Archives for category: Best Things I’ve Read

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.

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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.

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The Financial Turing Test (Of Dollars and Data)

I really like this idea.

What would be the one question that you could ask anyone proclaiming to be a “financial expert” in order to find out if they were truly one? Maggiulli makes a good point that perhaps the question to ask is:

Imagine we could simulate the universe where each time you are born to different set of parents with a different genetic makeup.  Sometimes you are born a man.  Sometimes you are born a woman.  Sometimes black.  Sometimes white.  Sometimes smart.  Sometimes not.  Etcetera etcetera.  What would you do to have the highest probability of becoming financially secure regardless of your background?

I’m going to think hard about how I would answer this.

Are We Near a Recession? The Godfather of the Inverted Yield Curve Says It’s ‘Code Red’ (Fortune)

Nice to read about how the inverted yield curve came about.

Runaway Story or Meltdown in Motion? The Unraveling of the WeWork IPO (Musings on Markets)

Prof. Damodaran gives a brilliant breakdown on the WeWork IPO. Some choice quotes from the post:

To the question of whether WeWork could be worth $40 billion, $50 billion or more, the answer is that it is possible but only if the company can deliver well-above average margins, while maintaining sky-high growth. That would make those values improbable, but what should terrify investors is that even the $15 or $20 billion equity values require stretching the assumptions to breaking point, and that there are a whole host of plausible scenarios where the equity is worth nothing.

As WeWork stumbles its way to an IPO, with the very real chance that it could be pulled by its biggest stockholders (Neumann and Softbank) from a public offering, the question of what to do next depends upon whose perspective you tak.

1. If you are a VC/equity owner in WeWorks, your choice is a tough one. On the one hand, you may want to pull the IPO and wait for a better moment. On the other, your moment may have passed and to survive as a private company, WeWork will need more capital (from you).

2. As an investor, whether you invest or not will depend on what you think is a plausible/probable narrative for the company, and the resulting value. I would not invest in the company, even at the more modest pricing levels ($15-$20 billion), but if the price collapsed to the single digits, I would buy it for its optionality.

3. If you are a trader, this stock, if it goes public, will be a pure pricing game, going up and down based upon momentum. If you are good at sending momentum shifts, you could take advantage. 

4. If you are a founder/CEO of a company, the lesson to be learned from this IPO is that no matter how disruptive you may perceive your company to be, in a business, there are lessons to be learned from looking at how that business has been run in the past. 

Linkfest alert! Somehow lots of good stuff to read this week.

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Millennials agree on the best way to invest—but they’re wrong (CNBC)

Never thought it’d be the same in the U.S. but real estate is probably most Singaporeans’ favourite investment vehicle as well. So much so that the government has to intervene in the property market in a HUGE way – something like 90% of Singaporeans stay in public housing and the government has slapped all sorts of taxes on buying and selling property for investment purposes.

I think it was Shiller that did a study showing that in the long-run, real estate price gains return roughly the same rate as real GDP growth which in a developed economy is probably 2-3% p.a.

The whole “I like it because it’s tangible” is a cop-out. The real reason is leverage and due to the fact that most people don’t understand opportunity cost.

“HE’S FULL OF SHIT”: HOW ELON MUSK FOOLED INVESTORS, BILKED TAXPAYERS, AND GAMBLED TESLA TO SAVE SOLARCITY (Vanity Fair)

I’ve never been a fan of Elon Musk. Too much self-promotion and hype.

Modern Monetary Theory (MMT) Has An Argentina Problem (Global Macro Monitor)

That’s right. The problem with MMT is when people lose faith in your currency. However, the U.S. case for efficacy might be more akin to Japan’s experience rather than Argentina’s.

Gold (in real terms) (The Big Picture)

Once again, a good reminder that many people don’t understand real rates of return and opportunity cost. I know of a senior colleague who held most of his assets in gold since the 90s and sold out during the GFC to rotate into REITs.

He wasn’t prescient of all-knowing. He just acted on the advice of another colleague. The funny thing is that he never compared how holding much of his wealth in gold compared to holding his wealth in equities for much of the 90s and 00s.

Lucky for him, he’s made more than enough to retire comfortably.

Financial Horror Stories (The Wealthy Accountant)

Extremely good read. Underscores the importance of understanding accounting as an investor. Seriously makes me think of learning accounting at a more in-depth level.

The Trump Narrative and the Next Recession (Project Syndicate)

Sometimes I wonder if Trump is trying to get the economy into a recession so that he loses the election. The article by Shiller gives a behavioural/psychological take on how a recession would cause Trump to lose the election.

Sorry for the (slightly) late post. We’re into the last third of the year! Hope most of you have enjoyed the ride and/or done what you’ve set out to accomplish. Otherwise, there’s 4 more months to work on it.

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The Single Greatest Predictor of Future Stock Market Returns ( PHILOSOPHICAL ECONOMICS)

Post from a few years ago but probably still relevant. The link to the FRED data still works and if you take a look at it…you probably don’t want to be in U.S. markets at the moment.

Singapore faces rising tide of bad debt with record bonds maturing (The Business Times)

Always not a good sign when the bond market breaks.

“Stress is likely to emerge in sectors such as logistics, in addition to others that have already been struggling, such as oil and gas and construction, according to Angela Ee, a Singapore-based partner at EY with over two decades of restructuring experience.”

Guess we’ll find out.

Tong Garden family feud: Brother sues siblings for diverting business; they say move was to save father’s legacy (Asiaone)

Originally published in The Straits Times. It’s sad to see how family businesses get affected by in-family squabbling. Otherwise, they could do so much more. But I guess the fact that the brand is doing better than before is testament that the right decision was made by the other brothers. The one who originally ran the company and steered it towards bankruptcy is probably just sour grapes that his siblings did something he couldn’t do.

No “Best Things” last week because I was stuck in this hellhole called “In-Camp Training” that all Singaporean guys have to experience. So I made up for last week with an extra-good list of reads this week.

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This is What Happens as Societies Become Wealthier (A Wealth of Common Sense)

A really good piece pointing out of the positives of the low interest rate environment that we live in today. I really think that there is no good or bad environment for investing. You just do what’s necessary given the times we’re in.

Geoengineering fun (The Grumpy Economist)

A few cool ideas to combat climate change. Woolly mammoths, oysters and some substance called olivine. What’s not to like?

How the Recession of 2020 could happen (New York Times)

Probably the most important part:

Often, a recession results when some widely held belief about the world turns out to be false. In 2001, it was that a technology boom would fuel the economy and the stock market indefinitely; in 2007, it was that the housing market would never melt down across all regions at once.

This time around, the belief in doubt is that the world will only become more stable and interconnected over time, and that trade, currency and diplomatic relationships can be counted upon.

Hang on for the ride.

WeWTF (Scott Galloway)

Good points about WeWork’s IPO prospectus made in very witty prose. I haven’t looked at the numbers in detail but WeWork’s indicative valuation seems ridiculous and I agree with the points made by Prof. Galloway. I’ve been warning for a while now about how easy credit has gone into private equity.

I fear that we might be in the last stages of the private equity bubble with all the so-called “unicorns” coming to the market. This year we’ve already seen some of the more famous names like Beyond Meat, Uber, Lyft, Pinterest list and if market conditions hold, WeWork will be another one of these that unprofitable companies that list.

Macro Tourist Likens Bond Bubble To Dot-Com, Real Estate Blowups In Sweeping New Critique (Heisenberg Report)

Minsky as applied to the bond market. Should read if you’re into crystal ball-gazing.

Stress and Anxiety (Matthieu Ricard)

(Update 1 Sep 2019: I fixed the link to the original post. Somehow left it out from before.)

The happiest person in the world provides three tips to better mental well-being:

Tip #1: Do away with your worries 
If there’s a solution, then there’s no need to worry. If there is no solution, there is no point to worry.

Tip #2: One thing at a time 
If you have many things to do, do them one at a time. You will work faster and better this way.

Tip #3: A bit of meditation 
If you are gripped by anxiety, make a pause for a moment and simply try to be aware of this anxiety.

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Cheap Money vs. Investor Psychology (A Wealth of Common Sense)

I’ve been saying this for a while (here and here) and I think WeWork is just another example of the times we live in. It’s funny how WeWork came up with their own metric to justify their valuations (or at least make their valuations seem less bad) but if you’ve read about what happened in the dot-com era, remember that at one point, analysts valued non-profitable tech companies on “eyeballs” (thank god the internet never forgets).

bItCoiN iS a SaFe hAvEn (The Reformed Broker)

‘Nuff said. Go read it for the takedown.

When Money Dies (Of Dollars and Data)

Great piece. Particularly on how The Market’s real returns in various countries is a better hedge against inflation than commodities like Gold. The article provides a logical and sensible take on what matters in the economy.

Krugman’s take on how Trump still doesn’t understand economics. Actually, at this point, I think everyone knows that Trump doesn’t understand much of anything except self-promotion.

But I particularly like Krugman’s take on how the U.S. has more to lose than China from the ongoing trade war.