Bye bye 2010s, Hello 2020s

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This is one of those end of year posts so I guess it’ll be retrospective and yet forward-looking at the same time. However, being the end of a decade, I thought it’ll be interesting to look at some of the changes that has happened in my life in order to give myself an idea of what to expect in the next decade.

Career

At the beginning of this decade, I was a couple years out of school and working for the civil service. The job paid decent but was the scope of work was way out of my interest zone. Needless to say, I was there for another 2 or so years before I left for a teaching job in the public service.

Teaching foundation level economics has been fun but of course, the lack of depth impedes an understanding of real-world issues. Also, in this current day and age, economics has been applied in areas outside of the traditional business setting but being in the business school, the economics we teach doesn’t stray far from your traditional Econ 101.

In short, teaching economics at the school where I am right now is kind of limited in depth and breadth. Plus, it seems to be a business school phenomenon that economics isn’t all that important. Instead, the flavour of the times seem to be anything tech-related.

Fortunately for me, my interests and skills lie not just in economics but also in finance and in the next decade, the plan is to move further and further away from economics and more into the finance space.

Which area of finance? It should be in corporate finance and business valuation.

Health

It’s funny that I’m down with flu as I write this but my health hasn’t really changed much over the last decade. If anything, it has gotten slightly better.

I put on a fair bit of weight after working and in December 2017, I reached peaks that I had never reached before. That was the trigger for me to be more aware of my diet.

The thing is, I love beer.

So I searched and searched, and eventually I learnt that there was something called intermittent fasting. Long story short, I followed some version of it where I skipped breakfast except for a cup of coffee with evaporated milk, no sugar. And then I ate lunch at around 11:30am or so, followed by dinner at around 7:00pm.

I not sure I even did it right because some people say that you can’t have anything that has even a little bit of sugar in it (which the milk has) but anyway I lost about ten kilos and my weight has been at a comfortable level since.

I’m also sure it’s because I had light lunches on some days of the week but otherwise, I didn’t restrict my diet to any food groups. It was all about making sure you don’t overdo things.

The not-so-good part is that I haven’t managed to exercise regularly. Every time I’ve started to hit the gym again, the momentum somehow gets disrupted and the next thing I know, a week or two goes by and all my gym gains have gone down the drain.

I really need to start making a gym routine part of my week because I can literally feel my body getting weaker once I go without exercise for just a week or so.

Currently I try to do my gym sessions during lunch but I realised that’s not exactly a great idea because my timetable changes every semester which would be a deal-breaker for establishing a routine.

We’ll see how things go from here.

Life

Well, life is the big one, isn’t it?

At the start of the decade, I had a girlfriend. Now, I have a wife and three cats. Scratch that. Make it seven. How we got to seven is a funny story but we’ll get to that later.

So my wife and I have been married for almost 8 years now but it’s more than 10 years since we’ve met and gotten together. We’re not the perfect couple but we’re perfect for each other.

We can get upset at each other but we’ve never shouted at each other. We mostly just give each other the cold shoulder for a while before we realise that it’s not worth it and then we apologise and make up.

Most of the time, we just enjoy the simple things in life and each other’s company. Things like reading good books, eating good food (in moderate quantities) and relaxing.

In that way, we’re kind of like cats.

So, two years ago my wife (it’s always my wife who has the better ideas) asked if we could adopt a cat. She’s always liked cats but never owned one.

Since we don’t have kids, I figured it wouldn’t be a bad idea to have a cat to come home to and from what I read, cats are definitely lower in maintenance compared to dogs (or kids). I had dogs growing up so I kind of an idea about what kind of care you need for dogs.

And that’s how we got our first cat, Teddy. He wasn’t the cat we were going to adopt but then the rescuer suggested that as first-time cat owners, we adopt him because he was friendly and easy-going.

That turned out to be totally true because Teddy is the most low-maintenance cat I’ve ever met because you pretty much just have to feed him and make sure he has a clean litter box, and he’ll be a happy camper.

Then some time this year, the same rescuer asked if we could take in a kitten that was part of a litter rescued from Pulau Bukom, an island off Singapore, which is part of the oil refining industry in Singapore.

So cat number two, Pepper, came into lives and she has been a little ball of terror because she came with a parasite issue which caused diarrhea, refuses to leave Teddy alone hen all he wants to do it chill, and is super noisy when it comes to feeding time. But we still love her anyway.

Then a few months after we got Pepper…

One day as we were walking home, we noticed a cat hiding away at the bicycle rack, at the block of flats next to ours. We’d never seen her before and there are community cats in the area so it’s unlikely that another stray would have ventured into this area since cats are pretty much territorial. Plus, she was too friendly to humans which made us suspect that she was abandoned.

And so cat number three, Mudpie, came into our lives.

What we didn’t realise was that cat number three, was pregnant with four kittens. By the time we found out, she was two weeks away from delivering and so we now have seven cats at home.

They turned out to be such fluff balls

I think the next decade will easily see a mean reversion in terms of cats.

Wealth

Ah yes, and finally, all about the money.

I’ve been tracking this number ever since I started investing but my records for the early years haven’t been well-kept. The good thing is that I now have at least a decade worth of records so I can see exactly how much my wealth has grown.

The short answer is: a lot.

At the start of the decade, my portfolio was under $50,000. Today, it’s roughly eight times that. By the way, I only count monies that I can easily convert to cash. This means that I don’t include my CPF accounts nor the property that we stay in.

You could include those but that would mean giving up your residency status in Singapore. If that’s an option for you, then by all means, include those numbers. Otherwise, if you’re a Singapore citizen or PR, you have to ignore those numbers as those don’t mean much until you reach the age where you can cash out.

I’ve digressed so back to the increase in my wealth. Is that record impressive? Not really.

Because it could have been a lot more if not for two things: one, I was and still am, under-invested, and two, I was invested in the wrong places.

Let me explain.

I’ve had a huge allocation to cash in the last two to three years. This is despite the fact that as an investor, I’ve two things going in my favour. One, I’m relatively young and two, I’m still gainfully employed and likely to be in the foreseeable future (iron rice bowl, see above).

Therefore, I should have bumped up my allocation to equities, REITs or anything with a higher expected return than cash as I’ll be able to ride out any bumps along the way.

The second reason is that I was invested in the wrong places. Honestly, I started out the decade thinking that if I could read the financial statements, I would be a lot better than most investors. That is true but only to the extent that one is familiar, or willing to be familiar, with how the economic landscape that any company is in was going to change.

For example, there’s a company that I (like many other Singaporeans) am invested in where the shift towards online media has absolutely damaged the company’s main income generator. And this damage to their old business model means that the damage is irreparable despite their best attempts to diversify into other areas such as malls, nursing homes, and student housing.

Even if they are successful, trading a much higher-margin business where they had a virtual monopoly for one that is much more competitive and capital-intensive means that the whole business is unlikely to provide the kind of returns to investors as it once did.

Therefore, the market correctly priced in lower multiples and slower future growth which explains the situation that the company finds itself in. In case you haven’t figured it out, the company I’m referring to is SPH.

There are a number of other such mistakes that I’ve made in the past decade and honestly, I find it too much work for the extra returns that a broadly-diversified portfolio might return. Needless to say, I’ve had my successes but those aren’t anything to brag about either.

The main reason for the increase in my portfolio is simply the insane savings rate that I have. By my back-of-the-envelope calculations, more than half of that increase was due to savings. Another 20% or so due to returns from dividends and the rest from capital gains.

In short, while you are young, you can have shitty investing skills and still see a dramatic increase in your net worth if you save like hell.*

I still obsess about my net worth but ideally, I’d like to arrive at the day where I honestly don’t care about money any longer because what I have is more than enough for my wife and I to live how we want to.**

In the next decade and more, I have to stick to a better investing plan. I’m already fairly disciplined about savings because it’s pretty much on auto-pilot and I don’t spend very much compared to others.

The main focus now will be to stick to an investment plan that allocates a higher return to equities and be disciplined about the re-balancing process while keeping costs low. This will be the way to go as I have many decades of investing ahead of me.

Goodbye 2019 and 2010s

You’ll notice that I haven’t talked much about what’s going on in the world and frankly, none of it has mattered much to me.

We have politics becoming a joke in the U.S., strongmen steadily gaining power in Russia and China and in Singapore, we have our own Orwellian-esque POFMA.

The climate has also gone bonkers with records temperatures being reached and yet, people rode the wave to sell metal straws while the fear-mongering grows over solutions that smart people like Bill Gates are suggesting.

In the business world, startups that blow through cash (think Uber, Grab, the disaster now known as WeWork, or almost any other unicorn for that matter) gets seemingly unlimited amounts of funding for business models that pretend to be a tech spin to an older business model.

Even in my world, the mantra seems to be “tech” and “entrepreneurship” but the powers that be fail to realise that as a business school, it’s unlikely for us to teach “tech” well. And frankly, “entrepreneurship” isn’t something to be taught so I’m not sure how we’re going to justify charging the school fees for that one.

“Hey, splash some cash for us to teach your kids the rules that they have to break.”

That’s probably the most honest marketing you’ll get from a business school trying to teach entrepreneurship.

Despite what’s happened, the 2010s have been kind to me. I’m extremely blessed to be living in a place free from strife, have loved ones that care about me, and seven cats.***

Notes:
* Of course this has diminishing returns as your net worth grows. It’s unlikely that your salary will grow in line with your portfolio and therefore the same savings rate will gradually add less and less to your net worth as the years go by.

**Skeptics will say that the day will never come but based on my current lifestyle, I’m pretty sure I’ll get there sooner rather than later.

***Of course, we’re not going to keep all seven.

Some thoughts on the TodayOnline piece on retirement in Singapore

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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.

CPF payout age not raised 70. Well, true. But…

Yes…technically it hasn’t but isn’t that what the intent of the default payout age is signalling?

Recently, there’s been some hoo-ha about when CPF starts paying out one’s retirement money. Apparently, it started when someone posted a picture of a letter from CPF informing an account holder that if they wished to have their payout start at 65 (the earliest possible age), they need to inform the CPF Board of this. Otherwise, the default payout age would be 70.

This naturally led to some people saying that the CPF payout age had been raised to 70 from 65 and this led to the CPF Board issuing a statement to debunk this “myth”.

Can you blame the people?

I mean, if CPF had set the default payout age to 65 instead of 70, there wouldn’t be this issue in the first place. And if the default is set at age 70, then we can assume that the intent of the CPF board is to have people draw down monies from their Retirement Account only starting from age 70.

It’s been quite well established in the behavioural economics community that defaults are a way of nudging people into certain behaviour. The best and most often cited example is how an opt-out programme results in a higher proportion of people donating their organs after death as compared to an opt-in programme. In other words, default options matter because as humans we are lazy and tend to stick with the default.

What I think the CPF Board should do

Instead of coming out and saying the technical and legally accurate thing, the CPF Board should have come out and explained why the default payout age is set to 70. Their argument will probably be a combination of extra years of compounding (5 years) which is result in an extra X number of dollars paid out each year.

People may or may not agree with the CPF Board’s argument on having a default at 70 but at it least it would be a reasonable explanation of their choice of default payout age.

Right now, it just seems like they are nitpicking on the facts but skirting around the issue of their intent.

The message on poverty in Singapore is getting on traction

I’ve written before about how I think inequality and poverty is an issue in Singapore and that the poor need more unconditional help. (see here, here, here). It appears that the issue has been getting a bit more attention lately with Channel NewsAsia (CNA) putting this piece out some days back.

 

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Poverty in the spotlight

In particular, the piece highlights how the poor tend to make decisions that are less than best or what economists call, “sub-optimal”. Take the opening anecdote in the article.

Every time her four children passed by the provision shop downstairs, they would ask her to buy packet drinks for them. Every time, Mdm Mary Yeo would reply, “No, not today.”

The first time the divorcee received financial assistance from the Social Service Office, her first thought as she sat at home alone, pondering what to do with the money, was their wistful request the night before.

“I rushed down to the provision shop, and I bought quite a lot of drinks,” said the 47-year-old. “The next day, I bought (more).”

After three days, she had bought S$400 worth of drinks – 40 cartons – “because that same thing kept coming” to mind.

Now, 40 cartons of soft drinks is a ridiculously huge amount of soft drinks and the first reaction of many people would be to say something like, “See, this lady is poor because she’s stupid. No one buys that many soft drinks. Furthermore, if she lets her kids drink that much soft drinks, they are going to have other problems down the road.”

What the article did differently was to describe the process behind her thinking which changed the framing of the same issue from being “poor because she’s stupid” to “stupid because she’s poor.” In other words, they highlighted the fact that she made this stupid choice because she was so poor that she couldn’t even afford a simple treat like a soft drink for her kids.

I’m particularly impressed with the way the article presents the issue of decision-making and poverty because it’s a good contrast to the usual messages of how Singapore is a meritocratic society and provides an equal chance for anyone, regardless of background, to succeed.

 

The message we’ve been fed all these years

The message that we’ve been fed all these years is that Singapore is a place where your dreams can come true. All you have to do is study hard, work hard, and you’ll make it.

And very often, to prove their point, the nation-building Straits Times will highlight the fact that some of our high-flying people in government came from less than privileged backgrounds and succeeded despite the odds against them.

Even the education ministry, in its bid to move away from an emphasis on grades, has been profiling students who have either done well or passed the exams despite the odds against them.

Once again, the message is that you can make it if you try hard enough.

 

We need a new message

I think it’s time we need a new message. And that message is that as a society, we acknowledge that the odds are stacked against those who come from less privileged backgrounds. And since the odds are stacked against them, we need to make sure that they receive unconditional help as far as the basics are concerned.

And this is where I think the government is still behind the curve. Now, I’m not saying that our government doesn’t provide help to those in need. We have an entire ministry that oversees social and family issues as well as an army of social workers that work extremely hard to help families in need.

Unfortunately, it seems that in order to qualify for all sorts of help, there are layers and hoops to jump through. In other words, there are lots of conditions attached in order to receive the help they need.*

More importantly, having all sorts of conditions attached in order to receive help continues to send the message that poor people can’t be trusted to make the right decisions for themselves.

It’s also in the same spirit that former GIC chief economist, Yeoh Lam Keong has come out to question Minister for Trade and Industry Chan Chun Sing on why he exhorts the better off in society to do more to help the less well-off rather than have the government do more instead. Yeoh points out that an increase in spending of 0.8% of GDP would be enough to improve Workfare Income Supplement (WIS) and Silver Support Scheme (SSS) substantially.

 

Conclusion

I think Singapore has developed to the point where we can help the less fortunate in society more. We can step away from the old messages of “helping them more will lead to higher taxes”** or that “if you work hard enough, you will succeed”.

 

Notes:

*I understand the need for paperwork as the government needs to ensure that taxpayers monies are disbursed and used in the right manner. However, people need to recognise that additional procedures and paperwork create friction. At some point, the friction and inefficiency from the paperwork is going to outweigh any costs of the system failing. In other words, the inefficiency in the system has a higher cost than the abuse the paperwork is meant to prevent.

**Anyway, GST is projected to increase to 9% in a few years time. The rationale is that we need to increase revenues as the burden on healthcare will increase.

Shoebox Unit Buyers and Developers Going to Get Screwed?

edit: I used the words “Mickey Mouse” and shoebox interchangeably.

 

A good friend brought to my attention this commentary about URA’s latest move to restrict the size of units in new private housing developments outside the Central Area.

Reading the commentary and the news when the restrictions were first launched, it appears that the main beef URA had with these “Mickey Mouse” apartments was that the proliferation of these apartments in certain areas would increase the population density and hence increase the strain on public infrastructures such as roads, MRT lines, and buses.

The commentary piece also seems to feature the downsides of shoebox units quite heavily:

• Rental yields under pressure
• Stagnant to falling prices for such units
• Buyers who would easily have turned to a resale HDB if they had a choice
• Sneaky developers who use such units to elevate the PSF of the project

 

What does the future hold for such shoebox unit owners?

In the light of rising interest rates, I would say that these guys are screwed. However, it bears noting that “these guys” are probably a small subset of the market. After all, who on earth thought that it would be a good idea to buy a Mickey Mouse-sized apartment in the heartlands to stay or as an investment?

Location is a big factor in property investment. Areas like Tanah Merah or Woodlands are one of the cheapest places to stay in Singapore. You can easily tell which areas are more prized thanks to the difference in HDB resale prices by area.

The next thing after location would be size. I think it would be quite universal to say that when it comes to living space, “more is better”. Of course, that reasoning can only be taken to a certain extent but shoebox units are starting from the other extreme. Try convincing people with one or two children to live a minimalist lifestyle.

While the article also mentions how some owners are optimistic that there will be less supply of shoebox units and hence it’ll raise the value of the units, my bet is that the rising interest rate environment forces more units onto the market and adds the existing supply of shoebox units.

 

Salvation for shoebox unit owners

The only salvation I can think of for shoebox unit owners in the heartlands would be an increase in the number of tenants.

These tenants could come from the longer-term stay because they’re here for work and on tighter budgets. This assumes, of course, that there are so many of them that they already drive rentals in the HDB market up to the point that shoeboxes become attractive.

The other group of tenants would be from short-term stay like Airbnb but oops, that market is also heavily restricted right now. Meanwhile, the property market is expected to continue to add more than 10,000 new private residential units every year (except for 2020) up until 2021 and vacancy rates are creeping up.

 

Conclusion

I’m pretty sure that with URA’s latest move, it’s signalled to the market that shoebox unit owners are screwed. Note that the restriction wasn’t a major move — it just inched the size development guidelines up by a bit and confined that restriction to projects outside the Central Area, but in that one move, it’s shifted the limelight to shoebox units and what the downsides of owning one are like.

I’m pretty sure that shoebox unit owners who can’t hold on to their property amid rising supply and vacancies are going to feel quite bad. If the shoebox unit is just a part of their investment portfolio, they’ll be fine. If it’s the ONLY part, they are going to feel quite a bit of pain.

Retiree Investor Loses Money in a Stock. Should We Be Sympathetic?

 

Everyone’s favourite piece of paper

Francis Tay feels cheated.

The former Singapore civil servant says he’s lost almost S$50,000 in the implosion of Noble Group Ltd, the commodity trading giant. He also says shareholders like him have been let down by regulators whose job it is to protect them from the sort of crisis that’s brought the company to the brink.

‘I was cheated’: Tales from the collapse of commodity giant Noble – The Business Times

When I read the above, I immediately thought of the whole Minibonds saga that emerged during the Global Financial Crisis. Of course, the difference is that many of the investors who bought Minibonds thought (or they wanted to think?) they were buying something safe and that even in the worst case scenario, they would get their capital back.

In this case, investors in Noble are crying foul that the regulators didn’t do enough to ensure that Noble’s financial reports reflected economic reality. There were probably things that SGX could have done as the regulator but ultimately, based on the accounting rules at the time, it doesn’t appear that Noble did anything illegal.

What Matters Most

I was pretty wary of the commodity trading firms not because I suspected they were up to some financial shenanigans but because of the economics of the commodity trading business. It’s econ 101 that the commodity business is a low margin business. Net profit margin is typically in the single-digit range.

This means that the company’s survival depends heavily on cashflow and if the company wanted to boost returns, then they would probably use a fair amount of leverage to do so.

Obviously, if you live on the edge, the chance of falling off the edge should a strong gust of wind blow in the wrong direction becomes much higher. This is exactly what happened to the commodity houses such as Olam and Noble when short-sellers started to accuse them of accounting trickery. Add to that the downswing in the commodity cycle and you have a recipe for disaster.

Of course, in hindsight, we know that Olam has emerged relatively unscathed while Noble seems stuck in an eternal downward spiral which may eventually result in bankruptcy or some form of major dilution for existing shareholders.

Francis Tay really shouldn’t be moaning about his $50,000. If you plan to invest in a company, you need to be prepared to lose the entire sum should non-systemic risks like this come to pass. This is exactly the reason why people have a diversified portfolio. You diversify across asset classes and within the asset class, you diversify across holdings. Of course, there is danger in going overboard with diversification. As with everything, moderation is best.

Human Nature

By the way, Francis Tay should take comfort in the fact that he’s probably not alone. Few people curse themselves when investment decisions go bad and many pat themselves on the back when the decision goes right.

Also, I’ve heard of people who are trained in accounting and finance who buy into stocks with bad economics or products like the minibonds.* Aside, buying stocks with good economics at the wrong price may hurt as well.

Smart people can make stupid decisions too. It’s pretty common when you let fear and greed convince you of the narrative that you want to hear. That’s why I prefer to make a plan and stick to it. I know I’m going to do something dumb at some point. It could be thinking that I can time the market or that I’ve made some superior insight into a company. That might lead to bad behaviour like trading too much by going in and out of the market and in the process, incurring lots of trading costs. Or it could be that I bet the farm on my superior insight, only to lose everything.

Final Thoughts

Please don’t be Francis Tay. Unless you were coerced or misled by an advisor** into making a financial decision, moaning about your losses won’t make you a better investor. Throwing good money after bad is also going to make you poorer. And lastly, don’t buy on myths like “blue-chips are forever” or “Temasek will always save the day”. Please think of your plan and stick to it. If you can’t invest, then maybe it’s better that you buy a low-cost index fund or ETF. In fact, that’s probably the right choice for most people.

 

Notes:

* I know a guy who used to be an audit partner who was telling me to buy tigerair and Singpost many years ago. Last I checked, prices never went above the price that he was telling me to buy at. I also know of a finance lecturer who bought the minibonds. Not sure if she thought they were capital guaranteed or she knew how it worked and she was just taking a bet.

** I have some things to say about so-called financial advisors too. More on this some other time.

Crazy Rich Singaporeans But Still Not Happy

Singapore

Singapore’s become quite well-known in recent months for a variety of reasons. First, we hosted the Trump-Kim summit in June. Now, we have our island represented in a major Hollywood film that is breaking barriers by casting an Asian leading cast; Something absent since the days of “The Joy Luck Club”.

This post isn’t about the movie.

Rather, this post is about how having more money than 90% (or is it 95% or 99%?) of the population doesn’t bring one peace and happiness. In a sense, life imitates art or in the case of Crazy Rich Asians, I guess Kevin Kwan really did paint a very real portrait of #richpeopleproblems.

Exhibit A: Audrey Tay

Daughter of The Hour Glass founders pleads guilty to taking drugs, driving offence (read the full article here)

SINGAPORE: The daughter of the founders of a luxury watch group pleaded guilty on Monday (Aug 27) to taking drugs, as well as to causing a car crash that uprooted a divider in 2015.

Audrey Tay May Li, the 45-year-old daughter of the founders of The Hour Glass, admitted to three drug charges and one charge of driving without due care or attention. Five other charges will be taken into consideration for sentencing.

ChannelNewAsia

The sad thing isn’t about how she consumed drugs but when CNA’s original post was shared on Facebook, her mother left comments in the post and you can tell that this family has been through a lot of drama.

Exhibit B: Shi Ka Yee

Ferrari driver, 73, pleads guilty to obstructing Orchard Road (read the full article here)

SINGAPORE: Ferrari driver Shi Ka Yee, who has been in and out of court for various charges including assaulting another driver, pleaded guilty on Monday (Jul 16) to obstructing Orchard Road with her car two years ago.

ChannelNewsAsia

If you search for this lady’s name, you’ll find that she’s been embroiled in quite a number of disputes that end up in the Courts. Rumours floating around the forums also link her to a former politician and her listed address is in one of the premier neighbourhoods in Singapore. But her behaviour’s probably one of a person who’s lonely and calling for attention. It just screams “Look at me! Don’t ignore me, please!”.

Money Can’t Buy You Everything

Both Audrey Tay’s and Shi’s case show that even with an obscene amount of money, happiness and peace can elude you if you believe that money can solve everything. Sometimes, as a wise bear once said, “Doing nothing often leads to the very best something.”

Sometimes, there is really nothing to be done. Working harder to make more money to buy things that you don’t need doesn’t bring you extra happiness. Once you’ve gone beyond a certain level of material comfort, more isn’t always better.

In both those cases, what’s probably necessary is a paradigm shift. A realisation that happiness comes through one’s own view of the world and that view is probably better served by surrounding yourself with friends and family that genuinely love you for the person you are and not the favours you can do for them.

If you find yourself hanging on to something that’s no good for you, the natural thing to do is move on.

The Opportunity Cost of Spending Too Much on Housing

Is your housing expenditure detriment to your retirement?

 

Alternatively, this could have been titled, “An Ode to my CPF”.

I know I’ve given lots of shit to CPF (for example, “CPF monies: to depend on it for retirement is a pipe-dream“, the footnote in “Early retirement: some math“, or more recently, “What’s the economic logic behind CPF’s accrued interest policy?“) but think about it:

What if you had regular contributions to your CPF and you let it compound?

There is a group of people in Singapore that has spent so much on housing that they have barely any contributions to their CPF each month. Those that even have to fork cash out of their pockets to pay the mortgage are in truly dire straits. If you happen to find yourself in this situation, read on below.

A Very Personal Example

I happen to belong to the camp that has regular CPF contributions because my housing loan is so low that my monthly CPF contributions more than covers the monthly mortgage. Also, I will finish paying off my loan in another 4 years or so (background here).

So I decided to run the numbers on the following scenarios to see how much I would have when I turn 55 (the age that we can finally take some of the money out of our CPF accounts):

A: If I work for another 20 years
B: If I work for another 10 years
C: If I work for another 5 years

The assumptions I’ve made are as follows:

#1: Current contributions increase by $10,000 per year after our housing loan is paid off.

#2: Contributions remain constant over time. i.e. No increases in salary.

This is for easy math and anyway, I don’t expect my salary to increase drastically beyond the inflation rate so the contributions can be viewed in ‘real’ terms.

#3: CPF returns 3% across all accounts.

I’m assuming this despite having more monies in my Special Account (SA) at this point in time. I know the SA earns a higher rate of interest and combined sums (subject to a cap of $60,000) in your accounts earn an extra 1% but once again, this is for easy math and to set a floor.

#4: I’m starting with roughly $130,000 in both my OA and SA.

Numbers

Thanks to the magic of Excel:

Scenario        Final Amt at 55 ($)

    A                  $1,180,000

B                  $772,000

C                  $495,000

Final Thoughts

Obviously, the numbers above are not going to be representative of what another Singaporean might end up with. I’m making above the median salary although NOT much more than the Median Household Income. Of course, a major factor is that my wife also works and our household size is smaller than the average*.

I still believe that the CPF system needs a revamp. Way too many people are spending what should be their retirement savings on a property, either as an investment (which is still somewhat excusable) or on housing (gasp!). That’s probably one of the main reasons why only about half of CPF members can meet the retirement sum despite pledging their property.**

Also, one big sore point for many people is the Retirement Sum*** going up. There’s a good article on what the retirement sum may be like for younger people today when they reach 55 later on. Just eyeballing the table, it seems that based on my calculations above, meeting the retirement sum shouldn’t be a problem.

Very often, people forget that compounding needs time to work its magic but for compounding to work, there’s needs to be something to compound in the first place. If you spending all your money on housing, there won’t be anything left to compound. And if you want to turbo-charge compounding then you need both time and regular contributions.

 

Notes:

*I believe the average household size is 2.1 in Singapore. No, us having a cat doesn’t count.

**There are also other factors at play. I suspect that the labour force participation rate should explain quite a bit. Some (especially mothers) may have only worked very few years of their lives and hence have little in their CPF accounts. For example, my own mother practically stopped working full-time after she had me and my brother. By the time my youngest brother came along, she had already stopped working for some years.

***The Retirement Sum is the minimum you need to have in your CPF accounts so that the CPF can slow-drip the money back to you in old age so that you have enough money to meet your basic spending needs.

Are HDB flat owners really owners or are they just tenants?

 

I’m glad someone’s finally come out to put a stop to the nonsense that’s been going around on the internet. The hoo-ha started when property analyst Ku Swee Yong wrote an opinion piece in the ST which prompted a reply in the ST forum pages.

Basically, the debate was whether calling HDB flat owners “owners” accurate or whether it was more accurate to call them “tenants” since the leasehold term for an HDB flat lasts for only 99 years, after which, the flat automatically goes back to the government.

The forum writer’s reply was that calling HDB flat owners “tenants” is not good for national defense for psychological reasons.

The Big Question

So what’s the truth?

HDB owners vs tenants: unpacking the great illusion

[…]

So am I an owner or a tenant?

Both. What you own is a tenancy. Clearly, if you have a flat on a 99-year lease, you are a tenant (as opposed to a lodger) because you have exclusive possession of the flat. However, it is also clear that you are not an owner because your right to use the property exists for a fixed term – you will have to surrender your lease at some point.

So it is clear – you do not own the flat, but that does not mean you are not an owner of anything. What you do own is the tenancy. This is because a tenancy an asset that can be bought and sold and your freedom to deal with your tenancy fits with the idea of ownership described above.

[…]

The article that I’ve referred to makes a good case that HDB flat owners are still owners. It’s just that they do not own the flat itself but that they own the lease. After all, this is the effectively the same as owning a private property that has a land lease of 99 years.

Those that say that HDB flat owners are mere tenants forget that if you rent a place, you can’t profit from the sale of the place. Unfortunately, this is what HDB flat owners can do which automatically contradicts the fact that HDB flat owners are mere rentiers.

The Better Way to Think About HDB flats

Property, just like any other asset class, depends on a market of willing buyers and sellers to establish a price for the asset. A 99-year old piece of property ultimately has a quicker pace of depreciation built into it.

You may buy the official line about how HDB flats are a good store of value but that will ultimately depend on the generosity of the sole buyer of that asset at the end of its 99-year life.

Alternatively, you may treat it as a gamble on having the HDB flat be selected for SERS (Selective En-Bloc Redevelopment Scheme) and you get a new property in a similar location which would be worth a lot more than what you paid for the older property.

At the same time, remember that if you stay in your HDB flat, you don’t have to deal with the hassle of renting a place. The downside is that you have to pay for property taxes and conservancy fees.

PM Lee’s NDP Rally Message doesn’t change things

I wrote the previous two sections before Sunday’s (19 Aug 2018) National Day Parade Rally and it didn’t occur to me that he was going to touch on housing in such a big way during the rally.

PM Lee announced quite a few things that will impact housing in Singapore, particularly in the HDB market. I don’t think it changes much of what I’ve said above and the announcements were mainly to assuage the general public that their biggest asset would still retain its value. Notice that he didn’t say that HDB flats will be your goldmine, just that the flats should retain its value.

To be honest, it doesn’t change the dynamics much and you have to remember that the first generation of HDB owners have seen great capital gains for their flats only because Singapore’s economy has grown at an outstanding pace over the last 50 or so years. As the economy has grown, naturally the cost of living and the assets that provide these services must get more valuable.

I think the first generation of flat owners is going to benefit from HDB price appreciation. But what about the second and third generation? We have to remember that Singapore’s resident population is barely growing and much of the growth is due to new residents and permanent residents as our birth rate is below replacement levels.

For newer HDB flats to retain value when they get older, the housing supply will have to decrease or the resident population has to increase.  Perhaps, at some point, HDB will not build new flats in place of older ones.

Parting Thoughts

By the way, private property owners better hope that HDB flats retain their value. Otherwise, the private property markets will be hit as well. The markets, while distinct, are more related than people think.

After all, an apartment and a flat are ultimately just a place to stay. A fair number of private property buyers also come from HDB flat owners who have sold off their flats and wish to upgrade to a condominium apartment. If one type of property gets much cheaper relative to the other, prices will have to correct to narrow the gap between the two.

In summary, don’t forget that housing is an expense whether you own or rent the place. And if you’re into a property as an investment, don’t forget that you’re in it for the leverage and not the yield.

Best Things I’ve Read All Week: 19 Aug 2018

Been busy this week. I wish I had more commitment to code more. I’m trying to work on a property index data page for the local markets. This is based on my posts (here, and here) from some time back.

Anyway, here are the best things I’ve read all week.

 

 700 more days to FI (Minimalist in the city)

I chanced upon this blog from my google recommendations (thanks google!) and it’s nice to know how other Singaporeans are trying to achieve Financial Independence. I like how they’ve tracked and categorised every single expenditure (not something I would ever do because I’m just not that sort) and that’s given them a timer that they can countdown to.

The only flaw I see in their plan so far is this:

The objective is to have enough dividends generated from our stock portfolio to cover our annual expenses in 10 years time so that we could get out of the rat race and live on our own terms.

While dividends are much more stable than earnings, dividends are by no means constant. Companies can be forced to cut dividends or the tax code may change such that companies reduce the dividends paid. On the other hand, especially when you’ve already pared down to the bare minimum, expenses are pretty much fixed in the short-run.

We basically will be drawing on our savings account for our annual expenses and will get yearly top up from our stock portfolio returns dependent on the market returns and dividends for that particular year. The longest bear market for S&P 500 as illustrated below lasted about 2.8 years and the average bear market lasted between 3 months to 2 years. That’s the reason why we kept almost 3 years of expenses in savings and bonds to ride through any future bear market. This is to mitigate the possibility of force selling any of our stocks.

At the same time, most of our stocks are mainly in REITs and strong dividend paying blue chips which provides us with dividends even in a bear market like the one we personally experience during the 2008 financial crisis.

We could easily scale down our expenses with our minimalist lifestyle should there be prolonged bear market.

Lastly, we did not rule out going back to the workforce as we are highly employable working professionals. (I doubt we will reach this stage but just in case)

While I don’t dispute how long bear markets can last, I question the wisdom of depending solely on distributions from REITs and dividends from Blue-Chip stocks. Remember, distributions can get diluted and dividends can get cut.

No comment about point 2 but I suspect point 3 is a tad optimistic. Mid-career professionals who have been out of work for a while tend to find it hard to get re-employed. There’s always the choice of joining the gig economy (like being a Grab/Uber driver or a freelancer if their former professions allow for it.)

But otherwise, I think this couple is doing great! I hope the day will come when I share my own story as well. I’m not ready to share it yet but let’s hope that day will come sooner rather than later.

 

The Peter Principle is a joke taken seriously. Is it true? (Tim Harford)

What started out as a joke seems to have become truth in the business community.

The Peter principle states that “every employee tends to rise to his level of incompetence”. If someone is good at her job, she’ll be promoted into a job that demands different skills. If she’s good at the new job too, she’ll be promoted again, requiring yet another set of skills. One day, she will arrive at a job for which she is wholly unsuited, and there she will stick. Since when did a manager ever get sacked for anything?

Sadly, the Peter Principle seems to be born out by the research:

The authors of the paper discovered that the best salespeople were more likely to be promoted, and that they were then terrible managers. The better they had been in sales, the worse their teams performed once they arrived in a managerial role.

It’s pretty funny but real life seems to present lots of examples of this. My wife has been complaining about the management of her company and the Peter Principle seems to ring true for many of them. They may have been great at their previous roles but they certainly suck at their current ones.

Maybe the same’s true for the former SAF people at SMRT? =D

 

This Is How To Make Your Life Awesome: 6 Secrets From Research (Barking Up The Wrong Tree)

I’m pretty sure these findings are from same TED talk that I’ve seen before.

Anyway, a short summary of the 6 tips:

Avoid smoking and alcohol: Duh.

Years of education = good: Education seems to increase good habits (and being surrounded by smart, ambitious people never hurts).

Have a happy childhood: It’s huge. And surrounding yourself later in life with people who love you can help repair a difficult youth.

Relationships are everything: “Happiness is love. Full stop.”

Mature coping skills: Stop projecting and stop being passive-aggressive. Use mature defenses like humor when life gets hard. (Yes, immature humor is still mature coping. You’re welcome.)

Generativity: Build a good life, a well-rounded self and then give back.