Free lance tutoring as a business - Part 3

Cash flow. This business is all about cash flow. In fact, shall I say all business is about cash flow? You can boost about how high your revenue growth is, but without actual cash flowing into your coffers, the revenue you noted down might not be translated to actual money. And we have to pay our bills with money, not with revenue.


Here's a few key issues to think about:

1. Variability of cash flow
2. Recognition of income
3. Cash flow management


Unlike employed people, my salary as a tutor is not fixed. Nobody will magically give you a sum of money at the end of the month, every month for a year. You will have to secure your own students, carry out your services, and then receive money. Hence, there's a certain variability in the income that flows in. How much I earn really depends on the month in which you are asking. Generally, there is a seasonality to your income which is based on the exam cycles, and hence there is also seasonality to the cash flow you receive. It can really vary a lot from month to month.


Below is a picture of my income over 7 yrs, written in this blog article here.

On a quick glance, you can see that the off peak season income can be quite negligible. The debt you owe is to be paid monthly, but if your income (and hence cash flow) is seasonable, that might pose a serious issue, especially if you do not have savings. I'll talk more about it under cash flow management later.


But I do get paid weekly, in various sums. It's just that during the off peak periods, the cash flow tap runs a little dry. That could get some people jittery, especially when your family sees you sitting at home, watching tv or reading a book and not working. I realised this can be quite stressful for people used to getting a fixed pay at the end/start of each month.


The only way to mitigate this is to have different levels of students. You cannot do this if you have all sec school students or all JC students.  A mix of different levels will ensure that the exam cycles of each level overlap. It's important to set a predetermined level of graduating and non graduating students, something like 7:3 ratio or 6:4 will ensure good continuous flow of cash throughout all months.


Here's a question: Do you recognise your income the moment you carry out the service or do you recognise your income only when you receive your fees? In my personal accounting, I do the latter. Fees are paid either in advance (usually 1 month ahead) or paid on the last lesson of each month, or on a per lesson basis. I do all three, depending on the preference of the parent. But for new students (defined as those who are not recommended by my usual network and are 'cold'), I usually collect the fees ahead. I've a few bad debt cases in the first few years of my job, so I do not want to repeat that again. It's emotionally draining and it eats up your soul. These days, there's strict cut loss practice when collecting the fees, rather than to carry on the service and hope that the payment will come through eventually. So far, I do not have to bring anyone to the small court tribunal to claim my fees, but I'll not hesitate to do so should the circumstances arise. If I do my fees management properly, I won't even have to be anywhere near the small court tribunal.


I believe in fair practices too. There's risk to parents if they pay their fees in advance. There's also risk to tutors who can't claim back their rightful fees. So if I'm going over to the student's place (tutor-moving model), I'm okay to collect my fees at the end of a set of 4 lessons. The credit given to the parents is to assure them that I'll not run away with the prepayment of fees. On the other hand, if the student is coming over to my place (student-moving model), then my usual practice is to collect fees in advance since I'm the party holding the higher risk. I'm afraid the student will run away before the fees can be collected. Most people are forgetful and not malicious, but again, I've my own bad cases so I'll rather be safe than sorry.


Regarding the management of the cash received, I think it's important to have a buffer of savings against the drier months. I know that my work will dry up in around end Oct until Feb (nothing serious gets done until after Chinese new year). Hence I'll have to save up during the peak period to offset the lack of income in the off peak period. Savings to me is not a luxury, it's the way to survive. I guess the same can be said for farmers who have a harvest period too. You can't spend all the money you have during the good months, only to starve in the drier months. For this year, I've saved up enough money to last from Nov to Dec without doing any work, so I know I'm covered. The next thing to do is to do some work during the drier months. I mean I'm prepared not to work for the next 2 months, but it doesn't mean I'll just sit at home and use up that reserve.


So there you go, hopefully people will open their eyes wide before jumping into this line!

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The Lesson from the Death of an Ant

Recently, I made acquaintance with a long time student of mine that I taught way back in 2006. He had since become a private tutor like me. Back then he was a chubby kid who is bright and always very inquisitive. I met him up this year for lunch and we kept in contact ever since. He’ll sometimes text me to ask for my feedback and advice on stuff related to students and work in general. All in all, a nice feeling to this because I see that I did help him in some meaningful ways or another.

Just yesterday, he texted me and told me an incident with a student that left him very distraught. The student killed an ant and he told me that he was so upset with the whole incident that he didn’t talk for 5 mins. I guess it’s his way of mourning over the passing of a life so carelessly and needlessly taken away.


And then he told me it was me who taught him to value the life of an ant back way when I taught him as a student.


Frankly, I couldn’t remember that incident. I have a habit of asking students not to kill ants when I see them crawling over their textbooks or notebooks. For my student, he reminded me that he was going to kill it with liquid paper but I told him not to do it. I vaguely recalled that he was toying with the life of a sentient being and I was disgusted with that attitude, so I had this huge  argument with him over it.  However, he told me recently that it took him nearly 10 years to learn the lesson.


I’m both proud and humbled by this incident. As teachers or tutors, we have to be careful of what we say and how we treat others. Eventually the integration and trigonometry that we teach the students will be long forgotten, but the values and the life lessons will remain. Well, at least some of it,  and to some people. Ultimately, we need to show more love at the end of the day.


I’ll continue doing what I do – changing the world one student at a time.

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This post is first published from my tuition website Kungfu Cats Academy link located here.

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Free lance tutoring as a business - Part 2

Revenue is not the main thing we should be looking at. Afterall, not all the revenue you earned is going all into your pockets because there is cost involved. Revenue, after all the costs had been deducted, becomes the profit. And that's what we're looking at in this post.

I like to see myself as a company. What I earned for a living is my revenue, while all that I spend are the cost of earning that revenue. So what's left after all the costs are subtracted will be my profits. Some people operate like a heavy capex company, with huge capital expenditures that keeps increasing so as to generate more revenue and high profits. Imagine someone who earns 10k a month and spends 8k a month in order to continue earning 10k a month. This is an example of a high capex individual. Quite tough, I'll say, because you have to keep on running on the treadmill just to stay at the same place. There are others who are like the service industry, light on costs and generally have much higher profit margins. I think I'm more of this type of company.

When we look at profits, we have to look at the cost. Here's a few things worth mentioning with regards to free lance tutoring:

1. Cost of rental + utilities

2. Cost of transport

3, Cost of raw materials

I've analysed quite a few companies listed in sgx. The three main cost are typically rental of premise, wages of labour, and cost of raw materials. For a free lancer tutor, the cost consists of rental + utilities, cost of transportation and cost of raw materials. There are different models of doing this and it depends on who is moving - the student or the tutor. In the student-moving model, the tutor stays put and the student travels over to a place where the tutor rented. The rental premise can also be at the residential property of the tutor, though some of my tutor friends die die refuse to do that. Invasion of privacy they say. The other tutor-moving model means that the student stays put in their own home, while the tutor moves around. I used to operate under this model for nearly 6 to 7 years until I have my own property. Now, I'm mainly adopting the student-moving model, although I still have to travel to some students place for work. 

That's my actual classroom, by the way

Now if you're the tutor who is moving around, then you'll incur transportation cost. If you don't take cabs all the time, the cost will be about $100 to $120 per month if you work 7 days a week. This will of course increase substantially if you take cabs every now and then. This model will have transportation cost incurred but there's no rental or utilities cost. But trust me, if you have to take 3 students a day, you'll end up about 2 hours on the road waiting and travelling. It's low cost but it comes at a heavy price of taxing your time and energy. Hence, I'll typically charge a higher rate to off set this cost, but it's still not fully recoverable. Some tutors might also buy a non-weekend car for the purpose of work too. I'll say it's a great investment, especially if you buy 2nd hand ones with about 3-5 yrs left. Some of the hardest places to go are also the ones that pays the greatest in tuition fees, but you have to work out the sum yourself.

On the other hand, adopting the student-moving model, you'll incur rental cost plus the cost of air-conditioning etc. Those who are using a room in their property will have to put in some renovation costs, and have to add in some teaching aids and a printer, but that's just one off. I always switch on the aircon in my classroom, though I can't be sure if that's a common practice for other tutors. I've been to student's place drenched in sweat from the walking and with no fan for 2 hours. It's not a nice feeling and it affects your concentration level as it's not conducive enough for learning. The good advantage is that you don't have to move about, and can typically save tremendous amount of time that can be better spent on other things, including adding one more extra class per day, if you're so inclined. 

Cost of raw materials is near minimal. There's printing cost of in-house worksheets and past year papers, but that's not usually a lot. Sometimes there's cost incurred in buying books for self reference or for the student, but again, this are far and few. Perhaps with the exception of the first few years when you are still learning your craft, the cost of raw materials for teaching is not especially high.

These 3 are the cost of doing the business but we should look at the non accounting cost of the business too. As an individual, we have to spend on food, entertainment, material goods etc. I count this as the cost of doing business too, though I'm fully aware the standard accounting practice do not count that. Generally, if you're in a high stress job, you will need to spend more to de-stress. A low stress job will require less retail therapy. Some bankers, typically a high stress job with quotas to meet, have to spend tremendous amount of their 'revenue' (i.e. salary) in order to continue working to earn that salary. The end result is that the profit of such people might not necessary be higher than someone earning an average pay in a low-stress job with little or no retail therapy needed. 

If I may be so bold to change the lyrics of that popular song, it's all about the profit, 'bout the profit, not revenue, it's all about the profit, 'bout the profit, not revenue...

Hence, profit is actually the savings you have at the end of your month. Profit margins of a company is your savings rate. If you save 30% of your salary, you're like a company with 30% profit margins. The truly great people-company are the ones with 70 to 90% profit margin, spending only 10 to 30 cts to every dollar they earned. They will have so much cash flow that the happy problem is what to do with it. Pay an interim dividend to themselves or their shareholders? Invest in another stream of revenue? Acquire and merge with another company? Spin off another subsidiary or two with the merger company? LOL

Going to talk about cash flow in the next part. Stay tuned.

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Free lance tutoring as a business - Part 1

The more I understand how to valuate a business as an investor, the more clearly I can see what makes a good company from a bad. I think some of these skills can be applied to myself since you can say I'm also doing a business as a self employed, being a full time tutor for about 10 years. I'm not a business owner in the sense that there is a system where I can hire people without me having to teach, but more like a sole proprietorship. Think of it as a one man business where you're both the boss and the employee. Think of me as a sweat soaked hawker in a wet market stall, holding a wok with a dirty towel slung over my neck, selling education in a paper plate. Want chilli or not?


The top line of a business, or revenue, is the first thing that people will have to look at when they peruse the income statement. In my case, it's the fees that I get paid for doing a service, which is to tutor the students. The things that are worth taking note are listed below:


1. Percentage revenue growth
2. Seasonality effect
3. Concentration risk
4. Multiple streams of revenue


Percentage revenue growth is obvious - it measures how much revenue is increasing as a percentage of the revenue earned last year. Higher is not necessary better, as I realised from experience. The main contributor of earnings comes from the graduating students (JC2, IB yr 6, Sec 4, N lvl) because as the national exams spreads way after school ended, there'll be more lessons needed for extra revision and preparation of exams. If I want to increase the revenue earned this year by multiple times, I will take in more of such graduating students, so I will see a huge increase in percentage revenue. But I know the following year will be worse off, because when the graduating students leave, I'll have to build up my student base again to match my income for the year. It might not always be that smooth sailing. Hence, it's better to smoothen out the difficulty of finding new students by having a mix of graduating and non-graduating students. More is not necessary better.


You can increase your revenue by either increasing your students, increasing the fees charged, or teaching more students together over the same time slot. That's in order of ascending preference. Why? Each day you only have 24 hours. Each student you take will take 2 hours (usually), which means your income is capped, hence you can't keep increasing the number of students you can take. It just couldn't scale up. Increasing fees is okay, but as all economist knows, it'll possibly result in lowering the demand. If you price yourself too far out of the market, you might end up with much lesser students than is worth it. It also depends on your area of operation too, because you just can't sell atas organic chocolate mille crepes priced at $9 per piece in a neighborhood wet market stall. That's more for Bukit Timah, Orchard Road-ish type of area of operations. Mine is in humble Bedok where the world's most delicious carrot cake can be had at $2.50 per plate.

Black or white? I say black, from Song Zhou Lou Bo Gao near Bedok interchange hawker centre (pic taken from ieatandeat)

What's the third option of increasing revenue? It's to have lessons in a group. Charge a cheaper rate but group them together, effectively increasing your income per hour multi-fold. I limit my class size to 4 because there's diminishing returns in students learning from huge class size, and all the students in the group comes from the same class/school. It's not always easy to find such groups, but it's always more fun because of the group dynamics.


Seasonality effect of the revenue comes from the nature of the business itself. Some people think that as a tutor, I'll be very free during June and December period because there's where the school holiday lies. That's not true. Usually these period is the busiest. Think of me as a bus captain. When you're going home from work, I'll be working. During public holidays, I'll be working. During weekends, I'll be working. The general rule of thumb is this: The more free you are, the more busy I am. Vice versa. Understanding the seasonality of my revenue stream allows me to act in a manner that will smoothen my income. The way to do this is to take have multiple streams of income. I'll discuss about this in detail later.


Concentration risk refers to whether you have a huge percentage of your revenue coming from a single subject, or a single student, or a single group of students, or from one tuition centre. For example, if I'm only teaching chemistry as the sole subject and one very unfortunate day, MOE decided to adopt a campaign "Teach nothing and learn something", so they scrapped off chemistry as a subject. If that unlikely event is to happen, my revenue stream will go to straight to zero. Don't say it won't happen. I know of a tuition centre that specialises only in Chinese. In the past 10 yrs, MOE had major changes in the structure and content for Chinese. I can't remember exactly what the announcement was about, but I remembered within a fortnight, the student intake of the student dropped to single digit and they had to close down by the end of the year. That's subject concentration risk.


There's also concentration risk arising from having a single big group of students. It's really good revenue since you spend the same amount of time but earn a lot more per hour, even though each student pays less. Think of it as a leverage on time. If this group of student forms 80% of your income stream and they graduate this year, the following year you'll have to find students to replace them. It's just something that you have to think about. Always the next year and the next year. Nobody will hand you a salary for free, but hey, that's what you signed up for as a free lance tutor.


Multiple streams of revenue is always better than a single stream. I'm not even talking about passive streams like dividends or from book sales, blog advertising etc. Different levels of student have their own unique peculiarity and seasonality. For example, for lower sec 1 students, they will usually not have lessons during the holidays because they had just finished a major exam (PSLE). Parents will be more lax while they concentrated on their primary school siblings, or they just want their kid to have a break before the more 'important' years. Sec 2 you'll see a lot more help during June and Sept holidays because that's the streaming year where students bid for their subjects combination for upper sec. Sec 3 you'll see a lot of activities even during the end of year holidays as they try to gear up for the all important O'lvl years. The different seasonality will help to even out drier non-peak months so that your revenue stream will have lower volatility. This will make sure you don't have to pluck grass from the roadside to eat during the winter months and freeze to death like a ill-prepared grasshopper.


I'll talk more about the profit part in future posts. Look out for it.

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The bite into the forbidden fruit

Today marks a significant milestone in my life. It marks the first week since my transition from digital wasteland, to digital wonderland. It’s been 7 years since I last bought a brand new mobile phone, and my last phone attest to the suspension of time. The Nokia E71 was the vanguard during its times, but is now a vagabond that is relegated to a relic. It witnesses the rise of the smartphones, and the fall of the very company that birthed it. Its strength lies in its tenacity, but now even tenacity is tenuous. In the era where endearing is more important than endurance and where form and function triumph over durability, I have decided to take the leap of faith and foray into the foreign land. Nestled precariously in the palm is the portable device that opens the portal to the virtual universe, and welcomes the wanted and the unwanted.


What are the wanted? Ah – the wanted are aplenty. Firstly, I was granted both anonymity and acknowledgement at the same breathe. Anonymity because my device is merely one among the countless ones carried and cradled by strangers on the trains. For once, I failed to feel the momentarily sense of awkwardness that comes with the realisation that there is none other phone like mine. However, that sense of awkwardness was replaced by an equally uncomfortable sense of acute awareness – when I realised that people recognised my phone as the one plastered on walls.


Iphone 6s Plus. Rose Gold.


It blends in, yet it stood out.

Another wanted feature was its ability to anticipate me. It could read my thoughts before I formed them. The screen was filled with tiny boxes that showcase more ideas than I could even think of – the camera app jostle with the communication app for my attention, while others wait patiently in line to be noticed. Yes – I do notice all and try them out – eventually.


The last wanted feature is how it change the way I communicate and experience the world. In the old paradigm where there were emoticons instead of emojis, and emotions are expressed through a limited permutations of : ; ) ( p in only single shade of black – one cannot possibly capture the spectrum of feelings and convey them to others. In the world where symbols, words, pictures and sounds are weaved together for a holistic experience, Whatsapping becomes an intensely engaging exchange. Moreover, this device had the ability to expand and encourage positive habits. I was embarking on the journey to track my expenditure, and magically there were apps appropriate for that activity.


Such wondrous experiences! Is there anything that one possibly not want? Yes. The ambivalence of whether you possess the possession or the possession possesses you. I never had to be so keenly aware of my phone – till the day I got the new one. The past week was a harrowing game of hide and seeks. Where is it? Is it there? Check. Check. Check. The material constraints were immaterial when compared to the nagging issue of materialism. Did I make a wise decision in purchasing it? Were it meant to fill genuine needs, or to fulfil the crass desire of having materialism materialised? Although it allows the proliferation of positive habits, I can envision how it exacerbates the evils of negative habits – to use it excessively, compulsively, addictively. The dilemma is, do I control the device, or is the device conditioning my responses? The numerous functions forced my mind to adapt to its high expectations. Gone were the days when I could safely single-task – protected and secured from the surge of activity due to the limited functions of my old phone. Now the entire universe is laid out before my eyes, and when I try to see all, I see none.


Perhaps that’s what Alice saw in Wonderland. Illusion and disillusion. Enchantment and disenchantment.


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That was what my wife wrote when she recently got into the iphone craze. Asked her why she wanted to get an iphone when she isn't even interested in IT and gadgets, she said she wanted to experience it. It's interesting that while I am trying to unwind myself from being too attached to expensive phones (I'm using mi 4i, btw), she's upgrading to high end phones. It's about $800+ with the plan. Much how is $800? Well, she'll experience it now. I also told her to write about her experiences in switching from a  '2G' phone to a '4G' phone.

There's an interesting thing which I had observed. When one uses an iphone, it's not just the cost of the plan and the initial cost of the phone that we had to pay. The cost of all those paraphernalia are usually not counted in. As an example, a tempered glass screen protector can cost up to $50. A hard 'armor' hand phone casing can cost another $50. You can buy an insurance plan for the phone as well, for another $8/mth. All these are the hidden cost of owning one of the most coveted phones in the world.

I guess you don't just buy a phone. You buy a lifestyle of paranoia in owning a piece of expensive gadget too.

It's not all that bad. She bought a personal finance app to track her expenses daily now, and she's more up to date with opinion articles from news agency, which in turn generated lots of interesting focal points when we discussed what went on in our day. So the bite into the apple isn't all that sinful, since it also brings with it a byteful of knowledge. Life's full of irony, LOL

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What will you grab before your house burns down?

What will you grab from your home if you have 2 minutes before your whole house gets burned down? I watched this interesting clip on Youtube, called Tiny House Nation. It's a sneak preview of this particular episode 5 in season 1, where a couple had their house burned down to ashes. The husband was away but the wife was at home when it happened.

When she realised that the fire cannot be put out, she had to rush within minutes to grab literally a handful of personal items while she still can. As she was in a panic, she realised that she was grabbing her computer screen in her arms without thinking. When she realised how silly that was, she stopped and let it go so that she can quickly get those items that are really important to her.

Let's pause for a while and think about what items you will grab should this unfortunate event happen to you. As we go through life, we accumulate more and more stuff into our lives, without really reflecting on whether they are important or useful to us. An involuntary event that forces us to prioritize what is important might not be such an unfortunate event afterall.


So, what's the 'grab-in-emergency' items you will take from your home? Take a moment and reflect on this question.


For her, she brought along these items:

1. Her husband's down slippers (those feathery stuff you used to put inside hotel pillows)

2. Her husbands's jacket, which he had since high school that is of great comfort and nostalgia for him

3. Her own pillow, which is bought around 1960s from her grandparent's house. She had to sleep with it everyday

4. Her leopard soft toy which she had to have in order to sleep. A dear friend of theirs who got cancer bought it for her and she had that for the longest time.


Like someone who survives a life threatening illness, this sort of involuntary event will jolt you out of the daily grind of life and force you to prioritize what's truly important to you. If you see it positively, it's a lesson that the universe is trying to get you to wake up from your slumber. Let's not wait for such an event to sort out our lives because if we're aware of it, we can actually do it right now.

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Not YOLO, it's YOLLO.

I was reading 15HWW post on Hedging against a Short life. It's a great article and a good defence against those YOLO people who argued that because WOLO (we live only once), we should spend our money without care and worry. I think philosophically, it's a good idea, but it fails on the execution part. I think the key point is that we should spend on things that matters to us, not necessarily things that are the most expensive or the most extravagant, and certainly not all the time. The law of diminishing happiness ensures that the more we upgrade on the choices that makes us happy, the more level our happiness will be. Until the next record breaking happy activity that we choose to indulge in, that is.

From TechGadgeteer. This is damn good.

His article cleverly pushes the theme further away from materialism and more towards the idea of happiness, which I think is a stroke of genius. Basically, if you can only live once, then you should make it as happy and fulfilling as possible. If spending money makes you happy and fulfilled, then by all means go ahead! But if you can believe the words of the truly rich, you'll know that while having money solves a lot of life's struggles and daily grinding, ultimately whether you're happy or not is still a big question mark. For those who are cursed by the Gods to win a lottery, the common regret is that they wished that they didn't win it because they are a whole lot worser than before.


This is all very subjective, since the pathway to your happiness could be the pathway to my depression. Hence, in a pursuit of happiness, we can do things that can be considered 'unhappy' by everyone else except yourself.


This got me thinking also. So what makes me happy?


1. Spending a whole day at home, reading books on my bed until I feel sleepy, then take a nap, and wake up and read again. I'm an introvert, and I get a huge energy boost from having lots of me time at home away from people.

2. Cafe hopping with my wife on a weekday while others are busy doing their work, leaving the cafe relatively quiet and serene.

3. Working. I know this sounds crazy, but I love doing what I do for a living. At a point in my life where I have depression, I think it's my work that brings my happiness level back to normality. So yes, it's that important for me.


And since WOLO, we should really examine our lives and put a happiness tag on the things we do, and ask if doing this or that thing will elevate our overall happiness index. It's not as selfish as it sounds and it's not about I, myself and me, because I think for most of us, making the people around us happy will also make us happy. We live both for ourselves and for the bigger social circle that we are all part of.


So for me, forget all the YOLO and WOLO, and try YOLLO instead. Yes On Living Less Ostentatiously

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Compound effect of our choices

Compound interest doesn't only work on money. It works on everything that we choose to do, which includes all the good choices and the bad choices.


Compounding works on this equation:

Taken from WikiHow link here.

Not all the decisions that we make have the same interest rate. Some decisions are trivial and these compound at a lower interest rate. Yet other decisions are heavier, incurring a much heftier interest rate. If you have to make a decision on whether to drink coke or pepsi, these are unlikely to incur a heavy interest rate. If your peers egg you on to smoke, and you are at the crossroad where you are choosing between smoking or not smoking, these are - surprise surprise - also unlikely to incur a high interest rate. Smoking one cigarette for one day probably wouldn't affect your health significantly. But if you are to decide whether to commit to a serious crime, or to murder someone, I think these are the decisions that may make or break you.


If you think about it, there's not a lot of decisions that incur such a heavy interest rate. Not even if you decide to play and not study for your exams. Well, though they are moderately high in interest rates (your views might be different from mine, of course), they are not likely to be such a great decision that will make or break you. In fact, the older I get, the more I realised that most things are life can be reversed and remedied, but you might not know it when you go through them. On the benefit of hindsight (and age and wisdom), you might be able to pierce through the fog of war and see an event that happened to you in its proper light.


But we haven't talked about the time factor. We know that in investments, even if the investment returns are low, given enough time on our side, it'll snowball and increase exponentially. I think the same can be said for our decisions. If you smoke 10 cigarettes a day for 1 week, it'll not likely to result in any serious harm to your body. But if you are to smoke 10 cigarettes a day for the next 10 years, I think the compounding effect of a low interest rate decision can snowball to seriously harm your body. The same can be said for good decisions too. Doing just 10 pull ups a day for 1 week isn't going to improve your health much, but if you persevere and consistently do 10 pull ups a day for the next 10 months, you're likely going to see see real health and physical improvements.


The last factor is actually the frequency of compounding. When applied to real life, it refers to how often you repeat your decisions. Smoking 10 cigarettes a week for 10 yrs is likely to be vastly different from smoking 10 cigarettes a month for 10 yrs, because the period of compounding is different, even if we are talking about the same decision and hence the same interest rate and the same time period. If you read 1 book a week over 5 years, it's also likely to be different from reading 1 book a month over 5 yrs. The benefits of a good decision compounds its interest rate over the frequency of compounding over the time period. The same goes for bad decisions.


Do not underestimate the power of small positive steps taken over a long period of time compounded over a high frequency of compounding. It's like how we can underestimating the amount we get if we just invest $100 per month over 30 years at 2.5% pa compounded yearly. You'll get an incredible $54,000 at the end of 30 yrs!


While we do not know the numerical values of the interest rate, frequency of compounding and the time period of our decisions, it's still possible to guesstimate and control the variables. If you're having a good habit, make it more frequent and sustain it over a long period of time no matter how minuscule that gain is initially. One day, when a certain critical mass of good decision accumulated is reached, you'll find that you'll end up miles ahead from where you began. On the other hand, if you know you have a bad habit, reduce the frequency of the habit compounding, then shorten the time period until eventually you kick it off. If not, when you accumulate a critical mass of past bad decisions, you might really be too late to reverse the situation.


I think one of the most important decision I've made to improve myself is to read. I started the habit in 2007 and the target is always to read one book a week. Over the course of 9 yrs, trying to read a book a week, I read and re-read 353 books to date. These are not all unique titles, and a percentage of them are re-reads. Some books I try to read again every few years because those are just like meeting an old friend over kaya toast and kopi. My language improved a lot, I blog better, I think clearer, I synthesize and play around more creatively. These are improvements that are not made in one year or two years or three years. It's about doing the same thing over and over again, over a long time and gaining that minuscule advantage each time until it compounds to a sizable return.


What good habits have you compounded over the long term? Are you a long term compounder of your choices?

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The slum master's achievement

I was furiously typing on my desktop when my wife pops in. Actually, her head pops in first with a jubilant smile on her face. She's beckoning me to follow her to the living room, specifically the dining table where the 'slum' is situated. The slum is what I called the part of the home where I have no jurisdiction and you have no order. Work stuff lay at odd angles to each other, with files and books stacked like a cheap and quick imitation of the Mayan pyramid. There you can hear the silent screams of misplaced nail clippers and pens and all the other knick knacks that are dying to go back to the little drawers where they belong.

That's a favela

I follow her out. When the slum master beckons, you follow.


I was lead to a computer screen with a spreadsheet program being worked on, presumably by the slum master. The computer screen is an odd thing that rises out of the slums, like how a single bright neon billboard that advertises the best of what capitalism offers will look like in the hill favela in Brazil. Like a moth drawn to a flame, I stared at the screen and was curious what she is doing on an excel spreadsheet. The slum master working on an excel spreadsheet is like putting nutella on rice. Or steamed oranges. Two ordinary things combined in a weird and unconventional manner.


She beamed brightly while pointing out the rows and columns of the spreadsheet. She's showing me the expenses she had for the day, for the past few days this week. She proudly exclaimed that she had not been spending a lot of money this day, except for the lunch that she had. Rows of itemized spending is keyed in neatly, with the right end of the row accompanied by the dollar equivalent of the spending. Daily recording of expenses, hmm...


I gave her the thumbs up. If I am a tree of happiness, a few fruits ripened that very moment. If my life is a movie, this is where the camera pans in slowly in a anticlockwise manner, with me in the center rising vertically upwards, until the camera zooms in on my face. As the heroic music plays on, the beginnings of a smile dawns on my face.


And yet no camera can capture the beams of pride that emanates out of me.

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Croesus rights allocation is out

A quick update before I start work.


The rights allocation for Croesus is out. I haven't got the refund of money yet in my bank account and to check how many rights you're allocated, just go to CDP site here, log in (hopefully you've got all the password and token access) and check how many rights you have.


I have 10,000 shares of Croesus and I have 13,100, so I know my entitled amount is 2,200 and excess is 900 shares. Since I have full rounding, I'm pleasantly surprised to see that I have excess. Not too bad at all. My strategy for the rights is to subscribed for all the entitlement and double it to apply for the excess. From experience of rights exercise from reits, the excess never exceeded the amount of entitled rights, so this is a sound strategy. You also don't want too many when others don't want it haha!


Have you checked?

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Saizen reit - the strange beast

This is a strange beast. You would have expected that because there's a stated acquisition price of $1.172, the price of Saizen reit would have traded closer to that price as arbitrators close in to profit from it. But the price jumped to 1.09 from 0.925/0.930 expectedly, then went to a high of 1.14, before lingering around the 1.10/1.12 range and closing at 1.10 for Monday.


If you buy in at 1.12 for example, you would easily have made 0.05 cts, about 4.5% off this arbitrade. This doesn't even include the dividend (from July to Dec 2015) that is going to be declared, which amounts to about 0.03, bringing the total reward to 0.08 cts, or 7.1%. And quite possibly, there should be another partial dividends from Jan 2016 to whatever date that Saizen assets are scheduled to be sold. So the important question is, if we choose to arbritrade, are we the smart ones or are we the suckers? Is there something they know that we don't?

I didn't know Saizen also represent the best, or forefront, in Japanese

Let's see what's the risk involved here. I think the primary risk is that the deal will not go through, and it's really not a done deal yet, though it's a fairly confirmed one since the management of Saizen had accepted an offer already. As such, the longer this drags, the higher the risk of the deal not going through. The deal is conditional upon a few things, but I think the most important ones are (1) approval by SGX and MAS and (2) the approval of unit holders. I don't think both are serious issues, especially the second point. The offer is ridiculously generous, considering that the stock is lingering about 0.8+, which is way below NAV. The unit holders should be jumping for joy at having such so many years of income all squeezed into one.


The secondary risk is how this is going to benefit unit holders. Technically, after Saizen sells off their assets, they will be loaded with cash and with no real business. It's stated that the manager will distribute the net proceeds from the deal to unit holders as soon as practicable through a special distribution. They will cease to be a reit and should likely choose to delist. Could it be possible that they will change their mind and choose to invest or acquire other business, change its name and still operate as a company? If that's the case, the unit holders of Saizen reit will not get the full 1.17 per share. Perhaps a fraction of it or none at all. There's a lot of uncertainties here, but this will be set out in a circular that will be mailed out to unit holders soon.


Let's see who are the possible sellers of Saizen?

1. Insiders who had gotten wind of the information and bought in way before it's announced, bringing up the price from 0.8+ to 0.9+ last week. They might want to sell out to seal their profits.

2. Investors who wanted income and wanted to take the money to invest in other reit before others come crowding in. A bird in the hand is better than two in the bushes. Something like that ;)

3. People who had borrowed money to get into reits might want to sell off. If you borrow at say 5% and get into this reit at 6%, you'll get a kind of leveraged yield or a dangerous kind of passive income stream. It's like picking pennies in front of steamrollers. They would want to sell off upon such news since they are using money they don't have.

4. Blur sotongs who don't know why the price went up so high and sold off to take profit.


Are there any more reasons? Wish me luck. I'm vested as of today.

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Real investor (in pref shares), real returns!

Real investors, real returns!


I had the honour of handling my parent's retirement portfolio, otherwise known as LP bond fund 1, 2 and 3, starting from around 2013 to the most recent early 2015. In it, I bought several lots of preference shares by OCBC. It's the perp that I blogged about earlier here, paying a coupon yield of 4.2% pa and they are going to be redeemed soon in 2nd December 2015.


One good thing about investing in bonds is that you know the returns and the price before you plonk in your money. In the case of preference shares or perps, it's a little trickier because you don't know when they are going to redeem it back. In other words, unlike bonds with a stated and clear maturity date, perps technically only have an optional first callable date. It happens that for this OCBC pref shares, the first callable date is on 14th July 2013, and thereafter on every dividend payment date, they can choose to redeem it back at a par value of $1.00 per share.


With that, I can calculate exactly how much returns I extracted from the preference shares while holding it. So here's the result:

A few key points:

1. The earliest first batch, invested since 27 Dec 2013 gets the most returns. I got in at a price above par of 1.025, and averaged out over the entire holding period, it gives me an average of 2.80% per year. Very similar to the singapore savings bond, except that the instrument is not out yet in 2013. Back then, it was pretty hard to find a decent retail bond!


2. The second batch, about 1 month later, gets 2.73% pa on average over the holding period. Still okay. I got in at a slightly higher price of 1.029 though. That probably accounted for all the difference in the final total returns.


3. The third batch is the one that I just broke even excluding commissions, and slightly negative after comms. Who would have thought that the issuer will redeem back the preference shares less than 1 yr after I got in? It would minimally need 1.5 yrs before I can make a positive return, and I bet that it wouldn't redeem back within that time. And I lost that bet. The good thing is that it's only a small part of my parent's portfolio, consisting between 17% to 27% in each tranche of the portfolio (I've LP bond 1, 2 and 3). In absolute amount, the loss is $20.30, thankfully. I think the relevant lesson learnt here is that if you want to have a portfolio of preference shares or bonds, it's wise not to put the entire sum into the one with the highest yield, even after accounting for the safety of the issuer company. The reason is that even the safest company may fail. History shows a lot of such blue chips quality company turning blue black. The other reason is that if they redeem it back, then you might have to reinvest again at a point at a point where it's not conducive to do so. That might eat into your returns as well.


So, when they redeemed back the preference shares, I can only hope they will reissue another preference shares. A good quality preference shares by a bank is something that would be suitable for my parents, since their holding period is really just forever.


Now I've to crack my brains to think of where to put in the capital to generate cashflow again. Or maybe I can return back to my parents, haha

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