Should you buy REITs based on a "Good" Sponsor ?

This started because a student felt uncomfortable with the portfolio of REITs selected by one of my better REIT screeners. He examined the list of REITs proposed by the stock screener and said that my portfolio contained REITs with "weak" sponsors. Separately I've been told on other occasions that investors should simply invest in REITs with good sponsors. Of course, these conversations seldom delve into how to actually determine what a good REIT sponsor is.

I've always felt uneasy about investment strategies like this - an intellectually dishonest investor can simply define a REIT sponsor as a good one if the REIT has performed well historically, otherwise the REIT sponsor cannot possibly be a good one. This is tautological reasoning and useless to serious investors.

So yesterday, I went back to the library during my break to get this out of my chest once and for all.

For the purposes of the rest of the experiment, my baseline is an equal weighted portfolio of Singapore REITs. Buying this and rebalancing every year would have resulted in 10.51% annual returns. The downside risk or semi-variance is a modest 13.09%. Experiment was performed 14 Dec 2018.

I made a decision that my proxy for "good" REIT sponsor is larger market capitalisation. I admit that this may not be the best way to conduct the experiment because my backtesting tools do not have a filter for sponsor.

So bear with me for this, for I have reason to believe that my proxy be valid.

Suppose you filter out the top 10 REITs in terms of market capitalisation would get a list that looks like this:

I can only convince you that the list of largest ten REITs should generally have what most retail investors would subjectively consider as "good" sponsors. They do seem to have more prestigious names.

But let us also look instead at the smallest ten REITs :

This list very likely contains REITS that have sponsors which may be less prestigious ( at least based on the subjective opinions of most retail investors ).

So, I backtested two strategies : The first strategy invests in the top 10 largest REITS on SGX for 12 years rebalancing every year. The second strategy invests in the top 10 smallest REITS on SGX for 12 years rebalancing every year.

Investing in the largest ten REITS would result in superior returns compared to the baseline. Returns are 11.42% and a semi-variance of 14.30%. Perhaps a smaller subset of stocks resulted in a higher volatility.  This modestly superior performance may be the reason why so many people believe that a superior strategy can be had by picking superior sponsors.

But investing in the smallest ten REITs also resulted in superior performance. In fact it was tad higher than the first strategy at 11.43%. The counter-intuitive result comes from a lower downside risk - semi-variance was 12.77%. Investing in smaller REITs would have resulted in higher returns and lower downside risk compared to buying all REITs in the stock market.

I think these results cast doubt on the hypothesis that investors should choose "better" REIT sponsors.

Instead I propose the following hypothesis about the REITs market in Singapore - most investors gravitate towards REITs with better sponsors so much so that they become more expensive, resulting in performance that is actually sub par compared to REITs with sponsor who are less prestigious.

Investors who actually follow the crowd and pick the "better-run" REITs are not just handicapped based on returns, they end up with a more volatile portfolio.

As always I am open-minded to any counter-arguments because I am constantly second guessing my own approach towards investing in REITs.

Let me know what you think.

The Art of the Good Life #52 : Inner success

You can achieve inner success by concentrating on what you can control and influence and ignoring anything that we can't. Essentially it means controlling our inputs and not our outputs. If you can do this consistently, you can attain ataraxia - tranquility of the soul. External events that are out of control cannot really affect your inner state of being.

This I can accept.

The entire basis of FIRE and FU Money is to employ an unnaturally high savings rate at the present so that one can be inured to events like illness and retrenchment in the future. Dividends investing through rigorous savings is the financial manifestation of Stoic philosophy.

The harder component of this chapter focuses on eschewing external gains and going straight to inner satisfaction.

This, I can say that I currently lack the maturity to practice in my life.

I get my internal satisfaction from external validation. I always felt that without an external validation of your success, you may as well be masturbating yourself to a personal state of ecstasy and personal smugness. It is also very easy to fall into state where you set yourself low standards in your life.

Nothing pisses me off more than people who make claims about wanting to achieve something and then, after that, finding an excuse to explain why the price of success was not paid - hours not spent refining a product or executing a personal project.  I think when someone does this, it is a terrible waste of psychic energy of your friends. This cannot go unpunished - a personal promise, even to oneself, has to be rigorous enforced by friends.

Otherwise, you devalue your closest friends because we are the average of the closest people around us.

So just like that, we've come to the end of our year long journey. It has been great fun nibbling this book chapter by chapter for the past one year. It has been very beneficial summarising these mental models on this blog. The not so good side effect is that it has made me brutally assess the quality of my own life and I am now very sure that I lack the wisdom  and maturity to truly live a Good Life.

Maybe I will be wiser with the passing of more time and see the benefits of attaining ataraxia without external validation.

Next week we will be moving onto a new book.

The Art of the Good Life #51 : In Praise of Modesty

To have a good life, you need to be modest. This chapter provides three reasons to do so.

The first reason is that Self-Importance is very tiring because you need to broadcast to the world how awesome you are 24x7. Influencers have to do it. Over the years, the successful financial bloggers we see today ar those who can attract as many eye-balls as they can.

The second reason is self-serving bias. I don't really like the example in the book because it says that self-importance causes some investors to buy sexy companies that improve their self image. I largely disagree because I think even the loudest investors would avoid glamorous stocks because returns on investment is a better long-term way of signalling self-importance.

The last reason is that having a big ego attract enemies. This largely supports my own observations during my legal training.

While I have no problems projecting my sometimes oversized ego, modesty is out of the question for folks who are trainers. If I even project any modesty and play down my achievements, not only would it affect my bottom-line, it would have an impact of the earnings of my business partners who have mouths to feed. This is a natural consequence of our attention driven economy.

Naturally, I have no issues with this because I actually believe that the quality of my life will be much poorer if I have to keep my achievements to myself all the time. I'm just surrounded by assholes who talk about wanting to achieve something and not getting much done almost all of the time. I think a big ego makes failure more painful and pushes a person to deliver on what he says. Otherwise, it's just someone making a lot of bold projections and not following up on them.

So how does this blog try to get ego out of the picture so that other angry Type A people would not come after me with torches and pitch-forks ?

Simple - science the shit out of every assertion you make. Research papers and government statistics give credibility to everything a trainer is saying. So when other high ego guys in the blogosphere wants to disagree, make sure that they have the numbers and studies to prove their assertions.

Sorry, making a rambling post just won't cut it. If you can explain your case properly in good English, as a fellow investors I will  examine your criticisms carefully so that I can improve the composition of my own portfolio.

How did you spend your SG Bonus ?

A number of friends on FB were upset to know that $300 arrived in my bank account this week because of SG Bonus 2018. I got $300 because I was still a student and Part B candidate in 2017. Regardless of how you feel about investors maxing out the SG government bonus, many of us dividends investors already have $300 extra in the bank.

I took one step further than many guys who got $300. I converted it to $906 Malaysian Ringgit and spent a day in Johor Bahru. My relatives put me up in a nice Bed and Breakfast at Replacement Cafe.

While $300 would possibly disappear within a day of Christmas shopping in Orchard Road, I only spent about a fifth of my SG Bonus in JB. I will be back to attack Malaysia with my SG Bonus next week when I start the Kulai leg of trip.

While we are on the topic of spending our hard-earned money outside Singapore, I should also share the results the my class exercise on emigration.

As part of my Early Retirement Masterclass, I make the class crowdsource data and estimate how much they would need to retire in that country. This exercise helps to reinforce some of the key lessons in Day 1 so please do not see this as a definitive guide on emigration. Each individual country may also have very stringent criteria on allowing a foreigner to settle permanently there and this was not discussed as part of my lessons.

This time round, I ensured that the class extract expenses information based on expats expenditures and not the expenditure of locals. This is because you can't expect a Singaporean who emigrates to Indonesia to settle down as a padi farmer.

The class came up with the following data :

	Hong Kong	Indonesia	Portugal	Taiwan
Median Income / Monthly	$10,000	$3,700	$2,345	$2,334
Expat Cost of Living	$6,200	$1,700	$2,000	$2,038
Portfolio size to retire with expat living expenses	$1,860,000	$510,000	$600,000	$611,400
GDP Growth	2.90%	5.20%	2.70%	2.70%
Inflation	2.40%	3.20%	1.47%	1.20%
Unemployment	2.80%	5%	6.80%	3.70%
Business Cycle	Contracting	Contracting	Expansion	Contracting
P/E Approach	11.59	12.735	10.2	14.5
Asset Allocation Plan (E/B)	70:30	50:50	90:10	70:30:00
Proxy Stocks in SGX	HPH Trust, Fortune REIT, Hong Kong Land	Lippo Mall, First REIT, Wilmar, Golden Agri, Indo Food	Cromwell REIT, IREIT	APTV, UMS, Micromechanics, Global Testing
Proxy ETF	Lyxor HK ETF	Lyxor Indonesian ETF	Lyxor EMEA	XT MCSI Taiwan

The time the class was very conservative and decided on a larger fixed income portfolio due to the fears of a trade war.

At the end of the exercise, the class voted overwhelmingly to move to Taiwan, impressed by it's low cost of living for expats and it's cultural proximity to the Chinese population in Singapore.

I think there was still some bias in this set of results because prior to this exercise, I made the class discuss the possible implications of China's brain drain of Taiwanese workforce and what would happen to Singapore if Taiwan opens up their economy to South East Asians.

The student will now get to suggest the countries that my third Batch would investigate as part of the exercise in Day 1.

The problem of Financial Pornography

You encounter quite a bit of financial pornography once you are engaged with folks in the fund management industry. Imagine how hard it would be to peddle funds that return 7% a year. I can imagine the pressure for folks in the financial industry to tout returns north of 20%.

I do my level best to avoid engaging in financial pornography but it's not as easy as it sounds once you start to conduct some investment training of your own.

In my latest class, one of my strategies "unfortunately" backtested 21% returns with a semi-variance of 10%. In this same period if you bought every stock in Singapore in equal proportions you would have only made about 8% with a higher semi-variance of around 12%.  

If I present these numbers to the public, it is pretty reasonable to say that given that the backtest covered the recovery from 2007-2009, returns moving forward may, perhaps, not be as fantastic as the tests indicate. 

This is how, I think, a reasonable trainer should present his results. 

The problem arises when you also teach leverage in the same course.

With an equity multiplier of 2 and lending fees of 3%, you may be looking at returns of 21 x 2 - 3 or 39% a year. If you put $30,000 a year into this leverage portfolio and assume the same historical returns, you will have close half a million within 6 years. Enough for a single person to generate dividends to cover basic expenses at the end of the period.

It does not take a genius to figure out that the strategy on hindsight, could have made someone fabulously rich within a ridiculously short period of time, so I have some kind of ethical dilemma in my hands - the last thing I want is to over-excite my own students.

I don't think my solution to resolve this ethical dilemma is the best one. You can't avoid the truth once you learn a bit of simple mathematics and do some basic sums of your own.

This is how I resolve the problem :

I have to manage the expectations of my students and have them realise that money making is not as easy as just deploying a quantitative model and then leveraging it. 

Instead of using these backtested models, I get the students to focus on dividend yields. In this case, my portfolio has a forward yield estimate of  a relatively conservative 7.31%. Leveraged, it returns 7.31% x 2 - 3% or 11.62%. High but definitely not pornographic material but still plenty of good stuff to look forward to. 

Using this lower number, a consistent $30,000 contribution will still allow someone to have close to half a million within decade.

This is possibly the reason why I am so eager to invest in the portfolio my class has built. At the back of my head, once I considered all the risks, it is a pretty solid selection of counters such that even without even accounting for capital gains, I would sitting pretty on gains in the future. 

While quantitative investors do not really abide by the "margin of safety" principle, by assuming dividend yields to be the only returns for this portfolio, I am, in essence, doing my best to limit the downside of this portfolio.

Just completed a full house Retirement MasterClass

I think the best way to learn about investing and finance is not to attend my Early Retirement Masterclass.

The best wat to learn about personal finance and early retirement is to teach my Early Retirement Masterclass. As such, beyond the financial aspect of being a trainer, I can say very frankly that I probably learnt the most from my students.

This time, I had a full-house with 50 pax. The thing about having a large class is that it is actually easier to project your energy when class is going on, but for some strange reason the tiredness kicks in much harder when the class ends. For now, I think that the reason is because I stopped coffee on the course day itself and was going through some withdrawal syndrome. I am writing this blog article because I just had two cups of coffee!

This class is slightly different from Batch 1. Batch 1 has CFAs, wealth managers and even a government regulator.

As I start to refine my marketing message, I realise two things about the kind of folks I am attracting to sign up for my course. A large number of students are engineers like me with many coming from the IT industry. I'm not sure whether this is a good thing or a bad thing - engineers and IT guys naturally warm up to my quantitative investing style and are much easier to teach, but I would always question whether I my message is getting through to those folks who are not as quantitatively inclined. 

One incident was actually quite funny - A student asked me to reseat a few engineers into her group because she felt she may need more assistance to understand the numbers before class began. I was thinking to myself that this would have been great if engineering undergraduates were equally popular in university campuses two decades ago. In future classes, I will try to detect the CFAs and STEM guys and try to spread them out so that every student can benefit from the team work exercises in class.

Another very interesting observation is the number of students who have an MBTI personality profile of INTJ. My best friends in life are INTJs but I am not an INTJ myself, half of my life as an engineer was spent as an ESTJ but after Law School, my MBTI shifted to ENTJ as I started to get a more strategic perspective in life.

As it turns out, INTJ is possibly the best MBTI profile to have if you wish to FIRE early in life. Many financial bloggers, such as Jacob Lund Fisker, belong to this personality profile. 

I will try to reproduce my letter to this batch of students here. Unfortunately, I can't share details on the co-created portfolio we built together as a class. For this batch, I worked them pretty hard to come up with the portfolio as I will be eating my cooking next week.

< Letter to Batch 2 >

Dear Students of Batch 2,

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

One of the repeating themes of this workshop is the mention of Asia Pay TV. I felt a certain closeness to a few students because we’ve all lost a bit of money on that counter.  It is comforting to know that there are folks out there who are sitting on bigger losses than me for this counter.  Interestingly, in Batch 1, the class was asked to extract the fair value of Asia Pay TV as projected by professional analysts and tha price was projected to be $0.35. 

This is an important lesson for not just for the class but for all investors. Creating a strategy purely based on dividend yields is the surest road to personal tragedy. Therefore, no matter how attractive an investment is, try to keep your portfolio well diversified, this means developing a sense of intellectual humility. No matter how good your quantitative models are, you will still end up making a lot of investing mistakes. 

This class has taught me a lot about personal finance. Topping up the CPF-RA to the Enhanced Retirement Sum or 3 times the Basic Retirement Sum is a rare move to increase annuity payments beyond age 65. Healthy and live-lived folks benefit a lot more from annuity payments. I recommend that you do so only if you are in good health and have long-lived ancestors. 

It should also be noted that that during the workshop, too much depends on the outcome of the Trump-XI talks in the G20 summit.  The US and China have agreed to a ceasefire in the trade war which is likely to result in a nice boost to the markets in December 2018.

As of now, I continue to believe  that the markets are entering into contraction in 2019. A ceasefire on tariffs does not signify an end to a trade war. As such,  I continue to adopt  a defensive stance for most investors. 

Finally, I attached our co-created portfolio in Annex A of this message. I look forward to investing $20,000 of my own proceeds into my margin portfolio at a equity multipler of 2. 

It has been fun teaching you guys and co-creating new leverage portfolios together as  a class !

Christopher Ng Wai Chung

The Art of the Good Life #50 : Sturgeon's Law

Ted Sturgeon was a sci-fi author who claims that "90% of everything is crap" and this chapter proposes that the same applies for the stock market. 

This is useful when you decide what kind of media to indulge in. 90% of all fiction is crap. 90% of all Netflix shows are crap. In a moment of self-reflection, perhaps 90% of investment training is crap so I need to constantly improve my training slides.

While preparing stock screens for this weekend's class to demonstrate this concept, I wanted to see how many stocks fall into this category in SGX :

a) Cannot be a ADR, GDR, China Stock or a REIT.

b) Cannot have a market capitalisation below $50M. 

c) Must have revenue above 150% of the average of the remaining counters after step (b).

d) Must have an operating cash flow above the average of the remaining counters after step (b).

e) Must have number of shares outstanding above the average after step (b).

f) Of the universe in (e), choose stocks that give at least 4% dividends last year.

g) All stocks must produce a free cash flow that sustains the dividends.

These set of screens are inspired by O'Shaunessy's What Works on Wall Street so the backtest not just has some utility on Bloomberg, it has a history of working well in US stock markets.

Sadly, Sturgeon's law holds true for Singapore markets

The screens were too stringent to create a working portfolio. Only Jardine C&C, City Developments, Hongkong Land and Dairy Farm made the final cut.

This list is too short to create a diversified portfolio for my students so I need to make adjustments to my model to ensure that a model with more than 10 stocks would result. After relaxing the model, I was still able to backtest 18%+ with a larger set of large cap equities.

Still, the Final Four may be useful in my personal portfolio to anchor my REIT portfolio with some bluechips as we dive into what is possibly a bearish work economy with Brexit and a trade war looming in the horizon.

How to graduate more engineers ?

Singapore probably regrets mistreating technical professionals. You can read all about it here.

Just like the humanities and liberal arts professors in the US who now have to explain why their students can't get decent jobs or pay, I think engineering professors and policy makers are not getting the idea of becoming an engineer right. I remember my professors doing everything they can to counter the fact that being an engineer is uncool. On hindsight, I think their efforts only makes things worse.

To truly understand why we are not getting enough engineers, I think we need to look closely at how a society like Great Britain divides their population into social classes. With that deeper insight we can possibly understand how to encourage folks to do more engineering work.

First of all, we need to understand the notion of capital. Those who read financial blogs understand that financial capital is important. But there are two less common categories of capital. 

Cultural capital is a measure of how cool people are. This form of capital is bifurcated into two separate categories. High-brow cultural capital is based on your understanding of what is considered canon in higher education. Older law partners sometimes assess an associate on how much he/she knows Shakespeare. The other form of cultural capital focuses on what is edgy and hip. This is cultural capital of hipsters who might know the best way to flesh out a website or channel the best memes on the Internet.

Social capital measures how valuable your social network is. The higher one moves up the social ladder, the more CEOs, medical specialists and senior lawyers they know. As one moves down the chain, they are acquainted with more plumbers, electricians and manual workers. 

The elite is defined as the top 6% of British society and master all three forms of capital. They mainly exclusivity not just by growing their wealth. They get to dictate what society finds cool. 

The precariat is defined as the bottom 11% of British society. They lack all three forms of capital. 

The essence of solving the problem of the dearth of engineers is to understand that engineers fall into the social class of technical professionals within the middle class of society. This social class is characterised by having a large amount of financial capital but almost non-existent social or cultural capital. I think I'm fine with having no social or cultural capital since at least 9% of millionaires from this profession in a survey by University fo Georgia in 2006.

So engineers are now scientifically proven to be rich but uncool. But still, they are better than emerging service workers who have social and cultural capital but no financial capital. These are the hipsters who graduate with humanities qualifications.

But social scientists discovered one special thing about the class of technology professionals. This social class is highly inclusive and will admit any member of society who can demonstrate proficiency in science and engineering into the middle class. Another words, no one cares where you come from if you can code or manage big projects. Even in a society where social mobility has dropped, the engineering career path has always maintained a ladder even for the poorest in society.

This gives a society a Singapore a wonderful opportunity to create more engineers and deal with the lack of social mobility at the same time. 

Imagine you have top A level student who comes from a poor family. He can, of course, study Law in order to become a lawyer. But success in legal work is not a mere function of academic intelligence. To get the right training contract, you will need the right social and cultural capital. Also note that you can get straight As in JC but still get average grades in Law School because the competition is so ridiculously tough.

So society should promote the inclusiveness of the engineering profession. The folks who can benefit from an engineering education are often the folks from the humblest backgrounds. 

Perhaps a special drive to get students to study engineering should start with the least privileged members of society. 

Dark Horse - A new approach to personal development.

Seedly approached me give a talk to a crowd of Millenials who are interested in personal finance a couple of weeks ago and I agreed to their request. I told them that I will take the next few weeks to come up with a topic. 

At the personal level, I wanted to give a bespoke presentation because my current previews tend to be slanted toward mid-career professionals and I wanted to really start thinking about how to address the needs of someone who has been working for less than 5 years.

A more concrete outline for a presentation is still quite far but I think I've found a body of knowledge to anchor most of the speech. 

Dark Horse by Todd Rose is, in my opinion, an incomplete attempt to redefine career management and self help for an economy that has already been disrupted by AI. It proposes that instead of following society's script and being successful based on the benchmarks of everybody else, why not pursue a life based on your personal fulfilment ?

While I really like this attempt to come up with a new form of self-help, I believe that actually following society standards do benefit about 30% of the general population so I don't really share the same enthusiasm that everyone attempt to become a Dark Horse. After all, even during NS, all folks wanted is to be a White Horse. 

For 70% of the population, this book does have its value. But the book, as visionary as it is, is plagued by a lack of data and scientific backing. The points raised also seem overly simplistic. 

Nevertheless, you can become a Dark Horse and succeed on your own terms if you do the following :

a) Know your micro-motives

Some things that drive a person can be truly quirky. Some folks not only enjoy work with their hands, some have a knack for aligning two pieces of wood together. My micro-motive all these years is that I enjoy seeking attention by trolling. 

By aligning several micro-motives into a unique combination, you can carve a bespoke career that pays well for yourself. My trolling would have gotten me into trouble until i figured out that if I can back my controversial ideas with empirical data and help people make money at the same time, I would be able to gain for myself a loyal following. Even the folks who hate me would have no choice but to follow my blogs.

b) Choose a vocation or path of development based on your micro-motives

This is opposed to choosing a vocation based on what society values but instead on your unique set of micro-motives. Data-driven trolling put me on track to become a financial blogger. For a start, I made only $150 every year. It was difficult to stop because I liked this so much and it has not exactly been a great boon to my day job.

c) Build career strengths after you found your targetted vocation

It is only after finding a targetted vocation based on your micro-motives would you start to build on your personal strengths. Four years of Law School does not mean just developing proficiency in the Law. I spent 4 years in SMU getting unlimited access to Bloomberg Terminals and my presentations are also graded in a curve. This allowed me to gradually build up a a better approach towards making money that can be backed by empirical evidence. It also gives me a good convincing counterpoint to other investors who adopt a more conventional value investing approach keyed off Warren Buffett.

Of course my journey is not complete yet. To succeed in this endeavour I now need to refine my presentation skills as all trainers need students to sustain their practice. In 2019, I need new skills in Vocal projection and Improv.

d) Ignore the destination

It is this component of Dark Horse that I find the most disagreement with. Even the examples given in the book showed people taking clear accountability for their personal destinies. 

The other reason is that if you engage in commerce, you will know your results and KPIs very clearly and the markets generally reward hard work and innovation. Results are a great guide on how to improve further. 

Rather than ignore the destination, perhaps we should be open-minded to alternative destinations that equally fulfilling. I see that my skillset can succeed as a trainer, consultant or an investment manager. 

All in all, this is a flawed but visionary book that can be improved further. The author probably has some of axe to grand against the establishment and made valiant attempts to vilify what he sees as a Standardisation Covenant. He fails to see that if he succeeds, he will become the new standard that young professionals benchmark on.

The Art of the Good Life #49 : Managing Expectations

To manage expectations, you need to organise your thoughts into three categories.

The first category is something that "you must have".  This is an absolute necessity. On hindsight, one of my absolute necessities is to complete my legal training. This means going through a lengthy practice training and skipping out on a fairly decent job offer. Positioning something as a necessity can be extremely limiting. Only time will tell whether I made a right move in insisting that I be called to the Bar before moving on. For readers, I strongly suggest you keep these limitations to a bare minimum. Pride and ego is expensive.

The second category are desires. Life is not worth living if you have no desires. I desire a Creative Super XFi Air. I also desire a Pixel 3 XL. Since APTV tanked, I have dropped my desire for a new iPad Pro Tablet preferring to buy more stocks with my next round of earnings. You should have desires, but ordinarily, you should not be shackled to them.

The last category are expectations. This causes the most unhappiness because they may be influenced externally and cause tremendous internal damage that can shake our very confidence in ourselves.

This is important for investors. 

My latest back-testing for a portfolio of equal-weighted REITs returned 19+% over the past decade. This is coupled with an extremely low semi-variance of 10%. If you mentally anchor to these numbers, you are guaranteed to be miserable because the past 10 years saw a lowering of interest rates and a recovery from the Great Recession of 2008. Financial figures exhibit non-stationarity. 

To balance against this, I create benchmarks for investment strategies to see which investment strategy is better.

In my opinion, investing in REITs for the next 10 years in an era of rising interest rates is unlikely to return 19%. But at least I can say with some authority that filtering out the REITs with the highest yields and lowest gearing has a large probability of outperforming an equally weighted REIT portfolio or even the STI.

This is the attitude a good investor needs to adopt. Markets will smash your expectations and damped your confidence. 

In fact, I actually believe that the next two years at least will be bad for investors. 

Losing money is almost guaranteed given that investors will sell Singapore stocks when the US markets start to trend downwards in spite of our low CAPE ratio. 

But the good news is that if you double up on pumping your funds into a low volatility portfolio over the next 2-3 years, you have a decent chance of catching the bottom of the market.

The winners of tomorrow are the heroes who conquer their fears in the investment markets for today.

Why men are useless before they reach age 33.

Jennifer Lopez is not known for giving great advice, but this article hit the ball right off the park. In my opinion Jennifer Lopez is speaking a really honest and brutal truth about men in general that cuts across cultures.

I came across this diagram from the Economist which I will share here :

Social scientists have been plundering Tinder and various dating apps for data and, in my opinion, this chart proves Jennifer Lopez point.

The desirability of men actually peaks late, at around age 50 but a woman's desirability monotonically decreases after age 20. The intersection point between the desirability between a man and a women is around age 30. In other texts of evolutionary psychology, it seems that men are into women aged 27 no matter what their actual age is so, we can also estimate from the diagram that a man of age 33 has about the same desirability as a woman of age 27. This is why I'd reason that J Lo is spot on.

At a less empirical level, this also makes a whole lot of sense.

When I was engineering undergraduate, it was so hard to date women. They are fairly demanding and expect a lot from men they date. As I got older, I noticed that the men who stayed single had a much easier time the  longer they stayed single. This because their desirability goes up but the desirability of women in their age cohort goes down. They also started to gain better access to younger women as they got older.

Financial capital obviously plays a major role in the dating game but sociologists have started to examine other sources of capital. Namely, cultural and social capital.

I will only focus on cultural capital today.

Your cultural capital measures how good your personal tastes are. Even though engineers and computer scientists comprise of 9% of millionaires in surveys, they make their money much later in life. In their twenties, it can be argued that they have no capital at all. For example, Arts and Humanities guys have the time and the inclination to develop an eclectic mix of musical tastes, which is what cultural capital is all about. I would even venture to guess that if you look at the Spotify list of engineering majors, you may find a lot of anime/otaku music. But if you look at a Arts guy, it may be a list of Jazz, World Music as well as pop songs. That matters a lot in the dating world because assortative mating, or choosing a mate based on personal interests, educational level and tastes, takes precedence over hypo/hypergamy than in the past.

A man at age 33 also has sufficient time to build up his financial capital and signal how valuable he really is as a lifelong mate. We know that this is also about the time someone in the FIRE movement makes his first $100,000. Also, a lot of guys become discouraged in their 30s and make a decision to become Wizards, MGTOW, bare branches or Ohitorisamas. So your pool of competitors start to drop after this.

I would go further to advise this generation of male readers.

You need to use the solution to secretary's problem to build a "database" of women you date before you make a commitment. This a period of time where you shop around, equivalent to 37% of the time you give yourself to find a spouse. There is ample to do this before you are 33. Only after your desirability goes up should you commit to someone from subsequent dates.

In some other articles I have read, some relationship gurus advise seeing about 16-17 women before you can decide what kind of person you will be happy to settle down with.

This was not too practical during my time since I married my first girlfriend, but we live in an age of Coffee Meets Bagels and Tinder. You can get a date while eating a bowl of ramen noodles at home.

So this is a actually a great tine to be a guy.

Even though you might be worthless until you reach age 33.

Don't mess with the Gods of Wealth

I just want to share the spate of bad luck that has I have experienced over the past 3 days.

If you'll indulge me in a spate of superstition, the thing started with me plundering the spare cash I've been keeping behind my altar of deities because I needed some spare change. While I am an atheist but I collect Gods of Wealth from countries I visit, I populate my altar with the deities along with characters from Pop Culture like Tywin Lannister, Batman, Ironman and Ozymandias.

These are, after all,  various gods and icons of wealth, after I took $100 from their stash, shit started to happen :

a) APTV

I keep APTV not because it's part of any quantitative model I have.

APTV is a legacy holding from my yield pig days before I started upping my investment game after gaining access to unlimited Bloomberg terminal use in SMU. APTV's fundamentals have been deteriorating for a while and my main motivation is to extract it's ridiculously high dividends and to provide a nice kicker to my leverage account.

APTV burned a lot of investors because we had this fantasy that dividends may just be by 50%. We did not expect such a drastic reduction a few days ago. Details on what happened to APTV can be found in other blogs and I lost $20,000 in one day.

This loss is manageable because I can channel it to other REITs which have been battered by the markets.

While $20,000 is painful, it can be earned back quite easily.

I was actually more worried about another counter which I owned.

b) UMS

UMS made me a lot of money over the years because it just kept splitting and spinning off dividends. The music had to stop one day because it is a cyclical business.

I have a cluster of manufacturing counters which have been 2-3 baggers in the past and given the fact that Trump will carry on this trade war with China, I could not hold onto these counters at a meaningful allocation anymore. Thus, I unloaded 90% of my UMS and Valuetronics. This is a painful decision as I think the long term view on these counters may not be as safe as higher yielding REITs in the market.

Rearranging my investments this way was painful. As I removed all the stocks that would give me bad sleep at night and replaced them with the more steady dividends counters, I also lost the potential for a rebound next January.

But I doubt holding onto UMS and Valuetronics may be the right move in the medium no matter how much I liked them. And as it turns out, Advanced Materials just had an earnings miss yesterday.

c) Spent 4 hours in NUS A&E last night

It got worse from there.

Yesterday, my daughter fell on the floor and hit her head. Five hours later she vomited. At midnight, she complained of a headache. We ended up going to NUH A&E last night to ensure that there was no serious concussion.

I was glad that was a false alarm but it clearly ruined my day today so I am not going to do any work today.

Also, I have since returned the $100 I took from the altar.

You can accuse me of the post hoc ergo propter hoc fallacy but I will not taking a lot of risks moving forward, but taking money belonging to Tywin Lanister, Batman, Ozymanidias, Daikokuten, Lakshmi, Frey and other assorted gods is a bad idea.

What have I been spending on ?

Having lived on dividend income for the past 4 years, my household is relieved to have earned income flowing in again. I am personally quite happy, but mainly for the "perverse" reason that I will be paying income taxes again next year.

The big question for financially independent folks who find a way towards earned income again is what should a person do with it ?

My hobbies are relatively cheap. I buy tabletop RPG PDF books and then read I them like a book of Statutes. I have relatively little wants and my household spending is as lean as ever.

My problem is largely solved by the pact I have with my course attendees. I put in slightly more than half my earnings into a leveraged account on a portfolio we jointly co-create together. That still leaves the other half to be spent.

A large part of the remaining amounts is just given to my wife because it increases the quality of life for my household immediately. She has gone crazy hunting for deals online.

One of her most ridiculous coups is a Coffee Capsule machine that was sold by Coffee Bean Tea Leaf on their 22nd Anniversary. This model was supposed to sell at over $300+ but we bought it at $22. After testing it, we loved it so much, we bought another machine for my brother in law.

We have since gone a little crazy during the 11.11 since I am an Amazon Prime member. I've spent over $400 buying stuff from Amazon last week. Even worse, last week there was a rare Moleskine stationery sale where I could get designer stationery at half price, so I did as much Christmas shopping as I could so we don't have to worry about buying gifts later.

One of the problems of adopting a highly disciplined lifestyle but splurging during heavy discount days is that you lack control over how your life will turn out. You basically have to go with the flow and enjoy whatever the stores are discounting at that time.

We only get to upgrade our coffee because we lucked out on a coffee machine. I also got a lot of junk toys, my daughter got silly Operation game with a Finding Nemo theme. My son got a pair of Nerf swords.

If you want something cheap, you don't really have a choice to get what you truly desire. You will need to adapt yourself to whatever you can buy.

Just for fun and to show that I am human, I'm going to talk about what I hopefully will be buying for myself over the next six months :

a) Google Pixel 3 XL

I've been using my OnePlus 2 phone for close to 4 years and even tried to install new batteries about half a year ago, but the phone would still lose a charge after 6 hours and I'm getting quite sick of that. I've been meaning to go back to a pure Google phone for quite a while and this is my chance to do that. Sadly, the Pixel is priced as a flagship product and I expect to pay possibly $1,500 for it. It's probably since I have a habit of using phones for 4-5 years anyway.

b) Creative Super X-Fi Air

There is always a special place in my heart for Creative because I did my engineering internship there and it was one of my first paid engineering gigs ever.

While I'm not really into audio, the idea of adopting sound waves to an image of your ears is really exciting to me. The other reason why I am excited is because I have been introduced to the world of high-end audio by other friends who talk about "auditioning" audio equipment. The potential of getting $15,000 sound at maybe $300-$500 is intriguing and may even lead to a long term position in Creative Technologies.

c) Next Generation Ipad Pro

I am very likely to stick to the Apple ecosystem for my tablet because of Goodreader. I expect to pay through my nose for a 1 TB version because it lets me lug my entire RPG library around.

Of course the prospect of playing Diablo on a tablet is an exciting one.

I will still prioritise developing my human and financial capital over these new shiny toys, so I'm not sure whether I can act on my wants. Ahead of these gadgets is a course on Improvisation and Voice training - since I use my mouth to make money these days, I should be investing to ensure that I get better at it.

The Art of the Good Life #48 : The Secretary's Problem.

I've written about the Secretary's Problem before.

Suppose you are in the look-out for a piece of real estate. Different gurus have a different approach towards buying the house, but the most optimal solution is to first determine when you will need to move into your new house and then spend about 37% of that time looking at homes without committing to any purchase. The purpose of this search phase is to actually get acquainted with the range of properties that are on sale and give you a better idea of your own personal preferences. So if you have 100 days to search for a house, spend 37 days just shopping around without making a commitment.

( 37% being 100% divided by e where e is the natural number at 2.718 )

In practice, you need to be strong-willed to adopt this approach because real estate agents will try to cajole you to make a purchase. You have to hold back and resist an offer until you have a database of houses for sale.

After 37 days is reached, you should have a basic idea of the kind of house you are looking for, so when you view a house after 37 days and you find it is superior to the set of houses you have viewed during that 37 days, you should make a commitment to buy the house.

The Secretary's Problem is designed to minimise regret. It prevents you from being too hasty or overly cautious when you have a search problem.

There are problems with using this heuristic to find something :

Suppose you apply the Secretary's Problem to find a significant other and expect to have 100 dates before settling down with someone. After 37 casual dates, you finally have an idea of what kind of person you are looking for. Even after you find a person that you'd be happy to commit to, she might be also using this heuristic and still in the process of forming her own 37%.

It is also relatively hard to apply this to investing, a good equity screen can easily select the top 10 market leaders in the Singapore Stock Market.

A cursory application may make sense for a beginner. If you want to launch your own portfolio next year, maybe you should spend approximately 4 months reading up on investing and attending classes without committing to a strategy. The problem with doing that is that different trainers are not mutually exclusive to each other. You can launch multiple portfolios and have them fight each other in your arena until you find something that you like the most.