Monday, June 26, 2017

The importance of Cultural Capital when changing careers

Image result for doji hotaru

This blog has in the past discussed two forms of capital. Financial Capital represents whatever wealth you have in your personal balance sheet and represents what most of us are comfortable with. Human capital is the net present value of our unearned income. We are less familiar with this concept because it corresponds to what professions we have chosen  and it can also increase in value with more investment into lifelong learning.

While financial and human capital are two sides of the same coin. Cultural capital comes from a different coin entirely. The idea of cultural capital came from a sociologist called as Pierre Bourdieu. Bourdieu defines cultural capital as one that is derived from skills, tastes, posture, clothing, mannerisms, material belongings and credentials. For example, fans of high-end audio can use their financial capital to get the latest and greatest audio devices from Adelphi plaza, but it take cultural capital to develop an interest and speak convincingly about Classical music and know the difference between Debussy and Bach.

As I'm in the middle of a massive career shift myself, I have on recently started to understand how powerful cultural capital can be and this is often ignored by the readers of this blog who probable spends a lot more time working on their other forms of capital, it may be wise to occasionally try to understand the "feel for the game" as you net worth goes higher. Beyond a particular point, your wealth will not be able to grant you access to certain pockets of power but beyond a certain point, you may find it easier to proceed with Cultural capital.

In modern society, there are many situations where either you get it or you don't. Bourdieu coins this term habitus or "feel for the game". Transitioning from IT to the Law, you notice pretty dramatic changes in the "feel for the game".

Previously in IT, there was a hollowing out of engineering talent to the field of banking and whoever is left normally came from polytechnics and private universities, to have a "feel for the game", you need to practical and problem oriented to earn the respect of operational staff, hence the best IT managers start at the bottom, or at the data centers. At the entry level, you need to be resilient, a little rough on the edge and speak Singlish as it facilitates quick problem solving  and intimate working relationships which are built on trust.

This worked at the bottom tier of IT support where problems are solved on a daily basis but can fail at the upper tiers where problems normally involve contract law and some financial mathematics. The "feel of the game" and mannerisms change as you go up the IT ladder.

As you climb up the ladder, you have to start developing some proper IT project management skills which means talking to business people. At the mid-level IT investments must be aligned with business objectives and skill-sets typically become more finance-like with an emphasis on budgetary controls and internal rate of return calculations.

At this stage the "feel of the game" changes. Your mannerism become more formal. Language patterns become based on simple plain English. At the stage some IT Project managers also change their appearance because they start to wear more expensive watches to try to match their business counterparts. At this stage, if you are stuck at the NCC Diploma level, taking project management training only gives you the skills to do the work but not the mannerisms required to get a "feel of the game", which is why project management remains predominantly a game for University degree holders.

( But do not be dismayed, as cultural capital can be earned over time )

As I transition into a legal career, the "feel of the game" changes even further. While SMU has equipped me with the skills of being lawyer, I have to develop new forms of cultural capital to navigate this Brave New World which Law School has not prepared me for.

Hanging around in family court, perhaps I am a little over sensitive when I noticed a subtle war going on between different counsel. The women are trying to outdo each other with their handbags. For the men, perhaps the weapons of war are their watches, which is the only politically correct jewellery that men are allowed to wear.

Even more fascinating is the use of language. I doubt you can taken seriously even if you employ the simple English taught in schools. I observe some occasional Shakespeare thrown in to written documents (But always in a subtle manner). The manner of speech in legal work is elegant and rich with metaphors. It's no accident as lawyers typically from the Arts stream in Junior College and many have Drama and Debating experience.

While most engineers would not even have the time to build up the cultural capital to enter a new industry sector, I was fortunate in that I spent 3 decades of my life playing  Dungeons & Dragons which never allowed us to create artificial barriers between the Arts and the Sciences. You need to understand the the statistical properties of a fireball spell but you also need to have a firm grasp of how matriarchal society like the Drow would function in Menzoberranzan to have a great gaming session.

A few weeks ago, a very senior old lawyer used the word "Amanuensis" in an email, it was hilariously intimidating. This would drive most of us, including lawyers, to look it up in a dictionary. I was exposed to the word because Amanuensis in D&D was a Wizard spell to summon a disembodied scribe to copy a scroll or spellbook into another document. So I was able to guess that the word meant some kind of scribe.

Sadly, cultural capital cannot be earned overnight. There is no cryptocurrency which can speculate to up your stash for Bourdieu-coins.

But if you wanna mine for Cultural Capital, playing D&D might help.










Friday, June 23, 2017

Equity Management #17 : More random thoughts on margin investing.



Here's an update.

This week on Wednesday the kind folks of Maybank Kim Eng bought me and two other finance bloggers to lunch to apologise for the margin call made on my account.

( As I was the only guy who got margin called, I accused the other bloggers of getting a free meal out of my misery ! )

The lunch was somewhat hipsterish -  we ate octopus at this place called Venue by Sebastian. The highlight of the session if not so much the free food but just how surprisingly insightful the folks of Maybank are.

I always thought that most of the finance folks you meet in the industry are the run of the mill guys who can spout finance after passing a few CMFAS exams.  It takes personal effort to read finance literature and even very "smart" guys who claim to be in the know will just talk about about becoming the next Warren Buffett. It was a really enlightening meal.

This article shares some random thoughts about margin investing :

a) Brokerage firms can't promote margin investing as much as they'd like.

I learnt that actually our local regulators are quite wise and proactive in preventing the promoting of margin trading because it induces folks buy stocks that they can't afford. We agreed that this point that this is a good idea because the traditional idea behind margin investing is to buy penny stocks and magnify capital gains.

Only a small minority will use margin trading to magnify yields and minimise trades. It's almost up to us financial bloggers to talk about responsible leverage investing without any inducement from corporate firms.

b) Lifecycle Investing by Ian Ayres and Barry Nalebuff

This was the clincher that convinced me that there are seriously smart folks in Maybank Kim Eng.

Their staff mentioned this book which I read quite a while ago about why, for younger folks, it may be wiser to use some amount of leverage to magnify stock market returns. The book is mathematically rigourous in their approach but it was unable to induce me into action then because I still felt that it was safer to reach financial independence first before even thinking about looking at margins.

I strongly suggest that readers consider reading this book before even getting into margin trading to understand that a more deliberate approach to magnifying gains can be designed to speed up your journey into financial freedom. I'm going to see if there is a way to squeeze this book into my next talk in July.

c) Some preliminary numbers on the risk of default.

I was digging up some of my previous backtest results from the talks I gave last year and found that for most of my dividend screens, whether they are for dividend stocks or REITs, I am looking at a standard deviation of around 12% after a decade long backtest (I use the square root of semivariance). So if you project a return of 9%, a 2-standard deviation event will set you back around -15% and this has a probability of around 2.5% of happening. My backtest for dividend stocks in 2016 had annual returns of 17%.

So this is a strong case for my margin ratio of 200% as I will need a massive drop of 30% to trigger a margin call, this is mathematically expected to occur in less than 1 out of 40 years.

Of course, I just need to beware of the fat tails that I've not been able to mathematically model. Unless you are Nicholas Taleb and have your own prime broker, you are not likely to survive a Black Swan event anyway.

d) Mental accounting and margin trading account.

Investment Moats asked me why don't I just have a unified trading account with a margin facility. I replied that its because I have a mental accounting bias.

In this case, it is justified because Maybank can offer 2.88% interest on 200% leverage so I have to go through the process of opening a new account. I just met an old friend today who claimed that if I go with him on DBS Treasures, I might be able to get financing at merely 1.6% but I can only leverage up to an additional 50%-70%. I guess different providers will come up with a different scheme to attract investors.

At the end of the day, a margin trading account is aspirational and you should not be trying to pay off your basic expenses using leverage. A portfolio that pays the bills should not employ leverage.

For now, I doubt I would recommend that anyone start margin trading without a portfolio backing them up that is ten times the size of the margin account.

Tuesday, June 20, 2017

Investors Exchange 2017 : 50 Shades of Dividends Investing !

Investor-ExchangeImage result for 50 shades handcuffs


I'm really excited to talk about our next event which will feature 7 speakers and last one entire Saturday afternoon on 29 July 2017. This event will be the first time BigScribe would be selling tickets for 250+ seats.  You can place your order through this link.

This time round, I'm really excited to be on the same panel as Teh Hooi Ling, who is currently the President of Aware and my super-senior in the NUS Masters of Applied Finance programme. I have to admit that I am the fan boy this time and I have all of Teh Hooi Ling's books.

For this upcoming talk, I probably am the most light-weight among the speakers because I do not come from the finance industry and do not manage money professionally.I will try to balance my talk between two extremes : One one hand, I will talk about financial independence and my personal investing journey but I expect the folks want to show up for the hardcore investing bits so on that aspect I hope not to disappoint the audience.

As of today, I have only started building the outline of my talk and you should expect the same intellectual rigor that I apply to all my presentations.

For the hardcore aspects of my talk. We should be covering the fundamentals of dividends investing, key asset classes that deserve consideration if you are interested in investing for dividends. I will also cover in detail of the more interesting statistical properties of dividend stocks and, depending on what my findings are from my next appointment with a Bloomberg terminal, how you can super-charge a dividends investing portfolio with leverage.  ( Because now I know ! )

For the softcore aspect of my talk, I will try to weave a story about how consumption is evolving and how you may be able to achieve your savings goals with much more class than perhaps during my time when I was trying to save for my financial future.

The unifying theme for my entire presentation is, of course, based on 50 Shades of Grey and how to break free from a brutally savage corporate master.

The most light-weight speaker must overcompensate with the most alluring and seductive theme for this upcoming event. 

Sunday, June 18, 2017

Spending that counts - What we know from the latest surveys on the rich.

I am currently reading The Sum of Small Things : A Theory of the Aspirational Class by Elizabeth Currid-Halkett and it looks like I would have to update some of my thoughts on saving and spending to the latest findings of social science research.

Apparently, it is no longer cool to get into conspicuous consumption. Rich people no longer show off their expensive fashion and toys. Because the middle-class can consistently use credit to purchase the trappings of material wealth, the rich in the US are moving onto other things to maintain their social and cultural distance from the hoi-polloi. This trend has gotten the progressives particularly worried because the rich are no longer spending in a stupid and flashy manner and almost every dollar now is being put to increase income inequality in Western societies.

I will just share three things the aspiration class are spending on these days to maintain their social economic status. If you are observant enough, you will be able to find that financial bloggers also tend to spend very tactically within these three categories :

a) Labor-Intensive expenditure

The first category care utility driven rather than status driven. The new rich prefers to spend on things to give them more time.

The rich has maids to assist them in house-work and childrearing. Some even pay to have people do the gardening for them or to walk their dogs. The aggregate effect of buying time with money means that they have more time to spend either making more money or quality time with their kids. Social scientists are now detecting ( to their dismay ! ) more quality time wealthy individuals are spending with their children.

Even in Singapore, sociologists are detecting that richer families tend to believe in more filial piety.

b) Experience-driven expenditure

The second category are non-utility driven but also non-status driven expenses. Travel comes into this category but I can imagine many kinds of expenditure of this category which does not result in much travel. Some blogger friends have been very public about the staycations they pay for. Even I would be going on a staycation after my internship in early July.

I do not really agree with the author that travel and experiential goods are non-utility driven. Doing charity work in Lhasa may be something nice to put in a resume to distinguish yourself from other candidates. In the age of Instagram, being able to relax next to the beach is no longer something you get to keep to yourself.

But you can't deny that money being spent on experiences is going up over the next few years.

c) Consumption that counts

The third form of consumption which scares the living crap out of liberals is that the rich is starting to buy things that really count. From time spend attending seminars to subscriptions of the New Yorker and The Economist. Wealthy women, already very well read compared to their less-educated peers, are spending more effort breastfeeding their children ensuring that their children gets a huge jump over their peers.

This blog supports category (C) the most because, individually, investments that really count cost very little money but may require years of education and study to exploit fully and will pay dividends over hundreds of years as your children gain a permanent heads up over their peers.

What does this mean for the big picture ?

Rich people will stop acting rich. They will retain ways to signal to each other their social economic status but they will stop inflicting psychic damage to attract the envy of the middle class.

But income inequality and social mobility will suffer even more once the rich learn to invest their time and money properly.







Friday, June 16, 2017

One thing modern workers need to do to stop digging their graves.

This is going to be a short article as I look forward to paying off some sleep debt.

Once of our upcoming talks in August was supposed to be lifelong learning but for very valid reasons, it did not pan out, so we will probably be going ahead with something else later this year.

I've done some preliminary readings on lifelong learning for my own benefit and discovered this insight about lifelong learning which is not shared public about - you need some degree of career mobility to benefit from lifelong learning.

For lifelong learning to really benefit a worker, he needs to be able to effect a change in his/her work environment to exploit his new  skills. At the personal level, I was somewhat a negative example of this insight. After getting a Masters in Applied Finance and passing all my CFA exams, my IT career was doing rather well and I never really did make the switch into a finance role. I do not have much regrets because I was able to derive an alternative income by building my own portfolio.

A lot of other workers are not so lucky. If you are over your 40s and struggling to pick up some new qualifications note that the research shows that the odds of you being able to exploit your newfound learning is limited. To test out your new skills, you might have to jump ship but the career mobility of a 40-something worker is somewhat limited so the odds of increasing your income from lifelong learning is also limited. The research paper has recommended that the government make it their role to provide career mobility for middle-aged lifelong learners.

So the modern worker must begin lifelong learning at a younger age and not wait for too long to begin developing cutting edge skills which are suited for tomorrow's corporate environment.

Which leads to another problem - You need to make time to pick up new skills !

Workers of the future may need to look for corporate cultures which release them from work on time so that they can invest in their own human capital by picking up new skills and keeping up with the industry. Otherwise, workers will become sitting ducks while being employed and may even  waste too much of their own time developing non-transferable skills that can only be used in one corporate setting.  It only takes the next technological change to render them obsolete.

In this aspect, multinationals continue to be attractive relative to SMEs.

Multinationals are also more exclusive and can afford to be selective based on paper qualifications.

At the end of the day, you can't really blame local graduates for only wanting to work for the biggest and most elite international firms.

Its a valid survival strategy.

 


Wednesday, June 14, 2017

Equity Management #16 : Troll Portfolio.



It is interesting that some folks who I did not expect to follow my blog are observing this margin trading experiment so here's another update :

Apparently the good folks of Maybank Kim Eng do read my blog and called me up to apologize for the "mistaken" margin call. They also told me that they were not sharing email accounts and my broker did make a mistake and triggered the margin call on Saturday.

I took their word for it because my problem is solved and the system is reflecting my margin numbers correctly. I'm also very forgiving because I am borrowing at only 2.88%, smart readers might wanna hop in after I help these guys even out their operational kinks but the choice is yours.

So let's  recap what a margin ratio is :

Margin Ratio = ( Value of shares pledged + Value of shares bought using margin financing ) / ( Amount of financing - Cash collatateral pledged )

In my case, I bought about $20,000 of shares and put in $10,000 of collateral.

Starting Margin ratio = ( $20,000 )  / ( $20,000 - $10,000 ) x 100% = 200%

Suppose I lose 30% of my REIT portfolio a few weeks later  and the value of my stocks dip to $14,000.

Margin ratio = ( 14,000 ) / ( $20,000 - $10,000 ) x 100% = 140%

This is the exact amount that triggers a margin call from Maybank and they will write to me to ask for a cash top-up or they will sell off my portfolio.

As such, your margin ratio is somewhat like the number of hit points like in an RPG game. If it dips below 140%, you suffer a margin call which is the equivalent to making a death save in D&D.

Because every quarter my portfolio will generate some dividends into my account, I hope that this would gradually increase my margin ratio over time.

For RPG players, this portfolio behaves like a D&D troll without a maximum hit point cap. Ignore it for a while and it will recover lost hit-points over time. But I guess we'll find out about that aspect of margin trading soon enough as I might face even more operational issues by then.

Sunday, June 11, 2017

It gets worse - I got margin called after one day of trading !

This is so hilarious, I must share what happened to me yesterday for everyone to read.

Yesterday at around 1pm, I received an email from Maybank-Kim Eng telling me that I got a margin call. In that email, I was told that can either pony up $7k or they will sell off $22k of my shares.

I've only traded for a day. With a cash collateral of $10,000, I bought about $22k of REITs and even made $60 on the first day and I received a margin call a day after that ?!?!?

The news almost gave me a heart attack.

At around 3pm yesterday, my broker wrote me back telling me that it was a mistake and nothing needs to be done on my side. Apparently, a colleague was allowed to use the broker's name ( I'm not even sure this is ok from a compliance perspective ! )  to write to me telling me that I got a margin call even though there wasn't one.

You can imagine how disastrous this operational issue is if my broker decided to take a holiday on Monday instead and someone else decided to sell my shares - I might have lost around hundred bucks as the broker sold off my shares. Worse, my margin trading experience would have only last one day and we would never figure out what happens when dividends get declared.

I bet by now, a lot of you might think that I might be better off with another broker but I'll be sticking around at least to document my experience for your benefit. But more importantly I would still hope to achieve 2.88% for my financing costs.

I have no idea what's going to happen on Monday, but I'm tracking every communication with my brokers moving forward just in case I need to say hi to the regulators next week.

Do share a comment or two if you are a Maybank Kim Eng customer.