Archives for category: Singapore

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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This past week, I attended three meetings of a very different sort. At work, I had the unfortunate opportunity to attend a meeting that was uninspiring, drab and just a pain-in-the-ass.

Outside of work, I had two meetings – one with a student that I taught a year ago and one with one of the founders of a startup. Both were inspiring, energetic and you could tell that they really believed in their ideas.

It’s my meeting with Dexter, one of the co-founders of a startup that I want to talk about.

My initial thinking

A few ago, Dexter reached out to me via email to ask if I would do a shout-out for their site, WhatCard.sg. Initially, I was hesitant to do so as readers of this blog would know that I’m not one of those bloggers that are into squeezing out every single cent from a budget or tracking which cards gets you that extra percentage point of cashback.

In short, I’m lazy and I’m not sure if it’s worth the hassle of applying for a card just to squeeze out a few percentage points of returns. If you’re not a big spender, these extra percentage points could be nothing more than a few dollars a month. You would probably find it easier to reduce your consumption in some areas to save a few bucks a month. For example, you could reduce your consumption of bubble tea by 1 cup a week and save something like $15-20 bucks a month if that’s your goal.

Of course, the other reason is that my blog probably doesn’t get that much of a readership for the kind of target audience that would find WhatCard useful since traffic to this blog isn’t exactly high.

But I decided to meet up with Dexter anyway to hear him out and I was quite impressed with what I heard. At this point, if you’re wondering, we met over a beer and no, he didn’t buy me a beer to write this.

I’m writing this post because I think these young guys have a good idea going and it’s nice to show some support to enthusiastic young people, hustling to get ahead in life.

What’s WhatCard.sg?

Anyway, back to business.

WhatCard.sg is a site that allows users to compare which credit cards in Singapore gives you the most bang for buck in terms of getting cashback or miles.

The site allows you to search by merchant so you can decide which card to use before you pay or if you’re really looking to hack more miles and cashback, then you can decide which merchants to visit.

It’s free for users but I understand that WhatCard.sg takes a cut if you decide to sign up for (some?) cards when you click on the links on their site.

In short, you’ll find WhatCard really useful if you’re the type to maximise getting cashback and/or miles for your daily spending. From my observation, they also have a community page where users share and contribute ideas on how to hack their cashback and miles so that might be a good platform for keeping up to date on how to get the most out of your credit card spending.

Room for improvement

Dexter and team are aware of their current limitations and they have plans to roll out improvements in the future to address some limitations. In fact, Dexter shared that they plan to have a recommendation engine that allows users to know what cards give them the best rewards in terms of cashback and miles for their given spending profile.

I was quite excited to hear this because that would address the needs of people like me who want to even know which card I should sign up for given how I usually spend.

Other points I think they could do better include:

  • Optimising their site for mobile. It looks ok on the desktop but a little cramped on a mobile screen.
  • Showing you only the relevant info. Right now, searching for a merchant shows you the promo for every card but it’s probably more useful for you to know which cards, among those you already have, to use. Dexter tells me that they are already aware of this and it’s something they are working on.
  • Having a geolocation feature so that WhatCard can show you which merchants in the area offer the best rewards.

Summary

In short, WhatCard.sg is pretty useful if you’re already trying to optimise cashback or getting air miles on your credit card. The community page looks like a great resource for staying up to date on strategies to this end as well. There are limitations that the team is aware of and I think it’s a great effort from a bunch of young people in Singapore.

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.

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Given the increased volatility in markets, I thought I’d share some thoughts on the current state of the market. Note that this isn’t a forecast nor does it constitute advice to buy or sell any securities.

Positives

The STI’s PE10 (data here) is 12.2x which is pretty much the same as it’s PE (12.21x). That translates to an earnings yield above 8% which in my opinion, is pretty attractive.

If you’re wondering how this stacks up the past, the PE10 isn’t dirt-cheap. It was cheaper during the depths of the GFC in early 2009 and also once more in early 2016. However, it is cheaper than it was in 2013- early 2015 and cheaper than during the run up to the GFC in 2006-2007.

Also, 10-year bond yield have fallen really low. The SGS 10-year bond yield is currently 1.735% which means that spreads between the STI and 10-year bond have reached 6.46% which is some of the highest spreads I’ve seen since I’ve started tracking the STI PE10 vs. the SGS 10-year bond yield.

Negatives

From a psychological/technical standpoint, markets are not down in the dumps. The 50-day SMA is still above the 200-day SMA and prices have not fallen all that much (only roughly 14% from its May 2018 peak and 9% from its late April 2019 peak). Also, with the August close, the monthly STI has now closed below the 10 period MA which is Meb Faber’s momentum signal to get out of the market.

Plus, let’s not forget that the Trade War isn’t going anytime soon even though, as of late August, it seems like Xi and Trump are trying to kiss and make up.

Trump faces re-election next year and if he’s playing to win, then it’s likely he’ll find some foreign powers to blame for America’s real or perceived woes. And we know that his go-to guys to blame for America’s woes are those that have huge trade surpluses with the U.S., namely, Mexico and China.

Also, a no-deal Brexit is also looming in October and with Boris Johnson in charge, it’s less likely there will be any sort of deal that can be reached and will tensions between Japan and Korea get worse? And who knows how the situation in Hong Kong will turn out?

Only time will tell.

Overall

I’m near-term negative but long-term positive because geopolitics and economic sentiment is bad but valuations are starting to look attractive. Of course, if you’re a DCA sort of person, then all of the above shouldn’t matter to you.

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.

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TodayOnline published a piece in their “The Big Read” section which is interesting but not surprising.

The dreaded ‘R’ word — why Singaporeans need to start thinking seriously about retirement highlighted a few statistics which I thought deserves some attention:

  • Retiree households living in public flats here receive an average of S$1,522 each month for their retirement needs, with the bulk of it coming from their children or relatives.
  • Breakdown of the above: S$280 (~18%) from Central Provident Fund (CPF) payouts; S$485 (~32%) from familial transfers; S$180 (~12%) from personal investments; S$178 (~12%) from rental income including proceeds from subletting or Lease Buyback Scheme for example; and S$399 (~26%) from other sources, including pensions and government aid.
  • According to OCBC’s inaugural financial wellness survey: Around 65 per cent of Singaporeans are behind in accumulating funds to maintain their lifestyles after retirement, and 73 per cent are “not on track” with their retirement plans
  • The same OCBC survey found that 34 per cent of Singaporeans do not invest at all, and nearly half of Singaporeans also have zero passive income.
  • Market research consultancy Blackbox sampled 1,000 residents and found that 62 per cent of Singaporeans feel they are not saving enough for old age. This figure rises to 74 per cent among households earning less than S$2,500 a month.
  • The Blackbox poll also found that 43 per cent of respondents said they were relying mainly on CPF, while 38 per cent said personal savings and 17 per cent said investments.
  • Associate professor Ng Kok Hoe and Prof. Teo You Yenn did a study and found that by today’s minimum income standards, a benchmark of S$1,379 a month per senior is needed to meet basic standards of living in retirement.
  • Only 55 per cent of CPF members who turned 55 in 2013 had reached the Basic Retirement Sum (BRS). Those who set aside the BRS will receive S$730 to S$790 a month as of 2019.
  • CPF members without a property or who wish to receive the full monthly payout can choose to set aside a Full Retirement Sum which is two times the BRS. They will receive S$1,350 to S$1,450 a month as of 2019.

Thought #1: Average Retiree Households living in HDB are in trouble

If the average retiree household only receives $1,522 a month but the Ng and Teo study says that each senior requires $1,379 a month then it means that the average retiree household only meets about 55% of the Ng and Teo figure.

I wonder if anyone has come out to rubbish the Ng and Teo number but at the same time it makes you wonder about the pronouncement made by a certain senior politician about Singaporeans attaining “Swiss standards of living” or have we dropped that as a benchmark?

Thought #2: CPF is almost useless for a retirement scheme

If the CPF payout only contributes about 20% of an average Singaporean retiree household’s income, then what good is it as a retirement scheme? Note that this is for current retirees. I’m not sure whether the proportions will change for Singaporeans who are currently in their 30s-50s.

I’m pretty sure the problem is that too many Singaporeans use their CPF for housing and are/were banking on monetizing their house later on. This could come in the form of renting out spare rooms, downsizing to a smaller place or the lease buyback scheme.*

I think CPF should come out with a study on whether it’s smarter to leave your monies in CPF to compound over the same time frame as a 30-year mortgage or whether it’s better to bank it all on buying the biggest house you can afford to.

By the way, it isn’t my opinion that CPF is mostly useless for retirement. This was also in the article:

Speaking to TODAY, Ms K Thanaletchimi, the president of the Healthcare Services Employees’ Union (HSEU) and a former Nominated Member of Parliament (NMP), said: “The message should be stark and clear. CPF payouts should not be the main source of income for a retiree. It must be regarded as a complementary or supplementary source of income for Singaporeans.”

I find it quite disturbing though that official chatter is about how CPF is not meant to be the main source of retirement funds and yet the forced contributions to CPF make up a huge percentage of wages.

Although the CPF might argue that if you wish to get higher returns, you possibly could through the CPF Investment Scheme (CPFIS), the fact is that the forced contributions cause an unnecessary layer between a person and his or her funds.

At the same time, I can see how most people would have just spent any extra money that comes their way.

Thought #3: Younger Singaporeans in trouble too

If the OCBC survey is accurate, the personal finance and investing community has a lot of work in the future. We’re not even talking about how much passive income but if half of Singaporeans have no passive income, then it’s pretty worrying because as much as the Singapore government would like you to work as long as you can, passive income is the sort of thing that provides options in life.

And if familial transfer (~32%) make up the income for retiree households, then it’s no wonder that our birth rates are well below the replacement rate of 2.1.

That lack of future familial support also means that if younger Singaporeans are thinking for their future selves, then they better count on having governmental support.

I don’t know about you but I prefer sure things.

The Blackbox poll also shows a worrying disconnect since 43% of the respondents said they were depending on their CPF monies for retirement. But as the data on current retirees show, CPF monies aren’t going to help much unless you believe that things are going to be different.

Final Thoughts

I believe that I’m in a better place than most others but if you are a young person living in Singapore and haven’t thought about what happens when you stop working, I think you should.

The nice thing about the article is that you can use Ng and Teo’s number as a sort of benchmark. Of course, the $1,379 per senior per month is a nominal number so you can adjust that by an appropriate historical rate of inflation** to get a ballpark figure of how much you’ll need in 20-30 years time.

Finally, if you’ve been financially ok your whole life, I suspect you won’t have to worry much even when you’re older. But you probably might have to worry about whether your society requires you to do more.

Note:
* The lease buyback scheme contributes to about 12% of the average retiree household’s income which also shows that this hardly moves the needle in terms of adequacy.
** I should point out that the inflation rate for things like education and healthcare has traditionally been higher than things like food and electronics which kind of means that inflation rates for retirees is possibly higher than the rates reported by CPI.

Is your financial adviser really looking out for your best interest?

Of course, that’s a loaded question. The short answer is no.

Are their incentives aligned?

After all, the incentives for a financial adviser^ is quite different from the clients they serve. This is an example of the principal-agent problem that happens elsewhere where the agent that you hire (i.e. the adviser) is not acting in the best interests of the principal (i.e. you).

The main problem in Singapore is that the bulk of the remuneration that a financial adviser receives is commission-based. This creates two problems – one, your financial adviser has an incentive to sell you more product which you may not necessarily need. Two, your financial adviser has an incentive to sell you products that generate more commissions for them.

In Singapore, I find that the above translates into financial advisers having a tendency to sell products that have some form of savings or investment component rather than a products that merely provide protection.

It’s not surprising once you ask financial advisers which one pays greater commissions and I suppose this happens because the company generates a greater profit from savings/investment products rather than protection.

They may quibble that protection and savings/investment are two entirely different areas of needs but my retort then, is why only focus on products from insurance companies when it comes to savings/investments? If you were truly providing fair and unbiased financial advice, then it should not be limited to the products that you sell.

Many financial advisers tend to proclaim that they love helping their clients overcome some financial issues that arise due to misfortune, I often see insurance companies in Singapore rewarding their advisers based on how much sales they make. Ever heard of “Million-dollar Round Tables”?

In short, the way the industry currently operates, I doubt your financial adviser has your best interests at heart.

Information Asymmetry

The other problem is that for the common person, financial advisers would/should know more about financial advice than they do. This means that what they say may confuse you but the mark of a good salesperson is that you’ll be comfortable enough with the confusion to part your money.

The good news is that the asymmetry can cut both ways. With a little finance training, you may know more than your financial adviser.

I’m not sure if it’s because some advisers are more salespeople than research people but I’m certain that financial advisers don’t come up with the products they sell.

It’s pretty much like how car salespeople don’t know much about what makes the car good from an engineering standpoint and rely on what management or product development tells them about the product.

In some ways, it’s pointless for salespeople to question the product because they aren’t the ones coming up with it. Moreover, they need to put food on the table and therefore, whatever goods they are given to sell, they sell.

Case Study: Company X’s savings/investment product

Recently, my financial adviser from Company X* proposed a product/plan that requires that I put away $5,000 a year for 15 years and thereafter, I have the choice of withdrawing the money either at 60, 65, 70, or 75 years old. The amount of money I would receive is $137,966, $172,471, $214,073, and $260,073 respectively.

In his presentation, my adviser framed each choice as how much I would gain in dollar amounts upon maturity of the plan. My observation is that in every product schedule, dollar amounts are exactly how insurance companies present the returns of every savings/investment product.

What’s wrong with it?

I must admit that it didn’t occur to me right away even though I’m a CFA Charterholder. But that’s what happens when you don’t use your training much in your daily work. =(

Any decent finance student will tell you that the problem with such a presentation is that it obscures the actual yearly return and therefore makes it difficult to compare between alternatives.

After all, if I were to invest/save an amount of money and receive a return over a certain number of years, I must consider all the possible alternatives and pick the best one. The idea of opportunity cost is one of the most fundamental ideas in economics and is important for decision making.

In the above example, a simple calculation in MS Excel or with a financial calculator will reveal that the Internal Rate of Return (IRR) of such a plan ranges from 3.38% p.a. (for the earliest payout) to 3.79% p.a. (for the latest payout).

This plan seems like a raw deal because you could do better by putting your money in your CPF Special Account (SA) which currently pays 4% p.a.** and you could do that with greater confidence that CPF is less likely to default on paying you back. Of course, the CPF may lower their interest rates at some point in the future but if that happens, it might also cause increased pressure on Company X to deliver the promised returns.

Plus, the fact that the IRR calculated above is a nominal rate, the real rate of return (after accounting for inflation) by taking on Company X’s plan is likely to be something pathetic. My financial adviser may argue that it’s just $45,000 spread over 15 years but money is money; A bad deal is a bad deal and this smells like a very bad deal to me.

Conclusion

I think financial advisers hate me.

Notes:
^Financial advisers in Singapore are more like insurance company representatives that sell insurance, endowments, investment-linked products and the like. They don’t typically advise on equities, bonds, ETFs and such.
*Not naming the company for obvious reasons.
**I know it’s slightly higher for the first $60,000 or something like that but for this argument, it’s not necessary.

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Gen Y Speaks: At 20, I ran a business with six-figure revenue. Here’s what I learned. (TODAY online)

I love how they’ve run a story on a local entrepreneur who’s candid enough to share her experiences. It’s also a nice story because the writer no longer runs her own business which is a nice contrast to the perspective that entrepreneurs must be married to their businesses forever and ever.

It’s like what I tell my students in economics class – opportunity cost tells us that if you want to start your own business, do it while you’re young because the opportunity cost of doing so is low.

That aside, one day I must rant about how we’re trying to promote and teach entrepreneurship in school. It’s my view that while the skills to be an entrepreneur can be taught, what ultimately makes entrepreneurs is their social and familial environment.

You can’t go out and run a business if putting food on the table is a concern.

3 property statements that don’t hold water (Property Soul)

To be honest, at some point in time, I believed in some of these statement myself.

I kind of learned that statement 1 and 2 didn’t always hold water when I saw my parents’ investment property become a liability instead of an asset.

Statement 3 is the most interesting one for me because I never really thought that hard about the backgrounds of the Asian families whose riches are so closely linked to property.

The other thing I like to point out about those who believe in Statement 3 is that property developers make their money building and SELLING property and not buying it as the common man does.

In short, it’s a different ball game.

Extreme Concentration of Global Wealth (The Big Picture)

Nice infographic.

And a sobering thought that the average Singapore should easily be in the top 10% in terms of wealth if you have a fully-paid up HDB flat and/or meet the retirement sum in your CPF.

Unfortunately for the pro-government types, people can’t eat bricks and their CPF statements.

The Earnings Mirage: Why Corporate Profits are Overstated and What It Means for Investors (OSAM)

Heard about this from this episode of the “Animal Spirits” podcast. I haven’t gotten through it but looks like a worthwhile read.

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Family Inc: Viewing Your Career as Investments (Investment Moats)

I think Kyith at Investment Moats is going through some sort of career transition and chanced upon this book. There is a nice bit at the front part of his post on the importance of human capital.

I written about it before (here and here) but it’s interesting to see how prevalent it is that people don’t consider their human capital as part of their net worth.

This is especially true when it comes to asset allocation. I know far too many people whose incomes don’t vary much and where the threat of redundancy is low with respect to economic cycles (think civil servants, doctors, etc.) and most of their wealth comprises spare cash in the bank or they lock up themselves up in some sort of low-yielding endowments.

On the other hand, it’s the very people whose incomes and jobs vary with economic cycles (think property agents, bankers, traders, business people etc.) that load up on risk assets with leverage to boot.

If there was anything that I learned some the CFA level 3 syllabus, if was this – that if your human capital is bond-like, you can weigh your financial portfolio more towards equities and vice-versa if your human capital tends to be more equity-like.

The Thing That’s Probably Blowing a Hole in Your Budget (A Wealth of Common Sense)

Ben Carlson has a great post on how a car is probably the worst of the three big forms of debt for the average American since a car is a depreciating asset while a mortgage and a study loan, arguably, helps you purchase an asset that increases your net worth.

A wise colleague told me the other day that he read on the papers that owning a car in Singapore is one of the major differences between comfortable retirement and a barely-there retirement for the average Singaporean.

Cars are darn expensive in Singapore and the COE only lasts 10 years. Also, public transportation is relatively affordable. So, yeah, I agree.

Double feature since there are on the same issue. NYT link via The Big Picture and the other sent by a friend.

It’s crazy to see how long and how low interest rates can go. But as I replied to my friend, it’s also this sort of environment that leads to asset bubbles as easy credit means that money has to find a place to be invested no matter how ridiculous the premise.

Initially, I thought that we were at the end of the cycle with all the new tech IPOs but it looks like the powers that be hope that this will continue for some time yet.

The other positive thing that this environment has going for it is that valuations, in general, are not at extremes, the masses aren’t making the easy money, and we don’t have the inflation necessary to force the hand of the central banks.

So perhaps, this party could go on for some time.

Late on this and no post last week because there’s been some changes on the household front. Keeping a kitten is no easy task but she’s been a gem so far.

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Wife in S’pore praises her husband for becoming a private hire driver because it is noble (Mothership.sg)

While the article may extol the virtues of a young person being a Grab driver, anyone thinking of going down the same path should note that for a relatively younger and better educated person, this would translate into higher costs in the long run as there is a lack of a career path in this industry as economist Walter Theseira pointed out.

Also, it’s better well-known that private-hire driver earnings have come down significantly from when these companies started entering the market. They enticed more people to become full-time drivers through higher incentives at the beginning.

Add to the fact that Grab is the new taxi, I’m pretty sure many more drivers will enter the fray in the coming years as the baby boomers officially retire from the workforce. In Singapore, we never really stop working.

They should come back and ask this same lady if she’s happy with her husband being a Grab driver when he’s 50. Having said that, if you have few prospects because of a lack of academic qualifications, this is not a bad path to take.

Interest Rate Chasing in Your Savings Account (A Wealth of Common Sense)

It’s strange to me to see how some people in Singapore get excited over a 0.25-0.5% difference in interest rates. I know of people who even have spreadsheets to compare which savings accounts give the best interest rates. In recent memory, the comparison is mostly between DBS’s Multiplier account and OCBC’s 360 account.

I’m at the other extreme because for the longest time, I had a lot of cash sitting in an account that paid a paltry interest below 1% and I know that was stupid of me.

But now that I’ve moved to the DBS Multiplier account, I’m not going to fret about whether the OCBC 360 account gives me a better deal. Even if it does, it won’t be by much.

The thing about those people that get excited over 25 to 50 basis points is that they usually also miss out on the 6-7% per year because they focus so much on only savings accounts.

Will Trend-Following Continue to Disappoint? (A Wealth of Common Sense)

If you’ve read the Meb Faber white paper, trend-following works by helping you avoid the large drawdowns that hit investors who are invested all the time.

The downside is the whipsaws you get from entering and exiting positions due to false signals and the utter frustration from this in a prolonged sideways market.