Principle of Non-equality of Equal magnitude numbers

Hypothesis:

Equal numbers a and b of the same magnitude need not be equal
i.e 1+1 is not necessarily equal to 3-1, even though numerically they are both equal to 2.

Method of proof:

By contradiction

Proof A:

I have 3 million dollars, but I lost 1 million dollars, so I still have 2 million dollars. I might go jump down. If I have 1 million dollar and I made another million, I now have 2 million dollars, instead I jump for joy. The former makes me jump down, the latter makes me jump up, possibly with fist pumping and with occasional shouts of joy. Thus they are clearly different, even though it's the same.

Proof B:

I have 3 bad debts (all of equal amount), and I tried all ways to get rid of 1, so now I have 2 bad debts. I'm overjoyed. If instead I have 1 bad debt, and I incurred another one so that I now have a total of 2 bad debts, I'm overburdened with sadness. The former makes me overjoyed, the latter makes me chained in debts. Thus they are clearly different, even though it's the same.

Proof C:

I have 3 multibaggers in my stock investment. But one of them turned from multibagger to multibeggar and eventually goes to 0. I feel stupid and adopt the 'take profit is never wrong' principle. If instead I have 1 multibagger, and I held another investment until it too became a multibagger, such that in the former and the latter case, I earned the same amount of money, I will feel clever and adopt the 'investment is for the long term' principle. Both are the same result, yet they are different.

Conclusion:

Hence the principle of non-equality of equal magnitude number is verified.

Implication:

1. The journey to the result is as important as the result. If the final result is equal, and the journey to reach the result is the same, then it might be equal in all aspects. But I doubt the journey can be the same. Even if the journey is the same, the person might be different. Even if the person involved is the same, the mental state of the person might be different. Hence, it's safe to conclude that equal results need not be equal to the person carrying out the journey.

2. Aversion of loss is stronger than the greed for gain. If I managed to lose more, I will feel more sadness compared to the happiness I get from gaining more. Conversely, that should mean that if I manage to avoid losing, I should feel more happy than losing the opportunity for gains. This explains why when a counter I'm eyeing doubles in price, I can rationalise it off and say it's just not for me or I'm busy or at that point in time I act on the best of my knowledge. But if I managed to avoid buying a counter that halved in price, I shout HENG AH.

3. Comparing against another person is a very silly thing. You're 30 years old and I'm 30 years old. You have 100k but I only have 30k. So? You might have gone from 200k to 100k while I might have gone from 15k to 30k. Our journey is vastly different. Comparing against your past self might at least reduce the number of variables by one,

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What's with the rant against whole life plans?

I bought a whole life plan. In fact, 2 of them. One is a traditional whole life, where you pay until forever. The other is a limited payment whole life, where the payment period is condensed to maybe 5, 10 or 15 yrs, so you pay a higher amount but you can stop paying after.


There's so much vitriol against whole life that I thought I should make some statement FOR whole life, just to provide some yin to balance out the yang. The ultimate question is this: Will I buy a whole life plan now? The answer is no, but back then, I didn't know the following:


1. I'm a mighty saver. I can save a lot of my income away without external help. I know some people will spend a lot of their income away, so a whole life plan helps to 'lock up' that excess money away and give it back much much later. It's not ideal of course, but between a rock (not saving) and a hard place (not earning good returns on money), I think there needs to be a compromise. I know the rhetoric of buying term and investing the rest. But I think there is a group of people who will buy term and spend the rest. Whole life will help them a lot in this aspect. Back then, I didn't know which group I am in, but now I know. It's my hedge against my own 'money' character, if you will.

So, buy term invest the rest...but in real life, you might not save the rest. Nor invest it.


2. I can earn a respectable returns myself from investing. The second part about buying term and investing the rest is the investing part. Some people don't want to touch investment instruments at all, except perhaps for insurance and savings deposit. Not even bonds are under their radar. It could be ignorance, or fear or more likely a combination of experiential baggage that causes one to think like that. I'm sure you've heard of ultra conservative people like that. If so, then whole life presents a good investment for them. It might not be good enough for you, but it could be so for them. I don't buy into the idea that if you invest in a low cost fund, things will work out well for you. The stock market returns are never guaranteed. Nobody can guarantee you will earn 1% from the stock market if you put in for the long term. On the other hand, I've never heard of people losing money in whole life insurance, have you? The criticism is that one can earn better than whole life, but perhaps they forgot to mention they could have lost money in the process too.

So, buy term invest the rest will beat whole life returns, but that outcome is not guaranteed. A small guarantee might work better for an non-guaranteed but higher return.


3. I am disciplined. I think that sums up the characteristic of a term plan buyer. If you want to buy term plan, you better be disciplined in your spending and also your investments. If not, it's likely to reap the benefits of a buy-term-invest the rest strategy. It's like hiring a trainer for your gym. Can you do it yourself? Sure, all the information is out there, you just have to read and learn it on your own and execute it. But there will be days when you're not motivated and you just need someone to push you so that you can overcome the barrier. For a fee, of course. Not everyone is interested in financial and insurance matters and will gladly outsource it to others.



What I'm trying to say is that the process of discovering yourself takes time. In the meantime, you still have to work out the best decision based on the available information. Back then, my idea is to use whole life as a base and buy term to top up the coverage. When the term expires at 60 or 70, the whole life will still continue to provide coverage. I will then have to option to convert my whole life to annuity, cash out for retirement needs and/or continue the plan and provide a gift for dependents. Ironically, because of my whole life plan 'mistake' that everyone around me keeps telling me, I went to dig further into investment. I would say the 'mistake' started everything I know about financial stuff.

Interesting isn't it? Nothing is really 'wasted' in nature.

My philosophy now goes towards using term and self insurance. From whole life, to limited payment whole life, to term and to self insurance, I think I'm evolving just like a pokemon. I think life experience and mistakes are the candy needed to evolve yourself into a stronger pokemon with more CP lol!

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Gold and Silver investing guide

Bigscribe released a new free ebook again, and this time it's about investing in metals. I'm a lay person and I know nothing about investing in metals, so this guide comes as a godsend to fill up my knowledge base. We always hear people talking about investing in metals as a hedge against hyper inflation (like during extreme conditions in wars), so naturally I'm interested to find out more about it.

This book talks about buying physical metals, specifically the buying of physical investment grade gold and silver, and the other little details like where to store and so on. There are other ways to invest in metals, like Gold ETF, but in shit-hits-the-fan situations, buying in such intangible metals might not be good because you're subjected to counterparty risk. In physical gold or silver, you just take and run. From the guide, I even know that there are 2 other ways to invest in gold, other than ETFs and physical gold. I think it'll be a good guide for lay persons such as me to learn about such things, even if you don't necessary have the huge asset base to diversify into precious metals.


The last part of the guide talks about the different myths for and against buying of Gold and silver. I think this gives the guide a well rounded starting point to find out more about the investing of precious metals. Try and register for it here, it's free and set in the local context, unlike other sources from the internet or books.

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Using Investingnote's charting platform

I wanted to help those who are newer to Investingnote, my preferred charting software, hence I'm writing this post. I think the people over at Investingnote are really doing a fine job with a free charting software. It's actually quite powerful and I especially like the real time (okay, it lags by at most 2 minutes) update of the charts. Yahoo finance maybe lags by 10 to 15 mins? I've not seen a charting software that updates realtime too, perhaps except those by brokerage platform. But those are pretty laggy and buggy so I don't like to use them much.

This is not a sponsored post. I just think it's a great tool for people to use it, so I'm sharing it. This is also not a tutorial to show you how to use the charting software, but more of how I use the charting software at Investingnote.

When you logged in and click on the "Charts" option on the upper right corner of the platform, you're going to see something like this screen:

I like to add a few indicators to my chart. I mouse over the symbol with the charts, and you'll see "Indicators" appearing.

Clicking on it will bring you to the list of indicators available for you to add in. I proceeded to add in MACD, Elders Force index and Moving exponential by clicking on the names. It'll automatically be added to the charts.

Now my charts look like this:

I don't like the Elders Force index (EFI) in a line form. I prefer the histogram format, so I'm going to change it. I mouse my cursor over to the gear symbol just to the right of the word EFI. It's the middle icon. You're going to see the word "Format" appearing. Click on that. You'll see "Inputs" and "Style" menu above.

Play around with the options. I changed the colour of the plot to blue, line to histogram, and thickened the width of the histogram, as shown below:

If you're satisfied, you can click OK and it'll be shown on the chart. I did the same format adjustment to MACD too. Let's say you don't want to see the MACD appearing, you can hide it by clicking on the first icon next to the indicator:

You can also shift the order of the indicator up or down. Let's say I want to move my MACD indicator right at the bottom of the chart. I'll press the down button on the top right corner of the indicator box:

Once you've pressed it, the indicator can move up or down according to your liking. You can also draw trendlines, horizontal support, fibo etc by looking at left side of the chart:

Let's go ahead and choose the fibo retracement lines:

It's the second symbol, click on that small arrow and you'll see a whole host of options available. Let's go ahead and choose Fib retracement and draw it out. You'll see the results below:

If it's too small and too much things happening on your chart, you can click full screen and blow up the chart to see it clearer:

Okay, here's the important trick. How do you save the nice charts and drawings you've done? There are two ways:

1. Saving individual charts:

Click on the Save chart layout symbol and save everything you're working on for that particular chart. They will ask you to give a chart layout name.

Once you've entered the chart name, you can retrieve it back anytime by pressing the Load chart layout

You can save your work this way.

2. Saving template:

I prefer saving template, so that I can apply this particular set of template (with this set of indicators and format) to different charts. So here's how to do it:

Click on the study template:

You will see the option to "Save study template as". Click on it, give the template a name and you will be able to put this set of layout onto any charts you want easily.

I saved two template (as shown above by the red arrow), the first is "without RSI" and the second is "with stoch RSI".  If I clicked on the template "Without RSI" and click on the box (marked by the black arrow) and type the name of the counter (e.g. SHENG SIONG), I will apply this template onto the chart of Sheng siong.

Of course there are many more functions that I didn't illustrate but I think this is a good starting point to explore the platform yourself.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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
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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:
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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!

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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?

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Your 3 buckets of time

Each day there are 24 hours, no more no less. There are 7 days in a week too, so in total, there are 24 x 7 = 168 hours per week. If we divide 168 hours into 3 buckets of 'time', we will have 56 hours in one bucket, with a total of 3 such buckets.

Let's look at the first red bucket. This is meant for sleep. If we have 8 hours of sleep per day over 7 days, we'll need 8 x 7 = 56  hours. This is exactly the number of hours we have in each of our bucket of time. So our first bucket of time is completely used up, just like that.


Let's look at the second yellow bucket. This is meant for work. If we each work from 9am to 6pm, we'll work for a total of 9 hours a day. Plus travelling time of maybe 2 hours to and fro, we'll perhaps hit 56 hours a week. This is another full bucket of time used up. For me, I work 7 days a week, so it'll average about 8 hours per day. Just about right. So our second bucket of time is completely used up, just like that. We only have the third bucket of time left.


Let's look at the third blue bucket. This is meant for our leisure, our self improvement, our time to be spent on family, friends, and community/religious events, exercise and our hobbies. Basically whatever free time we have comes straight from this bucket. This bucket is present in each and everyone of us. We can't say we have no time to do this or do that. Most likely, it's due to the fact that you might have overspent your bucket of time for work or for sleep, so you have to 'borrow' some time from the last bucket to make it up.


You can use this last bucket of 56 hours to improve your lot in life, or you can spend it on family and friends and live an active social life, or you can just watch television or your favourite drama series. Either way, we only have 56 hours to spend on such leisure activities. Well, more or less. I know some people sacrificed their sleep bucket so that they can top up their time on their work. Or some people might prefer to reduce their bucket of time spent on work to focus on their family in the last blue bucket. No matter what, we still have 3 buckets of roughly 56 hours of time in each bucket.


What are you doing to spend your last bucket of time?


Note: I did not come up with this wonderful concept. I copied it with pride from the mind-blowing book, "The Happiness Equation" by Neil Pasricha.

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Triangle of success

I am reading this book by Neil Parischa, called the 'Happiness Equation'. I'm about 25% done and I thought it was a brilliant book - brilliant enough to share some of the stuff here. One of the interesting things I've read in the book is the concept about success. Any kind of success. It's really a triangle formula depicting the elements of success.

Sales success is about sales. Able to sell multiple copies if you're selling something. Able to get promoted if you're talking about career. I think this is what we see as tangible results based on common markers of success. Even a counter telling you how many visitors came to your blog is about sales success.

Social success is about being successful among your peers or people that you respect. If your co-workers think you are successful, you're likely a social success as well. The industry that you're working in gives you compliments and look up to you for advice.

Self success is about being successful in your own mind. It's not tangible and only you will know it. Self success means you had achieved what you set out to do and is genuinely proud of your accomplishment. Even if nobody knows it, you know it and you're happy. Some people think success must have self success to feel meaningful to yourself.


The trick is that you can only take 2 corners because while not being mutually exclusive, they kind of hinder each other. Let's apply it to my work as a private tutor.

Sale success - 8/10

I have a waiting list of students if they want to join my lessons. Every year there'll be recommendations by ex students or parents for the past 12 yrs so I think I did my marketing and soft sales pretty okay. There's only 2 years where there haven't been as many students as I would have liked, but on average I think I am pretty okay in this department.

Social success - 1/10

I don't have industrial recognition, nor colleagues praising me. It's just the nature of my job that isolates me from my peers. Technically, we're all competitors, though I feel that the pie is large enough to spread to everyone who is serious about their work. I'm unlikely to receive any recognition from the industry too, haha

Self success - 10/10

I'm very happy with the achievement and the progress that I have. The autonomy and the independence I have in this career is fantastic, and I tap dance myself to work everyday (okay, almost everyday). I can see a project from birth to end and take part in all the steps, so there's a lot of meaning and significance in the work I do also.


Try thinking of anything in this framework. It might open up your eyes to why you are not getting the kind of happiness from it OR why you are so happy with the kind of thing you're doing.

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Half year review 2016

I had a very productive half year 2016.


From the 1st Jan, I had already started the year running. With the most heartfelt gratitude towards my ex-students and those parents who recommended friends to me, I spent very little time catching up on my income to bring it near to where I had left it last year. As a private tutor, every year I will have a mini 'retrenchment' exercise, where the graduating students leave and a new batch of students come in to take their place. It's the time waiting between the leaving and the coming that is most anxious to me, because I will have low income during that period. It's all part of the job that I've been doing for the past 12-13 years.


The variation of the work I'm doing this year also increases tremendously. I'm teaching 2 new modules - one is a new option topic for IB, the other is a university engineering math module. Both took me to new realms of business maths/statistics/discrete mathematics that I had to spend a lot of time researching and studying. I practically spend my free time reading up on the notes and materials to prepare for my lessons. If I want to be calculative, it's not worth the effort taking up the assignment because of the sheer amount of preparatory work needed. But it expanded my mind tremendously. Some work you do it to pay the bills, some work for the sheer satisfaction of a job well done. Fortunately for me, these new modules I'm doing falls into the latter. My university student eventually got a B+ for his effort and was extremely delighted. He had initially just wanted to just pass it.

Due to the amount of work needed to prepare for the course that ended around April, I had been lacking in my reading. I'm in the midst of reading my 15th book. Based on my target of 1 book per week, I should have been on the 20th book now, so I'm like 5 books behind time. All in good time, I think I'm starting my reading habit now. I don't think I'll be that far behind when the year ends. I can't wait to give my year end review of the mind blowing books that I've read this year. I already did one book review of this book in February here.


I broke my own record for the most number of hours worked in a day this half of the year. 14 hours a day! That took me from 8am to 11pm with half an hour of lunch and another half an hour of dinner. It was crazy, and I'm unlikely to repeat it again, but hey, one more notch on my belt that I've been there done that. With this new perspective, I broke another self imposed limit. In the past, I used to work 4 hours a day and thought that was hard work. Eventually it progressed to 8 hours to 10 hours per day and I thought that was it. Never in my wildest dream/nightmare would I think I'll be working 14 hours a day! An easy day is now 6 to 8 hours for me. This goes back to my philosophy of life - growing bigger than your problems. I blogged about this theme here and I still think it applies to my life right now.


I saved a good part of my income too and I've stashed about 35k. I'm not sure if I can hit my target of 60k, but I believe 50k is goal that can be reached. Again, I'm grateful for the opportunities presented to me. This year, I experimented with my own style of social work too in the area that I'm specialised in. I started giving very low rates for students who are from financially poor background. Some are struggling single mums, some have kids who have special needs while others have kids who have a lot of problems in school. It took all my creativity and *ahem* charm to negotiate something that works out well for 4 of them and also won't be financially too disadvantageous for myself. I think I can see myself doing this when I truly reached financial freedom. Once I've settled myself and my immediate family, I'll work hard for others.


I'm still doing my chin ups and push ups. I think this had been going for maybe 1 year or more and I can see the results for myself. I failed miserably at waking up to jog, and I'm still thinking of starting some cardio exercises. I have many more reasons and motivation to do that now. I'll work on that aspect.


Spiritually, I've started and stopped my 100 day meditation exercise. Mind blowing! It has tremendous impact on my mood and sleep patterns. I know it increases my mental strength and thought-reality manifestation (don't ask). I'm also doing intermittent fasting every now and then, sometimes eating just fruits for lunch. Again this broke my concept of how much food one actually needs, and I'm very happy with how things progressed.


Looking forward to the next half year 2016, which promises lots of exciting events and progress in my life.

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3 simple steps to start stock investing

I seldom have guest post in my blog. In fact, almost never. But since I'm using Investingnote as my preferred charting platform and Evan who is our guest writer below is from Investingnote, I don't mind sharing this space with him.

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In a previous article titled ‘5 reasons why stock investing is so difficult to start’, I’ve mentioned the reasons that often become excuses, serving as inhibitions to the journey of stock investing. Many people have asked me how to address these reasons and the answer is simple: confidence.

However, not many people notice that it is their lack of confidence that affects their first step to investing, as opposed to risk appetite.

These are the 3 simple steps to boost your confidence, which will help you make your first investment.

1.Acquire financial literacy

Financial knowledge and literacy is essential for anyone to start investing. The fundamentals of stock investing are best found in their original state: books. Learn financial terms, explanations, logic and theories traditionally at your own pace. Grab a coffee and start hitting the books like you’re a student again. 

The only drawback? There are many financial books out there that are similar but different. In that case, maybe just textbooks will suffice? 

Alternatively, you can also go for courses conducted by stock educators. Most courses require a fee to attend, but some are free. The SIAS and SGX Academy both provide some basic investing courses for free. You can check them out here www.sias.org.sg or www.sgxacademy.com. Otherwise, there are many organizations and stock educators out in the market that charge a substantial fee for advanced courses. 

Also, start reading business and financial news that often highlight the more important things. For example, what affects the distribution per unit (DPU) for Real Estate Investment Trusts (REITs)? How do companies restructure in recession to sustain equity value? How does economic data like purchasing managers’ index (PMI) and non-farm payroll affect markets and stocks? What stocks are most affected by currency and interest rates?

News will highlight the important things that every investor should know. While saving you a fair amount of time, it also lets you familiarize with the myriad of financial terms and jargons, and keeps you updated on market happenings. 

2.Practise through simulation

Regardless of whether you choose to get the basics via the traditional way of reading books or by attending some courses, the overall learning process is incomplete without practice. What better way to practice other than simulation? 

Simulation boosts your confidence by allowing you to mimic the actions you would take in reality, without having to bear the costs. 

Practising through simulation is also particularly useful to gauge your own investment decisions. If you’ve predicted the stock price to either go up or down, simulate the trade. This way, you can know how accurate your analysis is. 

3.Learn from experts

The last step for your journey in learning how to invest is to learn from professionals or experienced investors themselves. Start attending free talks, seminars and fairs. Invest Carnival, Invest Fairs and private seminars are often held by ShareInvestor, SGX and brokerage firms like PhillipCapital. Attending such talks and seminars given by experts will give you a better idea of the significant things that are relevant to beginners.

If you’re the keen learner who’s always asking questions, try leveraging on the experts found on social networks like Facebook discussion groups or the social trading network InvestingNote. Being within a social network not only allows you to see what experts are thinking when they post, but also includes you as a part of the stock investing community. Never be afraid to ask questions and interact with the experts and the experienced. Learning is at its best when transformed into a two-way interaction. Information becomes communication and it empowers personal learning. Also, keeping up to date with the latest financial news and trending insights will give you that edge which traditional textbooks won’t. 

It becomes a virtual classroom. It’s almost like you’re having a tutor at your fingertips, except that there isn’t only one but many. By tapping on social networks, it will expand your personal network and interaction with experts and the experienced who are otherwise remotely located. 

If you’re lucky, you just might find an expert whose investment style suits you the best and doubles as your mentor. Mentorship is equally as important when it comes to stock investing. 

After you’ve taken these 3 important steps, you will gain more confidence to start investing, and build good investing acumen.

At which step are you currently at now?  

Written by Ethan Ho 

From InvestingNote

The social network exclusively for stock investing, InvestingNote is a free, social network platform designed specifically for crowdsource investment ideas, news and interaction for the stock investing community. Besides having access to stock data, users can upload research reports, utilize technical charts and make stock price targets that will be visible to the entire community. Users can also gain reputation points when they have followers, likes and posts. 

www.investingnote.com

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I've been using investingnote for some time and I still think their online charting platform is still the best out there that is not tied to any brokerage. And of course it's free. Personally I'm using the charting services only and not so much about the social trading. But I must say, the community there is actually quite friendly. I'm sure there are people out there who will help you if you genuinely seek their help. Just do yourself a favour and don't just trade on the recommendations there. Trading ideas and talk are free, so do your own due diligence. If you can't make money, at least learn some lessons. 

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How I reduce counterparty risk in my work

I was reading Investment moat's article on recent soilbuild's issuance of writ of summons to Technics Oil & Gas Limited. Soilbuild is seeking to claim back about $2 mil in rent plus an additional $12 mil in deposit for the second year of rent, with interest owed during the period where they didn't pay the rent. Counter party risk is hard to account for, but it's something we need to pay attention to in the real world.

As a private tutor, I have to deal with counter party risk as well. When I was a newbie in my first few years of work, I had issues collecting my fee from students too. One is recommended by a tuition agency, so it's subjected to terms and conditions that I had not read in full. Since it is the first month of tutoring that student, the student had to make payments to me as well as the agency separately. Apparently the agency do not trust the tutors they recommended to collect on their behalf, which is usually the norm. Anyway, the student refuse to pay the agency but he did pay me, but due to the contractual terms that I've signed but not read, they have the right to claim it from me. I continued giving lessons without getting paid since he is doing his O'lvls. On hindsight, that's just stupid. The thing just bounced back and fro and got real ugly, and I do not wish to revisit this again.


To avoid this, I stopped giving lessons the instant I realise something is wrong. Cut loss, so to speak.


The second notable case is for a really really wealthy expat who lives around Orchard area. They just refused to pay me one day, and I'm not sure why. I cut the lessons and hounded them to pay me my deserved pay. They disputed the dates that I've recorded, yet they do not keep track of the dates that I gave lessons for their son. Eventually this ended well and I collected my fees after a few months in full. It could have ended badly too.


These days, I treat counter party risk like these by managing them. I think given time, it's bound to happen again. Thankfully, there's no third case of bad debts anymore after I've done the following:


1. For new students who cold called me, I collect fees in advance of 4 lessons. Fully refundable, should they give me notice of not wanting to continue. Since most students come over to my place for lessons now, I take more risk than them. If I'm going over, I'm more willing to bend and will try collecting fees in advance. If they hesitate, then it'll be 2 lessons in advance. I hate collecting after every lessons, though some parents insist.


2. For new students who are recommended by known others, I'm more lax. They are sort of filtered by existing contacts already, so they are less risky. I will collect 4 lessons in advance as a general rule, but willing to bend to collect the fees after the service is rendered. Usually credit term is for 1 month, and not longer.


3. For those students that have more than one lesson with me, meaning 8 lessons in a typical month, I will collect after every 4 lessons too. This is to reduce the absolute amount of the fees owed. If there is a default on payment for 8 lessons by 1 student, it's equivalent to a default on payment for 4 lessons by 2 students, and that is not good for me.


4. Some cases you just know that there something doesn't feel right. It could be the way the parents interrogate you when they are asking for quotes on the tuition fees. It could be the way the parents make some unreasonable demands when they call. Usually I will reject cases like this when my gut instinct tells me to. It's rare, but on occasions I didn't heed my instincts, the reward just didn't go along with the downside. In other words, it's a troublesome case that is not worth the effort. This kind of discretionary rejection is rare. Most people are nice.


5. I charge higher fees. It sounds weird, but charging higher fees actual reduce counter party risk. Maybe people feel they are dealing with more qualified tutors as opposed to the initial years when I'm charging like about $22/hr.


And these are just the way to manage default on payment of the fees owed. Who says a private tutor is having the easy way out? He has to manage his portfolio of students like how a reit manager would do to manage his tenant mix and occupancy!

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