Friday, August 12, 2016

The difference between preferential offer and rights

I just received the booklet from Croesus regarding their preferential offer of 10 new units @ 0.797 for every 259 shares owned on ex-offer date of 3rd Aug 2016 that I blogged about here. I initially thought this is like rights exercise, which I'm very familiar with. But on closer inspection, it is not. Let's explore what's the major difference.


I think the most important difference is that rights are usually renounceable. This means that if you do not want to take part in the rights and subscribe to it, you can do so by selling it. If you're a shareholder, you'll be entitled to rights shares. These are called nil paid rights, because you haven't gone down to the ATM to pay the subscription price for it to be converted to ordinary new shares. There's a nil paid rights trading period, about a week or so, where people can buy or sell their nil paid rights. If you do not want to take part in the rights, you can sell the nil paid rights in the market during the nil paid rights trading period, so you're sort of compensated for the eventual dilution in your shareholdings upfront.




So, renonuceable means you can sell/buy and transfer to others, and there'll be a nil paid rights trading period to facilitate this. The nil paid rights counter is usually accompanied by a letter R, so there's no question that this is the rights share you'll be buying or selling.


Preferential offer is non-renounceable. Well, at least the one offered by Croesus is not, so I'm not sure if I can extend it to all other such preferential offerings of other companies. Non-renounceable means you cannot sell/buy and transfer the new units to others. This also means that there will not be a nil paid rights trading period. You either subscribe to your entitlement by going down to the ATM to pay for it (in this case, $0.797 each) or you can walk off. But what you can't do is to sell your nil paid rights away, unlike a proper rights exercise. In other words, you either subscribe or you get diluted because of the injection of new units that you refuse to participate in.


To summarise, in all purpose, a preferential offering is like a rights exercise without the ability to buy/sell your nil paid rights because it's non-renounceable. 

If you really don't want to take part in the preferential offering, I see only a few options available:

1. Sell off the mother shares before the ex-offer date (I did sell off a part as I don't want to be over exposed here). But it's kind of late for Croesus now, since the XO date is over on 3rd Aug.

2. Ignore the entire thing, and let your rights expire without paying the $0.797. This is not a wise thing to do though.

3. Subscribe to the rights by paying $0.797 by 17th Aug 2016 and then sell it on the market when the new units gets listed on 26th Aug 2016. I am even going to apply for excess to see if I can get back cheaper for the holdings that I sold before XO.


I suppose those people who are really forced to put in more capital will be doing number 3. Might expect the Croesus price to drop after 26th August 2016.

Friday, July 29, 2016

The first domino falls

We just heard news of Swiber sudden winding down. DBS is one of the main banks that loans money to Swiber, so their exposure is about 700 million. That's not a lot of loans, relatively speaking. 700 million is about 0.25% of their total outstanding loans in 2015 and it's about 15% of their total 2015 net profit. But they are confident of getting half of it back and after tapping onto their general provision, they are net loss of about 150 million. How much is that? It's about 3.3% of their 2015 net profit.




Is that significant? No, but the trouble is that it might not end there. Most likely, this is just the beginning of the oil and gas sector contagion that will spread eventually to the banks. When Swiber falls, people will be wondering who is the next company to fail. Ezra, ezion, vallianz, swissco and even sembcorp marine are possibly candidates. They might also have inter-related business interest that joins each other like blood brothers and sisters. So if one fails, it might cause a whole domino effect cascading down the entire oil and gas sector in Singapore.


Whoever is lending most aggressively to them will suffer the most. In their heydays, Swiber is a $6 stock and easily one of the most anticipated growth companies here in SGX. Heck, I even traded Swiber before. DBS and OCBC seems to be the more aggressive of the big local 3 banks, UOB being the more conservative one, so it seems. Maybe that's why the share price of the three banks dropped proportionally to the level of loans linked the the troubled oil and gas sector.


I heard news of 98 million shares of Ezra pledged to DBS and another 98 million shares pledged to OCBC as collateral. When the contagion spreads and the share price falls, it will lead to even more selling as nobody wants to be left with a worthless piece of paper as a collateral. We should expect more of such news in the coming months to come.


Is it a good time to scope up bargains in the oil and gas sector? Be greedy when others are fearful and fearful when others are greedy? I think it depends on your skill in navigating the rubbish from the gems. If you understand the sector well and can see which are the companies that can survive and thrive after the crisis blows over, you'll be the biggest winner. But I know I don't know anything about this, hence I will skip it. In the event of a major market sell-down catalyzed by the bankruptcy of the oil and gas companies, I will rather buy those companies that having nothing to do with this sector but nevertheless got their share price marked down severely, than to buy the troubled oil and gas company at a cheap price and hope that they will survive and thrive.


a) Good company, non troubled sector, low price
b) Good company, troubled sector, low price
c) Bad company, troubled sector, low price


Between the a,b and c, I think (a) should be the top most priority. (b) and (c) are the ones that can make you really rich, but do you have the skills to see separate the (c) from the (b)? It's not as if there's only this sector to focus on, so I'll skip it and live with my choices.

Thursday, July 21, 2016

Trying to be SMART on SMRT

Stupidity induced by greed.


That's the only way to describe it. Upon announcement of the offer by Temasek holding for the delisting of SMRT at $1.68, I wanted to arbitrage on any possible price difference between the opening price and the offer price. These are the assumptions I make:

1. There's a dividend of 2.5 cts waiting for me

2. The price that Temasek Holdings offer is too low ball and will be revised upwards




With that, I queued overnight at a limit price of 1.675 and got it this morning at a entry price of 1.665. With that entry price, I will make about 2% after comms and I'm okay with that. It's like a fixed deposit. I was happy for a while until the news kept streaming in that destroyed my underlying assumption.


Firstly, the dividend of 2.5 cts had already been declared and had gone xd on 18th July 2016. So no more dividend and no safety margin for me to fall back on to make this deal work out right.

Secondly, it's not a general offer in the usual delisting lingo but a scheme of agreement. I thought it meant the same but apparently it's not. This 1.68 is the final offer price and if the resolution is not passed, then Temasek holding will not make another offer until 1 year later. And in order for the offer to be passed, at least 50% of the shareholders present in the meeting must vote yes, and they must collectively hold at least 75% of the shares not owned by Temasek holding. And Temasek hold about 54% of the shares.


That means if the offer is passed through, I get $0.015 returns and if I didn't go through, I might potentially lose anything between $0.125 to $0.150. In dollar terms, if it goes through I win $30 (after comms) and if it didn't I lose $500 to $700? The risk reward is so bad that I cut loss at 1.655 and take a loss of about $100 in all.

Stupidity induced by greed.

The good thing in all these is that upon realization of how stupid this deal is, I cut loss immediately and immediately felt much better.

Friday, July 15, 2016

Growing my investment portfolio

There are only two ways in which my portfolio can grow without leverage - the first is to inject it with fresh capital, and the second is to grow it organically from dividends/capital appreciation.

To grow it by injecting fresh capital, it will have to come from savings. And where do savings come from? From work. After subtracting all the necessary deductions, I'm left with 30k to inject into my warchest every year. When my portfolio is small, say about 100k, this addition of 30k per year into my portfolio will increase it by 30%, which is way more than what I think I can grow my portfolio organically. As my portfolio grows bigger in size, there will come a time when the addition of 30k per year will not be significant. 500k portfolio with 30k injection is 6% while a 800k portfolio with 30k injection is just 3.75%.

That's the effect of having a bigger base.




I suppose if I can grow my portfolio at 5% per year, my portfolio has to be more than 600k in order for the addition of 30k fresh capital to be 'insignificant' compared to the portfolio's organic growth. It's a little bit more complicated than that, I know. The fresh capital of 30k that is pumped into the portfolio will generate more dividends, that will result in more savings and thus having more fresh capital to be pumped into it. Let's ignore that fact for now and keep things simple. Whatever extra compounding will offset any losses that will come from time to time in the stock market.

I've a warchest plus portfolio size of 200k right now. To reach 600k with injection of 30k per year, I'll need 14 years to do so. This also means that in the next 14 years or so, it's more important to focus on my job and make sure I can continue to contribute 30k into my portfolio, rather than to depend on my portfolio for organic growth. Eventually, when the size of the portfolio increases to such an extent that the annual 30k increment is no longer significant, then I'll have to be a lot better in my portfolio growth. It's not that I have to choose one or the other, but it's good to know what will contribute to a greater extent to my portfolio growth so that I know what is the most effective way to grow it.

The conclusion is that it's still important to work and earn and save to grow your portfolio. To do that, you need to study to get yourself the required certification to earn a good pay for the greater part of your life, while learning to improve your skills in growing your portfolio that will only kick in towards the later part of your life. Whoever thinks he can skip school and start making big bucks in the stock market when they haven't even stepped into the working world is either delusional or privileged.

I hope it's the latter.

The day SGX stopped trading for 5.5 hrs

On Thurs, 14th July 2016, SGX had to halt trading for all its counters around 1130 am. At first, it's supposed to resume trading at 2pm after lunch, but at 2pm when I was eagerly waiting to see if there's any movement from my brokerage platform, I was disappointed. Nothing moved. Later it was announced that it trading will be resumed at 4pm instead. Yet again, at 4pm, none of the counters moved. The last announcement regarding this screw up was that there won't be any trading for the rest of the day and the market is closed.


I don't think I've seen SGX closed for trading longer than this time round, which lasted about 5.5 hours. It really didn't affected me much, but I can imagine the following groups of people being frustrated with the whole fiasco:


1. Those who naked short in the morning and wanting to close towards market end.

I wonder what will happen to these group of people. Technically it's not their fault to do a naked short since the market is closed so they can't buy back and close their positions even if they wanted to. I wonder how SGX will handle this case.



2. Those who are playing around with Noble rights.

It happened that 14th July is the last day of the nil paid trading rights period, so for those who wanted to sell their nil paid rights without subscribing or wanting to get more nil paid rights, they are prevented from doing so after 1130am. This is resolved when it was announced that the Noble nil paid rights trading period is extended for one more day until Fri. That much was certain and it's easy to solve.

3. Those who are playing around with companies going XD on Fri

That means that Thurs was the last day with the CD status. And since nobody can trade after 1130am, those buyers who wanted to buy to be entitled the upcoming dividends will miss the chance. Or those who want to sell their shares before XD won't be able to do so.

4. Those playing with HSI put/call warrants

HSI market is very much open while STI is closed for the day. This will result in arbitrage situations that may result in gain/loss for people. It's unfair, but I don't think SGX can do anything about it.


I'll be the first to admit that the above 4 groups of people are in the minority. These are generally complex stuff that most people won't even touch at all. If one brokerage firm screws up, we can 'insure' ourselves by having another brokerage platform to trade on. If SGX breaks down, what can we do?

Nothing. Sometimes shit happens and we just have to roll with the punches.

Or, we can really be careful with all the open trading positions we have and limit our exposure. I'm not talking about cut loss or stop losses here. It's just the number of open positions we have. If, for example, Dow jones dropped 10% after we had to stop trading on Thurs, I think the price might open much lower than your stop losses as the price gapped down, which means you will stop your losses lower than what your stop loss limit are. That can be disastrous.

Don't say such things won't happen. I think it'll happen more often when the market is unstable, like in a huge downturn and the volume surged so much that the server can't handle it.

Thursday, July 07, 2016

Who is being speculative?

A value investor, a trader and a gambler goes into a bar. After a drink or two, they started arguing over which of them is speculating in the market.




The value investor says that the other two are not basing their investments on fundamental reasons and treating the buying of their part business ownership like digits, hence the two are speculative.

The traders says that the other two did not consult the technical aspect and the price action of the charts before putting in their money, hence the two are speculative.

The gambler says the other two did not seek insider's news or throng the forums for the hottest rumors, hence they could not possibly know what the BBs are doing without a ear on the ground, hence the two are speculative.

As you can imagine, they couldn't come to a consensus, so they suggested asking the worldly bartender for his opinion on this subject matter.

The bartender says that since all of them would rather spend their time talking about philosophical difference instead of making money like him working on a second job at night, so all of them have no business talking about money, and therefore also investment, and hence all of them are speculative.

Friday, July 01, 2016

Croesus Retail trust preferential offering

Those holding Croesus retail trust needs to fork out money again. This was after their most recent rights back in Oct 2015 which I've blogged about here, here and here. There is now a preferential offering exercise going on, and in all respects, we can treat this as a rights exercise.

Here's the details:


The dilution isn't that much. It's an offer of 10 new shares for every 259 shares held before it goes XR, priced at $0.797 for every new shares. Why 259? I've no idea, must be the doing of their financial wizards. If you own 10,000 shares of Croesus before XR, you'll need to fork out $307.72 to subscribe to the new shares. It's not that much, really.

The price went up to a high of 0.82 today strangely, but perhaps not surprisingly. It wouldn't look too good if the new shares is priced at $0.797 but the share price is trading below that.

I'll be subscribing to it, and applying for excess if available.

Wednesday, June 29, 2016

The Animal School

Thanks to sillyinvestor for egging me on to write something in my blog. Been a busy June for me and I'm still recuperating lol! But here's a very good story inspired by an article I read recently here. It's a very good article but also a sad one for me. I'm not sure why though. It's like something is lost and yet nobody knows it. Imagine losing a precious thing to you, but you didn't notice it because you had forgotten the thing was once precious to you. It's a doubly sort of loss.




Here's the Animal School by George Reavis:

Once upon a time the animals decided they must do something heroic to meet the problems of a “new world” so they organized a school.

They had adopted an activity curriculum consisting of running, climbing, swimming and flying. To make it easier to administer the curriculum, all the animals took all the subjects. The duck was excellent in swimming. In fact, better than his instructor. But he made only passing grades in flying and was very poor in running. Since he was slow in running, he had to stay after school and also drop swimming in order to practice running. This was kept up until his webbed feet were badly worn and he was only average in swimming. But average was acceptable in school so nobody worried about that, except the duck.

The rabbit started at the top of the class in running but had a nervous breakdown because of so much makeup work in swimming. The squirrel was excellent in climbing until he developed frustration in the flying class where his teacher made him start from the ground up instead of the treetop down. He also developed a “charlie horse” from overexertion and then got a C in climbing and D in running. The eagle was a problem child and was disciplined severely. In the climbing class, he beat all the others to the top of the tree but insisted on using his own way to get there. At the end of the year, an abnormal eel that could swim exceeding well and also run, climb and fly a little had the highest average and was valedictorian.

The prairie dogs stayed out of school and fought the tax levy because the administration would not add digging and burrowing to the curriculum. They apprenticed their children to a badger and later joined the groundhogs and gophers to start a successful private school.


Thursday, June 16, 2016

Bullish / Bearish divergence

I thought I'll never write another article on technical analysis again. But here I go again. I trade on divergence, so it's a counter trend trading, if you want to classify which school of TA I'm into. Divergence means that there is a pair of things moving in opposite direction. One of the pair is invariably the price of the counter. The other pair could be any indicator, but the one I'm using is MACD histogram.

Bullish divergence happens when the price reached a lower low but the indicator reached a higher low. It's easier to explain this with a diagram.



Points A, B, C are the price points of the counter. a, b and  c are the indicator points. As mentioned, it can be any indicator but I'm using MACD histogram.

A and a - The price reaches a first deep low and the MACD histogram follows suit and reaches a first deep low.

B and b - The price went up and the indicator moves up accordingly too. It's important at his point that the MACD histogram point b moves above the 0 level, indicated by the dotted line.

C and c - The price reaches a lower low than A, thus establishing a lower low in price, but the MACD histogram at c did not reach a lower low than a, thus establishing a higher low.

Bullish divergence happens when price reaches a lower low (C lower than A) but MACD histogram reaches a higher low (c is higher than a). Thus a divergence between price and MACD histogram happens and the price is set to move up higher. The psychology behind this is that the indicator tells us how strong the movement is. When the price A moves down then MACD histogram a moves down accordingly, forming a benchmark for us to compare. If price C moves down even more than A, we will expect the MACD histogram to show us that the movement downwards is a stronger one than at a. Since we didn't see that happening, the second selldown in price C is lacking in strength, indicating that the price will move upwards, forming a bullish divergence.

Real examples:

UOB (weekly)



Price A moves down to a first low of about 17.95. Then it moves up to B at about 20 before coming down to a lower low C at about 17. While the price at the second low C is lower than the first low A, the MACD histogram shows us a different picture. Point c is higher than a, so we know that the second selldown at point C is a fake selldown. Price resumes upwards to about $20.

Ho Bee Land (weekly)


Again, you see the that the price C moves lower than A, but the indicator c did not move down lower than a, forming a bullish divergence. The price went up from the low of C at 1.80 to a higher of 2.35+ recently.


Can we go reverse and have a bearish divergence?

Bearish divergence happens when the price reached a higher high but the indicator reached a lower high. Again, let's see the diagram below to illustrate the scenario:



A and a - The price reaches a first high and the MACD histogram follows suit and reaches a first high.

B and b - The price went down and the indicator moves downwards accordingly. Make sure the the part b is below the 0 line of the MACD histogram mark.

C and c - The price C reaches a higher high compared to A, thus establishing a higher high in price, but the MACD histogram did not reach a higher high than c, thus establishing a higher low.

Thus a bearish divergence forms and the price goes down lower. The reasoning behind this is that the price movement upwards at point C is not accompanied by a stronger push by the indicator c, hence the upwards movement is 'fake' and a downward pressure in price ensues.

Real examples:

UOB (daily)



Price moves up to a first high at A at about 19.5, then moves down towards B at about 18.4 before going upwards again to a new high at C at about 20. While the price at C reaches a higher high than A, the MACD histogram shows us a different story. Point c is at a lower high than a, thus showing us that the 2nd upward movement at C is not real. A bearish divergence happens and the price goes down to about 17.6.

UOL (monthly)



This is a very important example. There are three common time frames that we can use to check for bearish/bullish divergence. They are daily, weekly or monthly. A divergence happening in a monthly timeframe is more powerful than one that occurs in weekly and in daily. A monthly chart shows one bar of candlestick every month, so there are 12 candlesticks in a year. A divergence occurring at monthly timeframe would be a multi year movement, resulting in huge movement.

UOL had a higher price point C near 8 but not accompanied by a higher high c of the MACD histogram. A bearish divergence happens and the price slides from 8 to the current 5.40, dropping nearly 30% from it's high. We could still be in the 'slide' of this bearish divergence right now.


DBS (daily)



Lest anyone thinks it's easier to do divergence, let's present a complex case of a bearish divergence. Here we see three peaks starting from A and ending with C. The second peak is accompanied by falling MACD histogram, which is itself a divergence (though not by my definition). Point C reaches a higher high but not accompanied by a higher point c. This is a complex bearish divergence because it's not the standard A-B-C-a-b-c model, and this is certainly not the most complicated ones. There are others that look like a divergence but it's a fake. Divergence trap, so to speak.

Like investing, it's a science as well as an art, so we do need certain experience (i.e. make mistakes and lose money) to spot and know which is which. I did not come up with this method. Dr Alexander Elder did, so if you want to find out more, go read his wonderful books.

Monday, June 13, 2016

Are we there yet?

Having read Kyith's post here and 15hww's post here about financial security, I thought I should try it out for myself and see the necessary figures needed to reach financial independence. It's not so much as a fixed set of goal to reach by certain age, but more like a milestone or achievement kind of thing. It's like you play games and when you collect 999 of each items, or you pass through each stages of the games without losing any health, you get an achievement medal. Gamify the journey, if you will.


So the first thing is to get the past data of expenses tracked to see what are the ones needed for survival. I listed out them below, not in any order of importance, but left out tax. Not because it's not important but it's sensitive. The expenses here are solely my own, not my household. If it's a household item, then it's my share of it. Some items that I paid in full but it's meant for the household, I'll use an asterisk (*) to mark it.


Average monthly expenses in 2015
------------------------------------------
Hawker/food court - $340.14
Restaurants - $193.20
Utilities (nett of subsidies and rebates) - $51.85
Parents (excluding bonus and ang bao)- $336.67
Mobile phone - $37.36
* Internet - $45.58
Mortgage (including all fees) - $1036.69
Insurance (1 whole life, 1 limited whole, 1 term, 1 disability income and 1 decreasing term) - $500.85


Here are some comments regarding the above items:

1. Hawker/food court - Usually this involves tze char shared with my wife, with one drink shared. We seldom cook, so groceries expenses are not significant. We usually order 2 dishes - one meat and one vegetables. If she's not around with me, I usually order economic rice. It's 1 meat and 1 veg again, with no drinks. It works out to be about $11.33 a day, or about $5 per meal.

2. Restaurants - Always with wife. I don't eat restaurants alone as my primary aim is just to feed, not to dine. We always go restaurants (mid-tier ones) every weekend, occasionally there'll be trips during weekday to take advantage of the lunch discounts. On average, it's $48.30 per week, or about $24 per weekday. That's about right for the restaurants that we visit. Very infrequently, due to some celebration we'll go for higher tier restaurants that costs about $50 per head and above. Rare though.

3. Utilities - I was quite surprised by that amount. It must be the subsidies/rebates that the govt gives to each household that reduces that amount. On average, I would say our household bills is about $110 to $140, and that range will cover almost 95% of all bills. Since I worked mainly at home, and I switched on the aircon in my work room almost 8 to 10 hours a day, I will say it's cheap, haha!

4. Parents - Usually I give a monthly, then during special occasion (like CNY or birthdays) I'll give them an angbao. I've a brother to share the load too. Their mortgage is already paid for long long time ago, so this is more for food expenses. They almost always eat at home, and even if they are out, the expenses are paid by us. I think this amount is just about right, and I don't think I'm going to change it anytime soon.

5. Mobile phone - This is set to be reduced in the near future once my contract ends. Mine is with starhub 4G-300Mb, which I hardly use. My fibre plan with M1 gives me a free 1Gb data sim that I'm using in my dual sim phone. My future plan will reduce this cost to about $15 or so per month. I've not exceeded my data plan at all, but I think that's normal since I'm mostly on my home wifi most of the time.

6. Internet - Fibre from m1. I think I can optimise this further by consolidating my mobile phone plan with my fibre plan. My wife's bills is still paid by her parents (lucky!) so it's never in the picture. I depend more on a good and stable internet connection for work, so I rather be stingy on my mobile data plan and make sure I have a good connection at home. I'm footing the whole bill of the internet, so my household internet cost is NOT 2 times of the figure stated above.

7. Mortgage - The big bugbear. This is theoretically higher than it should be, since my plan is to make partial capital repayment to reduce the absolute amount per month. So far, I'm just choosing the option that allows me to keep the same mortgage payment per month but reduce the duration of the loan. Once I reduced that amount further, I will switch to keep the duration constant but reducing the monthly payout. Hopefully it'll drop down to $500 per month, making it much much more manageable in terms of risk of loss of employment.

8. Insurance - that's for 1 whole life, 1 limited whole, 1 group term, 1 disability income and 1 reducing term for property mortgage. Will be intending to increase the term part when I have a kid, but till then, things are likely to remain like this.



Okay, so having listed out the items, I have to arrange them in order of importance, with the 1st being the most important and so on. The order is based on what is most urgent and most important first. What can I not pay but would drastically change? What can I not pay but wouldn't result in any drastic changes? It's subjective of course.


In order of importance, with 1 being most important:
---------------------------------------------------------------
1. Hawker/food court
2. Utilities
3. Mobile phone
4. Insurance
5. Internet
6. Restaurants
7. Parents
8. Mortgage


The first 3 choices are immediate problems. Without it, I can't function and I can't work. Number 4 is important in the med to long term. If there's any problem, I want my immediate family to be able to survive and perhaps thrive. 5 and 6 is more entertainment, but without them it's going to affect how long I can work. 7 is the second least important because they have buffer and will still do well without my contribution. 8 is least important because I have a buffer in my CPF-OA account that can last for a year or so without active work. That gives me some buffer already. Besides, if push comes to shove, I borrowed from HDB so hopefully they are not as heartless as banks are, reportedly.

To gamify this, there are stretch goals to be met if 1 to 8 are all fulfilled. Naturally, all these stretch goals are good to have, but not really necessary. Wants, rather than needs. Here's some of them:

1. Hawker/food court
2. Utitlities
3. Mobile phone
...
...
8. Mortgage

----stretch goals-------

9. Travel/vacation
10. Play fund
11. Car expenses


Financial security milestone
---------------------------------
After listing the items in order of importance, it's easy now to see what are the incremental expenses needed to be covered by income, preferably passive. That's for the second column for the table below. The 3rd and right most column is the amount of capital needed to reach that level of expenses per month. It's based on 5% returns pa, meaning that if I need to get $100 per month, I need $24,000 in capital.




I'm currently at the mobile phone to insurance level. It's a huge jump! This means that my passive income stream can cover my expenses for food per month, my share of the utilities bill plus my phone bill. It's not much, but at least I know where I stand now.

Currently, I'm more interested on the 3rd column on the right, because that represents the amount of savings I need to accumulate in order to cover the expense on the left. If things don't change (but they do all the time, don't they?), I'll take about 9 to 10 yrs to reach the last level. Okay, maybe 12 years to be trotting along at a real comfortable pace. I know I'll reach there, it's just a matter of time.

Maybe when I'm nearer the end boss "MORTGAGE", I'll talk more about the stretch goals, haha!

Sunday, June 12, 2016

It's good to be inefficient

We always try our best to optimise things and make things more efficient. Even in finance, to optimise is to eliminate waste and to streamline all the financial process to produce the least waste and maximise the most returns.


But we don't always have to be like that. Inefficiency creates redundancies. It creates a space where there are excess capacities that can be tapped when the norm is changed, sometimes drastically so.


Take for example our local MRT transportation system. Before the NEL is up, I fondly remembered that there are buses ferrying passengers from the north-eastern part of Singapore to the central region. For a long while, that was the only way in which northeasterners can get to central regions. The MRT network is much simpler in the past and there is always the reliable bus system to fill the transportational 'needs gap' that the MRT couldn't fill by itself. The moment the NEL is stabilised and running, the bus system is removed totally, all in the name of efficiency. This suddenly places huge stress on the reliability of the NEL system to not cripple the entire transportation network in Singapore.




That's the complete opposite of anti-fragility. If everything goes smoothly, then all is good. But one day, when the all critical NEL line breaks down, everyone gets stuck in the bottleneck because there simply isn't a backup system. We only have emergency buses that tries to defuse the hot situation by channeling passengers in stuck MRT stations away. Too efficient until we are not longer robust?


I suppose if we run our financial lives based on the same concept of eliminating waste and stressing on efficiency, at the hidden expense of making ourselves more fragile, we might run the same problem should something happen to us. Here's but a few examples where we could have been too efficient:


1. Channeling all our CPF-OA into CPF-SA to capitalise on the higher returns, especially when you haven't been hit by the financial bombs.

Yes, you do get higher returns but SA is not good for much use until years later down the road. In the meantime, there is the present to deal with. What happens if you run into employment issues and have problem servicing your loan? The transfer is irreversible. You can run a very tight and efficient ship but you need to be a very experienced captain who can foresee problems years before they crop up. If not, you sail fast but the moment a severe storm hits you, you're going to have a big issue.


2. Eating cheap (but unhealthy) food.

Food is one of the biggest cost that we can't do without. But there is a difference between food that you need to eat and food that we want to eat. I can live on a $5 every day and spend a total of $150 per month on food, versus about $600 for what I'm spending now. 4 times difference is a significant difference. A savings of $450 can be squirreled away every month, and before you know it, you'll have an extra $5400 per year.

Cheap hawker fare that cost $2.50 is usually mostly carbs, and we all know what excess carbs can do for our body. There's a future health cost attached to that cheap meal that we're having right now. That means the money we're saving right now is really just going to pay for the future health cost. It might not even be enough, depending on how serious that health issue blows up.

Efficient? Hardly.


3. Hunting for cheap bargains

In the recent years, I realised I was spending too much time saving money on things that doesn't count. I could be hunting for a cheap pen that cost 80 cts instead of $1.20. These are important habits that brought me to where I am now, but I realised I was still in survival mode. I was efficient in the past when money is tight and time is plentiful, but now, the opposite is true. I could have spent less energy searching for that bargain buy and just get it over and done with by spending a little more. Pen is just an extreme example, but it could have been a graphic card for my desktop, searching high and low in sim lim square for that 20 or 30 dollars off.

This is the pen that I bought for 80 cts. I was proud and happy I could save for something as trivial as a pen, at least in the past. I wouldn't do such things now.


Is it efficient? Subjective, but I must say I've loosen up on such things. It's now more important to save on time and energy.


I think efficiency can mean different things when we have very limited resources or when resources are not that bad. As I find myself not caring about the dollar or two that I could have saved if I searched harder, or not caring so much about the prices on the menu when I order, I think I didn't slacken off. In fact, I have progressed a lot. When I have a much broader base, I don't have to do all the nitty gritty stuff that I had to do when my base is smaller.

Now that's progression, isn't it?