Sunday, September 24, 2017

Hard Truths about Private Degrees and Second Chances in Singapore

Sam Choon-Yin's book entitled Private Education Singapore : Contemporary Issues and Challenges is a very enlightening read not just for stakeholders in the Private Education Industry but also parents who have serious concerns about their child's education.

This book is not completely unbiased, the author is after all a Dean of PSB Academy. But it is generally speaking the most objective piece of work so far on this industry.

One small bugbear of mine is that the author painstakingly alleges discrimination from the industry as well as poor management practices of the Private Education Institutions (PEIs) for the pay and employment gap faced by private degree holders. But let's be candid lah - An economy cannot run solely on discrimination alone, a $600 pay gap in Singapore between local degree holders and private degree holders cannot be magically hand-waved away by allegations of discrimination because hiring private degree holders would thus mean 20% cost savings in manpower. A degree of responsibility has to be taken by the student himself.

( If we follow the same logic above, then local degree holders like myself should not feel good because when we are also benchmarked against an Ivy League or Oxbridge degree holder. Some amount of credit should be given to graduates from top international universities too. )

A particularly damning study which should be understood by private degree holders who read my blog should be a study by Deming in 2016 in the US, a person with a BA in Business from a private institution was 22% less likely to have its resume answered to, rendering the qualification effectively " a negative signal of applicant quality". This is on all fours in my last talk on funding an education at the Lifelong Learner's Library.

A couple of useful tips stand out for those unfortunately enough to have to look for a second chance with a PEI in Singapore.

a) Don't take the easy way out because local authorities do not regulate academic rigour.

The various bodies that regulate private universities in Singapore are focused on prevent the loss of Singapore's reputation through fraud so they put in place measures to regulate the administrative processes of these institutions. Local regulators, however,  do not have in place a framework to track the academic rigour of these programs.

Making matters worse, a lot of private degree candidates look for a short duration program to get their degree earlier without understanding that a degree's value comes from its academic rigour. If it's just a piece of paper to you, your degree's value would devolve into the same value of the paper its printed on.

Look for a good institution that does not cut corners and report a HIGH FAILURE RATE. Your degree value increases when other people are seen not be able to get it easily.

b) Business administration qualifications have the lowest market value and should be avoided.

Some statistics from the book is heartbreaking and shows why laissez faire cannot really be applied to education in Singapore. Because every Tom, Dick or Harry wants to study business and be the next Jack Welch or Olivia Lum ( But they both have engineering degrees ). In 2015, 48% of private education graduates are graduates in business administration. According my previous article arguing that a degree is a positional good, the private business degree is too common out there in the market to make a big difference to your pay-check.

One of the reasons why Business Administration in a local university has good prospects is that the government knows how to keep their numbers in check. Keeping the faculty small and maintaining standards means that a business program in Singapore is highly competitive. Result is that our banks love local business graduates because they have been "pre-qualified".

Private universities will expand seats in the business faculty upon greater demand. Business courses do not have labs and quite cheap to run. More importantly, compared to Engineering or the Social Sciences course, a business course can be pitched at a relatively easy level.

c) The best private degree courses are Engineering and IT related.

I speak from personal experience that the IT industry is already the least elitist sectors in Singapore. Most of the folks in Block 71 will not care about the quality of your degree if you can get some coding done for them. Some famous software engineers I know don't even have formal degrees.

So logically speaking, our private undergraduates should be learning how to code and build machines. But in 2015, only 5% of private degree holders do engineering and 7% do IT. This makes Engineering and IT the safest bet for private degree undergrads.

Yes, I accept that STEM subjects are relatively hard compared to Business subjects. But that allows software engineers to maintain employment and have a workable salary in this country.

d) You need to supplement your private degree with a challenging industrial qualification or a portfolio of interesting projects to be taken seriously

Once the facts demonstrate that you will not be treated as well as others by the industry, the last thing you should do is to just sit there and let the forces of society roll all over you. If you are not looking at starting your business, there are amazingly difficult industrial qualifications that only require a degree to qualify for the program.

The CFA will accept your private degree to qualify to be a Level 1 candidate. The pass rate has now dipped below 40% and I've seen postgraduate Finance folks fail the program. There is no better second chance qualification than the CFA. The same goes for a difficult CPA qualification as well as some of the harder IT security qualifications like SANS GIAC. Some of the easier qualifications which are highly respected are the PMP qualifications but do combine it with an ISACA or MCSE paper if you wish to be taken seriously.

If you do not want to study, then by all means build up a portfolio of projects. When I did the R program in Coursera, I use Shiny to create a permanent portfolio optimiser which I showed to legal-tech startups to look for coding work. I still have access to my Github account.

What is the underlying theme behind my suggestions on how to do well in spite of a private qualification ?

Do the hard, difficult things that is beyond the reach of your peers. Find a market niche or blue ocean where you can compete with fewer people. Over the short term, you need a a job that pays your bills. Over the long term, you need something to over-compensate for your degree credentials.

In this article I do not support or deny the current of affairs.

I have indeed thrived tremendously under this system but my children may well be the system's next victims if they fail to get into local tertiary institutions. I have to prepare them to live in a positional world where out education system functions as a sorting machine rather than a nurturing one.

If you wish to be inspired by a role-model of a graduate from a private university, I strongly recommend following the ironically named Unintelligent Nerd blog that I read for my personal inspiration. This guy does awesome shit !

Saturday, September 23, 2017

Fun with other financial bloggers : Debtzilla play-through.

Hanging out with other financial bloggers has always been fun. Some events we had in the past, like a cosy karaoke session we had a week ago, allowed me the privilege to catch a glimpse of financial bloggers having fun. Seeing these folks in action is always rewarding because sometimes you get to see how highly optimized individuals design their lives and their approach towards leisure and problem solving.

So, the word has gone out that the Debtzilla Kickstarter has gone live :

a) Dr Wealth has a detailed description of the game here.
b) If you wish to support the Kickstarter campaign as I have done, here is the link.

We played one session of the upcoming Debtzilla game.

While I had been playing versions of the game at various stages of development, getting to actually play the game with actual game pieces and art-work has been quite a satisfying treat and the game was facilitated very well.

The game is challenging. I'm proud to say that today a group of us financial bloggers took on the game we triumphed over Debtzilla. It's not exactly easy to reach the stage where we can even go toe-to-toe with the monster and the facilitator was quite surprised we actually got this far. Certain aspects of the game was designed to be quite difficult and required a decent amount of interaction and strategic planning between the players to complete the game successfully.

More interesting than the game itself is that the mastermind behind the game Xeo Lye already has a successful Kickstarter campaign called Wongamania under his belt and I expect this second project to do even better than the first.

One aspect of developing financial games is that, historically, it was always believed that a financial game had to trade-off between educational value and fun gameplay. With Wongamania, I was pleasantly surprised that it was able to be both educational and fun. Debtzilla was an attempt to create a more fun and socially interactive experience so it focused only on the aspect of finance concerning debt management. It was also really awesome that financial bloggers can interact with each other and jointly solve a problem together in a fun environment.

I think it's high time for a financial games and education company to make it's mark in the Singapore gaming scene. The maker Capital Gains Studio really has the potential to become the next CMON and perhaps one day I would not just be backing their games on Kickstarter but getting some shares in their IPO in the near future.

Thursday, September 21, 2017

Efficiently Inefficient #10 : Dedicated Short Bias

Reading the section on dedicated short bias made me want to join a hedge fund that does only short-only positions.

The personality of a typical short-seller is also rather interesting : It is usually someone who is antisocial, with a chip on his shoulder, and twisted sense of humour. Short sellers also don't agree with each other. Short sellers are also notorious frugal and successful traders do not adopt the trappings of a successful financial professional.

I have written other articles on short selling, so I will only illustrate in a novel way why short-sellers are often right about markets overestimating a stock price if short sellers face more frictions than investors who go long in stocks.

Short sale frictions means that companies are overvalued.

The example below illustrates how shutting off short-sellers can generate speculative bubbles.

Imagine that there are two types of investors :

  • Type A believe that a stock is worth 80 in a recession and 120 in a boom. Or 100 on average.
  • Type B believes that a stock is worth 60 in a recession and 140 in a boom.  Or 100 on average.

Note that in both cases, both investors believe that a stock is worth 100 on average.

If not shorting is allowed in this market :

  • In a recession, type A investors will be actively trading and will push the stock price to 80 because that's what the stock is worth in a recession. Type B investors can only suck thumb because they can't short the market even though they believe that the stock is worth on 60.
  • In a boom, type B investors will be actively trading and will push the stock price to 140 because that's what the stock is worth in a boom. Type A investors suck thumb because they can't short the market even though they believe that the stock is worth 120.

So in practice, the average price where there in equal probability of a boom and recession will cause the stock to be worth 110 or (80 + 140)/2. The result being that all investors are willing to pay up to 110 in spite of the stock being believed to only be worth 100.

At least from what little I know, speculative bubbles in Asia tend to come from real estate where no degree of shorting is even possible. Consequently, I expect statements of a bubble over cryptocurrencies may be overblown as exchanges do allow a high degree of shorting cryptocurrencies. Comparisons with Tulipmania is, therefore, unfair.

Tuesday, September 19, 2017

The most important thing in Capitalism is Capital !

I wanted to do this article because of a spirited discussion with a highly respected VC in Singapore. In this discussion, I argued that capital is the most important thing in Capitalism. He reasoned that value creation is more important. It's not easy to carry out this debate because value and capital are not fully distinct from each other. There are ways to support and refute the statement depending on our definitions as to what value and capital is.

So instead, I propose an auxiliary argument which may have a more satisfying resolution : Which is better, engineering to create wealth or reallocation of capital to create wealth ? Another words, engineering or finance ?

If the argument were to simply ask the chicken or the egg question, then engineering wins hands down, product creation comes first or there will be no capital to allocate. If the argument focuses on who ultimately makes more money, then the fund managers and capitalists who allocate capital would generally win based on salary surveys.

I'm going to present a novel argument to make my case for finance and capital - a possible answer can be found via cryptocurrencies.

There's always been two ways to get more Bitcoins and Ethereum.

One way is through mining. You set up a rig involving graphics cards and you run some kind of daemon to mine for more coins. As the odds of solving the puzzle to get a coin reward is hard to come by, miners typically join a mining pool to guarantee an amount of coins mined per unit time. This is really similar to a development based engineering career. When you join a startup, you join a company to solve an important problem hoping for a reward that can be shared with fellow engineers.

The other way is through buying coins in an exchange. Various exchanges like Kraken exist for you to simply buy coins with money. When you do this, you are taking calculated bets on value of cryptocurrency. Analogically, you have chosen a career in finance and have chosen the role of a capital reallocator.

I've done a mixture of both strategies and noticed  that for some strange, inexplicable reason that it is, generally speaking, more profitable to buy cryptocurrency than to mine them due to electricity fees and dealing with obsolete hardware. So much so, that you can save on hardware and electricity and just buy the coin direct from the exchange. Successful miners might have been able to sustain themselves by selling mining contracts to other people who are trying to punt on contracts, or monetising their tremendous geographical advantage like having a data center in Iceland.

Does this analogy of the relative merits between mining and buying of cryptocurrency reflect an aspect of humanity that permanently plays down the value of engineering new solutions versus simply taking a bet once a new solution is created ?

I think it is.

With the exception of a few solid engineers who solve major problems and got a "coin reward" from society. The bulk of high income earners in Society are almost always capitalists who invest in companies and buy real estate. Even if you argue that Bill Gates did create some software when he was just starting out, I would think that Microsoft's success was largely due to the support Bill got from his dad who was a lawyer and was able to shape copyright law to give Microsoft the bulk of its profits.

What is the moral of the story ?

I spent 14 years in IT and there is certainly fun being in a fast changing industry. A lot of engineers are passionate about coding because they are introverts and like playing with toys as part of their working lives.

But these engineers need to remember one thing.

While work is rewarding, fun and puts you in the state of flow, you are not really being rewarded based on what you deserve per unit of intelligence and effort. You are just not getting the "coin rewards" you deserve based on the rigs and electricity you are installing in your home.

Why not accumulate some capital and play with that to even the odds against your peers ?

Saturday, September 16, 2017

Dealing with the hypocrisy surrounding academic achievement in Singapore.

The inspiration for the post came about because I am currently reading Private Education Singapore : Contemporary Issues and Challenges by Sam Choon-Yin, the Dean of PSB Academy. I picked this book up out of personal curiosity and, given my career plans, I really have no business sticking my nose into Private Education industry in Singapore but the information contained within the tome is too interesting for me to miss out on it.

More details will follow once I finish the book but I just want to share some ideas surrounding Singapore's inherent hypocrisy around academic achievements and how we can employ some economic concepts to understand why people sometimes act like hypocrites when it comes to academic performance in our neurotic society today.

I think the starting point is to understand what a positional good in economics is all about.

A positional good has this property whereby the benefits that you derive from this good is much greater when fewer people have such a good. Folks with this good essentially play a zero-sum-game against folks who do not have this good. In Singapore, a higher education like a degree is a positional good. The fewer people with access to a higher education, the more benefits accrue to folks with a degree.

Let us use this economic idea to deal with some situations we face in our daily lives.

a) People who want to de-emphasise the professions in daily conversation in favour of vocational training.

I observe that this is getting more common in a competitive society. There is always someone who speak of hawkers, plumbers and electricians as if they are noble savages and decry others who are academically competitive because in some Western societies, we are observing that salaries of folks who perform technical or personal services are climbing but the professions are currently being disrupted.

Normally, I would respect these folks if they are consistent with their proclamations with kids who take up a vocational career. But if you look at what they do for their own children, you will find that they often enrolled their own kids in the better local or foreign university programs.

The idea that education is a positional good completely explains such behaviour : If you can convince other people to play down their academic ambitions, it's ultimately better for yourself or your children.

My dad's friends have always teased me for academic performance for decades. You can hear a pin drop when I tell them that if they have a problem with my stellar performance, they need to get their own kids to drop out of school for their own good and let me mind my own business and personal ambitions.

Of course, not everything these folks say is untrue.

The Singapore government is raising the percentage of the cohort who can get into local universities to 40%. This will effectively reduce the benefit that any person can derive from having a degrees versus those who are not having a degree because the situation in the future is that more people have degrees.

The effect of this policy is predictable :  The arms race fought between parents will simply shift towards getting their kids into prestigious postgraduate qualifications.

The erosion of the benefits of having a degree is not about seeking vocational or lower qualifications but seeking more complicated and prestigious academic credentials.  Net result : People are going to spend a greater part of their lives in school reading more complicated academic texts.

Therefore, hypocrites really just want you to play the game the wrong way.

b) Legal industry's problems derives from legal training being a positional good.

This cuts deep into the bone for my classmates currently doing Part B.

A licensed advocate and solicitor 20 years ago makes a decent premium compared to an engineer even though we never had that situation where the law faculty attracted all the folks with straight As unlike our current situation today. The problem then was that the earnings of a legal professional is tied to the value of a law degree as a positional good. Fewer people with the degree that leads to a practise license would spark a war of talent among law firms. As an engineer who had my salary depressed by decades of additional engineering manpower supply from India and China, I found it hard to accept that I had to live on a lower standard of living because of the choice of my degree.

The music for legal professionals has stopped recently when parents started sending their kids to approved law schools by the dozens. These returnees from foreign countries created a lot of supply and  law firms can basically offer any salary package to a rookie associate because there are so many folks willing to do the work for less pay.

Of late, a lot of VIPs have spoken about the need to treat junior lawyers better and it was particularly entertaining that they are using a moral appeal in the hopes that things will get better.

I would suggest to my cohort that moral appeals seldom work where economic incentives are absent to improve someone's lot in life. Just look at how badly some of us engineers are doing in our 40s today.

Your legal qualification is a positional good, things can only get better when the industry has the ability to squeeze out more people and prevent others from joining the profession.

But this introduces a problem for us Part B students because wishing for that might mean that we, too, would be squeezed out in the process of tightening standards.

c) The solution ?

At the micro-level, there's hardly very much we can do when everyone is sacrificing other non-positional goods like building a family or getting more time for leisure. In Singapore, it's just nothing but the endless struggle for positional goods - better degrees, better grades and hopefully, better pay. The authorities love this because this makes us such hard-working and conscientious workers.

Perhaps the financial blogosphere has part of the answer - Struggle now and build up a portfolio of savings that can replace part of your income.

The trump card in Capitalism is more Capital.

No company will deny you your dividends over your educational qualifications.

But to earn enough to put some aside in an investment portfolio requires decent pay - which is a function of educational qualifications in the first place.

Thursday, September 14, 2017

Efficiently Inefficient #9 : The notion of Quality in Discretionary Equity Investing

As a follow to our previous article, we will delve deeper into discretionary equity investing. Remember that discretionary equity investing can be challenging task as the field is highly competitive and there are a lot of brains chasing the same few investments in the market.

It largely boils down to what investors perceive as the quality of a company:

a) Growth

It's easy to just reduce growth to one metric like compound annual growth rate of revenue, but I can hardly see it work when I back-test portfolios which use this criteria. Good sustainable growth can result in bigger free cash flows, imagine a store that found a way to increase sales without increasing their operational expenses. Growth can also be bad if it comes from manipulating accounting figures. imagine a company growing by acquiring rivals at high prices.

Somehow a growth investor needs to take all these considerations into account.

b) Profitability and Earnings Quality

The other factor to take into account is the profitability of the business. A profitable company of hihg quality has a great profit margin and has a history of high free cash flows.

But lower quality companies can game this by moving expenses into the future to inflate current figures.

c) Safety

A third element of quality if safety. Safe companies are predictable and this can come in the form of a lower beta. Some investors need to delve into the past variation of profitability by examining how the stock has performed in the Great Financial Crisis.

d) Payout and Management Quality

The final element, which is the element which I simply cannot handle is how friendly the company is to shareholders. The best discretionary investors have access to upper management and can tell whether they are managing the company for themselves or shareholders. As I do not have access to management, I have to use a proxy measurement- companies that return money to shareholders generally care about shareholders. With less cash in their hoard, the managers also would need to be more disciplined when they run the company.

At this stage, I'm trying link up the concept of quality to a discretionary investor to this other book I am reading written by Aswath Damodaran called Narrative and Numbers : The Value of Stories in Business. Perhaps in crafting a narrative for yourself if you are a growth investor, you would need to convince yourself that your investment is of high quality based on these four dimensions. After which you can proceed to assess the plausibility of your story by linking it up to accounting figures.

Whatever it is, this would be quite a difficult intellectual exercise if you are a retail investor. More likely, you will fall in love with a stock before can craft a compelling narrative based on it.

Wednesday, September 13, 2017

Slapping your face to look prosperous.

I am blogging from SMU where I am looking for textbooks to buy and read.

( By now, reading textbooks and academic papers have become more interesting than management books which are becoming just an endless stream of narratives with no unifying theme or point. Another point to select an ace engineer : Find out whether he reads IEEE papers. )

Two issues ago The Economist published a short article about folks belonging to the lower income group who have a propensity to overspend on branded goods. It was discovered that as we move towards the lowest quintile of income, extroverts tend to buy more branded goods but introverts do not exhibit this behavior.

What does this mean :

A) That ancient Cantonese saying makes some amount of sense.

The link to the saying is as follows. Our ancestors did not have the analytical tools to figure out that this only applied to extroverts.

B) If you want to marry someone who will suffer with you, choose an introvert.

This idea really takes on some traction if you claim that you want to marry someone who is willing to suffer with you. When you are poor, it is the introverted person who will stick around and cut their spending. Extroverts will double up and exhaust whatever resources you have.

Don't say I didn't warn you !

C) The folks queuing up for branded stuff might be rich or simply poor extroverts.

With this insight, we're no longer so sure that the folks queuing outside ION or the Apple Store are rich or simply extroverts who earn at the bottom quintile of the population. With the right kind of credit card, any acquisition is possible.

D) This might explain Sapeur culture

If you are frugal and follow financial blogs, you will find sapeurs or folks who adhere to La Sape culture fascinating. Sapeurs are African dandies who pawn their land to dress in French Designer wear.

This discovery has also caused me to have a double take of my personal life. I'm fairly extroverted if you benchmark me against the other guys who write financial blogs.

My life would have been very different if I were born under poorer circumstances.