Sunday, February 28, 2016

Portfolios of the Poor

I am reading this book, titled "Portfolios of the Poor" by Collins et al. It's an interesting book because it studies the poor, defined broadly as those living with 2 USD per month or below, in a few continents like South Africa and India. We are talking about people who have irregular income, living in slum cities, plagued with various health issues and still have a family to support. They are living with less than $2 US per month on average, meaning that there are months they earn a little more and months where there is no income at all. The most interesting part about is that the book talks not about the census statistics but drills deep into the assets and liabilities (i.e. balance sheet) and cash flow of the poor, hence the title of the book.

I'm about 50% through, but there is already some interesting findings about it that I think can apply to my life already:

1. Remittance to your family, is it counted as an asset or an expense?

First of all, the book makes an important distinction between remittance of various nationalities. If you're remitting part of your income back to some distant relatives that is not going to help your immediate situation, that remittance is counted (in the book) as expenses. If you're remitting back to your own family back in the hometown, that is counted as an asset. I thought that is an important revelation for me, as I would have counted all remittance as an expense.

Going back to my own situation, I gave a portion of my income to my parents. It's not a small sum, and it is easily the 3rd or 4th biggest expenses after mortgage, food and insurance. I've counted it as an expense all the time, until the revelation hits me. To be honest, sometimes my parents would buy me some food stuff and help me to get some stuff done when I couldn't be at home. In other words, you can treat this 'expenses' to parents as an asset that you can utilize when you need to.

Now to qualify it further, I think it's important to distinguish between parents who can help you and those who can't. I'm not trying to be mercenary, but it's an important difference to make when you are considering to call upon the help of your parents. If you're never going to ask help from your parents because they are not competent enough or your relationship with them is just not that strong, but you're still giving them an allowance to fulfill your duty as their child, then please treat this as an expense.

2. Most of them take microloans with huge interest. Isn't that financially unsound?

Whatever I'm talking about in point 1 is an informal asset. If you talk to an accountant, they are going to tell you that since you're paying money with no immediate benefit, it's an expense. But the poor studied in the book really utilized such informal assets very frequently. They will have to because their income is unstable and comes in only at certain months of the year, but they have to eat every day. Hence cashflow to them is very important.

To tide through months where they have negligible income, they take microloans with huge interest (easily 30% per month). It seems a lot, but these are actually simple interest loans with flexible period of payment even though it's stated clearly the duration of the loan period. Their system is flexible and sometimes the lender (all of them are not licensed but do it out of obligation or just trying to help their fellow villagers) will forgive the interest or principle if they deemed the borrower had paid enough.

I'm not saying we should all go and take out microloans with huge interest, but I think I'm starting to understand their perspective a little more, instead of just saying they are not financially wise to do so. If you have family to feed daily but your income drips in every other month, you do what you can to settle the most immediate concerns now.

I start to see the role of such microlenders to provide cash flow for the poor. I do not expect Singapore's microlenders to forgive the debts and to have simple interest with flexible payment period, but to sweep all of them as devils trying to profit from the desperation of the poor seems a little harsh. They do serve a niche area where the bigger institutions like banks are reluctant to do because of the higher risks involved. It's precisely because of the unstable income that they need to borrow money to provide a stable cashflow but it's also the same reason why the banks refuse to lend them. If you remove the microlenders or put harsh penalties to drive out them out of business, then who is going to step in to provide the still needed service? Loan sharks?

3. The things we take for granted.

When I read that a lot of them deposit money in banks every month for a year, so that they can take out slightly less than the total amount put in, I was stunned. The system we're used to here is that we get paid for depositing money, but they are paying for the right to deposit money. What's the issue here?

Firstly, there's a lot of places worse than putting in bank. If you place it under your mattress, you risk having it stolen or burgled. If you hide it in your home, you risk having your home burnt down in a slum fire or washed away by floods or demolished by the government trying to control the spread of the slum cities. This sort of stability is something we take for granted.

They also have multiple savings clubs where their schemes are so ingenious that I might take a whole article to spell it all out. One of the more simple ones is where each month they give $10 to a person, and by the end of the year, they can take out $120. This is way more convenient than walking 2 hours to the nearest bank, but you run the risk of the money getting robbed/stolen/embezzled. Might be safer with the banks with a small cost, isn't it?

Secondly, the drudgery of life makes it easy and tempting to focus on the immediate and forsake the longer term future. Without the discipline instilled in putting a sum every month in the bank, the poor people will have a hard time saving up for major milestone event like wedding, funeral, buying of seeds for harvest etc etc. In other words, they are paying a small sum for the discipline that is forced down onto them, to make sure they save up so that they have a lump sum payment at the end of the maturity period. This really opens up my eyes. We're complaining about the low interest rates here for saving deposits...wait till we have to pay to deposit money (aka negative interest rates).

I think this is one of the most interesting books I've read this year regarding finances. It really opens up my eyes on how the poor people studied in the book manage their financial life. If you ask me, they are astute cash flow managers, being able to move cash in and out multiple times of their networth. This means networth is not really their concern over there, cash flow is. Isn't that the same for us? This book is much more significant to me as I'm also a self employed with variable income. Whatever they do to alleviate the stress of not being able to bring in money during their off peak months, I can also follow.

Another 50% more to go to complete the book.

Wednesday, February 24, 2016

Beware of the rug under your feet

I saw a newspaper article on Straits Times regarding JC students shunning geography as a A lvl subject here. These are the articles that represent one of my grave concerns with my career as a tutor. Major changes like these can make or break my livelihood, and it's very important for me to stay up to date.

Imagine if I'm a pure geography tutor who specialises in this one and only subject. Geography tutors are fairly rare, unlike the more ubiquitous maths/science tutors, so I suppose they can charge a premium in their rates. But structural changes that affects the cohort of people taking A'lvl Geography will affect them in massive ways. No matter how good you are, you're going to have to face headwinds in the declining number of students you can teach, so the pie gets smaller for everyone teaching Geography. And how much can you raise your rates to offset the drop in the number of students? I'll be a little stressed if I'm a Geography tutor.

The issue is that such major changes might happen every 5 or 10 years, and I don't know whether it'll hit one of the core subjects that I'm teaching. Perhaps there will be a shift in the focus away from the sciences towards the arts? Who knows? Long ago when I just began, I remembered seeing a lot of chinese tutors and tuition centres closing down because there is a fundamental shift in the way Chinese is included in the raw score for entry to JC. And students in Singapore are pretty pragmatic - they have to be since society focuses so much on education and having that degree.

I don't want to be caught in this situation.

Here's what I'll do:

1. I'll teach several subjects at several levels. If the stars are not aligned properly, I'll switch to other levels and/or other subjects. That will ensure the longevity of my career as a tutor. I think I still need a job that pays the bills for the next 15 to 20 yrs, so I have to do the necessary hardwork to juggle all these subjects at all these levels. The call is for tutors to specialise in just one subject i.e. to be a subject specialist. I'll resist that, thank you very much. It's boring and it's not good for the long term and it's not robust enough for my comfort.

2. Focus building up on passive income. There'll come a time when there might not be work even if I want to. Ageism in tutors is a mixed bag - some say matured tutors are better, some say younger tutors can click better with the students. I don't want to find out the hard way, so it's good to have multiple streams of income. My way is the stocks/bonds way, not the property way. To do that, it's back to the fundamentals with savings, then investing. This will take greater and greater focus in the next 10 years as I seek to replace my active income with the income streaming from my financial assets.

3. Pay off the debts as soon as I can. This is reduce my overhead to the barest possible and will greatly relieve the stress of not being able to earn as much as before due to policy and structural changes in my macro work environment.

Better don't stay so comfortable. The rug under your feet may be pulled by external forces that you may not be able to control.

Monday, February 22, 2016

I paid off my car loan!

Last month, I just finished my paying off the loan for my pre-owned car. Before the cap for borrowing had been set by law, I've already put in 50% down payment for it, so the amount of money that I borrowed is relatively low. Still, it's a great relief to have paid off something and have no debts.

Now, if only that car loan that I've just paid off is my housing loan, haha! Since I'm relatively happy and relieved that I've paid off my car loan, I can only imagine what happens if my housing loan is also paid off. I think it'll be like throwing huge burden off my shoulders. I guess that will be another 12 to 13 yrs away, provided I keep up with my yearly partial capital repayment plan.

I guess people are either comfortable with debts or they are not. I'm prefer not to have a huge overhead, since my income is variable and having a high fixed cost of living makes planning that bit more difficult. My wife's income is also variable, and not fixed, hence having some semblance of stability will be good for us.

Another thing that struck me is how fast 4 yrs had just flew by. 4 yrs is the duration of the loan, and that is the length of time I had my car for. Since the payment is on GIRO, it's amazing how month after month adds up to 48 months. 4 yrs of my life, and with a snap of my fingers, it's gone. I think my situation is much much better than 4 yrs ago, because back then I had just about bought my home and settled my renovation, so I'm relatively broke. I could pay off the car straight up, but I thought I should be a little conservative and borrow a sum so that my cash flow is a little less tight. The cost of having a less tight cash flow amounts to a cost of 1.2k over a period of 4 yrs, so I thought it's pretty reasonable.

I don't think I'll borrow for my next car. It'll be straight up cash from here.

Thursday, February 18, 2016

We walk together but alone

On Wed, I met up with 2 financial bloggers. Though it's not the first time we met, the online conversation spilled over to face to face interaction and before long, we chatted for nearly 5 hours just like that. This is shorter than the 6 hours I spent a few months ago here. My wife would probably lament that 3 grown men can chat longer than 3 aunties lol! There's usually a lot more sharing of personal experiences during such face to face interactions, because some things just can't be said online. It might be rude, might be crude, or might be politically incorrect, so face to face meeting is still good for such topics. 

I think as financial bloggers, we're really an odd bunch of people. We don't really fit into mainstream and what's interesting is that we're probably okay and comfortable sitting in an outlier position. I guess most of us are lone rangers - and we have to be in order to take some bitter pills and bash through the jungle to carve out our own paths that nobody really understand and might even vehemently opposes to. Like squirreling a huge portion of our salary aside. Like putting money into the stock market when others are running away from it. Or even simple things like bringing your own meals to work to save our health and wealth. Others might feel we're shortchanging ourselves but we know better.

I think people either get it or they don't. It's not that financial bloggers are all about money. Actually no, we're all about recapturing back our life and our values and not being interested in what non stakeholders demand of us. It's like the donkey, the man and the boy story. Some people might want the man to sit on the donkey, some might want the boy to sit on the donkey and some might want the both man and boy to carry the donkey. Please all and you will please none. For that to happen, we have to experiment and try out what we really want for ourselves. 

I'm very proud to know these 2 financial bloggers who had the courage to do what they need to do and ignore the naysayers. I know it's not easy and the journey is made tougher by blogging about some of the personal stuff online, exposing a part of your core to public scrutiny. Though we will always have to travel through our own journey alone, let us travel together for this small part of the road together.

And that's what this blog is for. Not to boast about what I've done, not to get passive income from ads, and not to teach you how to be this and do that. If readers get inspired to follow, that's a bonus. I'm really blogging to see who are the kindred spirits. You're either get it or you don't. If you are, we can walk together but alone, at least for a while.

Thursday, February 11, 2016

My Saizen arbitrage

Just received a circular for Saizen unit holders, telling us a lot of finalized details about the upcoming disposal of their entire portfolio to Trangle TMK. Of note here is the special distribution of $1.056 per unit to unit holders. I bought and sold a few rounds already, but after they made the announcement near Nov in 2015, I bought it again at $1.0938 (inclusive of comms), hoping to arbitrage on this, which I blogged about it here. Let's see how it goes.

About 30.3 million SGD is to be paid out as special distribution, representing $1.056 per unit. From here, I worked out the number of outstanding units to be 287,026,515. Another 25.7 million SGD ($0.0895 per unit), amounting to 5% of the purchase price is to be kept in an escrow account for up to 4 months after the completion of this entire exercise and liable to be claimed. The cost includes 3.4 million SGD ($0.0118 per unit) for expenses related to post completion maintenance of the company, plus another $1.2 million ($0.0042 per unit) for the manager.

Not to forget the normal (as opposed to special) distribution in Mar 2016, amounting to about $0.0310 per unit (from Jul 2015 to Dec 2015), which is based on last year's DPU.

The summary is as follows:

Special distribution: $1.056
Normal distribution: $0.031
Escrow account: $0.0895
Sub total: $1.1765

Post completion expenses: $0.0118
Cost paid to manager: $0.0042
Sub total: $0.016
Total: $1.1605

Buy price inclusive of comms: $1.0938
Percentage profit: 6.1%

That represents the max amount provided that none of the escrow account set aside is withdrawn to paid for anything PLUS the distribution in March matches last year's distribution at $0.031. If say, we take 50% of the amount set aside in the escrow account, my returns will be 2.3% in less than a year. Not impressive, but okay lah.

The actual amount remains to be seen, and I might have to wait till Aug 2016 to see it all completed.


After throwing this post to the universe, I was reminded that there's another distribution not counted in. It's the period from Jan 2016 to the completion date, which is stated as "on or before 31st March 2016". The income collected during this period is technically not TMK but the unit holder, hence there should be another final distribution amounting to about half of the 1st half DPU, which stands at roughly $0.014. This is a significant amount, pushing the max returns to nearly 7.4%.

So good ah? Did I miscalculate? How come the price of Saizen still lingers around 1.09, which is my buy price? Haha

Tuesday, February 02, 2016


This post first appeared in Kungfu Cats Academy.

I watched this TED talk recently by Johann Hari regarding Addiction. It's a good talk show, and it talks about how everything we knew about addiction is out-dated and wrong. In essence, addiction had been shown to be cured by introducing more social bonds to the addicts. If the addicts have something to look forward to, where they feel they are needed and wanted, then they will not depend on substances like alcohol, gaming, gambling or drugs etc to fulfill that need for connections.

This might be important information when I meet computer games addicted teenagers in my line of work.

Usually gaming addiction is a more serious problem afflicting boys. Girls have their own set of nightmares to deal with, but it's seldom with gaming. At least I've not seen it before, even with my 12 yrs in this business with more students being females than males. The worst case I've seen that I can't handle is a boy who lives around Serangoon area. He lives in a well to do district in private estate and also studied in a very good school near his district. Everything seems to be fine for him except that he can't stop gaming day and night, somethings without much sleep. He will go to lessons with me feeling all grumpy and sleepy, and sometimes I've to wait a good 30 mins or so to wait for him to come down. I was pretty newbie back then, so I couldn't handle this case and had to give up. I always wondered what happened to him.

While I'm pretty sure restricting access to tablets and smartphones to young kids is going to work, especially for young boys, I think there's also another way that we had to work on. Most of these kids have highly successful parents - all high flyers in their respective fields. And unfortunately all very busy with their careers to really take care of the little nitty gritty details in their family life. Most of the time the maid (and occasionally, maids) will have to take care of the kids. The situation is kind of ridiculous - it's like telling the policeman to catch criminals but they can't touch the criminals. They can only yell and scold and hope the criminals will slow down and head for the nearest jail themselves. Paper tigers won't stand a chance; kids these days know the power relationship very very well.

The other way that we had to work on, based on the TED talk mentioned above, is to work on connecting them to something outside of themselves. Usually this connection is fulfilled by parents or grandparents, then followed by friends. But these days with the social connection kind of being fulfilled online by gaming or social media, it's all going downhill. Maybe reality is so bad and stressful that people are finding connections online. Fighting demons with a powerful wizard in greater rifts level 70 easily with a press of a few mouse clicks can be quite empowering. Probably much better than facing an empty connections in an empty house in real life, or the prospect of being an un-liked kid in school.

I'm a gamer too, and I played games throughout exams period since primary school. But there's always something out there in the real work that I felt obliged to go back to, either out of responsibility or duty. Maybe that is what parents need to work on. And from experience, they will really have to start young, probably in primary school level. After that, it's going to be harder and harder to change.

I've seen plenty of cases where the parents, suddenly aware of the dropping results of their kids in secondary school, started to punish the kids by withdrawing their laptop or handphones. It works initially because of the cold turkey treatment, but eventually that emptiness still needs to be filled by something tangible. If not, the kid will go back to the gaming. Do you think your locked passwords can stop them? These kids are digital natives, and probably know a few tricks that you don't even know. Besides, they can also go LAN shop or some friend's home for 'group study'. With games being online and so mobile, you don't even need your own computer to play.

I'm a bit long winded here because this is something close to heart. The key takeaways mixed with some suggestions:

1. While making sure your kid are not having unrestricted access to any gaming devices, do make sure you set a good habit also. Taking the mobile devices away from your kid but using them yourself to play games is kind of pointless. The irony of which can be easily noticed by your kid.

2. While removing mobile gaming device from your addicted kids, do make sure you have something else to replace that connection. Gaming as an addiction is just a symptom. The real cause is the need for connections. How about spending more time with them?

3. I believe dads can play a greater role in parenting. 99% of the parents I liased with are with the mothers. 99% of the time the mum are the ones who bring the kids to my place for lessons, regardless of whether the mums are working or not. It's something to reflect on when I become a parent as well. This is probably the best reasons to be financially free.