When financial bloggers take a break

This is a pretty rough week.

First 15WW has expressed a desire to take a break. You can read about it here. Then yesterday I received news that Cheerful Egg would also be taking a 90 day break to reassess his priorities.

These are good bloggers to follow because their material is quite candid and original.

The work of a financial blogger is a thankless job. A few years ago, a lot of us came in with the idea of monetisation of our blog material. That turned out to be much harder than we thought. Even if we can cultivate a legion of fans, unless we conduct courses, give talks or make physical appearances, the profits from writing articles can only float to maybe a few top blogs in Singapore. If you think about a successful local blogs, maybe only Investment Moats and AK71 come into mind.

Once you cannot monetise a blog, the disadvantages kick in. Unless your blog is completely informational, any amount of candour can potentially affect your day job and employment chances. I constantly find that everything I write can offend potential employers. Luckily, I can do it because I don't really need an employer these days. Imagine how hard is it for someone trying to FIRE at the same time.

Here are some for the consideration of other financial bloggers :

a) Read a lot. 

The crucial point about sustainability is to read a lot and reflect your reads on your blog. Your articles are novel because you adapt what you read into living in Singapore. You would also have a constant stream of articles that will eventually broaden your fan base.

For me, thought leadership matters a lot so when a new book comes online, I pay more to get it into my hands so that I can incorporate it into my training materials or blog.

If you reason that reading should be factor into the time I spend being a trainer, then I actually work harder than most office workers in my current life. I don't include this tine in my life-energy calculations because I enjoy reading and would do it even if I don't have classes to teach.

b) Don't parrot mainstream ideas unless you have a novel interpretation of materials at hand.

I thank SMU for this idea. When grading presentations, an A grade is only reserved for a "novel" interpretation of legal ideas.

The relative popularity of Marie Kondo has led me to clear about 40% of my clothes and surrender it to H&M for a few vouchers. The problem is that in becoming mainstream, this form of minimalism is less interesting to write about.

What is more interesting is the question of which investments "spark joy". If I can come out with a thesis of why Asia Pay TV sparks joy if it is below 13cts, I have a nice article that can pick up a larger share of the attention. 

c) A blog is only one piece of your personal brand management.

As more sophisticated blogs come online and some of us start to align with very powerful groups like Seedly, the question is what kind of room does a blog simpliciter have in the grander scheme of things.

Seedly has become a behemoth in the industry. I think a blogger ignores them to their own detriment. This year, I realised that it's way better to cooperate and see if there are win-win initiatives with them.

This is going to be hard for introverts but bloggers need to put themselves out there to change the game. This means giving talks, making physical appearances and conducting courses.

I have been thinking about the question of using podcasts and vlogs to extend my reach myself.

d) A financial blogger needs to be a little selfish too.

Of course bloggers have to address what they can do for an audience, but a more important question is what can the audience do for you. Many readers just scour blogs for stock tips.

The surest path to burn-out is to keep giving but not getting anything out of your blogging activities. Your blog should be about self-improvement and even some degree of self-aggrandisement.

I can keep doing this because I don't really care about the audience -  I know folks want a brutal take on polytechnic students, why they need to be careful when signing up for a private degree, and definitely how our CPF program is like schizophrenic prostitute. These postings give me 1000 views within a day. It took me only 25 minutes to write the CPF Prostitute article.

But I also write for myself to chronicle key ideas to make me a better investor, Articles on Aristotelian categories would be lucky to land 200 hits in one day. These articles are harder to write because all these ideas need to be shoe-horned to practical life. In the future, these are my hidden real options to publish a full thesis on investing.

I think more bloggers will quit  or at least take a break in 2019.

But even if a lot more bloggers will take their place, I always feel a little sad when this happens.

An Earnest Conversation - Dealing with posts by commissioned sales professionals that you may disagree with

Money Maverick wrote a really sweet post which showed his human side.

I would like to invite everyone to read it here.

While you don't have to agree with Money Maverick (I certainly don't), you will probably accept that he should be treated like a fellow human being and did not deserve this level of abuse online.

Not everyone in the community likes the style used by Money Maverick, some folks say that he's too slick and basically would share details on the securities he pitches only to his clients. As a trainer who does uses my blog to promote my personal brand, I can understand that Money Maverick has to keep doing what he does because one successful case conversion can net him a reasonable amount of commissions and allow him to attain his life's aspirations.

So today, I just want to showcase a better way to deal with such articles.

A lot of unhappiness was directed at his claim that he has a fund that can provide passive income of over 7.8% but at a volatility below REITs.

a) Instead of attacking him for being secretive, why not try to make an intelligent guess as to what it is ?

If I may guess what he's referring to, it may be some kind of fund that specialises in junk bonds. As 7.8% yield is rather high, it may be focused on specific region like Asia. The low volatility probably comes from the fact that these bonds are thinly traded anyway and you might be taking on a larger share of credit risk. There is also forex risk as high yielding bonds come from countries experiencing high inflation. So while traditional measures of volatility would be rather low, you might not like it when one of these junk bonds default.

But why not challenge yourself to take a higher road ?

b) Another approach is to see if you can beat his fund at his own game using DIY components. 

We can find REITs that yield over 7.5% from the REITDATA.COM, simply picking out these REITs will give us about 10+ counters. I did an average of these yields and I got 8.61% which is already higher than 7.8%.

[ In November 2018, I backtested a dividends strategy with REITs and it returned about 19.8% a year with a semivariance of only 11.17%.  Volatility of REITs is already pretty low. ]

The next question is how do we get volatility that is below that of REITs ?

Simple. Just add retail bonds.

If we can add Astrea IV Bonds into the mix at a proportion of about 18%, you will end up with a portfolio that gives out about 7.8% dividend yields but have, generally speaking, lower volatility than REITs.

( A craftier investor can add a commodity ETF because of the lower correlations )

So if I have $100,000, the appropriate response is to structure a portfolio of equal weighted REITs that yield at least 7.5%. In such a case, $82,000 should be invested in this portfolio. $18,000 should be used to buy Astrea IV bonds.

So with a simple exercise, I can confidently build a portfolio that has a decent probability of beating Money Maverick's proposed fund.

If you are willing to go DIY, you have a huge edge over solutions offered by sales professionals - You pay lower commissions, management expenses and there might even be tax advantages as we're talking about S-REITS here.

Let's try to make the financial blogosphere a nicer place for folks like Money Maverick. There is no need to condemn him for his choice of profession.

When he proposes an investment idea, challenge yourself to guess what it is.

Then take the high road and engineer a DIY solution to the best of your ability.

This why I always take the position that blogs like Money Maverick can potentially teach us a lot about investing.

The Model Thinker #3 : Aristotle's categories

I can argue that Aristotle is the philosopher who inspired all of quantitative investing. Even before the establishment of modern financial markets.

Aristotle created a framework of inquiry that is relevant even today, his ten categories being : Substance, Quantity, Qualification, Relative, Where, When, Being-in-position, Having, Doing and Affection. By inventing these categories, it is possible to classify everything under the sun. Once a set of objects can be categorised, we can start hypothesising about the relationship between these objects.

Naturally, in this modern world driven by data, a good working theory can result in extraordinary profits.

To bring this discussion down to earth, I have been experimenting with folks who show up for my previews. As my quantitative models have been working pretty as of late, I want to see whether the same quantitative discipline can be used to learn more about folks who are passionate about learning about investment. This is an example of one-to-many thinking : can I use the same models I learnt in my investing work in my new job as a trainer ?

The following slide represents my maiden attempts to understand my preview participants better :

I tried to distill the MBTI personality tests into one Mentimeter slide and attempted to figure out what "personality" do preview participants have.

After some crowdsourcing, I have at least one data-point that folks who show up for previews have the ISTJ personality. Introverted, data-driven, and decisive thinkers who otherwise would make great administrators and accountants.

So I can now imagine my course preview as some kind of equity screen that returns participants who belong to the ISTJ personality category.

Of course, just because you have an equity screen with a selected stock does not mean that you can you can profit from it.

Being an ESTJ-turn-ENTJ, communicating with ISTJs needs to be picked up as a skill.

My next step is to subtly change my materials to reflect the needs of my audience. Every assertion should be backed by some data. Every major outcome should come with a series of steps on how to achieve that.

What does the Finance Industry and the Social Development Unit have in common ?

Until the Millenials developed Tinder, dating was not a straight-forward process for guys in my generation. An entire generation of men were emotionally scarred by the Social Development Unit or SDU.

I was, fortunately, not a victim of this government initiative. Instead, after being burnt by a match-making attempt by my parents, I developed my own quantitative approach towards meeting women.

( This is why I have a family today in spite of being D&D otaku and troll. That story is something I will tell another day. )

Some of my friends were not so lucky as to escape the clutches of SDU.

Seduced by cheap government-sponsored dating activities, many of my friends fell into the trap of attending SDU events, some retained their sanity long enough to tell me their tales of woe. Through the horrors experienced by my friends, I have heard tales of people so unattractive, boring or so disagreeable, they could have been tales to scare naughty children being putting them to bed.

It took me and my friends ages to realise what the ultimate objective of SDU was.

In my opinion, it was clearly not an attempt to match-make singles.

The aim of SDU is to hurt your self-esteem and lower your standards so drastically that you would eventually settle for anything that comes by in your life. Imagine if you are fed army rations everyday. One day you are given a slice of kaya bread - that would be the best meal you ever had in recent memory.

Thanks to Tinder and Coffee Meets Bagels, the SDU is now a relic of the past.

But very recently, I have noticed that the finance industry is now using the same tactics to increase their profits.

Just the other day I went a new eatery in Selegie Road and I was lucky enough to overhear a conversation between the proprietor and his old NS pals. The proprietor worked in insurance and was able to raise enough capital to start the food establishment with another insurance buddy of his.

He shared a few interesting snippets about the industry. Namely (a) closing one case nets him about $1,600. (b) He can make about $6,000 - $7,000 a month (c) Even without closing cases, his previous wins can give him about $3,000 - $5,000 a month. Payments seem to stretch years (d) He does this by pure cold calling and he does not sell to friends or relatives.

I came away with the impression that making it in insurance is all about dealing with rejection, but more importantly, the commissions earned has to come from someone - the hapless insurance consumer. If closing a case nets the agent $1,600, it basically means that his client loses about $1,600 when he agrees to whatever advice was given to him.

How does the industry collaborate to lower the standards of consumers since so much money goes into paying commissions ?

Broadcasting lower returns, of course. Of recent note, I have seen a lot of insurance ads talking about the returns a consumer can expect from their products with an investing component. These numbers tend to hover around 2-3%.

Broadcasting these returns has the same effect as SDU, eventually creating a lower anchor for hapless investors to lock onto. Whoever manages these investment products have greater leeway to provide the higher commissions to insurance agents, who can, in turn, make more aggressive moves against consumers.

Here's how can reverse this anchor.

After a brutal 2018, the SPDRs STI ETF still returned about 6.5% since inception, or more than 8% if you consider its performance for the past 10 years. If you take the Nikko AM Investment Grade Bond ETF, you can expect a yield of 3.2%. A combination of these two ETFs will still net yourself more than 5%.

Another argument is that we can expect inflation to be around 1.9% every year. Even though Singapore has experienced lower inflation than other OECD countries, you are in essence locking yourself down in an instrument for real returns at around 1+% at most. One way to troll your advisor is to ask him to express his projections in real instead of nominal terms.

If the insurance agent insists that the lower returns are guaranteed, make sure you read the small print. There may be a loss of liquidity for a number of years. In any case, directly pumping into your CPF-SA will net you a risk-less 4%. The fact that some products lock you in for a number of years and yet the returns are benchmarked against SSBs which do not have a lock in period is possibly the result of very sneaky marketing.

You should also remind your agent that capital guarantees are predicated on the insurer not falling apart. (AIA was bailed out by the US government during the 2007 recession )

The financial industry is creating the same trap that has hurt an entire generation of men who have attended SDU dating events in the past. Don't let them trap you into accepting illiquid investment products for real returns of less than 2%. Instead of going SDU, why not venture overseas like Vietnam and Thailand to meet the women there ?

Similarly, separate your investment and insurance needs.

Where possible use a DIY portal for your insurance needs. Pay a small premium for pure insurance products, minimising commission payments, then invest the rest in a portfolio of standard vanilla equity and bond ETFs.

How to take a crap on quantitative backtesting.

With the efforts I have been gaining to show up some misconceptions about investing in local stocks, I would have thought that I should be become by now public enemy number 1 from value investors. Sadly, I have read some attempts to discredit quantitative backtesting and I find that they are either holding back key information, or generally lack intellectual sophistication.

As such, I will take on the burden of criticising quantitative backtesting myself. This is because, of all people, I cannot afford to drink my own Kool-aid. Not only could I stand to lose money if my methodology is flawed, it can affect the portfolios of my students too.

There are, in fact, three valid responses when faced with quantitative backtesting data.

The first, which I support, is to simply accept that is a superior approach towards investing. The second is to disagree and argue that you can get superior returns because the model inadequately capture all the risks associated with this strategy. ( For example, the strategy of small stocks is plagued with the problem of illiquidity. ) The third is to simply argue that backtest models model the past and the strategy simply will not work in the future. You need to have a better way to make money if you argue as such.

A good quantitative strategist must address three specific issues :

a) Data Mining

If you spend enough time interrogating data, you will always find a combination of factors that can result in excellent past performance. There are hundreds of factors to play with, all the quant needs to do is to set a time range and start grinding the numbers through the factors and pick out the best one of the lot. The problem is always the question of whether the strategy works in the future.

The only way I address the problem of data mining is to use only tested factors in the US and repeat the experiment in SGX. Then I do some work to ensure that I'm not crazy by testing out the strategy in Bursa Malaysia. I can safely say that dividends sustainable by free cash flow has not only passed all the tests but also receive support from value investors.

b) Non-stationarity

Imagine you have a bag of red and white balls. You draw out the balls one by one. Over time you have a certain idea of the proportion of red balls to white balls after a while. Sadly the markets do not work like this - when you invest in the markets, the markets will change the bag every now and then. So when you are having the Great Recession and lowering interest rates, you are drawing from a different bad than when you are facing the trade war between China and the US.

This is a much harder issue to address as this means that the returns and standard deviation can change as we enter a new stage of history.

This is not a easy issue to address. My only defence is that if there is a significant change in history, it should be argued as such. We had the same PAP government for 50 years. If anything, Singapore investors have a greater reason to stick to models captured in the past than, say, Turkish investors.

My only defence is to keep expanding the backtest timelines and watch other markets when strategies begin to fail. Of late, the small firm effect is not as profitable as before and value has been losing to growth for over a decade in the US.

c) Model misspecification

This is so hard, I struggle to understand how to even deal with it. When we fail to select factors when we create a model, a factor like the low-variance effect can either be interpreted as a market beating anomaly or a risk premium. So the model is incomplete.Academic researchers have found 316 different factors in quantitative investing.

 The combination of factors I employ are the obvious ones documented by texts. The sample size of Singapore markets is also very small such that using more than 2 factors at one go will result in a set of stocks that may be too small for diversification.

So I have chosen to ignore this critique of quantitative investing.

Maybe a professional quant can share some ideas on how to address these issue when you run a professional fund.

The Model Thinker #2 : Seven uses of models

In this second installation of The Model Thinker, I will talk about seven uses of models.

The author uses the REDCAPE acronym to illustrate these seven uses which I will illustrate here for folks interested in their personal finances :

a) Reason - To identify conditions and deduce logical implications

One of the best illustrations of this usage is Ray Dalio's Big Debt Crises he showcases one way to look at how accumulating foreign debt can lead to a depression later on. A detailed discussion of this model, unfortunately, cannot be done on a blog. We do know that taking on a lot of foreign debt can led to tragedy later on.

b) Explain - To provide testable explanations for empirical phenomenon

I attempted to explain the underperformance of a REIT portfolio due to an investor's preference for REITs run by 'good' sponsors using quantitative backtesting. This racked up a lot more unhappiness than I originally intended, but I will possibly do up a sequel to that article quite soon.

c) Design - To choose features of institutions, policies and rules.

The CPF Life program defaults to the Standard Plan which is drawn from the concept of choice architecture illustrated in the book Nudge by Richard Thaler. The government obviously wants more people to load up on annuities in their retirement plan so a sneaky way to do it is to make it the default. This is excellent policy design, but I fully intend to switch to the Basic Plan the moment I get to do that.

d) Communicate - To relate knowledge and understanding.

If you follow my block, you might know that I am getting rather obsessed with building a taxonomy/epistemology of financial knowledge. I was inspired by the TCP/IP stack and a writeup from a finance professor. I hope to explain the problem of financial knowledge better. If I fail, at least the IT guys and engineers will appreciate my use of this model.

e) Act - To guide policy choices and strategic actions.

A very simplistic way to locate Singapore's position in the market cycle is to look at trends of CDP growth, inflation and unemployment. Once we can guess at our market cycle positioning, we can start to determine our asset allocation. At this point of time, we might be in a contracting phase - this means buying bonds in spite of their lack lustre returns over recent years.

f) Predict - To make numerical and categorical predictions of future and unknown phenomenon

What does it mean when my strategy of buying stocks yielding more than 4% and having a P/E less than 12 returns over 20% ? A lot of folks misinterpret this as  projection of future returns of 20+%. Actually, I build quantitative models to maximise the chance of outperforming the market average. So I am predicting that this 4% yielding and PE would do better than holding a basket of Singapore stocks in equal weights - a less dramatic prediction than +20% gains every year.

g) Explore - To investigate possibilities and hypotheticals.

Over the next few days, I will be investigating whether REIT's with 'good' sponsors have a larger average volume over the past 6 months.  I hope to use these insights to see whether I can put a second nail into the "Good REIT Sponsor" idea that many investors currently have.

In summary, models are very powerful tools to assist an investor. Hopefully as I explore this book further, I will learn of new ways to structure an investment plan.

Your CPF is like a Schizophrenic Prostitute.

The inspiration for this article started when I suggested to another financial blogger to write a CPF article and pepper it with sexual references to push readership figures. He then said that his brain is too tired, so I challenged myself to write the most pornographic CPF article ever written in the financial blogosphere. If you get triggered too easily, you can always tune out of this blog and go watch a Hallmark Christmas movie instead.

a) Investing in CPF can be like visiting a special kind of prostitute.

If investors were Johns, I expect buying stocks is like visiting prostitutes who are good looking and generally give good Girl-friend Effect (GFE). The problem with equities as prostitutes is that in a particularly bad year like 2018, instead of giving the John a good time, the prostitute climbs on top of him and shits all over face. I have even learnt the hard way that stocks like APTV will even bite off your nipples off in the process.

Enter the CPF.

The CPF is the kind of prostitute that gives a consistent guaranteed performance. 2.5% guaranteed is not bad, but it is the kind of transactional relationship with little GFE. She barely gets the job done. Even the 1% benefit only applies to the first $60,000 of your assets adding only an extra $600 every year.

Thus, the popularity of the CPF program is this consistent performance.

Sadly fixating on 2.5% allows financial institutions to sell riskier programs with returns of 3+% and then tout this investment as a better alternative to fixed deposit. A fixed deposit is not even visiting a prostitute, it is risk-less and guaranteed by SDIC - this is more like an innocent date with platonic lady friend.

Worse, financial institutions selling low return offerings also condition investors to expect bad service in Geylang.

b) The CPF-OA account is schizophrenic prostitute 

The second point to note is that your CPF-OA account has multiple purposes. This is the biggest flaw and biggest strength of the program. Imagine hiring a prostitute not just to give you a good time, she will also do your housework as well.

This is the biggest watch-out of the CPF program.

If you use your CPF to buy a larger home, expect to less retirement adequacy. A prostitute cannot give you a good time and then go wash all your dirty dishes at your sink at the same time. You will not get good service.

Buy a 4 room flat and you may be able to replace 75% of your income when CPF Life kicks in for you. Buy a 5 room flat and your income replacement may dip below 50%.

c) To resolve this prostitute's schizophrenia, transfer CPF-OA to CPF-SA instead.

A quick way of resolving this schizophrenia is to transfer your CPF-OA to your CPF-SA. This is telling the prostitute that she is not expecting to do any housework so long as she services you well. In return, you end up with the best possible risk-less service possible in the Singapore economy at 4%.

The best time to perform the transfer is when you are young. You have more years to enjoy the 4% compounding. After all, the best times of life to get any serious bonking done is when you are much younger.

I maxed out my CPF-SA in my twenties. From the day I reached minimum sum, subsequent increases in the minimum sum has always been adequately met with the 4% returns. Even now, as my CPF-OA is almost totally exhausted maying off my home mortgage, I received over $10,000 in 2018 from interest alone. At my current age of 44, it does not take very long before I can reap the rewards of moving my CPF-OA to CPF-SA when I was in my 20s.

So there you have it, the most pornographic and obscene article you will ever read about the CPF program.

Just don't invite me to give a talk like this in public.

The Model Thinker #1 : The Wisdom Hierarchy

As we enter 2019, I will also be beginning a new series covering one really good book that I would like to digest very slowly. After some deliberation, I have decided to cover Scott Page's The Model Thinker  as it suits the level of an intermediate to advanced reader.

Naturally throughout the series, I will be personally trying to show-horn to adapt the ideas in this book to my personal style of investing. I hope that readers will find this new column useful and information.

Today I will be covering the Hierarchy of Wisdom. It is a great way for a novice to start thinking about models and how they can clarify things for us.

The Hierarchy of Wisdom consists of four ways in which we can explain the phenomena around us :

a) Data

Anything that lacks meaning can be considered data. Data can be a timestamp or a string of 1s and 0s. For a dividends investor, a 2 cts dividend payable on 2 December can be considered data since it is a timestamp of when money is to be credited into the shareholder's account.

On its own, a dividend does not have a lot of meaning.

b) Information

When data gets partitioned into categories, it becomes information. For example, when we sum up the dividend payments of a stock over a year, we get the total amount of dividends received in 2018. This becomes information. The information can be enriched further when we divide the annual dividends by the market price of a share and obtain the dividend yield of a company stock.

c) Knowledge

Knowledge is justified true belief.

When information can be correlated with each other or tied up with causal or logical relationships, we start to attain knowledge. If after a backtest, we find that picking dividend stocks tends to outperform the market index, this appears within the realm of knowledge. Deeper knowledge is gained when we figure out that picking for sustainable dividends from a high free cash flow can result in further outperformance.

Most financial providers show a student how to get to this level.

d) Wisdom

Wisdom is the highest level that can be attained. Wisdom is the ability to apply the right mental models to the proper situation. If you have his idea that higher dividends tend to outperform and have the tests to show that it works for equities, the question you need to ask yourself is whether the same principle can apply to REITs ( So far the backtests say yes. )

Problem arises is that you have many situations that use a regular cash-flow to tempt you into investing in something new. If you apply this model to bonds or crowdfunding projects, you will end up taking too much credit risk. Worse, there are now platforms that allow you to convert cryptocurrencies into a regular payment scheme.

Wisdom is to take a step back and perhaps understand that a better model to value these assets lies elsewhere.

e) I hope to be wiser in 2019

Some question in finance cannot be sufficiently answered with knowledge. One example is the question of whether a crash is imminent for the local stock-market. Academics have tried in vain to develop models to detect an inflection point in the stock-market but the best ones are, at best, accurate to about 75%.

I can't claim to teach wisdom to my class, but I adopt three models to provide an assurance that perhaps our markets are not in such a bad shape after all :

• I examine the trending differences between the earnings yields of the SGX versus bond yields.
• Next I look at CAPE Shiller PE of our markets to see if markets are overpriced.
• Finally I look at the Sothebys stock and see whether it is experiencing a peak.  

The markets seem fine so far based on these measures.

So I don't wait for wisdom, I just stay invested and do not have a war chest for now.

Watch-outs and predictions in 2019

One advantage of being a Christmas baby is that I get to reflect on the year on Christmas Day so it is possible for me to talk exclusively about the future on New Year's Day.

Instead of resolutions and goals, here are some cautionary statements entering the new year.

a) Don't talk about setting goals until you reviewed the ones you set last year

This insight came to me in a group chat with friends last week.

One guy was asking about what goals would we set for 2019 to which I then asked him what about the goals he set last year. The resulting silence was shocking and on hindsight, quite hilarious. You can almost hear a pin drop on Whatsapp.

It's a classic mistake. Even in business, there is no point setting KPIs if there is no way to monitor it throughout the year. A review will often flag many goals unmet and priorities altered. I think it's fine to miss a few goals but at least figure out why they were not met.

So I think it's nice to have goals and resolutions for 2019, but I think the first goal is to review your goals at end-2019. Otherwise no one will know how well you do. Least of all yourself.

b) Make sure your hardware matches your software

Another insight came from almost killing my Oneplus 2 phone. If a cheap 4 year old phone can run Android Pie, what is more important to a person ? Hardware or software ?

I know folks who spend quite a bit on sound systems. This is a hobby with no real upper limit. One of those financial crippling hobbies for rich people.

Surprisingly, when I ask audio aficionados about choice of music, I don't seem to get the same enthusiasm. The truth is that some people buy systems costing $15k and above just to play elevator music. The same way you pay $1,300 to buy a Pixel 3 XL just to Whatsapp your friends.

Of recent note, I have a new explanation for this behaviour.

This is a mismatch between a person's financial and cultural capital.

As your financial capital goes up, you have the money to pick up the best gear and gadgets that money can buy. However, your cultural capital may still be stuck in the 1980s. Developing cultural capital takes time and requires a lot of curation. You also need a relatively high openness to new experiences. For folks with a low openness to new experience, it becomes harder to pick up a new artist or musical genre.

Of course, it might actually be cool if you buy a top of the line AK Audio system just to play Rick Astley songs, but the same amount of time and effort can be used to cultivate a new kind of taste in music.

If you want to appreciate new forms of entertainment, where do you start ? I think 1843 magazine, the cultural variant of the Economist has suggestions on what kind of music to listen to.

As a 40-something, I am pretty closed minded to new things myself, but I am still trying.

c) Accept truths only if they are useful.

Not all truths are useful.

Of late, some gurus have been claiming that investing is more of an art than a science. As much as I hate this, I have to agree that this statement is largely true because even my own FK Stack suggests a personal and discretionary dimension to financial decision making.

Saying that investing is an art, even if true, is not useful. Worse, if you teach investing, it can be used as a cop-out to just explain why the student underperforms the market.

It is also a grievous insult to social science and humanities majors who study the Arts towards becoming useful to society.

I propose a better response against folks who claim that investing is an art.

Even in the humanities and the  social sciences, models exists to at least explain something. These explanations may not be complete so they need to be supplemented with other mental models.

Next time someone says that investing is an art, ask them for a number of models that may partially explain the phenomenon of out performance.

Suppose a "guru" says that finding an investment moat is an art. Don't let him off. Ask him for about 2-3 examples of companies with an investment moats and drill him until he can generalise a few traits about these companies. If you confront me, I might say that licensing barriers can constitute a moat. Alternatively, you can look for networking effects.

A real "guru" might be able to come up with a checklist to at least flag the moats a company can possibly have.

d) Finally, predictions for 2019

I now realise that by the end of the month I will be completely off with my market predictions, but it would still be fun to at least make a guess at this point of time.

I predict that markets will continue to trend downwards for 1H2019 and recover in 2H2019, with a final STI range from 3100 to 3200 at end-2019. However, investing in emerging markets should do well throughout the year as they are already very cheap.

Also Cryptocurrencies will either stay flat or do worse in 2019. They remain solutions looking for a problem and you might want to give the next ICO a miss.

Failing to spend is DEFINITELY NOT spending to fail.

The holiday season is a time to spend more money, but this holiday season my spending was a little impaired.

I was supposed to spend money on some gadgets but was somehow thwarted.

a) Creative Air SFXI

The Creative Air was supposed to be released before before 2019, but it never did. Creative instead released a non-bluetooth version called Create SFXI Air C for gamers that failed to excite me. In fact, I got buyer's remorse and cancelled my order forfeiting $20 my trouble.

Instead of buying the headphones, I went to the Popular Bookfest to test drive the system. The system performed as promised, converting a stream of sound into something that seemed like it came from multiple directions. There was a major problem with the test drive. The headphone is a $800 EMU Teak headphone that already sounded awesome even without the enhancements.

This reminded me of the those HMV days when you buy CDs by listening them to a first class sound system at the Heeren only to be sorely disappointed when you play the CD at home from your craptacular sound systems.

b) Pixel 3 XL phone

Prior to buying a Pixel 3 XL, I decided to wreck my 4-year old One Plus 2 phone by rooting it and performing horrible experiments on it until it possibly  died. So I decided to teach myself phone rooting by watching Youtube videos.

I ended up with a super phone that ran Android Pie that can last an entire day on one charge.

With a "new" phone I can postpone my Pixel 3 purchase for possibly one more year. Hopefully by then, the Pixel 4 phone would be out.

c) Ipad Pro

A new iPad Pro can give me a capacity of up to 1 Tb in size. Even I was tempted by the offer, the Apple ecosystem has become too expensive for normal users and it is time for me to leave this ecosystem completely.

It might be some time before Android tablets can offer 12 inches of screen size with 1 Tb of space. My current first generation iPad Pro should last long enough until that happens.

But, in the end,  my most significant purchase is this :

d) Mentimeter subscription for 1 year. 

I learnt about this software service when I attended  a close friend's wedding when I saw a program that could launch multiple choice questions and create real-time word clouds to excite and engage an audience. Mentimeter immediately made me feel a little insecure when I learnt that some MNCs have moved into this class of SaaS tools to engage employees better during in-house presentations.

My biggest fear has always been losing touch with all these small productivity tools after leaving the workforce, so I promised myself to restructure my training sessions with these latest tools.

Combined with a little bit of understanding of psychology and financial knowledge, Mentimeter becomes super effective tool effectively making Powerpoint an artifact of a bygone era. I have already created pages that allow an asset allocation of a portfolio to be jointly built by a crowd of investors. I have also built a simple tool to figure out the MBTI personality of a crowd.

My first trial run of Mentimeter would be this coming 3rd January 2019 when I will be polling the audience on their work lives and attitudes towards personal finance. This is going to be extremely cool because I don't have a lot of control during the outcome.

Generally, my talks fill out within moments, but readers who fail to get tickets can write to me privately at waichung.ng@gmail.com for a seat.

In the end I did spend more this holiday season because I bought a new bookshelf and populating it with the newer deluxe D&D books I picked up from the game-shop.

The Problem of Financial Knowledge

Here's a better depiction of the Financial Knowledge stack I proposed last week after reading an article on Psychology today. Based on this diagram, I think I am better able to appreciate how much a person needs to know in order to put his financial house in order.

Let's first talk about the problem at each part :

a) We are not adequately trained at the theoretical level to address financial problems.

At the top-most layer of the FK stack, we have to deal with theoretical knowledge that comes from different disciplines. This can be diverse as the use of partial differential equations to derive the Black-Scholes model as well as legal knowledge on the structure of a business trust. This means that unless you spend years in school studying finance, you probably have holes in your knowledge to make financial decisions.

b) Market Knowledge is unwittingly outsourced to folks who do not have your best interests in mind.

At the middle layer is where the biggest problem are. The financial markets are so dynamic that teaching it in an academic environment would not be productive as the information would be worthless when you finally get out of school. Investment strategies come and go out of style, so even if somebody were to conduct studies on something, it may well be invalidated when there is a change in the position of the market cycle. It is also more profitable to keep some investing secrets to yourself.

Enter various entities in the finance and insurance industry. These institutions have the resources to fill the void - provided that the education you received would make you more susceptible to their marketing messages. This is why a lot of members in the investing public is stuck thinking that 3% returns is acceptable even when they may end up paying 3% in management fees.

[ You should note that, as a trainer, I mostly operate on this level too, but I get paid upfront to teach the material and no further commissions are made on trades. ]

c) Personal knowledge remains...well... personal.

In an ideal world, everybody making an investment decision would know their risk appetite and personality. However, people are often blind to their own biases even though the duty really falls upon them to know their personal circumstances and what they really want in an investment plan.

There is a lot of exploitation at this level as well. Sales professionals want to influence your propensity towards risk. A person who sells forex trading plans obviously want you to lean towards more risk-taking, the insurance salesperson wants to share plenty of horror stories to scare you into transferring your risks to the companies they are tied to.

Finally, the academic circles do not seem to have some sort of model to unify financial risk taking with standard academic models of personality. Even if this daunting task succeeds, some care needs to be taken to integrate the actual financial situation of a person for this to work properly. 

Right now financial institutions prefer to use "astrological signs" to determine what kind of investing style suits you best. One novel approach ( I joke about in private to other bloggers ) of late involves identifying what kind of animal you are to determine your investing personality.

d) Actionable Financial Knowledge is like Drilling for Oil.

The best analogy I can come up with right now is that acting on financial knowledge is like oil drilling.

We start out with some academic grounding in maths, accounting, economics and law when you are fresh from university. We also have some idea about what kind of risk appetite we have, how disciplined we can be and possibly what kind of life we want in order to feel satisfied with ourselves.

So the drill bit comes from the top and the oil resides at the bottom.

Unfortunately, most of us have to navigate through the rocks at the middle layer to reach the oil at the bottom. This means learning about the broad categories of assets we can buy, what kind of performance to expect, as well the risks of purchasing a security. Most importantly, how to get an account is opened and the kinds of orders we can issue to the stock market.

e) Financial Literature for Beginners

As I operate primary at the middle level, it is imperative that potential students of my class can have a reading list so as to benefit the most from my lessons.

For broad theoretical knowledge, I am glad to say that Wiley and Sons have recently launched The Conceptual Foundations of Investing. I have this on my Kindle but have yet to fully digest it so any feedback is welcome.

At the personal level, I have always recommended George Clason's The Richest Man in Babylon. It is motivating and lacks the MLM bullshit found in other popular finance books.

At the middle layers, there are multiple books covering the US markets but do not do an adequate job of covering our local stock-market. A Random Walk Down Wall-Street by Burton Malkiel and The Intelligent Investor by Benjamin Graham are useful references to cover this middle layer fo the FK stack.

( The fact that this layer is not covered adequately is the reason why I can operate as a financial trainer. This is also the reason why coaching someone financially is so lucrative. )

Expectations for my 44th year.

Ok, with my birthday celebrations with my family over and the presents all opened, the next step would be to start thinking about what I hope to achieve next year. There are some complications with goal setting this time round, but these might be good problems to have :

a) Learning Goals.

My learning goals are complicated by the fact that next resolutions were met before 2018 ended. Flush with some earned income, I was able to attend one Improv class and a 2 hour primer on looking after my voice.

The Improv class was fun and possibly more useful for my D&D game sessions but it does not really have synergies with my new training career. I told some friends who were interested that I would join them for subsequent classes but only for social reasons.

Voice acting probably made much more sense for me right now given that I make money with my voice so much. The investment is non-trivial though and I've narrowed down my choices to two instructors.

Becoming more persuasive is likely to play a major role in 2019. I have started reading Robert Cialdini's Pre-suation seriously with a view of directly refining my sales message.

b) Investing Goals

Investing will not play a major role at least in the first half of 2019. I expect to go on heavily on the defensive and expect my portfolio losses to be 30% of the losses faced by the DOW. Beyond the bespoke portfolio built in my ERM Masterclass, I expect to go heavy on investments like Netlink Trust, Keppel Infrastructure Trust and, very possibly a very much diminished APTV Trust.

Maybe in 2H 2019, things will start to turnaround.

At this stage everything turns on having a successful career and earned income to do some bottom fishing in the next 6 months.

c) Career Goals

The price to pay for being a trainer is that I no longer have a predictable income. I will need to continually improve my materials to reach the highest earned income ever in 2019. This is going to be one of the hardest goals I ever set in my life because I can't even foresee how I am able to meet it even tough I can somehow smell this coming into 2019.

Another difficult objective i need to meet is to find another course to teach, likely legal in nature so that it can complement my financial courses. This makes it imperative that I find a smaller law firm to hang my coat and possibly do some legal practice on a locum basis. Right now, I don't even know where to start, if you are a lawyer friend reading this and know of a law firm that can accept a legal professional who can practice on a locum basis let me know - I do expect that my pipeline of contacts who need legal support should expand significantly so that I can do some rain-making work and bring revenue to a law firm. What I cannot do, however,  is to be stuck in a legal office and do work on-demand by my firm.

d) No easy way

As a collective I am definitely more confident of meeting my learning and investing goals than my career goals. I am entering this strange territory of having a portfolio-based career, finding the most efficient use of my time based on who needs the work the most.

One major positive complication is that at the back of my head, I believe that I have a financial course targetted at Milllenials that contain material not covered by anyone before. This is something I will build into a short 30 minute presentation that will be launched with Seedly in March 2019. A lot depends thereafter on whether Milllenials are willing to give me enough feedback to turn it into a compelling course for folks in their 20s and 30s.

Powering all this is, of course, my passive income that generates a level of predictability for my family. This allows me to go on long periods of time without pay allowing me to work long lengths of time for a satisfying pay-off.

My 43rd year in retrospect.

Since I will be celebrating my 44th birthday tomorrow, it is about the time to check-out what I have set out to do in 2018 and see whether I succeeded in 2018.

a) It turns out that predicting the market is a Fool's Game.

Although 2018 has been quite a good year for me, it was quite humbling to see how badly my predictions went. I thought the markets would go up by around 0-5% in 2018 but it dropped by over 10% much to the consternation of everyone in the blogosphere. Even worse, my prediction for crypto-currencies to go up after a massive downward movement turned out to be totally false. My only saving grace was reading Barclays bank's bearish prediction for crypto-currency markets and then sticking to the idea that Cryptocurrency markets will never have another spike in the foreseeable future. At least that has held true right up till today.

I will carry on to predict the markets for 2019, just to see how bad that prediction will turn out by 2020.

b) Upheaval in my personal career turned out to be better than I thought.

If my prediction of the markets turned out to be bad, my prediction for my own career was even worse !

At the beginning of the year, I basically had two plans : either do IT Governance or Law. I ended up doing neither. As it turns out, by mid-2018 both options would have resulted in a massive pay-cut of at least 30% from my peak earning power prior to law school and it would have taken up 12 hours of my time everyday.

I thought that by becoming a trainer, I would have only given me some kind of allowance to give myself just a small allowance to supplement my passive income. Perhaps after a workshop or two, I would need some kind of plan B. I would never have guessed that I was able to ramp up on my game to earn at least the equivalent of previous IT life during the last 3 months of 2018.

More importantly, taking this extreme detour has given me some hope that I might be able to achieve my highest income ever in 2019. And that's doing something I am really passionate about in relation to the financial markets.

c) Leverage account still too raw to start offsetting mortgage payments.

2018 should have been the year that my margin account could start to offset the full amount of my home mortgage. I got close by the end of year, but unfortunately, the downtrending markets will make this only a reality next year.

The higher interest rates have increased my mortgage and margin financing payments. I have determined that it would be wiser to spend 2019 attaining this goal instead, while keeping my margin ratio at a more reasonable number. Fortunately, my CPF can sustain two more years of mortgage payments.

As I have both passive and earned income sources, I can now go for lower and safer yields so I have been targeting the more defensive counters in anticipation for the trade war to get worse. This will be reflected in the co-created portfolios I create and subsequently invest in for my ERM Masterclass.

d) Wrong but happy in 2018

So there we have it for my 43rd year.

• My market predictions turned out all wrong. 
• My career careened off the predictable track. And I ended up doing neither IT nor Law.
• Even my margin account did not manage to confidently offset my mortgage payment by the time the year ended. 

This should have been a dismal year. But strangely enough,  I ended 2018 much happier and in a stronger financial position. I guess life is sort of random that way - I've had years where I met every goal and I was unhappy as hell.

By conducting a class on Early Retirement, I am starting to meet a whole new group of people, who like myself, may have experienced rejection in the corporate world. Many of my students share my passion for Finance and have the same determination to overcome the Death of the Singaporean Dream. 

I am also growing in areas that I was unable to develop before, having just attended Improv and Voice classes to see if I can improve my engagement with my students. At my age, I need to constantly find a new fields to get into or old age will catch up on my quite quickly. 

Finally, if the market really goes south in 2019, I can repeat the feat I sustained in 2007-2009, scoop up all the bargains by using my supercharged income and leading a frugal lifestyle. 

I will be 44 tomorrow. 

Half of my life has already been spent.

My second act has begun.

Predictions and goals for 2019 will be up sometime on New Year's Eve.

Merry Christmas Everyone !

On BDSM, SG Gov Bonus and Bursa Malaysia.

Do you know what financial bloggers talk about when invited to a casual meal by a broker ?

BDSM, of course !

BDSM is not too different from investing. In investing there are TA investors, FA investors, Quants and crazy folks who buy anything based on what their broker say. We found out that BDSM is equally diverse - you can be a Dominant, Submissive, Switch or Curious.

Financial bloggers also teased me about my affinity for Malaysia. This holiday, everyone is sharing about their wonderful holidays in Hokkaido, New Zealand or Prague.

Unlike all the beautiful people on social media, I did not take the high road.

In fact, I spent so much time in Kulai eating beef noodles, the financial bloggers proposed that I adopt a BDSM nick with the word "Kulai" in it, like "KulaiBeast666".

Tomorrow I will begin my third journey to Malaysia this holidays to finally use up my SG GOV bonus. So far,  I have about $150 MYR left after two trips. The plan is to meet up with my kids in Kulai and then journey with my in-laws in KL. Over in KL, I will split from from the main party and take a few relatives on my mum's side for a meal or two. I was hoping to visit a 24-hour bookstore in Cyberjaya to see if they have a credible finance book section.

On a more serious note, I was able to backtest to see whether if some valuation factors translate to Bursa Malaysia because my brother in law asked me to figure out how a Malaysian portfolio would look like if I were to buy stocks in Bursa Malaysia.

( Take this section of the article with a pinch of salt because I have no interest in taking on Malaysia's political risk right now. )

Investing in all 942 counters in Bursa Malaysia in equal shares, a 15 year backtest with annual rebalancing would result in fairly good returns. You will get about 8.56% with a downside risk or semi-variance of 12.51%.

Suppose you are a yield pig and want a similar portfolio in Malaysia. You then invest in the top 30 dividend counters in Malaysia. My backtests show that the Malaysian markets will punish this behavior - your returns would drop to 6.93% with an increased semi-variance of 18.02%.

Clearly it does not pay to be yield pig in Malaysia. Apparently, they have their own APTV-like stocks within their own markets.

In BDSM, there is a concept of the "safe word". This is word use you to stop being punished in a BDSM activity. We discovered that safe word SG BDSMers use is "Yellow"

In dividends investing, the safe word is "FreeCashFlow". If you do not want to be punished for picking high dividend Malaysian stocks, you need to select counters where Free Cash Flow exceeds Dividends issued.

Once we filter out for companies that give out dividends that are bounded by their free cash flow, we end up with only about 200+ counters. Taking the top 10 dividend yielding stocks, we get a much nicer return at 16.11% with a semivariance of 13.45%.

It is good to know that a good quantitative methodology translates across national borders.

I'm sharing a screen shot of the 10 counters not to encourage anyone to buy them since I do not have Malaysian brokerage account myself.

I would like to encourage Malaysian investors and gurus to comment on this this list.

Let me know whether these are shit stocks.

This blog will take a short break and we will continue during the Christmas holiday season.

The Financial Knowledge Stack

I came across a very interesting article on financial knowledge from Psychology Today which made me think deeper about the financial knowledge that is required to make good financial decisions. For those who might be curious, you can access the article here.

The author created an epistemology for financial knowledge and created six categories of financial know-how. The moment I read this article I had this eureka moment about about the kinds of the financial knowledge that is out there.

To me the closest analogy to financial knowledge is the TCP/IP stack that underlies all Internet-working traffic. Financial knowledge comes in layers.

At its most basic level, we need to have the statistical and mathematical tools to understand how money works. This broad theoretical level of knowledge would cover concepts like compound interest and net present value discounting that is taught in many classes. But clearly operating at this level is not enough.

At the second layer is category level information - information about various asset classes and what their properties are. Information like general returns of equities and how business owners are prioritised compared to debt owners in an insolvency event belong to this broad category. If you know that generally speaking, stocks provide better returns belong to this layer of information.

At the third layer is where you learn about specific investment options. At this level, you know that buying some ETFs in SGX can provide a diversified exposure to global equities. You will also know that a diversified commodities ETF does not exist in SGX. It is also at this level that become aware that stocks like SPH gives you exposure to a media monopoly.

At layer four is where you learn about procedural matters when it comes to investing. How do you open a CDP account ? How does a margin account work ? How to you execute a limit order trade ? Education at this level is best done by an individual broker.

At layer five is what I would consider the harder aspects of your investment capability. At this level, you need to be intimately familiar with how much you can earn a month, how much you can save and whether you might qualify to be an Accredited Investor status. This is the level of knowledge where you determine your ability to maintain a proper budget.

At layer six is where you learn about the softer aspects of your investment personality. What does retirement look like to you ? What values do you attach to money ? What is your personal risk appetite. At this level, you ask really personal questions as to whether can money make you happy.

At the lower levels, the human population would be bound by the same rules of finance. The Rule of 72 is consistent no matter who you are. But as we move towards higher levels, the knowledge you gain becomes much more personal and training takes on a bespoke quality.

I think this model is useful for someone who aspires to be a good trainer for financial concepts. Creating a program that covers all six levels of financial knowledge is a difficult because, at the higher levels, it is really up to the individual to determine what they want out of their financial decisions - this may not be in alignment with an individual trainer.

We should also be clear about which layer we are operating at.

In the last blog post, I looked at the issue of what a good REIT sponsor is.

At the surface level, it really looks like a level 3 problem because a good REIT sponsor looks initially like an objective exercise that can be gleaned from reviewing balance sheet numbers. But after a round of discussion, the question of whether a a REIT sponsor is a "good" one may be a function of the investor's personality - a REIT sponsor is good because the investor feels comfortable investing in the REIT.

The next time someone spouts a truism in value investing, you might want to take a step back to review whether what to look out for is something that can be objective determined and can be universally agreed upon, this is knowledge that operates on layer 3. Question the person further and you might even come to the conclusion that value investor is operating at layer 6 - subconsciously making a decision that is ultimately based on their own personality and feelings towards a particular counter.

But don't look down at Layer 6 - George Soros is known to develop some kind of back pain before knowing that a position may turn out a wrong way and is able to develop a sixth sense of an inflection points in financial markets. 

Ultimately, it is hard not to operate on multiple layers at the same time when making financial decisions.

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.