and several friends were there for the launch. One has actually been sending snippet of his book to me and I thought I share my thoughts on his more controversial ideas. 

Apparently George Yeo likes the idea of converting Ngee Ann Polytechnic into an SAP Polytechnic and NTU into a SAP University. 

I'm not sure what the execution details will ever be, but the idea is that Singapore needs to produce a Chinese elite. This is not simply giving a chance to students to gain a deeper insight into Chinese Language and Culture, but a system to channel better students into these institutions, which are then practically segregated from other school systems. These systems then gain preferential access to scholarships (probably to China) and then go on to form business alumni groups to perpetuate the systemic advantages those ethnic Chinese already have.

In my humble opinion, if you have a system of elites where minorities account for less than 5% of the population, it should not be called the Special Assistance Plan, it should be called Singapore's Apartheid Policy. 

For the system I was familiar with, I was not even in a SAP school, and I already witnessed some alienation of minorities when basketball teams get formed in an ordinary neighborhood school. The system is even worse when you cordon off an segment of the elite and shut them off from regular contact with all others in the country. 

Now imagine what George Yeo is trying to establish in Singapore, a system of apartheid that extends a 4 year secondary school program into a program that can last up to 10 years as students go from a SAP Secondary School to SAP Poly to SAP University. I can even concede that some SAP students have access to some minorities in school, but these are the really progressive ones who are learning Chinese and who might have higher social economic status ( they are probably trilingual). 

Finally, as much a George Yeo has so much effusive praise for China, I'd like to remind the investment community that we are not really talking about ethnic Chinese, but Chinese Communists when we talk about China. In Chinese Communist ideology, capitalism is just a temporary state where they pretend to respect your freedom to make a better life for yourself. The final state of a Communist society is a society that no longer has the concept of private property. Ideally, you can't even have a private key to your crypto wallet.

SAP Polytechnics and SAP universities will just open new means for the Communist propaganda machine to entrench itself in Singapore, graduates will grow up to be like the pro-China boomers today.  Mind your own business, why you so kaypoh when Russia invades Ukraine. 

And one fine day, we will be forced to call another Operation Coldstore or Operation Spectrum to deal with these two institutions.

SAP Polytechnics and SAP Universities cannot be allowed to take root in Singapore.

Fight it like you fight the insipid basketball teams ! 

Hope you guys enjoyed the book launch !

 

 

On Wild Problems

 

As I run a programme that is highly dependent on number crunching by computers, I'm fully aware that there are a class of problems that simply cannot be analysed by data and statistical models. 

In Russ Robert's Wild Problems the vivid example is the question of whether we should get married or have children. Especially when it comes to having children, if everyone were to boil the decision-making down to cost-benefit analysis, no one will have kids in Singapore. And yet, even a child-hating misanthrope like me would love my kids so much, that I'd gladly disadvantage myself financially so that they can have a good life. 

This means that there are definitely mental models beyond quantitive ones that are required to resolve that class of hard problems that lives throw at you.

One solution to the children's problem is to understand that looking at the kind of cost-benefit analysis is based on the fallacy of narrow utilitarianism. If you find some money in a wallet and there was no one there to witness you finding the wallet, you may really hate to surrender the wallet to the police because it's full of cash that can be used to pay for your children's expenses. But you return it anyway because keeping the money changes the notion of your identity. You can't live with yourself if you keep the money. Folks who return the wallet ultimately prefer to make decisions on personal principles and not that of narrow utilitarianism. 

I think something has to be said about choosing to remain single. There are almost zero disadvantages to not having children, you will end up having more money and time. If you feel bad, you can even volunteer your time to charity. But to remain childless is essentially not propagating your genes, and you won't be able to find out what your kids will ever be like while growing up. I don't think this ultimately bothers some of my single friends, but I think it does bother me a little. 

For me, I'm dealing with a tough question in my own life.

As my training business is struggling with sales and I've just obtained my CFA charter, I've started talking with pals in law firms to see whether I can get part-time hourly paid consultant gigs with them since an entry-level lawyer is kinda expensive and I should really address the issue of going through law school without even trying out legal work beyond my training contract. 

So yesterday, I had the privilege to meet very possibly the richest and most successful customer I will ever get as a trainer, and he totally shot the idea down. He does not think that starting out as a rookie lawyer will do me any good as a middle-aged guy and there are better ways to scale a business. And he was very kind enough to suggest a few ideas which I liked a lot and may pursue with some folks.

As he's been around, I have to accept that this is valid feedback. Me going back to the law firm has always sounded ridiculous, but so was entering law school at age 39, and saving 100% of my take-home pay since I was 32 years old. 

But once again, this is a cost-benefit analysis. If we take it too far, as a financially independent guy with a five-digit dividend monthly income, nothing I do can compensate me for the time I waste on the job, so I cannot just apply one quantitative mental model to this problem of what I want to do with my life next. Also, I'm not quitting my job as a trainer, my condition is that the law firm needs to let me carry on teaching my Early Retirement Masterclass.

So what kind of personal principle can justify starting as a part-time associate in a law firm while balancing my time with a training business?

After a day of deep thinking, I think my central principle is "When you set out to do something, you must complete the task. "

• My stint as a trainer finally got me my CFA - nineteen years after I passed the Level 3 exams. It required 3 years of full-time work as a training professional. 
• In law school, I always found some of my classmates ridiculous, I had classmates who dropped out in the final year after paying all the school fees. 
• I used to get exasperated at friends who can only talk about publishing a book but never complete a proper manuscript, it was the main reason why I set out to write three books on personal finance as an IT engineer. 
• Even if the last 2 seasons of Game of Thrones sucked balls, I watched it anyway.

Now, I admit that I did not enjoy my practice training, I was mildly depressed when I asked Dr Wealth for help. Thanks to my partners, I created a business line called ERM that exceeded a million dollars in revenue. But this time, I get to choose my level of engagement in a firm and who my colleagues are going to be - I'm starting without a base income. If I fail, I have multiple fallback positions and no one in my family will starve as a consequence of my decisions. 

The fundamental principle is that I should try three years of actual legal practice because I am a completist and not doing would have serious consequences on my self-esteem.

 

 

 

FIRE is a good servant but bad master.

I had the good fortune to received a message on Linkedin from Keith Yap. 

He wrote this, and I'm posting it here because somehow he could not comment on my blog :

His comment was very intriguing, I initially thought that there was possibility that he was tasked to write about FIRE from his bosses based on this message, so I offered to defend FIRE publicly against his supervisor which seemed to be someone from Enterprise SG. Many FIRE aspirants are conservative PAP voters and continue to pay taxes post financial independence, so there is no need to fear that FIRE metastasize into some kind of Tang Ping movement.  

Thankfully, after a short exchange, Keith clarified that he wrote the article based on his own personal capacity.

I think his reply was even-handed and fairly neutral so it's safe to be shared on this blog :

I really like the admission that "FIRE is a good servant but a bad master" was cut out during editing. I don't necessarily agree with this, but IMHO,  it would have been a better title for his article. 

Anyway if FIRE does become a bad master, then quit the FIRE movement and do something else with your life. 

Does FIRE subvert conventional ideas of work and finances ? WTF !

 

I don't know whether to laugh or to cry, his guy called Keith Yap, who seems to work in the Government, referenced my CNA article, and then proceeded to make some inaccurate statements about the FIRE movement and millennials ( and I'm not even a millennial ! ). 

You can read the article yourself by following this link. 

I'm generally quite sympathetic to folks who try to FIRE, because inevitably they will accumulate $100,000 before their 30s then get slammed in social media for sharing it. There is no evidence that Keith Yap is on the road to FIRE, but his main thesis is that FIRE will subvert conventional ideas of work and finances and I fail to see how its possible to agree with this. Furthermore, I think a much higher standard of proof is required to link millennial's dissatisfaction with the workplace status quo with the rise of FIRE.

My first point is that anyone who is attempting FIRE will know how much more engaged you will need to be at work to stand a chance of accumulating (25 x annual expenses) before age 40. This is generally not a game for the average millennial who hates his boss, but someone who enjoys his current work, figured out it may not be sustainable, so wants to volunteer for as much overtime as possible. 

My second point is Keith Yap seems a tad defensive when he finds some FIRE zealots seems to baulk when it comes to discretionary expenses, so he constructs these false dichotomies in his article. You either can save money on pumpkin spiced lattes, or catch up with old friends, Keith conveniently forgets that I can catch up with old friends over a cup of kopi-o kosong. Keith asserts that if you save and skip out on an extravagant wedding, you will lose a chance to gather everyone together, forgetting that I can get everyone together with a buffet instead of a banquet. 

Worse, after setting up a series of false dichotomies, Keith had the temerity to invoke Aristotle's golden mean - which leads me to question whether he is trolling the discerning reader ?

My third point is that folks with an affinity to FIRE are my INTJ pals who probably just belong to 1-3% of the human population but over-represented in FIRE forums and my ERM class. If you actually bother to have friends who are INTJ, you will find that their lives are actually quite interesting. INTJs have very diverse hobbies and often no relation to their jobs. INTJs do not really march to conventional lives and work, so cannot be actively trying to subvert work but to seek a wholly independent approach on lifestyle design. If anything I find INTJs quite fun and hedonistic - they don't eat expensive food, but they are really obsessed with the best hawker fare and can be counted on to find out the best eats. 

Finally, as it is pointed by a lot of successful entrepreneurs and CEO-types, mostly ENTJs who attain FATFire, the skills and talent which made FIRE possible often leads to financial independence but not early retirement or retreat from the workforce. Folks like me still want to find ways to contribute to society and will continue to seek employment, but on our own terms. This is why a paradox will occur if Early Retirement Masterclass is taught by a sometime who is fully retired.

Finally, I think Keith Yap really needs to look at himself and his biases before talking about FIRE folks. 

I visited his profile and find that his work may be government related, in some blog articles, he talks about his scholarship application process. I had a short, miserable stint in a statutory board and I know this - If your income has very bond-like characteristics like government work, and you're on the right side of the scholar-farmer divide, there will ultimately be a disconnect of your salary scale from actual market forces. This is the magic of high current estimated potential and having KPIs widely disconnected from commercial reality.

This inoculation from market forces accords you a more carefree expenses profile which most Singaporeans cannot afford. So maybe you can have that pumpkin spiced latte, that extravagant wedding, that monthly trip to backpack in Europe. You willingness to spend matches your ability to earn. Regardless of market cycles. 

Your equivalent in the private sector or private enterprise may not have that privilege even if he gets the same pay because he knows that in the business world - it's feast or famine. As such, my willingness to spend is only a fraction of my ability to earn. In such a case, having a high investment income is just a desire to have the same privileges of a government scholar.

So some commentators might be scholars and can get high falutin about FIRE. 

I am a statistic, even if I FIRE.

We are not the same.

    

 

On Singapore's elusive third gear lifestyle

 

Every National Day, I want to talk about emigration. But this year it seems that many influencers and bloggers have started to beat me to the punch. Kelvin Learns Investing probably made many Singaporeans proud when he talked about why he will not retire in Malaysia (link). A week ago, there was this wonderful article about a Singaporean who settled down in Chile (link).

I'm trying to put something together to talk about quitting until I saw this article about a Japanese restaurant called Tenya that has raised salaries by 10% and instituted a four day week to solve their manpower crunch. ( link )

I think Tenya is onto something.

I called this the Singapore "Third Gear" problem. For folks who remember cars with a manual transmission, drivers would start at 1st gear and, as the vehicle moved faster, gradually shifted until 5th gear, when the car is reaching its fastest speed. When I was very close to becoming Financially independent, I realized that there was a problem in Singapore - Singapore workers can only be unemployed (first gear) or work crazy hours (fifth gear). 

There is no middle-ground or third gear in Singapore. 

No lifestyle design where you can work a little and live a little pushing many Singaporeans to emigrate somewhere else. 

The first gear would be folks who do not have real jobs. These can be stay at home mums, folks living on government welfare by attending courses organized by the government during the pandemic, husbands who have successful wives calling themselves "business consultants", folks who inherit money, or anyone claiming to be a life-coach.   

Fifth gear would be a majority of Singapore workers. Folks who are committed 9-5 on weekdays on jobs which provide a career path, decent pay, but very little leeway for work-life balance. If you belong to the professional or executive path, bosses expect you to be available 24-7. To be fair fifth gear in Singapore is probably a decent place to be because of low taxes and you really get to keep what you kill, but it is soul draining and some countries like Dubai pay even better for fifth gear work.  

When I was teetering at the brink of financial independence, I was concerned about shifting down to first gear, this is even though I was not just financially independent on my own but I'm also a bit of an inheritor. 

First gear may be irreversible, after a while, no sane HR professional would want to have a look at your resume. Worse, I can't seem to take first-gear folks seriously, they seem so out of touch with reality. For an ENTJ, it's better to lose my financial independence than to stop mattering in society. 

And there's no respect. We're a nation of snobs.

So I stuck to fifth gear for 7 years after living on my investment income. But eventually you end up working for toxic environments as you rise through the ranks of management, where your skills matter less than your political maneuvering. Fortunately, I was able to let fifth gear go at age 39, long after investment payouts exceeded work take home pay.

But I can't find the third gear. 

I delayed for 4 years to go back to school to contemplate my life and maintain an air of respectability.

Eventually, I found some semblance to the third gear after rejecting the legal industry.

In this life, I can free most of the time unless I am conducting a class, then all the work and attendance is non-negotiable given how much preparation my colleagues need to get a class for me. This third gear is very volatile and my sales can be very unpredictable and only those with a fairly high investment cash flow can sustain it for this long. 

I suspect most third gear folks, if you can find them, are not conventionally employed in Singapore. Like me, they either report taxes as a sole proprietor or under the  LLP structure. 

( The guys who own a Pte Ltd actually work kinda hard and may even work on 6th gear until their business becomes profitable. ) 

The good news is that things are changing. 

I think with the pandemic and tighter curbs to foreign labor, SMEs may finally be pushed to really start thinking about what the modern Singapore worker wants. Building a fifth gear job with no chances of advancement would mean that very few locals would want to work for SMEs. But upping the pay a little and then downgrading to a 4-day workweek is a good start and these jobs may meet the aspiration of the Singapore worker. 

Not everyone is a an ENTJ. Many are INFPs who can't count, are lazy, and have an affinity for making bad life decisions..

At the very least, you can live the New Zealand and Aussie lifestyle in a low tax regime. Also you don't have to resort to career in sales to do this. How many balloons need to be forcibly taken away from children for angry parents to seek a statutory amendment to outlaw FAs here?

From a FIRE perspective, thanks to Tenya, Barista FIRE becomes a lot easier to attain in Singapore, where a fifth gear job can get you about $1,000 a month in investment income after 5-8 years, then you downshift to third gear lifestyle on a four day week in the F&B or retail industry.

At the end of the day, liberals like Tommy Koh can talk about Singaporeans being snobbish and the government can talk about a new social compact. 

Just pressure SMEs to unlock a four day work week and make a third-gear lifestyle achievable, fewer folks would emigrate to Australia and New Zealand design a lifestyle there. 

The best is yet to be - My adventures at ACS Independent

 

It is good that investment trainers to do some pro-bono by visiting secondary schools and presenting to students. If you're lucky, some students will get the message and you'll get to shape some lives, but it is also good for the trainer because you get practice to see whether you ideas can find traction in young minds. It is always challenging when the audience did not pay for your time or may not have the inclination to listen to lecture.

So I was delighted when the Entrepreneurship society of ACS Independent invite me to speak to their students for an hour and spent the afternoon in their campus premises. This is actually he first time I'm presenting in school premises as my slides have only been deployed in RI over Zoom for the past 3 years.

The talk was fine, but I felt that the material, honed over two years at RI, could not fully resonate with ACSI audience but I was mostly able to maintain the attention of these teenagers when I spoke of my personal story - about how outsourcing work can lead to suicides in the workplace and the scholar-farmer divide in the government sector is alienating to those labelled farmers. But I think I won the crowd eventually when I spoke about how the effects of compounding wealth over the years is literally the reason why "the best is yet to be". 

Why do I know it works? Because I love triggering RI students about how compounding of wealth is embedded in their rival's school motto, and relying just on brains and not capital is a loser's game. 

[ In such situations, I see myself as a cross between Magneto and Professor Snape. ]

Anyway, I was actually disappointed that kids have moved on their personal interests. I tried sharing my own personal interests on one slide but no one perked up. I think that's fair, you can't really tell young people about Pink Floyd or David Bowie ( but my son loves Rick Astley ). I also suspect my slides, being keyed to League of Legends, may not actually be played by teens today.

Naturally, I broke the news of speaking in ACSI after the fact, then my FB was flooded by extremely negative people who claim that ACSI does not need any help in financial management and some already come from billionaire families. One joker even said that ACS is so wealthy that my audience were probably all paid body doubles. 

Maybe it's cool to demonize the wealth of ACS twenty years ago, but I find the kids in my class very ordinary. 

The most intelligent question I was asked yesterday was whether I felt it was fair for policy makers to give 2.5%/4% for CPF when invested returns far exceed that amount. I was not very inclined to catalyse the birth of the next Chee Soon Juan, so I told him that while returns are low, the risk or standard deviation is zero, so CPF is actually a very attractive savings instrument.  Furthermore, Singaporeans actually rushed to contribute to CPF during the pandemic so I am not inclined to disagree with current returns are puny.

Anyway, for the blog reader, what is the moral of the story ?

Harsh truth - ACSI has a very dedicated team of teachers who supported their CCA by inviting an investment trainer into campus.  RI even has a dedicated segment for students who aspire to be future investment bankers. In every case, when I worked with our elite schools, no one burdened me with humiliating checks over my course materials and attempts at censorship. 

Fact is people pay thousands of dollars to hear me speak.   

The saddest story is that I took so much pains to volunteer to teach personal finance in my own secondary school and so far I've not managed to gain any ground over this as communications get dropped and people just wander off to take on other projects.

So in the future if ACSI and RI groomed more billionaires or generates the greatest number of jobs for Singaporeans, don't be salty, ask yourselves how much red tape the neighbourhood schools are saddled with before demonize others for their prosperity.

Keep discretionary expenses to things that suit your personality

 

Nick Maggiulli's Just Keep Buying was highly recommended by friends and some readers of this blog and I enjoyed the book immensely. While the book does not change my approach towards personal finance, it had a great financial perspective. Imagine a mathematics textbook that had the same answers to every standard problem but had such a novel working that it's worth a read.

I'm going to share only point which is gold on selecting the right kind of expenses. Nick Maggiulli really got me when he said that he's not really satisfied with the idea that we should simply buy experiences instead of physical goods. Advice like this cannot possibly apply to the entire population and it is more likely to be biased towards extroverts and ignore the 30% of the population that are introverts who may prefer sleeping in bed than travelling to another country. So he proposes that we splurge on things that is consistent with our own personality makeup.

That's basically all there is from the book. 

But the quest for thought leadership cannot stop at just a raw reading of a non-fictional work. The book has a wonderful reference to a paper by Matz, Gladstone and Stillwell from the University of Cambridge entitled Money buys happiness when spending fits our personality.  

This paper is the true treasure from the book.

Researchers actually paid Amazon Mechanical Turk to imagine what kind of person would buy something, allowing a Big5 personality profile to be mapped to a consumer good. Then researchers found out that folks who buy goods mapped to their personality type had higher levels of personal satisfaction. 

I shall reproduce the mapping here : 

So basically, if you know your personality, you can use this table to guide you on what consumer products would give you the highest personal satisfaction. Buy enough to make yourself happy, then you can invest the rest. So extraverts should be happy attending a music concert with friends. Introverts are happy getting a bonsai plant. So unless the book you are giving is 50 Shades of Grey, expect your extroverted pal to keep it in his KIV list for decades, you might be better off signing him up with a club for swingers.

For me, my toys and hobbies come from my openness to new experiences and now I know that given that I'm not a very agreeable person, doing charity does not really hit the right spot for me, but I can contribute to society by making more videos and speaking to secondary schools since I am an extrovert. 

But try not to read too much into this table - it seems that neurotics should engage in gambling to be happy, and disagreeble assholes have an affinity with traffic fines. 

Maybe if you have two purchases of equal price and you want to make a comparison, buy something that is more consistent with your personality.

   

Thinking and lifestyle design using real options and annuities

This post came about because of MissFITFI's podcast with the owner of Saturday Kids. You can listen to the podcast here.

I want to focus on one important idea mentioned in the podcast which is the idea of placing little bets in life that have a small probability of success but can pay off in a large way. This idea can be broadened quite significantly on this blog.

Consider the term life insurance. This is basically a put option on your human capital. If you die, the insurance pays off a fraction of the loss of your human capital to your family. If you outlive the insurance, it expires worthless. 

There is a class of life strategies that exploit a myriad of real options that behave like term life insurance. Advanced education qualification is a call option on your human capital. If there is a strong market demand for people with such advanced degrees, you can enjoy a higher salary or a boost in your human capital. If your advanced degree is in something that society does not value, it can remain dormant or "out of the money" until there is a shift in industry trends. Options gain value when the underlying security goes up in value or even when the situation is very unpredictable or volatility is very high. 

If you are a fan of Nicholas Taleb's Antifragility, living an anti-fragile life is all about embedding real options in your life. 

Now we consider the opposite of term life insurance, the annuity. An annuity hedges against longevity risk. If you live too long, the annuity pays a monthly stipend every month until you die. 

If we consider term life insurance and annuity as a spectrum, then our lifestyle design based on real options is incomplete. While we need to make many tiny bets to get ahead in life, we need systems that pay out a predictable amount every regular time interval, at least to survive. The importance of having a steady job, some royalty payments, and dividends which are uncorrelated to market cycles are vital to survival in modern society. 

Lifestyle design is all about having both real options and regular cash flows to suit your personal needs. 

One way of approaching lifestyle design with this insight can be as follows:

a) You need to know your absolute base essential lifestyle and find ways to match this using earned and passive income. When doing this, you need to think like a landlord. Ideally, if you need to work harder to do this using passive income, do it as the payoff of getting time freedom is extremely high if you can meet this threshold.

b) Once basic needs are covered by earned or passive income, you can start to think about tiny bets that pay off in a big way. This way you can think like a VC. You can earn a qualification that will be valuable in the future, or put in some capital into a startup. In this example, it is better to do position sizing and make uncorrelated bets so that one big win would cover all your losses elsewhere.

c) Income-generating assets and real options should be interchangeable. Maybe some dividends are used to signup with a new Skillsfuture course or advanced degree. Once the advanced degree gets you a higher salary, you can farm extra proceeds into a bigger dividends portfolio. Balancing the two is an art and you can decide how to allocate your capital based on your own capabilities and personal situation.

Some readers will note that in a discussion that straddles between real options and cash flows, where do capital gains that are analogous to growth stocks stand in this spectrum? Stocks belong at the centre of this continuum. Some stocks pay a dividend and it has an option to grow if their valuation goes up. 

( For the absolutely pedantic, stocks are also a written put option, it can drop in value when the underlying business loses money )