Thursday, November 16, 2017

Before Happiness #3 : Goal Accelerators

The third section of the book is also the most practical component of the written work because it summarises in one chapter what most motivational books would take entire volumes to do. Tips offered in this chapter are useful and backed by heavy-duty research. If you can practice this on a daily basis, you would save thousands of dollars on motivational seminars and get ahead much further in life than your peers.

The first strategy is to get as close to your target at the earliest opportunity. Once people perceive that they are closer to their goal, they work faster and harder to wards achieving it. In your quest for financial independence using the dividends approach, one way to push closer to your goal immediately would be to take your upcoming year-end bonus and start buying dividend counters with it.  Just begin with a bang and don’t wait for the new year to set your new year resolution. If you can immediately attain 30% of your first financial objective, it would be easier for you to save your next paycheck to hit your target of financial independence.

The second strategy would be to find ways to convince yourself that it is easier to attain your target. In fact, it is recommended that you shape your goals to have at least 70% chance of success within a resonable period of time. One way of doing this would be to break your financial goals down into micro-goals. Financial independence is a daunting goal that takes decades to achieve, but attaining $100 per month of dividend income is fairly easy. At 7% yield, you will only need a portfolio size of $17,500 to get $100 a month to offset part of your utility bills. This is something that can be achieved within one year of graduation for most local graduates. Having $100  coming into your bank account will create the motivation to save more and attaining the next $100 per month would be very much easier.

The third strategy is to manage your personal energy so that you can focus on attaining your goals much faster. This is powerful approach towards achieving greater focus on goals that truly matter in your life. We are all limited by our willpower that gets sapped when we are forced to make decisions. The key is to routinize as many decisions as you can and focus only on a few important decisions every day. One advantage of my new vocation is that men have really one work uniform and I have already started wearing only black and white for my lectures and tutorials. I do not have to agonize over what to wear everyday. Amazingly, uniformity in the way lawyer’s dress is more extreme than in IT. We had one day when all WINTEL engineers in my team came to work in a blue shirt and the admin staff can’t stop harping about it. Great engineers think alike, get over it !

Similarly, I try to use simple heuristics for food, such as choosing vegetarian for every breakfast whenever possible and plain black coffee. 

This third strategy can get really complicated in practice. Some issues like minimizing regret when searching for a home to buy can be resolved quickly through an algorithm like the solution to the Secretary’s Problem. Other issues can be resolved via economic Tit for Tat strategies. The more mental models you develop and internalise, you reduce the mental burden required to process the issue. 

Anyway, my willpower is saved for decisions that only matter - like whether to unload my Religare Health Trust in light of the discussions of asset disposal that was announced today.

After a day of painful consideration, I decided that there is some way to go for the counter if the negotiations succeed and we our well deserved exit. 

And what a tiring decision that was !

Saturday, November 11, 2017

Before Happiness #2 : Mental Cartography

[ I am slowing down my blogging as I am 2 weeks away from my Bar Exams. It is quite harrowing as we have to complete 8 papers within 4 days. It will be a struggle to have one update a week with an exception made when I complete my next talk with BIGScribe. ]

The mental cartography component of this book also composes of three strategies.

First, you need to find your true meaning markers which is just another way of figuring out what your goal are in life. In my own example, a lot of engineers start out in their career wanting to solve interesting technical problems because this is something they are passionate about. Others may simply be hedonists and want to extract as much pleasure out of life as possible.

Second, you need to reorientate your map around these meaning markers. For this same engineer, this creates an interesting dilemma in Singapore because if he focuses on a meaningful career solving interesting technical problems, he would not be able to take on better paying roles in project management or leading teams. Singapore is just not a place for interesting technical problem solving although genuine effort is being made to correct that. I actually believe that if you solid coding skills, hedge funds may be the place to develop programming expertise because you might be able to work on issues like network latency when co-locating servers with those of the exchange.

If money is also one of his priorities, every engineer needs to ask himself whether it is worth sacrificing doing something meaningful and interesting to make more money. For me, I'd just go for the money because financial freedom is more meaningful to me than hammering out cool programming code. The books advises that you set your priorities right before you look at nitty gritty of career planning. Maybe I can hammer all the programming code I want after I retire from the work-force.

Thirdly, you should map your success routes before your exit routes. It just means that a person should be trying to live a life to attain their success and should not live their lives trying to avoid failure. While the scientific evidence is that people who more motivated and aligned with their personal goals get fatter pay-checks and promotions, things would not be as simple as it seems in a conservative Asian society. The books still has a point -  a lot of older project managers or team leads eventually regret their career choices as taking on a management role meant no longer working on interesting technical problems as they get used to higher pay after a couple of pay-checks. 

Singapore exacts a huge penalty on a person when he fails - A failed startup can cost a technical engineer about 7-8 years of his life as he pivots to a more stable career. Even if he can accept such an unpredictable lifestyle, the question is whether his parents will support him. Thereafter, there will be concerns from potential spouses and girlfriends who may just choose someone more stable financially. Even if the girlfriend is willing to make a sacrifice, his potential in laws will have concerns.

If you are a risk-taker, you have my full respect. Just don't underestimate the influence that an Asian society can exert on your penchant for risk-taking.

Tuesday, November 07, 2017

The past is not dead; it is not even past.

[ The title of this post is actually Q1 of this year's AO level General Paper. It has been long time since I have written a GP essay so it's high time that do one given that I am also preparing for the Bar Exams.  ]

The past is not dead; it is not even past.

The past is persistent.

It shall forevermore, be embedded in the present.

It will always influence the future.

This is not merely  a metaphysical assertion for if you, dear marker, have a case of herpes. You should know this fact very well.

The past can be like a herpes infection from your last unprotected sexual encounter - it just keeps coming back. In fact, for herpes, the past is not even past, because herpes is like a trust fund that keeps giving, vital parts of your body that had stopped itching would periodically itch again in the future. Herpes will never die, it is not even past.

Also, no debate on the idea of the persistence of the past should be without the discussion of economic ideas which, also like venereal diseases, are spread between people who don't really know any better. As in turns out, the idea that the past is dead is subject to decades of debate by economists.

Proponents of the Efficient Markets Hypothesis argue that the past is irrelevant. The act of looking at technical charts ,which encapsulate historical price movements, do not lead to extraordinary profits. Entire erections of a theoretical nature were dedicated to the Efficients Markets Hypothesis in academic institutions. It is almost as if the older economists were on a permanent course of Viagra. Phds in economics must have felt their egos masturbated with with each additional citation they receive from another freshly published research paper. In fact, if you found a market anomaly and argued that historical prices can be used to achieve extra profits, you would in for a smear campaign. You would given more tongue lashings than a gimp in BDSM sex orgy if you revivify the past in a thesis defence.

But the past does make fools out of even our greatest economic minds.

People eventually discovered many market anomalies that do exploit past data and they were able to establish very successful hedge funds by exploiting these anomalies. One example is that momentum trades do result in extraordinary profit. A stock that has increased in value for the past 12 months has a propensity to keep on increasing in the markets. This results in a profitable strategy of going long on a basket of stocks which has done well in the past 12 months and going short on a basket of stocks which had done badly. This anomaly is likely to have arose due to the nature by which market agents react to the news. A first, a lot of people under-react to fresh news, but subsequently they overreact to it.

Whether it concerns money or venereal diseases, objects in the rear view mirror may always appear closer to where they are. The past is not dead; it is not even past. Those who do not remember the lessons of history, are doomed to repeat.

Those who remember the lessons of history, will have plenty of great stories to tell in the VD clinic.

Saturday, November 04, 2017

Before Happiness #1 : Choosing the most valuable reality

The first skill in the book Before Happiness by Shawn Achor is the skill of choosing the most valuable reality.

This skill is broken down into three specific strategies.

  • The first strategy is to understand that there are many alternative realities you can have. 
  • The second is to keep shifting your vantage point so that you generate alternative realities. 
  • The final strategy is to pick the most valuable strategy.

This is useful in finance.

Many academics adopt the reality that markets are efficient and there is indeed a lot of academic literature that reinforce the efficient markets hypothesis. This effective rules out Technical Analysis as a means of earning extraordinary profits from financial markets. But somewhere along the way hedge fund managers like Victor Niederhoffer and Kenneth Griffin found objective evidence that the contrary is true and they took steps to build a fund to exploit these inefficiencies in the markets. By shifting into a more profitable reality, it became possible to find new and interesting ways to make money from financial markets.

Similarly, you can notice that the realities of some people around you can certainly be improved.

During my reservist days, I met a lawyer who claimed that saving money was impossible because of his ridiculously high family expenses. He probably makes twice as much as what i made in those days. Even during my Part B training, I was stunned when a very senior lawyer told my class with a straight face that it is impossible to become a millionaire doing legal work. Ideologically, he must come from a different planet from me. If I accepted his reality, the situation would have been hopeless for an engineer who is facing a low pay and the risk of getting outsourced on a daily basis.

So I choose a different reality - I believe that making a million is not only possible but may be easier if you do not have a five figure monthly income. An engineer has nothing to prove about his economic status and can wear Decathlon from head to toe and dumpster dive for free organic food. Other professions have to keep up with personal appearances.

Some realities I adopt are admittedly hard to accept and this is especially so if you lean to the political left.

For example, I believe that Singapore is a very generous welfare state.

If you make $100,000 in dividends annually and dividends are not taxed at a personal level, isn't that some form of welfare for people who train themselves to save and invest money well? ( Feel free to disagree, tax professionals ! )

There are certainly some points which I felt are interesting and should have deserved deeper exploration in the book.

The book exhorts the reader to choose a reality - this is in essence an objective evaluation. The question as to what reality is available is should be determined empirically. We have to constantly remind ourselves that the book does not ask the reader to choose their own delusion, which is what other books like The Secret and various religious texts seem to espouse.

The other point I wish to make is that powerful people and public policy can warp your reality - that's why we have laws. Some bosses and corporate environments can be so oppressive that even if you try your best to put a positive spin on things, it would be hard not to be depressed by the happenings around you.

It is probably not realistic to think that the choice of reality is something completely within your control.

Sometimes you just have to work for in a horrible environment because you need to pay your bills.

Thursday, November 02, 2017

New Series : Before Happiness by Shawn Achor

Starting tomorrow, I will start talking about this book called Before Happiness by Shawn Achor. The last series of articles on Efficiently Inefficient was rather complicated and, as a result, attracted attention from fewer (but more hardcore) readers.

I thought it might be appropriate to not just shift to a lower gear and discuss issues which are a lot more accessible to readers of this blog but to also try to interpret Shawn's ideas from the perspective of someone who is trying to seek financial independence. After all, I'm quite sure that the freedom to pick and choose what you want to do with your life that is unfettered by financial obstacles could result in a much higher level of happiness.

Of course, the other reason why I chose this book is that Shawn Achor is a Harvard-trained researcher and whatever he says is backed by research. This is vastly superior to majority of motivational books that tend to have dubious support or, worse, rely very much on the wishful thinking of their readership. 

Monday, October 30, 2017

Titles Culture : A Demon of our own Design.

I think it's going to be quite vogue to talk about "Titles Culture" in Singapore today. "Titles Culture" happens when Singapore yuppies get together. The first thing they try to probe are the schools that you have attended. In this other article on Today, this is repositioned as an act of probing for weaknesses.

Like many things about Singapore society, it's easy to point out our problems and then try to appeal towards a "mindset" change. This always sets off alarm bells for me because it smacks of not really trying to solve the problem at all. Mindsets will only change if there are underlying socio-economic reasons for reform - otherwise the status quo remains.

I did not experience "Titles culture" when I became an engineer 20 years ago. The idea of a JC/University student doing tech willingly was sufficiently rare in the face of IT Outsourcing and the usual Senior IT engineer was an NCC Diploma holder or someone with a Private degree. There is also no need to probe for any weaknesses when any degree holder can volunteer to leave IT to get a better paying job in Banking or even Real Estate.

The "Titles Culture" really started to hit me when I tried to enter the legal sector.

Law students are cows.

Law students are really graded like Kobe Beef in the workplace, a summa cum laude or First Class can be as expensive as grade A4 Kobe beef with A5 grade reserved only for the Oxford BCL or Cambridge tripos graduate. I found myself probed right up to the subject level and my interviewers were really interested in my JC and secondary school experience.

[ A classmate just corrected me. An Oxford BCL is the equivalent of a Masters. A tripos is an exam name. I will leave the mistake here for the reader's edification. Cambridge Law degree is a BA Tripos Law. I also need to get my knowledge of beef right. Only Wagyu is graded like what I described. ]

Being probed did not annoy me, but here are some uncomfortable thoughts about "Titles Culture".

a) What if this is really a better system of meritocracy in Singapore ?

One of the things I picked up in Part B is that Law Students are actually quite well-rounded and smart.

I tried to start a negotiation session by asking my opponent when he did A level maths and then worked with him on turning the legal case into a maths problem involving the Binomial distribution and was pleasantly surprised that he understood the maths perfectly. At the end of the session, I felt a tinge of sadness because my opponent would have made a decent engineer and could have created quite a number of jobs in Tech. In fact, every single decent engineering student who could have build a unicorn in Blk 71 have gone to Law or Medical school because of our society's priorities.

You can hate Titles culture but what if it is really what we have been working towards in the past 20 years ? If 40% of the population can enter Universities and there is already a route to the top from Polytechnics and ITEs, then there are fewer excuses for not getting a degree in the first place. Furthermore, as more late bloomers no longer find themselves disadvantaged, people no longer feel elitist when they probe the schools you come from.

It becomes culture. A habit adopted by everyone.

It might actually be a fair and objective benchmark.

b) It begs the question as to what can replace Titles Culture ?

As much as I dislike Titles Culture, I'm not sure what can possibly replace it.

Older European cultures still have aristocratic titles like Duke, Viscount or Baron. Is this the kind of culture we want ? What if like some countries we want to know whether someone is related to someone in the ruling party ? Twenty years ago, the status symbol is the company you worked for. You get a lot more credibility if you worked for a international bank or an oil firm.

The major question for any reformer is how should HR change its practices in the future ? I agree in part with the Startup community that a skills based meritocracy is what we really need to build a vibrant ecosystem but is this realistic? If the startup community wants to do this, it has to actually pay for skills and get their HR to set an example by not using paper qualifications.

Why is this not being done? Why are our startups not trying to headhunt our Poly and ITE graduates ?

If you you pay a top flight programmer from Poly the same as a CS grad from NUS, we will get the skills meritocracy we deserve.

c) So should we make your net worth your report card ?

The issue at the end of the day is how to really stop feeling like shit if you don't meet up to other people's benchmarks. I don't have a comfortable solution as well.

As far as I know, markets don't look at your qualifications when they decide to give you a dividend. Perhaps your net worth can become your report card.

Personally, I don't really like this approach as well because most ACS alumni start out with much more than I do. Some financial bloggers struggled with a working class existence before becoming financially independent, I think they deserve more credit than those who have a push from a posher background.

d) Maybe we really need a mindset change after all - specifically, yours.

Our education system, being Asian, does not really put an emphasis on self-esteem. There has to be science behind building a set of beliefs that allow us to keep our confidence up when some asshole starts asking you what school your come from and how many H3 subjects you took during your A levels.

( Although in my opinion, the last thing you need is to have someone in a school or government to bestow a "title" on you to make you feel like a human being. In the US, you can get a trophy for coming in at 6th place - we should not build a culture that celebrates mediocrity. )

I'm not a trained psychologist but I recommend that we seek a "confidence target", a major win in life that can form a bedrock to buttress our personal esteem. This can be running a successful business. Becoming famous for a worthy social cause. Making a big social contribution. Being a champion in a sub-culture. ( Like being a Grand Prix Champion for Magic the Gathering although many of them are pretty big assholes too ! )

Unfortunately, many will go through their lives without ever winning a major milestone to give them enough self-esteem to resist a Titles Culture.

But we owe it to ourselves to give it a try.

Just don't let the assholes win.

Sunday, October 29, 2017

Next BIGSCRIBE Talk #2 : The fear of leverage.

I was supposed to be pushing for my next talk but ticket sales picked up over the weekend and we're down to almost single digits worth of tickets left. If you have not bought your tickets, this is your last chance. Click here.

As I'm reading Andrew W Lo's Adaptive Market, I will begin this post by talking about an mental experiment that some of you might be familiar with.

Which pay-off would you choose ?

Would you prefer a $240,000 pay-off with 100% certainty or a 50% chance of making $500,000 ?

Intuitively speaking, most readers will choose the 100% payoff of $240,000 even though the expected payoff of the second option is $10,000 higher. We are much more interested in a guaranteed $240,000 because we cannot stand the idea of risking a 50% chance of winning nothing. Loss aversion is a natural part of human evolution.

For years, I refused to touch leverage because, even though I was aware that my gains can be multiplied, the idea that an event that could wipe me out completely made me afraid of committing my funds into a margin account. During the depths of the Great Recession, I walked into Maybank's branch in Shenton Way and then walked out without doing anything because I just did not have the guts to go ahead with my plans to start playing with a margin account. Even then, I had information that recessions seldom last longer than 1.5 years and we've almost facing a downturn of 2 years. That could have been my millionaire (or multimillionaire) moment.

I finally got into leverage recently only after I convinced myself that my financial independence would not be threatened by an event that would wipe out my entire margin account. From this safe vantage point, I have recently created a small account that is designed just to help me pay-off my mortgage.

For my next talk, I will imagine what it is like to use leverage to speed up the attainment financial independence. I am backed by a brilliant and controversial work by Ian Ayres called Lifecycle Investing who was also behind some legal papers I had to read when I was a law student. I then took the approach in Lifecycle Investing and adapted  it to be used locally in the REITs sector.

Like all my talks, they are focused on how you can attain financial independence with all the mathematical backing I can muster from my Bloomberg backtesting.

Even if you fail to conquer to your fear of loss aversion, you will find my very conservative approach of matching leveraged assets to personal liabilities ( With yields possibly reaching beyond 10+% )  refreshingly novel.