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a longform on Hong Kong vs Singapore (Musings From Singapore)

One man’s interpretation and comparison between culture and society in Hong Kong and Singapore. Very beautifully written.

Wealth Inequality and the Anti-Risk Bubble (A Wealth of Common Sense)

Money has to go somewhere. Question is: where?

The Softbank-WeWork End Game: Savior Economics or Sunk Cost Problem? (Musings on Markets)

After his analysis of WeWork, Prof. Damodaran now turns to Softbank. Great read as always.

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Realistic Investment Results (Of Dollars and Data)

Nick Maggiulli makes good points about a balanced portfolio and how it helps with sequence of risk returns.

Who’s Afraid of a Bear Market? (Early Retirement Now)

ERN points out how the typical advice to “buy-and-hold through it all” may be more scary than many financial advisers paint it out to be. Fair points made. Of course, this is premised on the fact that you can predict how the market is about to turn.

Non-Intuitive Lessons From the Man Who Solved the Market (A Wealth of Common Sense)

Great summary of the new book about Renaissance Technologies. Jim Simons is a legend and honestly, not many people are going to be able to match up to what he’s done.

I particularly like this bit on his thoughts on who’s on the losing side of the trade from RT:

Over time, Simons came to the conclusion that the losers probably weren’t those who trade infrequently, such as buy-and-hold individual investors, or even the “treasurer of a multinational corporation,” who adjusts her portfolio of foreign currencies every once in a while to suit her company’s needs, as Simons told his investors.

Instead, it seemed Renaissance was exploiting the foibles and faults of fellow speculators, both big and small.

Traits of the Worst Investors (A Wealth of Common Sense)

Two-fer from Ben Carlson. He lists seven points:

  • Looking to get rich in a hurry
  • Not having a plan in place
  • Going with the herd instead of thinking for yourself
  • Focusing exclusively on the short-term
  • Focusing only on those areas that are completely out of your control
  • Taking the markets personally
  • Not admitting your limitations

I’m happy to report that I only qualify for maybe one, or at most two, of these points.

It’s the first week of November already! How time flies. 2019 is coming to an end and it’s appraisal season for us public servants in Singapore. Yet, I struggle to figure out what I’ve actually done all year that’s made a difference.

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Half of Singapore is in the world’s richest 10% – and 226,000 people are among the elite 1% (Business Insider SG)

Incredible statistic from Credit Suisse but it also goes to show that how well of you are is a very relative thing. I wonder how many people in Singapore who are among the world’s richest 10% actually feel like they have enough? From my own observations, I can tell you that it’s very few.

2 Big Problems with retiring early (FIRE) in Singapore – Financial Independence Retire Early (Financial Horse)

This is where I think FH is making the same mistakes that the mainstream media is making about the characterisation of FIRE. FIRE isn’t just about saving up enough money and getting a minimum rate of return to go spend money indefinitely. It’s more of a lifestyle change.

The risks in raising the minimum wage (Tim Harford)

The undercover economist points out some good points regarding the latest minimum wage debate in the UK. Also applicable for understanding the sh*t politicians in Singapore say with regards to the minimum wage.

Useless Career Advice (A Wealth of Common Sense)

Well-said.

Too often, the people pursuing entrepreneurship don’t emphasise this enough. I’ve heard a very successfully owner of a fashion brand tell me that passion isn’t enough.

Passion may get you the hard work and effort but you also need to be able to take calculated risks (such as having a fall-back plan). This entrepreneur knew that she could always go back to business school at a reputable local university and at most be set back by a couple of years if her business didn’t work out. However, if she managed to make it work, the upside was enormous (a lifetime or more of fresh graduate earnings in the time that it would take her peers their entire working lives.)

Some big news in the local markets this week. Temasek Holdings has provided (kind of) a way out for investors who have been disappointed by Keppel Corp and SGX reported pretty solid results for the quarter. Nothing but good times ahead? Or this is the sugar high before the crash? We’ll see.

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Why is Temasek acquiring Keppel? (Financial Horse)

Financial Horse does a pretty good overview on the Temasek making a partial offer for Keppel Corp news. Good primer for those who want a quick summary of what’s going on.

Reconsidering the Advice in 3 Popular Personal Finance Books (New York Times)

Quick, fun piece of whether the advice in some personal finance books are any good. My personal take is that the more you know, the less you’ll find these books of any use. Rich Dad, Poor Dad was a good tool to change my worldview about money but other than that, it was of little practical use.

China Is Now The World’s Largest Official Creditor (Global Marco Monitor)

Uh oh.

But also good overview of how China’s economy has transformed its people’s lives over the last few decades. There’s really nothing like economic growth to bring people out of poverty and improve their standard of living.

Now we need China as well as other major economies to start getting concerned about the environment.

Sorry that “Best Reads” is a little late today. The only reason for this is because I got lazy yesterday.

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How Much Should I Save? (The Aleph Blog)

Economists say this is the minimum amount of money you need in an emergency fund ( CNBC)

Two very different articles on how much savings you should have. One (the Aleph Blog one) takes a more principles-based approach while the other takes a more data-driven approach.

As much as I love economists, I would go with the principles-based one as it seems to be more useful in the long-run. The economists’ approach is particularly useful if you’re knee-deep in debt and thinking that there’s no way out. Then, taking small, easy steps might be the better approach as the problem won’t seem too insurmountable.

When Performance Leads Assets (A Wealth of Common Sense)

Classic fallacy of composition. We actually teach this to 17 year olds in my school but I suspect this is one lesson that most of them will forget six months after learning it.

Money Blinders (Of Dollars and Data)

I wasn’t going to link to this at first but then the first part of the post made me remember that there’s this recent case in Singapore where there’s been a lot of public backlash over the lenient sentencing of a university student because one of the considerations from the judge was that the student has “a bright future” (link here).

Post in the link brings up a lot of good points about how greed and money can blind people to serious issues and I guess the point I’m making is that if left unchecked or too lenient, small mistakes can eventually evolve into larger ones.

Dividends *Can* Lie (The Aleph Blog)

This one is for them dividend lovers (and there are plenty in Singapore). Not a very technical piece but just to bring awareness that dividends may not be sustainable.

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Why is Motley Fool Singapore closing down? Replacements? (Financial Horse)

Lots of things to unpack here but the main question I have is whether Motley Fool’s David Kuo is right in asking why their site is being asked to maintain a certain level of resources that is required of an asset manager when they are more of a media company than a financial asset manager.

Having said that, I’ve talked shit about Motley Fool SG’s articles before so I’m not sad to see them go. To be honest, anyone who reads Motley Fool and think he/she will become a better investor is being deluded.

How this climate change economist changed my world (Tim Harford)

With all the hype surrounding Greta Thunberg, I’m surprised that so few rational people have come out to explain why that if anything gets done about climate change, it won’t be because an angry young girl went to Davos to rant at world leaders.

It will be because the economics of climate change have changed and the way to do that is to understand why climate change is something that the world has ignored for so long.

How The Rich Get Richer And The Poor Get Poorer (Global Macro Monitor)

Interesting look at the change in balance sheets of top 1% of households vs. the bottom 50% of households in the U.S from 2000 to 2019. Mainly, as a group, the top 1% has seen their net worth increase by some 165.6% while the bottom 50% has seen their net worth decrease by 8.6%.

Why? It’s mainly got to do with the fact that the bottom 50% of households saw their debts increase even with an increase in amount of assets plus the fact that their assets are mostly in the form of real estate and durable goods. unlike the top 1% that has substantial assets in financial markets as well.

I suspect a similarly interesting picture to emerge if we looked at Singapore households’ balance sheets.

Imagine that I claim to have a secret formula for playing a certain game. With this formula, I keep doing well in the game and am ahead of people. Would I reveal this formula?

Even if I were altruistic and want everybody to benefit from the secret formula that I’ve learnt and developed, would people still be able to use the formula if everybody’s able to learn it?

If the answer to both questions above is a “no”, then you should automatically give the middle finger to anyone who claims to have a secret formula that they would like to teach you in return for a fee. This applies to trading in any form of financial products or physical assets like gold or property.

Some caveats

  • The argument I’m going to put forth applies only to trading systems where the bulk of returns are from price movements.
  • I’m not saying that ALL these people who claim to have a secret formula are lying or that they are deliberately out to cheat you.
  • And least of all, I’m not saying that trading is a useless activity. It’s not. I’m just saying that it’s better left to the people who actually know how to trade.

Cloning a Golden Goose

If I currently have a golden goose, the last thing I would want to do is teach others how to own their own golden goose. After all, if my golden goose produces golden eggs, then teaching other people how to obtain golden geese is going to increase their amount of golden eggs available and basic economic theory tells us that golden eggs will become less valuable and therefore, less profitable.

The same is true with any trading system for any asset. Profits from trading can only be gained from any misinformation in the market. A trader identifies an asset that the market has valued wrongly, buys/sells it and profits when the mispricing gets corrected.

Assuming the trading system works, more people being able to identify mispriced assets means that mispriced assets don’t stay mispriced for long and therefore, learning how to trade using an effective system means believing that (a) few people currently know about the system and/or (b) you’re faster than others who also use the same system.

No matter what you believe, the more people know the system, the less likely it’ll be profitable for anyone.

Double whammy if guru says the system is easy to follow

From the previous section, we can conclude that even if a trading system works, it’s going to make it hard to work for long. If the trainer says the system is easy to follow, that makes it worse.

Easy-to-follow systems mean that the chance of having more people use the system if high. Once again, more competition means less mispricing and therefore, any system that purports to be easy to follow is not a good trading system to use.

However, for most people, if it’s not easy to follow, then what’s the point of paying good money to use it?

Be skeptical of people selling you formulas

The urban legend (which is possibly true) is that Coca-Cola and KFC have their secret recipes locked in a safe that few people know the combination to. The reason for that is simply because their recipes are their secret sauce and the main reason why those companies are so profitable.

Now, apply the same logic to people who sell trading courses.

Why on earth would they be selling their secret sauce if it’s so profitable? The answer to that is perhaps their sauce isn’t so secret or so profitable after all.

I found a Straits Times article profiling one of those gurus* who sell trading courses and some bits struck me as odd. When asked about his portfolio, the reply was:

I have about $300,000 to $500,000 in equities, indexes and forex. I also have invested in insurance policies that will fetch me more than a million at maturity. Besides, I own a condominium apartment in East Coast.

First, if someone’s been so successful at trading for so long, why’s the portfolio more like any regular old investor? If I was his age, my portfolio would be easily double of what he has right now.

Furthermore, the bulk of his net worth is in insurance policies and real estate. Is that a sign of no confidence in his trading system or is it proper diversification?

In short

Those get-rich-quick workshops out there are probably ALL useless of precisely the same reasons: (1) it works until it doesn’t, (2) it’s hard to make it work if everyone can do it. (3) the trainer probably can’t even make it work for him/her so it’s more profitable to teach it to you.

If you still want to learn how to trade in any asset class, you probably should ask the company a few questions:
(1) How many students have learnt this program?
(2) How long has this program been developed?
(3) Is it easy to follow?

If the answer to (1) and (2) is ‘many’ and/or the answer to (3) is ‘yes’, you shouldn’t waste your time.

Notes:
*This is also one of the reasons why Singaporeans’ financial literacy is so bad. The ST does a big disservice by profiling these people and I suspect this is what happens when the journalist has a background is communications rather than business or finance. That’s fine for the political and current affairs portion of the paper but for the money section, it’s a huge no-no.

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China defaults may worsen with huge dollar debt (The Business Times)

$8.6 billion of offshore bonds doesn’t seem like a lot given that China’s economy is estimated to be around $14.2 trillion. But it does seem like there will be a increased stress in the credit system for China.

And given how China’s economy is integrated into other parts of the world…

Three hours spent with a financial planner at her bank and she’s still feeling lost (The Globe and Mail)

No surprises to see headlines like this because a financial planner looking out for their commissions may not necessarily have their clients’ best interest in mind.

The article’s context is Canadian but we’re not too far off here in Singapore. I still find it amusing that we’re some way into the 21st century and yet financial planning in Singapore is very much based on the same model that has been around since the 1990s.

Why hasn’t the industry moved away from selling products tied to insurance firms and fund houses?

Guest post on Get Rich Slowly: The ten-year update (Early Retirement Extreme)

The OG of the FIRE movement.

I love his emphasis that FIRE was always supposed to be about how to add value to society as it frees resources from being tied up in unproductive and unnecessary endeavours.

Of course, the FIRE movement got popular because other people started emphasizing the aspects that seem most appealing to people – being able to leave the drudgery of a mundane job and being able to travel the world ad infinitum.

This is precisely what most criticisms of the FIRE movement revolve around; That those in the movement are putting their future selves at risk but not having enough buffer for medical emergencies if they retire early.

Read ERE’s post and realise that the FIRE movement has got it wrong. Financial Independence doesn’t necessarily mean Retiring Early. It’s more like a lifestyle change where you embark on financially healthier habits that lead to a more fulfilling life, both personally and for society as well.

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WeWTF, Part Deux (Scott Galloway)

Prof. Galloway shares more thoughts on the WeWork debacle. Will it turn out to be as bad as Theranos? Let’s wait and see.

Commentary: These ultra-low interest rates are hurting the economy (Channel NewsAsia)

Great read on how the ultra-low interest rate environment is going to lead to more inequality at the corporate level. Makes sense.

It’s a “sign of the times” triple read

1. Furious debate as Aussie bets his retirement on Bitcoin (Micky)

2. Unprofitable Companies IPO (The Big Picture)

3. Koreans Who Didn’t Read Fine Print Risk Losing It All on Derivatives (Bloomberg)

I’m particularly angry when reading article 3 because it reminds me of the High Notes debacle that happened in Singapore during the GFC. Structured Products aren’t something that people should touch with a 10-foot pole unless you have money that you’re prepared to lose.

The worse part is that the banks sell them to people who aren’t exactly poor but don’t have millions to lose either. The banks then try to get away with it by saying that these customers aren’t exactly unsophisticated because they are private banking clients but the funny thing is that the people selling these products probably don’t know exactly how these products work either.

So yea, it already happened in Singapore in 2009 so I’m not sure why it’s happening in Korea in 2019.

Posting from paradise this week.

Coffee with a view

Estimating Future Stock Returns, June 2019 Update (The Aleph Blog)

David Merkel is back! And really good piece on estimates for S&P 500 returns going forward for the next 10 years. Coincidentally, I was speaking with a friend of mine and I commented that passively managed returns will be low going forward given how low interest rates are.

The Cost of Waiting (Of Dollars and Data)

Maybe DCA needs a rethink after all. Argument applies to waiting it out too.

My thoughts on the “Upcoming Recession” (Early Retirement Now)

Or maybe not. Of course, this is for the U.S. markets. I really need to do a deep dive into ERN’s economic indicators post.