Wednesday, June 29, 2016

The Animal School

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

Here's the Animal School by George Reavis:

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

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

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

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

Thursday, June 16, 2016

Bullish / Bearish divergence

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

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

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

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

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

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

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

Real examples:

UOB (weekly)

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

Ho Bee Land (weekly)

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

Can we go reverse and have a bearish divergence?

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

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

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

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

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

Real examples:

UOB (daily)

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

UOL (monthly)

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

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

DBS (daily)

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

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

Monday, June 13, 2016

Are we there yet?

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

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

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

Here are some comments regarding the above items:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sunday, June 12, 2016

It's good to be inefficient

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

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

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

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

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

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

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

2. Eating cheap (but unhealthy) food.

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

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

Efficient? Hardly.

3. Hunting for cheap bargains

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

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

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

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

Now that's progression, isn't it?

Thursday, June 09, 2016

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.

Tuesday, June 07, 2016

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.

Monday, June 06, 2016

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.