World War III : CPF Edition

Today's article is a little incoherent.

I was ill throughout the weekend and wanted to share some insights into the most divisive issue between financial bloggers, which is the tension between transferring CPF into the CPF-SA versus keeping the funds within CPF-OA and investing part of it into the stock market.

Unfortunately I was unable to really come up with a simple illustration which can adequately explains why bloggers disagree on this issue. The best thing I can say is that if you support the transfer into CPF-SA, you would fall into the left triangle in the diagram shown above. If you support the CPF-IS route, then you would fall into the right triangle. Depending on how you internally view the efficient frontier represented by the curve I drew, one triangle may be bigger than another which can lead to a contention between experts because we all hold different views on what the market is like in our heads.

This is why I suggest throwing away financial knowledge and ask ourselves whether we like the idea of eating the government, or we prefer to eat the financial markets. I would not think that one answer is better than the other.

I would just to address one point raised by the CPF-IS camp about whether they are confident of markets returning 8% every year on average in Singapore.

This is also an area of contention.

If you look at the historical returns of equity an asset class, it does indeed have a record of giving out 8-9% with a standard deviation of 20%. However, market growth will always be function of GDP growth and we are looking at a pretty slow rate of growth in Singapore moving forward for the next decade. If we apply the rule of thumb suggested by Nate Silver in the book The Signal and the Noise, a more conservative picture emerges as he suggests that market growth will taper to GDP + 2%.  This means that going forward, even a 6% return for owning equities would be considered optimistic in Singapore.

But I do know that I do not belong to either camp.

I transferred my CPF-OA to CPF-SA and maxed it out early in my life before I even started studying the financial markets. Subsequently, I was able to buy my EC with both me and my wife's CPF and even have invested substantially in CPF-IS. My reserves in CPF-OA can still last me another 4 years before I need to top up my OA with my dividends.

Jiak Cheng Hu - Manage your CPF by "Eating the Government"

The CPF board invited some financial bloggers to have a session and I was able to gate-crash the event because a few "more prominent" bloggers were not able to show up for the event. As it turns out, the event was informative and it was a great learning experience for all of us. I felt that the CPF folks very very candid and gave us a realistic picture on how the program is viewed by the general public.

In this article, I would like to put my own spin into the CPF and show that there is definitely room for more improvement.

Firstly, people need to understand that the CPF program would always attract more negativity than positivity. Any program which forces a citizen to set aside money for retirement and housing is not going to be welcome by the people who think that they have the right to spend their own hard-earned money.

Secondly, the CPF program does not really know what is it's true mission should be. On one hand, it is supposed to be retirement fund. On the other hand, it is also money set aside for housing and medical expenses. These two objectives are often at cross-purposes with each other. For example, A HDB loan mandates that the borrower exhaust his entire OA account so as to minimize its size.

I don't believe that the CPF is created for retirement planning or home ownership.

To me, the CPF program is a program to hold every citizen's money on ransom such that when they screw up their own lives, they have to dig into their own financial resources to pay for medical and home ownership expenses rather than dig into the money the government needs to run its daily businesses and maintain our infrastructure. CPF is, thus, protection money.

Protection money meant to protect the more responsible citizens from the less responsible ones.

A lack of clarity as to the CPF's role prevents financial bloggers from being able to agree with each on how to manage CPF funds and to what extent should it be employed for buying housing.

So instead of prescribing what is the right way to manage your CPF, I will share a philosophy which in my opinion, would be a better guiding principle on retirement planning.

I call this the "Eat the Government" philosophy. ( Jiak Cheng Hu in Hokkien )

When you decide to "Eat the Government", your objective is not to maximise your utility when it comes to social security but to extract the largest amount of funds from the Government without regard for your personal consequences.

This means three things :

(a) Extracting the largest returns from the government as much as possible before reaching 55.
(b) Trying to get the most money out of the CPF when you reach 55 years of age.
(c) Maximising the amount your children will get from the CPF Board after you die.

Applying this philosophy will result in three moves :

a) Transfer as much of your OA to your SA as possible.

Getting 4% risk-free is quite amazing. Personally, I think it's better than getting 8% from equity if your horizon is longer than 20 years.

The government pays 2.5% for the CPF-OA risk-free. Transferring the funds to CPF-SA gives you 4% but limits your flexibility as funds can no longer be used for housing. If you "Eat the Government", then you should maximise your transfer to SA so as to extract 4% from the government as much as possible.

I was able to max out my CPF-SA before I hit 32 years of age. This exacts a heavy toll on the CPF board who has to pay me $4,000 - $8,000 into my SA every year since my early thirties.

b) Invest your full 35% of CPF-OA

This is less intuitive.

When you invest 35% your CPF-OA, the government is not giving you interest on that money you pump into the stock-markets so, on first inspection, it goes against the idea of "Eat the Government". But investing your money into REITs and high yielding counters can yield over 6% which then flows back into the OA account allowing it to grow at a faster clip. In my case, I have already maxed out my CPF-SA, so I put in the remaining 35% of the CPF-OA into a portfolio which returns about 5-6% dividends. It allows me to grow the CPF faster and "Eat the government" by moving those funds out of reach of their investment managers and directly into investments of my choice.

[ One alternative school of thought is to keep the funds in OA and invest 35% of it into the markets rather than move it to SA. But I am biased towards SA as it is a guaranteed 4%. ]

c) Choose the Basic Plan instead of the Standard Plan for CPF Life.

If you know that you will die early, always opt for the Basic plan. If you will live to ripe old age of 120, then the Standard plan would be more worthwhile. But, unfortunately, we do not have an idea how long we will live.

If you are single and have no kids, the Standard Plan works because you will have no need for your money after you die. However, if you have kids and do not absolutely hate them, the Basic plan provides a smaller pay-out but leaves behind a larger residue after you pass on leaving more money for your children.  So while you do not get to Eat the Government, you children would.

[ Note : I expect the actuaries who designed CPF Life would reduce the longevity risk transferred per unit price of the annuity to earn CPF Board reasonable profits, so you should always be mathematically well-off when you reduce your exposure to these annuities instruments.

Put another way, if you adopt the Standard plan, you may need to live significantly beyond the average life expectancy to break even against the Basic Plan.

Do note that this is my own speculation and I welcome officials to disprove my hypothesis. ]

In summary, in spite of its schizophrenic nature, the CPF programme is still fundamentally a good thing because it prevents Singaporeans from hurting ourselves. However, as it stands, simple questions like whether CPF should be used for housing will not achieve any consensus even amongst financial experts who may be evenly divided as to whether the CPF is meant for retirement or housing.

Perhaps a better approach is to design a series of moves as part of deeper personal philosophy, acknowledge your personal biases, and then stick to the plan as part of your lifestyle design.

The Nature of Success

One challenge of modern living is that we do not really know for sure whether we have really succeeded in life. To many people, this is a difficult philosophical question with no concrete answer.

The Happiness Equation: Want Nothing + Do Anything = Have Everything by Neil Pasricha offered a pretty novel model of success which I have attempted to extend in this article.

Neil proposes three dimensions of success in his book :

a) Measurable success

One dimension of success is that it has to be measurable. Accumulating $1,000,000 is measurable. So is making partner in a consulting firm. Measurable success has a certain degree of visibility and is, generally, what modern societies like Singapore cherish the most.

b) Social success

The second dimension of success is social in nature. It means that people respect you because of certain deeds you performed. If friends and acquaintances consider you a successful person, you would have attained this dimension of success.

c) Private success

The last dimension of success is personal in nature. This means a degree of personal satisfaction and self-respect. You have private success if you feel that you have succeeded internally.

The book proposes that it is often very rare to succeed in all three dimensions, more often you can, at best, attain 2 out of 3 dimensions of success. 

I took the liberty of extending the model to consider what happens when one dimension is absent.

a) Absence of private success - The Super Manager

The successful executive or manager embodies the lack of private success. You have measurable results and the admiration of others but you are constantly trying to do better and end up living an anxious and neurotic lifestyle. 

b) Absence of measurable success - The Hipster

Someone who creates a critically acclaimed piece of art is said to lack measurable success. Your peers and critics laud your creation and you have an internal feeling of satisfaction for creating this work but the art-work may not result in a measurable pay-off and does not result in tangible benefits for society.

c) Absence of social success - The Rentier  

The greatest insight for me is that rentiers or financially independent folks who do not do useful work are deemed not to be respectable by their peers and thus lack social success. 

It answers a nagging problem I have when I spoke to some younger female SMU classmates and half-jokingly asked whether they would marry a guy who have have a cash stream but does not seem to do anything useful as part of work. I was very surprised at such a huge negative reaction even though I  disclaimed that such a person will not be a financial burden to them. They overwhelmingly preferred the guy to have some respectable job. ( Maybe even transfer the financial independence to them so they can become tai-tais ! )

While this model is more philosophical than empirical, one possible insight we can learn from this model is that we can try to experience different kinds of success throughout our lives. 

At some stage of our life, we can be a busy executive and throw ourselves into the rat-race. At some other stage of our life, we can try to produce a great work of art/software/product and make a positive qualitative difference to the world. And finally, we can also experience what it's also like to be financially independent and use the numbers to sustain ourselves to our personal satisfaction.

It's OK to be limited to two dimensions of success at any point of time. 

There exists an opportunity to be successful in different ways throughout our lives.

It's all about your kukujiao !

The title of this post is inspired by a recent programme in Channel New Asia, after all if your kukujiao (penis ) is talked about in mainstream media, readers will have no problem accepting this in financial blogs.

The largest thing going on in people's minds is Brexit. What it would mean for financial markets and how you should position your portfolio moving forward ? Unfortunately, even experts are lost as to what to do about this situation. For me, the only clear signal would be to convert some cash into English pounds and try to  spend your Chistmas in London. Alternatively, if you have been hoarding gold all these years, selling some of that to pay for that trip to London might not be a bad idea.

But the most important lesson from Brexit is that everything happening around the world is about your kukujiao.

What has Rody Duterte, the rise of Trump and Brexit have in common ?

In my opinion, the rise of macho right-wing politics around the world is largely a reaction against devaluation of the male gender role that has been happening for the past 20 years. All of these camps channel a certain male machismo and generally very attractive to working class males.

I was having breakfast with my friend who I deemed relatively successful in life because he has a  happy family and is gainfully employed in a steady iron-rice bowl job. Even he laments that one generation ago, the salary of a male Singaporean is enough to sustain one entire family on its own.

These days we have two-income families and in places like the US and the UK, boys are losing out to girls in their universities. Worse, progressive forces continue to downplay the value of men in the mass media and are pushing for alternative models of what a family is like, applying labels like "White Male Privilege" to open up jobs in places like Silicon Valley. If we push this to its logical conclusion, Western countries will have a population of angry males who are unable to catch up socially and economically to women.

Changes in gender roles, family structures and the economy is happening too fast for men. Once men are denied sexual access and a means of economic survival, it is no surprise that they will do anything to disrupt the social order.

Hence Brexit, Duterte, Putin's popularity and very possibly the election of  Trump as US President.

Singapore is in a relatively good spot from the rest of the world.

Singapore still needs men in NS and we do get 10 years of  useful male networking when we go back for reservist training. Singaporean males also receive possibly one of the best education systems in the world so very small gap exists between boys and girls in academic performance. The Singapore government is also slow to adjust the traditional family structure here and only recently started to slowly prod Singaporean men into redefining themselves -  this is something which cannot happen overnight.

In summary, in almost all societies, what is still currently in place is a Patriarchy which is mostly led by a male of a majority ethnic group.  Progressive forces, for reasons of morality and egalitarianism, have tried to topple this power but may have succeeded too quickly when Barack Obama was elected. The result is a backlash where mostly poorly educated males of the majority ethnic group would decide to vote any irrational government to preserve the social structure.

It is all about your kukijiao.

Next time you look for your answers, look between your legs

[ At least for my readership whch is 75% male ]

My next talk !!!

Looks like the good folks of NLB and WDA have already prepared the EDM for my next talk.

Debunking the arguments for Integrated Shield Plans.

Due to a combination of government policy-making and the marketing propaganda being spread by insurance companies, the selling of Integrated Shield Plan (ISPs) have become almost as easy as taking a lollipop away from a child.

For most people, ISPs are a no brainer. The most convincing argument to purchase a ISP is that the deduction of premiums come from the Medisave account so no cash outlay is required. This is a very difficult argument to debunk because Singaporeans have come to believe that Medisave money is not your money and you are better off using it up because it will have no impact to your personal finances. 

I did some research by looking at sales brochures of some insurance firms and would like to convince the reader that the basic arguments to buy ISPs is probably unethical and it may even raise legal questions as to whether some sort of misrepresentation may even be taking place when a sale is being made ( Although the only way to confirm this is for a victim to take civil action ). 

Here are some points for your consideration:

a) You are already covered by Medishield, do you really need to go beyond that ?

The most important point about ISPs is that you are buying a better ward when you get hospitalised. You need to really ask yourself whether you really need to stay in a Class A ward when you fall sick. This points to the fundamental idea that insurance is about risk transfer. You already have a means of risk transfer via Medishield, do you need to transfer the incremental risk of expensive Class A medical support ?

All Singapore citizens are being covered by Medishield which provides reasonably generous subsidies for hospital stay for class C and B2 wards. When you buy an ISP, you are typically being made to buy insurance for a stay in better wards.

At least for the brochure I examined, the examples of medical costs incurred employ Class A as an illustration which has the tendency to make the medical expenses quite frightening. Your task when looking at this example is to ask your financial adviser to make the same illustration for a class C or B2 ward before you conclude that medical costs are cripplingly expensive in Singapore. 

b) Your Medisave account does not contain funny money which is out of your reach and belongs to the PAP.

You know something is wrong with an industry when some agents try to perpetuate the myth that CPF money is government money and not your money.

If they do so they are wrong. Your Medisave is money which belongs to you.

The problem is that you need to understand how CPF-MA flows into CPF-SA which flows into your hands after age 55. 

When your CPF Medisave Account (CPF-MA) exceeds the contribution ceiling of $48,500  $49,800, the excess flows into your CPF-SA. This is vitally important because after age 55, you are allowed to withdraw your CPF-OA and CPF-SA if it exceeds the minimum sum of around $161k. More if you pledge the value of your HDB flat to CPF.

What this means is that if you manage your Medisave frugally and spend on only what you need,you can have a larger pot of cash in your hands when you reach 55 years of age.

c) ISP premiums may cost 150% to 200% of your Medisave premiums but it will not seem that way when the sale is made.

Another bugbear of mine is that at least in the illustration shown on some sales brochures, you might observe that the Medisave premiums are only illustrated to be only 10-20% higher than your ISP premiums. 

This is due to the practice of the government giving Medishield subsidies based on your economic status. For example, at 41 years of age, my Medishield premium is officially $435. But the government subsidizes part of it, even if I am of a highest income bracket, I only pay $242 a year from my Medisave account.

At least one company I observed puts the pre-subsidy $435 side-by-side with their premium costs to trick the customer into thinking that the difference is not particularly large, when it should be $242 which should be compared against. 

To figure this out, the customer must be sharp enough to ask whether the current Medishield premiums incorporate government subsidies. 

We know that most ordinary folks would not do that.

d) When you get an ISP, you will literally pay the piper after age 50.

The most damning feature of some ISPs I observed is that, unlike Medishield, you start to incur a cash outlay after you reach 50 or 60 years of age. Based on that sales brochure, this cash outlay can escalate very quickly. Based on the lifespan of a Singaporean male, at age 83, you could be looking at an outlay of $1,000 to $4,000 a year. This effectively exacerbates the longevity risk you face and your monthly payouts from CPF Life may be required to pay off these premiums.

By the time you reach that age, your agent may be long retired or may even have died, you will be shouldering an additional financial burden to maintain your ISP. 

In summary, we should start thinking twice about government initiatives which increases the number of accounts which we have. Specifically cordoning money into Medisave will incentivise the private sector to exploit your inherent bias for mental accounting. Parents who invest in a large Child Development Account also tend to spend freely on specialist pediatricians because the medical fees are debited from a separate pool of money designated for childcare. This makes citizens dangerously lazy about their finances.

We are entering a new age with separate spending accounts for keeping fit and getting extra training. 

We should always be mindful that these accounts function as some sort of a subsidy for specific industries which are smart enough to exploit our psychological biases.

  

What to think about when thinking about Billionaires.

In Singapore, the fastest and most convenient way to one-up a millionaire when you are not even one is to cite a billionaire.

A common thing to hear about these days is Jack Ma telling his son that he does not need to be a top student to succeed in life. What Jack Ma meant was that if your dad is Jack Ma, you probably will not need to top your classes.

The problem is that most of us are not fortunate enough to be Jack Ma's son.

The bigger problem is that that ordinary people do not study billionaires as a discipline.

( You may also want to read about a previous blog article I wrote about advice from Richard Li. )

So up till today, my job is half done. While I managed to establish the ridiculousness of spouting the pithy wisdom of billionaires, I was unable to come up with a better alternative that would allow us ordinary mortals to think about billionaires in an intelligent way. Fortunately, Sam Wilkins wrote a book called Wealth Secrets : How the Rich got Rich which contained a lot of historical snippets on how Billionaires made their money.

Here are some pointers on how to think about Billionaires :

a) Instead of spouting what a billionaire says, focus on what he did.

Billionaires obviously need society to accept him as he is. In such a case, it is only natural to highlight their struggles and how poor they started out. The magic is to dig into what was actually done by the business to get this far.

The problem is that this step is not enough. A lot of Singaporeans like to remind others that Bill Gates and Mark Zuckerberg dropped out of Ivy League universities. If that were a secret that a lot more drop-outs woulds be billionaires.

b) Focus on government-business interfaces.

Once you get into the rabbit hole trying to figure out how billions are being made by some very special people, having accounting expertise is not enough. Typically, billionaires will be able to sustain huge profit margins and ROIC of 30% or more for over a decade to get where they are today. This is virtually impossible in Singapore because our government will slap you with competition law provisions before you can get too far.

The first place to scrutinise is the billionaire's relationship with the governments of the day. The Ambani dynasty of Reliance in India thrived because they knew how to deal with the License raj and was able to hold onto licenses which permitted them to manufacture polyester decades ago.

c) Think about economics : Natural monopolies, economies of scale and network effects. 

Billionaires became that way because they found ways of establishing natural monopolies. This was how robber barons like Rockefeller got rich. He bought rival oil companies and to gain economies of scale and then colluded with railroads to eliminate the competition. Warren Buffet was special because he did not exploit these economic ideas directly but invested in companies that did.

Economics focuses on these powerful ways of making money and it normally focuses on putting yourself in a position to have no competition.

d) Think about the law of property or intellectual property.

Another aspect of becoming wealthy is by manipulating the legal landscape of your respective country. Riches are normally made due to some lack of clarity in property or intellectual property law.

It is a mistake to think that Bill Gates was a technological visionary who dropped out of Harvard University to code software - I hope engineers can think about this and not make mistakes like this any further.

Microsoft sustained huge profit margins because MS-DOS was written at a time when the US courts was still unsure of whether software can be copyrighted and Bill Gates had a lawyer dad who was able to help his son shape the contracts which license his software out to users. A large bulk of MSFT's success was learning how to enforce their IP rights.

( Yes ! It blew my mind when I read about this. )

There are certainly more way to think about making money in the billions but most of us are still stuck at the level of thinking about leverage, motivation, using other people's money and dropping out of school. While my current framework is not perfect, it is definitely better than what folks currently have.

Before I end, I'd just like to share what Sam Wilkins said anecdotally based on his research on billionaires :

a) Billionaires are almost exclusively numbers people with an odd fascination for mathematics, which led me wondering whether Singapore's policy educational policy on mathematics is the reason why the concentration of millionaires is so high here.

b) Billionaires seldom see money as a means to get something to be enjoyed, they see wealth accumulation as a game for its own ends.

c) Billionaires are brutal and always had a history of getting rid of their business partners once the business begins to prosper.

Maybe before someone would start throwing off micro-aggressions in the name of Jack Ma or Richard Li, you might to ask yourself whether you have these traits before you spout your mouth off.

How to lead a life without a Financial Advisor.

It has been a relatively tough week for me this week because I have just started my internship. I have to acclimatise myself again to a 6-hour sleep cycle. One perk of being a student was that I get plenty of sleep although the readings takes up almost all of your waking hours.

I'm going to go light on myself this week. I just want to build up on Budget Babe's post that a lifestyle blogger has complained about the substandard advice she has gotten from an insurance agent.

I never had a financial advisor. Generally, I'm not a very big fan of commissioned based advice because I can read and pick things up on my own. There are too many bullshit bingo advisors on financial and health matters. If you do not want to receive bullshit dieting advice from an overweight trainer, you should never get help from a financial advisor who needs to make a sale to earn a living.

Not listening to an advisor is, by itself, a cheap form of insurance - I insure myself from crappy financial advice. As a result - I gained the ability to live on my investments decades earlier than many of my peers.

Here are some pointers on how to get that financial advisor out of your life forever :

a) You will need to spend more time thinking about insurance when you do not have a financial advisor.

At a bare minimum, you need to think about three components of risk transfer if you refuse to have an advisor : Mortality risk, Longevity Risk and Hospitalisation risk.

For mortality risk, I have an upsized SAF Group Life insurance from AVIVA which insures me for $1,000,000. I bought this during my NS days and it costs be $120 a month. This month I am expecting $500 of rebates from them, so on most years, I pay slightly less than $1,000 of premiums. Try finding a whole life plan that can do that.

For longevity risk, I have a maxed out CPF-SA account which, as of now, is still higher than the CPF minimum sum. At age 68, CPF board will give me a decent income for life via CPF Life which can potentially supplement my income at old age. This covers the scenario of me living too long.  In the US, this is an product sold by an insurance firm called an annuity.

For hospitalisation risk, I have Medishield. Everyone needs to know that all Singaporeans have a decent Medishield plan which works provided that you stick with a Class B2 ward. The insurance industry spreads a lot of fear constructing scary scenarios on what expenses you would incur if you get an illness like cancer. Examine them closer and you will find that most of such examples assumes a stay in the Class A wards which denies you access to government subsidies. I have yet to meet an agent who can explain to me what benefits their H&S plan has over Medishield if I stay in a Class B2 ward and show me a comparison for insurance premiums escalation after 40 years of age.

b) You must save much more if you wish to fire your financial advisor.

The lynch-pin to living life without a financial advisor is that you need to save and invest aggressively. I don't want to repeat myself here again but a cash-flow from a income portfolio will insure against everything else.

Here are some risks which no insurance agent can transfer away :

Maybe you want to go to a spa after weeks of exam preparation. Your portfolio insures you from post-exam stress.

Maybe your wife wants an expensive watch. Your portfolio insures you from spousal wrath.

Maybe you want to go to KL to buy Uniqlo T-Shirts at SGD $6.70, your portfolio insures you from paying for that Aeroline trip.

More importantly, my portfolio pays me every quarter. Compare that to someone who has a battery of insurance policies. Every year-end these guys have to use their hard earned bonuses to pay off their premiums. What kind of life is that?

c) You need to live conservatively.

Insurance is about risk transfer. If you keep everything to bare minimum and really don't to deal with a dishonest salesman, you are in essence absorbing the risk yourself. You might be vulnerable until your portfolio becomes $300k to $500k in size.

This is the most important lesson. You just cannot afford to be YOLO if you want to deny an insurance company your premiums :

• Don't go into dangerous places with dark alleys and end up getting robbed.
• Don't travel without a companion.
• Have a reasonable diet and active lifestyle.
• Cut away smoking and alcohol.

If you have the discipline to consider my alternative plan, the odds will be greatly in your favour. 

You are in essence taking the commissions you would have given to the advisor as well as the fund managers and invested it in your own future financial security. 

Personal Finance Lessons from eating KL Murtabak

I have just ended my second trip to Malaysia and will embark on my third trip tonight.

Just wanted to share a really delicious picture of KL Lamb Murtabak with all of you readers to remind you that 1 SGD is almost 3 MYR as we speak and going into Malaysia to enjoy some fruits of currency arbitrage might not be a bad idea at this time of the year.

( Just do it with more sensitivity as Malaysians do consider most Singaporeans arrogant and proud.  )

But more importantly, if you ever visit Malaysia over the holidays you need to reflect upon the life that you have chosen in Singapore.

Mutton Murtabak in Singapore costs around 7 SGD. It is relatively large compared to the one in Malaysia and is accompanied by cucumber dipped in tomato ketchup. The above murtabak is hardly considered cheap for the locals, it costs about 9 MYR or 3 SGD but the picture speaks for itself. ( My rule of thumb is that Malaysians generally earn the same wages as Singaporeans but denominated in their own currencies. )

With labor and rental costs a fraction of that in Singapore, the Indian Muslim cook in KL can put in a lot of personal love and care into the making of mutton murtabak, You can have a very thin crust that is packed to the brim with mutton and egg ingredients. It's circular shape is also unique and more troublesome to make than the ones you find in Singapore. To me, the most special treat would be the pickled onions, which adds a tangy twist to this traditional Indian meal.

Some of my relatives working in Singapore see our country like a high-pressured sweat shop. They like earning Singapore salaries but see our country as boring and sterile. The moment they earn enough money, they will be heading home. Singapore is a place which lacks emotions and sentimentality ( Unless you are talking about anger which we have in spades. ).

There are now 5,000 Singaporean families who have chosen to live in Johor instead of in Singapore. To me, Malaysia is not an easy place to live in because of security concerns. When I was in KL, I was almost hurt by a yellow zebra crossing because we are cluelessly stupid Singaporeans and have no idea that zebra crossing mean nothing in KL. Funny thing is that no one will get killed because traffic is so slow there. I also personally witnessed a decent hotel at Jalan Ampang with no inclined ramp, and saw a middle-aged man push some goods on a trolley down a flight of stairs. You can only appreciate the care taken by your authorities at home only after you witnessed the system in other parts of the world.

But all-in-all, Malaysia is a relaxing place at the current exchange rate, you can let your hair down, make a few tactical mistakes buying stuff and no one will fault you for it. Someone sold me a decent laptop haversack for $95 MYR and I was too tired of bargaining after a long day of travel. My travel buddy got something with a better design for half my price at this outlet called Yubiso ( Which is an amazing outlet, purportedly Japanese, which seems to me a copy of a copy of an idea which can be found in SG and HK ).

In summary, we can all choose to be global citizens, work and spend at different countries, but we have to be aware of the trade-offs.

Some places are cold, unemotional but the infrastructure works and you can accumulate private property quickly. Other places may be more chaotic and insecure, but some people will prefer its occasional glimpses of humanity in their people.

Take your pick.

Quick Update on my life.

Just a quick update on my life...

I have spent the past few days trying to arbitrate the the SGDMYR exchange rate...

No lah...

These two weeks are the only two weeks of leisure that I have.

Beginning mid-June, I will start 6 weeks of internships and my semester will open 2 weeks earlier than my peers if I get selected for International Moots.

This means that I may not have a break until December beginning next Monday.

I will be off to KL for the next 3 days and then will enter Malaysia again before the week ends. It's a great time to convert some SGD to MYR to do some shopping.

Hopefully I will have some more insights to share on lifelong learning and the value of a university education. This is a ramp up to my talk in mid-July which is sponsored by WDA on funding a child's university education.

Catch you guys on Friday !

[ I just finished The Three Body Problem by Liu Cixin. Chinese science fiction is mind-blowingly epic and does not really apologise for the amount of physics which goes into fiction. I am mid-way along the second book entitled The Dark Forest. ]

A different way to think about Lifelong Learning.

Just the other day, I had the privilege of meeting members of the NTUC Social Media team, we had a good, long discussion on the possible issues face by the workforce of the future. NTUC is interested in collaborating with bloggers to come up with content. As I wanted to preserve to my unique voice, I opted to blog for information instead of remuneration. I promised that if any data on the labour movement were shared with me, I would be able come up with some unique insights into work and human capital in Singapore.

This gives me the freedom to be candid with NTUC's initiatives and maintain the critical tone of my blog, which I suspect readers will enjoy more.

So this article came about because of my discussion with NTUC but it was not vetted or paid for by them.

Let's talk about lifelong learning and why we might be going about it the wrong way.

One perspective on adult education comes from a study of evolution. When biologists study species which have a tendency to survive, it is not the strongest but the most adaptive species which go on to reproduce.

If we apply this concept to lifelong learning, there are two kinds of learning - Exploratory learning and Exploitative Learning.

Exploitative learning is what most people think about when they think about adult education. An engineer studies for the CFA exams in the hopes that he can exploit his financial knowledge to get a job in the banking sector.  A security guard gets accredited so that he can command a higher salary at work. I remember regular soldiers studying for the O levels at age 30 because he wants to move into the Warrant Officer track.

Exploratory learning is equally important but currently does not play a role in our vision of what lifelong learning is all about. A accountant might want to learn creative writing because he just wants to explore his creative self. An engineer studies psychology not for more income, but to develop better strategies for dealing with assholes at work.

The dominance of exploitative learning is felt when we look at the policy behind English Literature. In Singapore,even people who love English Literature cannot take the subject because it skews their grades downwards. The apologists for the subjects do not do subject any justice, repeatedly focusing on skills needed to "navigate the complexities of life" ( What the fuck does that mean anyway ? ) .

The pragmatic emphasis on exploitative learning is why there is downward spiral in the number of students studying the humanities today. And mark my words - the legal industry will face a lot of trouble in the years ahead and as the last consistently well-paying career for Arts students stop paying its high salaries, our JCs and Polys will become merely Science and Business vocational colleges. Losing the Arts would make us less anti-fragile as a nation and culture, but that will be some other article at a later time.

The crux of the lifelong learning focused on exploitative learning is this : We do make bigger investment mistakes when we choose to learn something. Industry changes may render our learning worthless at least from a human capital perspective.

After getting my battery of qualifications in Finance, I found that it was more profitable to carry on being an IT guy and investing my money. My investments in finance did not increase my human capital although it was very profitable managing my own portfolio. Same goes for my JD investment, law students are moving into an era where they may not get a training contract and even if they do, may not get retained.  If I do get retained, I may be financially better off picking up my old career.

The nature of exploitative learning is that it is dependent on the industry and the economy. And business cycles are getting shorter by the day.

Exploratory learning takes place out of intellectual curiosity. Generally when we learn something out of curiosity and personal interest, returns are not the primary motivation to pick something up. The side effect of exploratory learning is that the skills stay with you and can be applied to different areas in your life. Photography can teach a person a thing or two about aesthetics, may come in helpful when decorating your home. Literature put fictional characters in strange situations which may prepare you for one in the future. Exploratory learning creates larger possibilities. It allows you to be more adaptive and maintains value regardless of the economic situation.

From a financial perspective, exploitative learning is buying a short-dated in-the-money option on your human capital. Exploratory learning is more like buying many long-dated out-of-the-money options which may suddenly become valuable in any stage of your life .

We can't ignore the exploratory side of learning. For individuals to be robust, up to date industry knowledge and technical skills need to be supplemented with skills developed via exploratory learning. This has to be chosen independently and based on personal interest. For a decade , my interest was public speaking and I made very close friends which I still hang out with today from the NUS Toastmasters. When I give talk on the radio and in public, my skills in public speaking makes a big difference in my life.

And now for the hard part which may confound policy makers.

For exploratory skills to remotely benefit the learner, we need to beyond the ra-ra motivational bullshit that is being taught in corporate companies. Motivation does not last very long if it is not accompanied with a certain level of mastery. HR department's idea is that you throwing your money into a seminar to keep employees happy, their will stay productive.

Exploratory skills requires mastery just like exploitative skills. Deliberate practice is required to be a good creative writer, photographer, historian or psychologist. In fact, the bar is even higher if you see yourself trying to monetize this in the future. So many hobbyist photographers in the market. Who will pay you a decent wage ?

In summary, my advice for the reader is as follow :

Beyond the PMP, CPA,CFA qualifications that you are currently studying for, you may want to think about what areas you would like to explore that does not directly result in a higher remuneration. It can be computational thinking, mathematics, art history or literature. Go to Coursera to see whether there are courses where you can put yourself under a rigorous program to master that subject.

For policy makers :

With the death of high legal salaries over the next few years, a strong humanities and social science education will no longer have a role to play in Kiasu Singapore. You have to preserve Arts education through free adult education. My biggest fear is that after a life spent being  kiasu and chasing the dollar, Singaporeans suddenly find very little meaning in life. We develop a HIV of the mind and begin to buy anything from anyone who gives us a sense of hope. Just look at how polarized we've become in the Cultural Wars.

In such a case, it is way better for Singaporeans to find solace and consolation in the likes of Seneca, Aristotle, Kierkegaard, Lao Tze or Plato than someone like Kong Hee.

Push your universities to start putting up your best humanities lectures into Coursera and reward them for sign-up rates. For civil service recruitment, without offering to pay more, create a HR recruitment culture which is interested in candidate's enrollment in these courses. Have bosses ask about hobbies and interests.

And for goodness sake, grade the H3 contrasting subjects with a P/F grade lah.

Engage Singapore politics by understanding more about WWE.

With my exams over, my next paper would be sometime in November so I get to enjoy the rest of the summer holidays.

Quite a lot has happened since my last posting. Significant is that some lawyers have been accused of abusing the court process to delay the execution of Kho Jabing. There is also a storm brewing over the use of Singlish in Singapore. I thought I'd share an approach to dealing with these issues before I go back to talk about financial markets and my upcoming WDA talk.

a) The question of whether Singapore should impose the death penalty does not require legal expertise.

First of all, I did spend most of my professional life being intimidated by lawyers (which explains why I am in Law School today). Throughout the debacle, some well-meaning lawyers friends have been sharing the case judgement over social media. While reading the judgment is good, most of the battles over social media revolves around the question of whether the death penalty ought to be imposed.

In such a case, it may be useful to remind ourselves that lawyers do not have an edge over arguments of this nature. The question of crime control as a function of deterrence, retribution or rehabilitation is the realm of the man of the street. You can vote to decide how the government sets the gearing on capital punishment.

For readers of this blog. You need to understand two concepts of positive law and normative law to decide whether you want to get into the wrestling ring with a lawyer, law student or legal expert.

Positive law is the current state state of the law as-is. Lawyers are paid big sums to explain the state of positive law. You consult a lawyer if you want to know what the state of the law is. Normative law, on the other hand, is what the law ought to be. Lawyers have no power over the domain of normative law, academics can take a view but judges can shoot it down. Philosophers have more power over this domain for lawyers and questions on normative law are highly contentious.

When a lawyer or law student argues about the normative law, any man of the street can just say that if you are just extending a moral or economic argument as to what the law should be, not what the law actually is. This falls into the realm of opinion.

b) Question of whether Singapore should promote or eliminate Singlish is a normative argument understood by watching more WWE.

The question is why the Singlish debate is related to argument of death penalty.

In fact the debates on Singlish, Death Penalty, Pink Dot, minimum wages and treatment of migrant labor are all arguments on what Singapore ought to do. At this stage, WWE provides a better understanding of the issues at hand.

Wrestling shows divide wrestlers into two camps, face and heel. Faces and heels normally feud with each other to keep viewers entertained. Rarely do faces battle faces or heels battle heels. When Triple H is a heel, he may feud with the face John Cena or The Rock. He will never form an alliance with another face like Roman Reigns but will gang up with other heels like Randy Orton.

Political discussion in Singapore is also rather predictable. Faces and heels fall into their respective factions and take a very black and white stance to moral issues. If you are pro-Singlish, for some inexplicable reason you will support Pink Dot, a minimum wage, social welfare and will be against the death penalty. If you are anti-Singlish, the opposite stance will be taken.

Like WWE, the feuds also transcend previous arguments and explains the relative bitterness and animosity between the two factions.

While I support plain english more than Singlish because it keeps us connected to global trade, I speak Singlish to connect better with fellow Singaporeans. MPs speak Singlish to connect with voters. So at first, I am puzzled by the disproportionate government response to my friend Gwee Li Sui's Op-Ed on Singlish.

But if you are a wrestling fan and understand the feuds between faces and heels, the response makes perfect sense. Gwee Li Sui's involvement ( and perhaps moral victory) during the Penguin book banning incident may explain this disproportionality.

Similarly, the looming Pink Dot / Wear White event is something akin to Wrestlemania and the government may need to play its hand to show it's support for the majority conservative population in Singapore.

In summary, Singapore politics is akin to WWE, watch more wrestling to understand the tension between western liberals and the conservative majority.

Investors should not be wrestlers.

We should stay by the side to take a position which would bring the best returns to our portfolio.

Of course, to some people, making money is already taking a side in Singapore politics.

Is Grit Overrated ?

Bully the Bear has a great article on finding meaning in suffering. I'd thought I would build on this idea by critically examining its ancestral concept of Grit because grit has become the buzzword of the day.

Grit is the ability to take punishment and roll with the punches. People with grit find ways to persist through hardship and self-help literature claimed that gritty people become more successful in life. Because of very persuasive speakers like Angela Duckworth, grit is slowly creeping into the public narrative and it is certainly expected that the best bloggers do talk about grit or its derivative concepts every now and then.

I want to propose that instead of looking at Grit as one true trait of worldly success and financial well-being, it may be more instructive to view grit as a framework of similar ideas in the past on the qualities which leads to success.

Before World War II, the desirable trait to have was high IQ. People with high IQ are faster at grasping new concepts and IQ tests were developed by the US Army to assess the cognitive strengths of new recruits. Singapore took this one step further by creating the gifted program in the 80s as attempts to find better ways to harness our human capital. Unfortunately, with criticisms of elitism, IQ has fallen out of favor in Singapore. While I'm not really a gifted person, I find it ludicrous that intelligent people are made to constantly apologize to the masses for not being able to fit in. I think they can do better by hanging out with normal guys like me who appreciate their quick mental reflexes.

Which lead us to the popular trait of emotional intelligence or EQ which was bandied about in the 90s after becoming viral all thanks to a speech by Goh Chok Tong on a book by Daniel Goleman. Since that event, I bet no GEP student ever gone through their lives without an idiot yelling "You high IQ, but low EQ." at them without realizing that demonizing scholars is itself an act which hints at the lack of empathy.

And now we have Grit. A single measure of persistence which the magic pill to all our personal inadequacies. If a person has grit, he will overcome all personal obstacles in life. If he fails, well, he's just not gritty enough.

I want to caution against the tunnel vision of viewing one single trait for success.

[ This is the same reason I don't think you can become a billionaire by simply  spouting the pithy wisdom of Jack Ma. Jack Ma is a unique human being. I'm sure he did not build Alibaba because he spent his younger days spouting the wisdom of some older billionaire to other people. ]

The problem with IQ is simply that not all high-IQ people do well in life. Some whose IQ exceed 200 spent their entire lives being misunderstood and being unable to monetise the millions of ideas floating around in their heads. In the book Peak by Anders Ericsson, a study on Go masters in Korea, Japan and China discovered that their mean IQ was actually only 97.

The problem with EQ is even worse. People who are full of empathy and who develop very powerful control over their emotional awareness are found to be more gullible and tend to fall for scams.

There is currently very little literature on the downside of grit. But I can imagine that a very persistent person may pursue an idea so aggressively that he would either go bankrupt over it or spend a large part of his limited lifespan pursuing a dead end business.  As there may be a correlation between grit and conscientiousness, I am guessing that people who are too gritty may even have OCD.

My final argument that we should not be overly obsessed with one trait is based on a study on London cab drivers. Scientists find that those who get a license to drive a London Cab has had significant changes to a certain part of their brains such that they can excel at mental tasks which are similar to that of navigating their cabs. However, some tests done for other mental tasks actually showed that the driver performed worse than average person.

When you try to develop a strength at something, are you doing it at the expense of something else ?

Coming back to the essay Bully the Bear, I agree that framing your suffering as a meaningful task will allow you to overcome more obstacles and lead a more fulfilling life.

But life sometimes throws all sort of problems at you. You might work with complete assholes. Your pay grade may not justify the volume of work that you are given.

Your first question should be : Is this suffering necessary for me to commit so much willpower on this issue?

We're back to facing an investment problem again.

Instead of determining your allocation of financial assets, you should be thinking about allocating your attention and willpower to the problem.

Before you eschew kiasuism...

I was having breakfast with the folks of BigFatPurse and Jon complimented that I would never take the risk of running a business because it's just not something a guy like me would do.

Jon is right.

I would take enough risk to generate the returns I desire but not more than necessary to become financially free. My family's well-being is at stake.

If there is no need to take any more risk, I would prefer to farm my excess funds into the most consistent form of arbitrage that I know of - that of knowledge arbitrage. The cheapest trade-off which has the largest returns is to monetise your knowledge and skill. Knowledge, unlike property, cannot be misappropriated or taken away, so once you have the ability to trade knowledge for wealth, it becomes a fairly consistent means of earning a living.

These day you seldom get really philosophical arguments in Parliament because the government, by and large, works, which is why we need Nominated Members of Parliament in Singapore. NMPs do not need the support of the people and can spout as much irrational nonsense as they want so long as it fulfils the agenda of the tiny minority of people they represent.

NMP Kuik Shiao-Yin has recently sparked a debate on whether Singapore should kill its Kiasu culture.

I have not determined whether on the whole I agree with Kiasu culture but I can say that I am quite exposed to it right now being part of this neurotic system of legal education in SMU.

Kiasuism explains why law students work so hard. But kiasuism without an understanding of the effort and risk it entails can be tiring, stressful and even result in the loss of precious lives.

Right now, I can imagine my batch of classmates graduating into one of the worse markets for legal practitioners in recent memory. My guess, backed by some credible folks in the industry, is that half of them would not be given permanent jobs after their pupillage. The bar exams are also getting harder and there has been talk that standards for Parts An and B have been tightened recently.

A problem is that we did not delve into definition of what a truly Kiasu person would do.

To deal with new economic realities, some of my classmates are pushing themselves harder to game the system.

Just today, I learnt of a brilliant new strategy of applying for a leave of absence citing some personal reasons immediately after a bad exam episode to game the system. The problem with this strategy is diminishing returns if more people execute this stunt. If too many people do this, HR departments would catch onto this.

Or instead a Kiasu person would activate Plan B or look for a Blue Ocean industry elsewhere. This person can do more networking and look into alternative industries which pay better. Another valid way to play the game which requires some hard work and lateral thinking.

The problem is that we don't know whether a Kiasu person would do the former or the latter, and we are now trying to shoot it down in Parliament almost like it's an STD which all Singaporeans have.

I think the most disingenuous application of NMP Kuik's argument is that it is always applied in a school setting. This argument is always about the unhappiness of our children.

I'm going to offer a politically incorrect version of what actually happens when we are Kiasu.

If you are Kiasu and the people around you are not, you are very likely going to be happy at the expense of others. It worked for me during my first semester, I got $4,000 pre-reading my textbooks and giving myself  a 6 month head-start in law school. I was a happy sociopath at the expense of my classmates. But what else is new ? If you have two streams of income when your peers and some bosses have one, you are one happy SOB. Wealth is relative.

Now I have just completed Semester 4. The game has changed.

In school, if everybody is Kiasu, then everybody is unhappy. Eventually a person's lack of talent shows over the long run. My subsequent grades became average once everyone started to pick up on how to excel in class. I end up working harder and getting shittier grades. Now everyone is miserable and angry.

My concern is that NMP Kuik is harbouring a special fantasy of every Singaporean where everybody's foot is off the pedal. Then just pushing yourself a little bit will yield great results. People who harbour such fantasies are no better than guys like me who openly admit to being the class of super-Kiasu rent-seeking aspiring-super-managers of the new economy.

A person who wants a life in Arts, Music or Literature is free to pursue this life path. But they want to take offence because somebody else is into Law, Engineering, Accounting or Medicine.

Which is why I argued that a start-up founder takes an irrational position when he starts a business. If he fails, he will have a problem getting a spouse who prefers a government service engineer. But is it fair to then accuse everybody of being so kiasu and wanting to become a $4,000 civil service engineer ?

NMP Kuik is trying to boil the ocean.

If some Singaporeans ever decide to believe her and become artists, poets, sportsmen or social workers, I bet my last dollar that the other proportion of Singaporeans will exploit the wider gap left open to people who desire the more profitable professions the economy has to offer.

So, in short, if you want your kids to be happy, let them play. It's your right to do so.

But don't cry to the government when you discover that other guys are not only not letting their kids play but sending them to cram schools because they want their kids to be your kid's supervisor in the future workplace.

Discussion on my China Merchants Pacific Holdings Maneuver...

This year, I have been making great judgment calls with other people's money but not my own.

The markets have been very bitter-sweet of late with offers being made to take a staple yield counter China Merchant Pacific Holdings private at $1.02 per share.

Unfortunately, I did not own this share in my private portfolio as I am still struggling to sock away savings without an earned income as of late in the face of multiple personal emergencies. I had initially wanted to get into China Merchants in a serious sort of way at the end of May when the bulk of my dividends arrive. This was sadly not to be.

In the end I was lucky that I have noticed that this stock has become very attractive as of late and as a follow-up to my Saizen REIT maneuver I shared a couple of months ago on this blog, I actually told my dad to farm almost all his proceeds from the sale of Saizen into the China Merchants counter because it was a great way to get consistent 7-8% yields at around 81cts then.

That maneuver really paid off today an we exited 80,000 shares today at around  $1.01.The pay-off has been significant in the face of the May sell-off because we can start farming it into other yield counters which are on the cheap which I have been monitoring of late.

To be fair, luck played a bigger role than skill. Ascendas Hospitality Trust was also rumoured to be about to be taken private as well when I sold the Saizen shares and if I had advised my dad to farm the money into that counter instead, we would be sitting on losses instead of gains. I  ultimately chose China Merchants because it was an equity counter instead of a REIT and thought that tolls would not be negatively impacted by the Chinese down-turn.

As usual, we do not have a habit of enjoying our capital gains, so over the next few weeks, we will be farming the capital back into SGX but I am no longer looking at buying just one counter.

Instead I am looking several equity and REIT counters rather than that one counter which I have so much conviction for.

One should not get cocky and start believing that he can get third time lucky.

Nevertheless, it is sad that SGX has lost a stalwart dividend counter which may never be replaced.

Smart Beta - Learn about a future investment strategy today.

Singapore investors are are very much behind the curve when it comes to better investment products in the market. The aim of this article is to look at this very modern buzzword called Smart Beta and start everyone thinking about how to react when this this new trend arrives in Singapore.

Smart Beta is the next evolution of the ETF. It employs a formula or algorithm to determine the composition of a portfolio and transfer cost savings to the investor.

What Smart Beta tries to achieve is to create a new range of offerings which simulate how a fund manager would manage your money. Fund managers typically invest and diversify your stocks the same way as his benchmark index would be designed, buying a basket of stocks similar to an ETF but then he would vary the composition of his stocks by exploiting well known market anomalies. One example is that by simply holding an equal weighted basket of stocks, the fund manager can perform slightly better than capital-weighted index.

[ This is very similar to an old idea called fundamental indexation. Perhaps a practitioner can advise me on what's the difference between that and Smart Beta. ]

Six strategies have since been packaged in the form low cost ETFs :

a) Liquidity - ETFs which give more weight to liquid stocks.
b) Momentum - ETFs which give more weight to stocks which previously did better.
c) Quality - ETFs which give more weight to more profitable companies such as ROA and accruals.
d) Size - ETFs which exploit the idea that smaller stocks tend to do better in the markets.
e) Value - An ETF which overweighs higher yielding stocks fall into this category.
f) Volatility - An ETF which gives more weight to stocks of lower volatility.

As of now, there are no Smart Beta ETFs in the local stock exchange but understanding this new instrument is useful to us in many ways.

As Smart Beta ETFs fall into 6 strategies, we can reverse engineer each strategy to find out what most fund managers think. Imagine how vulnerable fund managers are one an ETF can be designed to put them out of a job. Within a year or two there might even be ETFs which hold a basket of Smart Beta ETFs which feed economic data into an AI which determines the ETF allocation.

The question I want to ask myself and readers is whether would it be possible to design a around Smart Beta, mapping an allocation to economic situation of a country.

Eg. When the economy turns around after a recession, you should over-weigh Momentum. When a market has peaked, you over-weigh Value.

This exercise should be done now because the rise of Smart Beta is inevitable in Singapore.

Just like an ETF for S-REITS.

Planning a talk on funding a child's education.

I'm currently working with WDA to give a talk at the Lifelong Education centre on 14th July 12.30pm.

Right now the details are still quite sketchy, but I thought that blog readers should be able to pitch in and suggest what they want to hear.

The working title is "Finding your child's university education".


Here's what I have so far.

• Paying for Education is about increasing a child's human capital as opposed to financial capital. It should be treated like an investment.
• Why is it naive to see a university experience purely from the viewpoint of a love for learning. 
• University qualifications have two effects of signalling and skilling. Signalling remains the more important concern in a highly competitive meritocratic society.
• The result of investment in human capital should result in employment and higher wages.
• Comparisons will be made between local and private universities.
• A very brutal assessment of private universities will take place using the theories explained to the audience.
• Details on CPF loans.
• Details on Education loans.
• Details on private loans
• Where to get information on scholarships.
• Investing to fund the education.

I also expect very lively debate in this talk because I don't intend to pull any punches about how gritty our education system is. 

Do share with me what you would like to hear in such a talk.