Saturday, February 24, 2018

Six compelling reasons for cryptocurrency.

I've been delaying this article during the ramp up of cryptocurrencies but since the prices have sort of corrected and calmed down, it is time to look at cryptocurrencies without all that excitement from the bull market..

Fortunately, David Lee Kuo Chuen, the lecturer who taught me fund management more than a decade ago, is the invited editor for the latest Journal of Alternative Investments and articles in Volume 20 Number 3 seems to be a very objective look at this new asset class.

The next few articles on this blog will be cryptocurrency related but, hopefully, hype free.

Today we will focus on six compelling reasons why cryptocurrencies should not casually dismissed as yet another bubble like Tulipmania. Cryptocurrencies is a significant advance for humanity, much like that moment we invented the idea of limited liability in companies.

Here are the six reasons for cryptocurrency :

a) Non-correlation with traditional asset classes

The first reason is that crypto-currencies are not correlated with the equity markets in general. While this is generally true, remember that during the massive market correction, cryptocurrencies had a mini-crash of it's own. One common theme that keeps repeating itself is that in a major market crash, every asset becomes closely correlated to each other.

b) Transparency

Blockchains have a unique ability to centralise trust. This provides transparency for philanthropy and other funds. This is a very understated advantage.

c) ICOs address the problems faced by  startups

As much as I refuse to touch ICOs ( It seems that all you need is a convincing White paper ), blockchain technology finally takes the power away from a VC and puts it in the hands of an entrepreneur. This is a new form of capitalism that can make or break our personal finances. Those who can tell the good ICOs from the scams will be able to enrich themselves very quickly.

d) Decentralised exchanges resolve the issue of illiquidity

The problem of illiquidity of early startup investing instantly disappears because decentralised exchanges gives you a constant exit after you put money in an ICO. Case in point, getting an exotic alt-coin like Doge Coin is way easier than buying one lot of Global Testing on SGX.

e) Cryptocurrency as a new asset class

I think David Lee's hypothesis is that Cryptocurrency is a completely new asset class. It makes a lot of sense because one possible definition of a  commodity is a valuable input to an industrial or agricultural process. Cryptocurrencies are not inputs to any process. More interestingly lawyers are;nt even clear whether when you deposit some crypto into an exchange, you are considered a debtor or someone with full property rights. So cryptocurrency is truly a unique asset class on its own.

f) Fractional ownership

Because you can have such a small component of a bitcoin, imagine the power of fractional ownership of assets and what difference this can make to really poor economies.

More hardcore details to come over the weekend.




Wednesday, February 21, 2018

Budget 2018 discussions mirrors our journey towards Financial Independence



On the whole, we've had a fantastic 2017, which was why Budget 2018 was not a punitive one even though it was a mid-term budget.

The aftermath of the Budget is interesting because discussions about NIR returns mirror the internal discussions we have on our journey to financial independence.

Ray Dalio in his book Principles has a very elegant way of describing what happens when someone becomes financially independent.

There are two approaches to living life post financial independence :

a) A certain portion of FI folks would want to Savor Life.
b) And yet a substantial number of financially independent folks want to make a Bigger Impact in this World. 

Personally, I started out really wanting to savor life after my failed stint in the public sector, but after tasting Law School and seeing how a little bit of knowledge can have such a profound impact in the world, I am beginning to see the wisdom of trying for a bigger impact on this world.

Because there are two ways of seeing the ultimate outcome of one's financial independence, it is not surprising to see Singaporeans divided on the issue of the 50% cap to the NIR.

One school of thought represented by academics like Donald Low is that if we can increase the cap to 60%, we would never need for a 2% GST increase in 2021. This is definitely an attractive option for many citizens. Why not spend more for ourselves and retain less for future generations ? I am confident that Donald Low's numbers are well-researched. There's no reason to doubt him here.

But my school of thought is the direct opposite of Donald Low. Why not lower the cap to 40% and raise the GST to 10% immediately? I always felt that I would like my children to have a more comfortable life although I would like them to choose to make a bigger impact on the world than merely savoring it more. My proposal will allow the government bigger surpluses in the future so that compound interest would allow us to do much more in the future. This change may even mean more assistance programmes for the disadvantaged.

So 50% is an arbitrary number chosen by the government with the support of the electorate.

Both me and Donald Low would have to accept that there are going to be different kinds of Singaporeans. Some believe that they deserve instant gratification and demand to use up more of the reserves immediately. Others like myself think that some struggle is necessary for the nation make an impact to the world at large and would always try to emulate our ancestors by taking less than future generations.

I try to justify myself by saying that my personal life is congruent with my political inclinations and views on taxation. I started saving 50% of my earned income rather early in life and spent close to a decade saving 100% of my take home pay living a simple life on my dividends. My first act upon retiring was to go back to retrain myself.

( There are certainly financially independent folks who have inherited money and put 100% into savoring life. That, to me, is the reason why we no longer have the Roman Empire. )

Of course, if you agree with me, you would also have to be aware that there are consequences to adopting our set of conservative beliefs.

One consequence is that I am willing to accept more inequality in society than Donald Low.










Monday, February 19, 2018

The Art of the Good Life #11 : The Focusing Illusion

Suppose you had a really bad day in the office. Meetings were extremely long and dwelled on unimportant matters. Your boss is also giving grief once again over small matters like the formatting of your powerpoint presentation.

After a tough day at work, you managed to crawl out of the office to attend a financial talk and the guru then paints you a wonderful picture about financial independence.

The guru, a master of failure pornography, first tells you a story of his life, how he never did well in school, how he was a dropout from the education system, and constantly underestimated throughout his entire working life. He then talks about how successful he is today, shows you nice pictures of money being credited in his bank account whether through means via MLM, internet marketing,property speculation or forex trading. He then goes for the kill... He talks about how his financial independence allowed him to give the middle finger to his boss and finally leave the rat-race.

You are inspired by the inspiring talk. The guru is a school drop-out. You are  professional with a decent degree. You start to ask yourself,  how can he be the guru and you the low-wage corporate slave? The guru then offers you a solution. With a low fee of several thousands of dollars, you can get 1-1 mentorship and can get out of the rat race.

Mai Tu Liao ! You rush in to make payment...

I liked to see myself as a finance speaker who takes the high road.

The last thing I want to do is to hijack your amygdala and paint you a wonderful picture of what to look forward to in your journey towards financial independence. Perhaps I am irrational, my gang at BIGScribe wants to serve a calm and rational crowd which is why we put such a huge premium in research and are highly evidence-driven when we make an assertion about what investments work. While we may not be as persuasive as that finance guru I spoke about,  I think deep inside we want to be seen as being intellectually superior and have a system that can be  replicated by a smart, well-informed, and educated audience.

Naturally, our business makes less money... for now.

What makes these gurus so powerful is the rampant abuse of the focusing illusion.

If I bring your focus on how inane your last meeting is, or what a nit-picker your boss is in your last encounter, I can probably make you discount the value of having a good corporate career. It is not difficult to trick you into focusing on what's the shittiest thing about your working life. For government servants, I can possibly hurt you quite badly if I talk about procurement and GeBiz. For MNC workers, I just need to talk about late night conference calls and how NA and EMEA regions just can't fucking agree and advance the meeting agenda so Asia can get some sleep.

But work is more than just conference calls and procurement paperwork. Sometimes, you get a connection with a co-worker gain access to workplace gossip. Some other time, your company takes you out for some Lou Hei ( which I have missed for the past 4 years )! You also meet like-minded people from the same economic strata at work so it's a great source of friends.

When you look at the bad and the good in totality, having a career is not as bad as when you are just focused on the negative parts of the work commute and administration.

After leaving the workplace four years ago, I definitely achieved a high degree of personal satisfaction, I no longer have senseless paperwork to do and feel unmotivated when a bureaucrat forces me back to the drawing block over a small technicality in my paperwork.

But in essence, I'm just replacing some bad experiences with other bad experiences when I left the workforce for Law school.

Some administrative work in law school can be just as bad as procurement work in the public sector. I have spent time trying to trim down the text of fellow classmates to get our research paper within word count. We still do this for Court of Appeal paperwork that is limited in number of pages. One particular fight I had with a fellow student over which discount rate to employ to price intellectual property was more violent than any work conflict I ever had in my entire life ! Don't even get me started on arguments over the Law.

I guess the most important lesson in this chapter of the book is to review your life in totality and not to let some guru hijack you emotionally so you end up helping him attain his financial independence.














Friday, February 16, 2018

Personal Update - Happy Chinese New Year of the Dogg !



I had an inkling that the Year of the Earth Dog is going to be a fairly good year for me. Based on the stem and branch Chinese horoscope system. Earth has always been an element that I am deficient in. And a Feng Shui master hired by my boss confirms that I will have a great 2018.

Of course, 2018 is a culmination of years of hard work as I try to enter into a completely new industry. Here's a quick update :

a) Legal Training Contract

I have spent 2 months on my training contract working on a few financially complex divorce cases and some smaller corporate law disputes. I'm still grappling with the lifestyle of a litigator and cannot really judge whether I am suited for this lifestyle. My largest struggle is with the amount of attention to detail required to do the job and the little autonomy I have if I decide to pursue this as a lifelong career. The intellectual challenge and strategic planning component of my work is fun but remains too small a component of my day.  Most of my life is dotting every "i" and crossing every "t" - something a guy is not really proficient at doing.

One of concerns is that it may take a decade so as not to suck as a litigator, and as a mid-career hire I might not have that luxury of time. Kudos to the 20-something year olds who qualify to do this kind of work, it's a craft that they have decades to hone, and something people will pay top dollar to.

b) Financial markets are shaping up ok and I got a "performance" bonus for my work.

As it has been a fantastic year for the financial markets, I was able to expand my father's portfolio by quite a decent amount by strategically shifting into Tech over the past 2 years. Now I'm shifting gears and moving the portfolio into counters that benefit from higher interest rates. As the portfolio is sufficiently large, there is no longer any sense of urgency to put the money into higher yielding counters anymore so I can be more thematic with my investment approach.

I also felt quite good to get a "performance bonus" for my work on the family portfolio which would be farmed into my personal margin account. With any luck, I would be able to shift back into growing my main portfolio once I re-establish an earned income which I have missed for the past 4 years.

Perhaps we're due for a major recession, and it's best be employed to farm 100% of my salary into the markets when that happens !

c) Fresh new initiatives with BIGSCribe.

I am really excited to talk about our latest initiative with BIGScribe.

In the past, BIGScribe has always been paid seminars with bloggers talking about whichever topic is hot on the minds of the readers and fans. This year, we managed to get an opportunity with an major education institution to establish our first flagship product - a regular workshop that focuses on Financial Independence. This can potentially plug our biggest weakness as a company - we need a regular source of business that people will be willing to pay us for.

Right now, we're not even done with fleshing the outline of our work but I am already picking up a lot of new stuff that I was previously unaware of. As far as I am concerned, designing the curriculum and exercises would have honed my money making skills with company revenues as an added bonus.

I expect this program to be the most erudite and well-researched product in personal finance in Singapore. We remain unbiased and focused on helping our clients achieve financial independence at a much younger age than our statutory retirement age. And this will be conducted by folks who have actually attained financial independence themselves.

The Year of the Dog is where good things must happen for me. it is time to harvest from all the hard back-breaking work I've been putting on the table.

Wang wang !


Wednesday, February 14, 2018

Happy Valentine's Day !

I try to come up with something every Valentine's Day but this year I have said everything I wanted to say so I was about to skip it until I read something really interesting about marriage and divorce in Daniel Pink's When.

So here's something for you to think about this Valentine's Day.

a) It's not a good idea to get married if you are too young or two old.

If you marry at 25 years old, you are 11% less likely to divorce than if you were to get married at 24. Divorce rates drop as people marry at an older age until age 32. After which the rate of divorce actually goes up by 5% every year.

Once you are single for too long, it's hard to let go of that kind of freedom.

b) The more education you have, the better your marriage.

Marriage satisfaction is a lot higher if you complete your education prior to getting married. At comparable age, ethnic group and income, a couple that completes school tends to stay together.

c) Do your due diligence during the dating phase.

Couples who dated for at least a year have a 20% lower rate of divorce. Couples that dated for longer than three years are even less likely to split up. This makes dating a serious investment of a guy or a girl's time. Sort of makes all those discussion about why it's so goddamn rude to pay for a date kind of trivial once you see the big picture. Guys have a few years to demonstrate their capability as husband material.

Of course, no discussion of marriage would be entertaining without some interesting analytical data on divorce. Apparently divorce rates peak on March and August. The hypothesis is that some couples try to endure a failing marriage throughout the holiday season and March is around the time people lose patience with each other. August is likely because it is the end of the school year in America.

How does it all fit into your plans for financial independence ?

Well, an alpha male graduate at age 25 who aspires towards financial independence has about 4 years of uninterrupted work where he can work overtime and slave for his first $100,000. Thereafter, he can start dating at around age 29 for three years before getting married at 32.

This is a fairly compressed schedule and you may want to consider some of my more controversial ideas of leveraging a low beta high yield portfolio to speed things up a little.

Still, I don't think there's a need to go Dutch on a first date. Just go to a hawker centre and then be gentlemanly enough to offer to foot the bill.

Your financial independence will not skip a beat.



Tuesday, February 13, 2018

The Art of the Good Life #10 : The Five Second No.

Human beings have evolved to cooperate with each other which is why our dominant rule of thumb is the rule of tit for tat.

We are wired to cooperate and help a fellow human being unless that other human being refuses to cooperate with us. In such a case, we retaliate. Tit for tat is a relatively good strategy and can be said to be optimal in some strategy games.

But there is dark side to employing this strategy. We have developed a habit of saying "yes" to a request without really assessing the opportunity cost of agreeing to do something for someone else so much so that some people can spend their entire lives just trying to please other people.

So Charlie Munger of the Berkshire Hathaway fame suggests giving the "five-second no". He would think about a random request for five seconds and then just say no. Some people might be disappointed at rejection but Charlie found that it seldom hurt him over the longer term. Instead, people knew where he stood when it comes to the use of his time.

The book does not consider the middle ground which was amply explored by Mark Manson in The Subtle Art of Not Giving a Fuck.

As a trainee in a law firm, the value of my time is negligible. As I don't have a lot of social capital in this new alien industry, I can't really say no to a lot of things. In fact, I have to say yes and then do my best to meet whatever requests that come my way. If a trainee eventually rises to the position of a partner, his time may be worth thousands of dollars per hour. His opportunity cost is so high that he would have to say no to many things unless the other person agrees to be billed for his time. ( In fact, he might even have to say not to his own family )

Whether we can say yes or no largely depends on how much we need the cooperation and support of the folks around us.

If we exist in an environment where there is a lot of interdependence, then we should always say yes in the hopes that others will help us when we find ourselves in need. In an environment where we experience a lot of independence ( much like financial independence ), it is much easier to just pause for 5 seconds and then say...

...fuck no.










Sunday, February 11, 2018

Ready for Budget 2018 ?

The good thing about not being chosen to be one of the beautiful people to promote Budget 2018 is that I am free to write whatever I feel like writing on Budget 2018.

Saltiness aside, here are two things to look forward to in 2018.

a) GST increase

My personal guess is that the GST increase will be gradual but extensive. So perhaps we may see a 1% increase every 1-2 years until it reaches 10%. This will immediately have a negative impact on the purchasing power of the bottom half of income earners in Singapore.

What I am doing is that I have started rushing to subscribe to the magazines I read. I bought a 2 year subscription to the Economist last week and might take some steps to cut down on my telco expenses.

b) More Immigration

We don't really know when the floodgates will be open again but I expect the consultation with the citizens to be just lip service. We are aging rapidly and the government WILL DEFINITELY sacrifice political capital to bring in more foreigners.

Once foreign technologists and engineers start gushing in to take up roles in our Silicon Valley, expect salaries of folks in IT and Tech to be held back once again for a decade or so. The biggest losers are Polytechnic and ITE graduates who are failing to clinch permanent jobs even when foreign workers are being curbed. Worse, during the flood of foreign workers prior to the 2011 elections, Polytechnic graduates are hardly getting any increments while University graduates just zoomed ahead. This can only make our education system more competitive and stressful. 

Still, there is reason to be less apprehensive of immigrants this time round. Our infrastructure is more or less ready for more people on this island. Landlords and investors have reason to rejoice as there will be more demand for leases as the foreigners reinvigorate the economy. Many Singaporeans with two homes can look forward to selling both to an immigrant family and settling down in Australia instead.

I expect the legal sector to benefit from immigration as well. Our numbers remained heavily under control and a higher population will always lead to more disputes and greater demand for legal advice.

c) Wealth Taxation

As we have started talking about immigration, I think wealth taxation will not be high up on the government's agenda. We're still trying to build our REIT market and startup ecosystem. This means rolling out the red carpet to International wealth.

So long as immigration can return to Singapore, the government can finally end those silly PIC credits for SMEs which opens up opportunities for cheating. This can free up more money for the aging population.

Whatever it is, I expect 2018 to be a better year for the Rentier-Supermanager. More rents, more income for those with professional skills and financial assets that command a higher value.