Tuesday, July 30, 2013

The social cost of reits

Reits are hot hot hot. With the low interest rate environment, where investors are looking for a place to park their money to beat inflation, the yield of reits is indeed alluring. I've invested in them and they had made a fair share of profit for me. But because I've also went to the other side of the equation, I realized that there's a huge social cost in reits being so hot.

As reits are public company, they owe it to the shareholders to increase DPU year after year. That way, the managers of the reits can also get more performance fees. But who are the ones really paying for the increase in DPU? It's those people renting to do business! I've heard stories of rents increasing from 5k to 8k in those malls that are in the heartland managed by one of the listed reits. How are people going to make a living when the next time their rental are renewed, there's a jump of 30 to 60% increase? It's just not sustainable.

Even when a building is not managed by a reit, as the price of the rental in a reit manged building increases, it causes a trickle down effect to all the neighboring areas. The landlord in a non-reit managed building must be thinking that, hey, just across the road, those guys can charge so high, so why can't we do the same? So up and up the rental rates spiral, and down and down the margins of the business goes. It's just crazy when maybe 30-40% of your profits are all given to the landlord and passed on to the reits.

This will eventually end up very badly. The party will end when the rents are revised so high that few would dare to take up the space. Honest hardworking entrepreneurs who are out to make a decent living would be hard pressed to set up business. Everyone suffers. Including, eventually, the shareholders.

I know there are many ways that the reits can increase DPU without raising rental rates. I'm just ranting the pervasive idea of a reit always working to increase the rental at all cost, without regards to the human cost behind those numbers. How would you feel if your boss, in the pretext of accounting to the shareholders, decided to reduce your salary so that the company's share price can increase?

A new journey begins

While having a shower, I was mentally calculating the kind of money that I can save, given my 'new' circumstances now. 'New' because it had actually been a while - 2 yrs to be exact - that I had my own cosy hdb flat, I'm married and I've a pre-owned car. Realistically, these two things would add up to the expenses that I spend on a monthly basis, so it also goes to say that I would find it more difficult to save the magic 4.2k per month. Why 4.2k per month? Because 4.2k x 12 will add up nearly to 50k - that challenge that I set myself seemingly so many years ago.

It had also been a while since I tabulated my monthly expenses. I had always been keeping track on all the items that I spend on, noting them down fastidiously in my handphone before keying it into my spreadsheet. This habit started so long ago, after I wanted to find out exactly where my money flows to each month. I initially wanted to stop after 1 month, but got so used to it that I had done it for 6 years (I had to look at my excel file to realise that 6 yrs had passed!). A quick calculation on excel shows that that, indeed, my expenses had increased. Nothing surprising there.

Here's the breakdown per month:

Mortgage payment for hdb (including insurance for property) - 33%
Personal expenses (includes petrol, entertainment, food) - 25%
Personal insurance (whole life, term, disability etc) - 13%
Parents -16%
Tax- 4%
Utilities -3%

Total : 100%

I'm sharing half the expenses with my working wife for those shared expenses like housing and car. Most of the items I can't and don't want to cut. If there's any expenses that I can cut down, it'll be on personal expenses. Maybe if I reduce some more discretionary spending, I can push the expenses down a bit more. Bah, but what's life without all these perks...I'm happy with these figures.

As for savings, maybe I can start with 30k per year. This should be a comfortable figure to begin with. I don't want to begin with any number lesser than that.

25 k per yerar - 2.1 k savings per month
30 k per year - 2.5 k savings per month
35 k per year - 2.9 k per month
40 k per year - 3.3 k per month
45 k per year - 3.75 k per month
50 k per year - 4.2 k per month

With 30k per year, I would need to save 2.5k per month. I've been keeping track of my expenses since 2008. Since I know what my monthly expenses are, I'll just add the amount that I need to save and I'll get my target income. It happened to me many times in the past...once you put your mind to a figure and let the universe know about it, things will happen in your life to make it happen. Of course you must come with a prepared mind and seize the opportunity as they come along.

But unlike in the past, I'll take it easy this time. This shall be my game that I can play comfortably, not a competition to hoard as much as I can. I think I can do a fine balance this time round.

Friday, July 12, 2013


I've not done a book review in ages, believing that one should read a book in order to derive a personal experience that the book can only impart to he who reads it. Every reader will get something different. So, this is not a book review. This is my personal experience with this book by Nicholas Nassim Taleb, one of my favourite philosopher-finance writer. It's called Antifragile: Things that gain from disorder.

It's not the easiest book to read, but if you plough through it all, you'll recognise the kind of person that he is. I've read through all four books of his: Fooled by randomness, The Black swan and The Bed of Procrustes , and lastly Antifragile, with the last being his book of all books, his magnum opus, his unified string theory. The concept of antifragile springs from the fact that there is no suitable word for something that benefits from volatility. If you disturb something, there's only 3 ways that it can behave - it can stay more or less the same (robust), it can become worse (fragile) and it can benefit from it (antifragile). It ties in all the ideas from the other books and integrate it into this one. If Fooled by randomness is Star wars episode IV, Black swan is episode V (some say it's the best of the Star Wars episodes) and Bed of Procrustes is episode VI, then Antifragile is the Episode I. It's the book that brings you back to the beginning, so that you can see all the other episodes in its respective glory. Note: It does NOT have the suckiness of Episode I though, lol

A few key points that I take away from the book:

1. It's easy to tell whether something is antifragile, robust or fragile, but rather impossible to know when or even what kind of black swan event can stress it. As such, focus on the detection of the state of its antifragileness (or fragileness) rather than predicting the rare event or worse, the probability of it happening, that will rock it.

E.g. Antifragile is characterised by low downside risk, high upside rewards. If it looks like a sunny day and I'm about to leave the home in 10 minutes, do I hang my clothes out to dry till I come back? If it rains (black swan event), it's very bad. If it didn't, my clothes will benefit slightly only. So I don't hang it out, if not it'll fragilize the system.

2. For antifragile systems, the more volatility (read: shocks) it experiences, the more it will benefit, up to a certain point. Vice versa for fragile systems.

E.g. The human body is a great antifragile system (so are most things in nature). Small shocks to the system is ultimately good for the body. Short periods of fasting, short acute exercises, short acute stresses, short period of illness...all these will build the body up and it will benefit from these shocks, again, up to a certain point.

3. The antifragility of a system depends on the fragility of the components that make up the system. We need individuals to fail so that the whole system can benefit and become progressively more antifragile.

E.g. If individual shops don't fail, the next batch of shopkeepers won't learn from the mistakes, and the eventual failure will be worse and magnified beyond repair. We must learn not to intervene all the time, and trust in the antifragility of things to take care of itself. Small failures, if they are prevented from occurring, will lead to ultimately bigger failures.

4. If things had been around for a long time, you can bet that it'll be around in the future for a long time too. Only the antifragile survives the stress of time.

E.g. The author wrote that he only drinks beverage that had been around for many many years, like wine, coffee and water. No soft drinks, no aspartame diet drinks, no isotonic electrolytes drinks. Probably a good idea to look at the way you cook things. No microwave food for me, as far as I can help it. I'll rather eat it cold than have it blasted with electromagnetic waves.

There's a lot more, of course, but I leave it to the reader to find out. His books always sets me thinking. It should do to you too. Alvin from BFP blog did a book review on this. Probably writing it way more comprehensive than I can ever do. Do read his reviews.

You might be interested in what I've to say about the ideas postulated by Nichoals Nassim Taleb:

1. Black Swan book reflection
2. Black swan revisited
3. Fooled
4. Living life in an uncertain world

Tuesday, July 02, 2013

Being comfortable with who you are

As I get older in age, hopefully more mature in thinking, I realized that I'm more and more comfortable with being myself. When I was younger, there's a lot of insecurities because there's a lot of people that you feel that you ought to model after and ought to follow, maybe sometimes also to lead. I think I was young and likely impressionable, so whoever is successful in whatever ways, I would like to model after him or her. As a result of such imprinting in my earlier years, I've a mish-mash of characteristics that I think is good for me in my development as a human being. It's not always easy to change your own characteristics, because it takes a lot of effort to do so and requires a lot of change. And change always require much much more than just passively following, isn't it? It requires you to really want to do it.

But I'm getting more and more comfortable being who I am. I see less and less need to mimic others. This also comes about because I realized who I am and who I am not. What makes people happy might not truly make me happy. Now that is an important realization because the key to happiness is to know what makes you happy. Blindly following what makes other people just wouldn't cut it. This is, after all, a journey that you take yourself.

I don't have to keep on comparing whose balls are bigger and whose pecker is longer. I'm glad that my job don't put in a situation where I constantly have to prove to others that I've arrived. I sympathize but I can never truly empathize with people who are in the cobra-corporate world who always have to feign happiness and fake success. Is work all about getting progressively higher and higher pay, bigger and bigger bonuses? It might be if that's what makes you happy, but I suspect that for many others, it's not. Which is why we see so many people, in the midst of a successful track career groomed for all the greatness to come in the cobra-corporate world, suddenly come to a halt and switch to a totally different career. Mid-life crisis, they say. If that's the term for 'suddenly' realizing that what makes you happy is a total change in career, then so be it. I will welcome it with open arms.

I realized, surprisingly not too long ago, that I don't really talk much about retirement and having a passive income and all those fun stuff. It dawned on me that it's not really what I wanted in life. Is it sacrilegious, for a financial blogger like me, that it's not my goal to achieve this numerical value before certain age? Maybe I shouldn't call myself a financial blogger anymore. Just because I occasionally blog about personal finance and very occasionally about stocks (nowadays) doesn't qualify me as a financial blogger, just like you wouldn't call a cashier a financial guru because he handles money. Let me qualify it further - while it's not my goal to achieve financial independence, it's still something that's on my mind, specifically at the back of my mind. It's just that I no longer obsess over it.

Define obsession. Here's what I did in the past:

1. Read a book about stocks / personal finance / money for 1-3 yrs, about one book a week. I cleared shelves of books in my local library until it comes to a point where there's really very few books that I haven't read.

2. Keep on trying to squeeze more time out to do more work to earn more money to hit my savings target, broken up into annual, monthly, weekly and madly enough, daily targets.

3. Keep on trying to reduce my expenses by cutting on food, drinks, transport and what have you.

It's not making me any happier, I came to realize. I must have carried it to the extremes of my limitations, hence the fatigue and therefore the unhappiness. But obsession is important because there lies the motivation to go on fighting when others have long given up. However, like a horse, if you don't control the unbridled power of obsession, it'll consume you.

So what am I now that I'm so comfortable being? I'm not a perfectionist - It's okay if I fail to achieve my goals and lack the discipline to follow my convictions. I'm not always consistent - I'm bashing others over lack of discipline in some areas and I'm advocating others to be less disciplined. I'm idiosyncratic - I don't buy drinks when I eat alone to save money but I spend big bucks on gadgets to save time. I'm not a rational person but I'm a rationalizing person - I act on my right brain but use my left brain to explain to others what I did. I'm an idiot in life but I do pretty well in school. I can be jealous - I'm envious of other's success and sometimes explain the success by luck or more satisfyingly, by inheritance. I can be vengeful - in my mind's eye, people who crosses me had died by horrific contraptions to extort the most pain in the most vivid manner.

If you still like me, or worse, are like me, then good. We can drink, eat and be merry and occasionally talk about how we survive this crazy world at this moment and how we're planning to survive in the future. If not, farewell and be glad that our paths, though different, had a chance to mingle and criss-cross, at least for a while.

Life is just like this, isn't it? Beautifully repulsive, sickeningly attractive.