My Decade-Long Journey To Five Million

Ear to ear, baby!

In a recent research paper titled The Symbolic Power of Money (published in Psychological Science) Zhou, Vohs, and Baumeister performed six experiments, with results that suggest that even the idea of money can have beneficial effects on us. Even counting money can apparently reduce the pain of being socially ostracized, and even real physical pain.

How powerful is that? The idea is that money is a social resource that gives the owner a “strong feeling of being able to cope with problems and satisfy one’s needs”. In other words, money makes you confident and gives you a feeling of being in charge. (And now you wonder why we need scientists doing all these experiments to tell us something we already know, right?)

Still, it is really good to get these confirmed through controlled scientific experiments. Also, I think they really underlined something important here:

1. Even the idea of having money can give you all these benefits. You don’t even have to have the money! (The subjects in the experiments were merely asked to count money.)
2. The social and psychological benefits of money apply even to things that can’t really be solved using money. Just by having money, you become able to evaluate your (painful) experience in a more positive manner, regardless of whether money will actually solve the problem.
3. The “feeling of strength” that money confers is likely to be something exclusive to money, and not the other pleasant stimulus (e.g.: chocolate).

So in conclusion, money makes you feel powerful, and in the long run you probably end up happier because having money lessens the pain you experience in this world. You can afford not to give a damn!

Isn’t money awesome?

August 8th, 2009 | Category: Wealth | Comments (1)

As I’ve so shamelessly advertised a few days ago, I passed CFA Level 1 Exam with pretty good result (all sections > 70%). Now, a lot of people got this kind of result as well. Just look at the AnalystForum’s June 2009 Level 1 result thread. Some of them are probably a lot smarter than me and I wouldn’t be surprised if they did it just by studying for 4 weeks or something.

Studying, studying, studying...

Not me. I got my result because I prepared well. I’m not some bright young man with a lot of time to dedicate 4 weeks to cram L1 material into my head. I have a full-time job that requires me to work until late at night during weekdays–sometimes even weekends. I need to balance my study sessions with my family life although my wife is very kind and understanding about the whole thing.

When I began my L1 preparation, I went through a period of trial and error for a few months. In January 2009, though, I settled on a strategy that has proven itself to be helpful in getting the result that I desired.

Obviously, between January and June 2009, a lot of things happened. So I’d like to share what happened during that 6-month gap in this post. I hope it’ll be of some use to level 1 candidates reading this.

Exam Preparation Tips (6 months – 1 month before the exam)

1. Start as early as you can. You’d be surprised by the number of smart people who think that this is just something like a school exam that you can pass by cramming for a few days. Sure, there are candidates out there who studied only for 2 weeks and passed the exam, but you are not one of them. Trust me on this. It’s a bit like the lottery winners. You know they exist, but you’re not one of them. Start as early as you can.
2. Realize that you can be a really smart person and still fail this. I know quite a number of really smart people who failed this. They are so used to cramming, because it worked for them in school thanks to all that brain power. Well… no such thing for CFA exams. Especially if you don’t have the finance background!
3. Make a plan. Without a plan, you don’t know if you’re behind, on track, or ahead. Seriously, make a plan. Any plan with specific target dates would be better than no plan at all. Again, you’ll be surprised at the number of smart people who don’t plan at all for this exam.
4. Make your plan iterative. Meaning, don’t create your schedule such that 14 days before the exam you just finished reading the whole material for the first time. Retention is the key here. You need to target to finish reading the whole material once at least 2-3 months before the exam. Then go for the next round of reading. I went through the whole material twice.
5. Put some buffer in your plan. Be aggressive with your plan and do not delay anything until the last minute. Because something will happen along the way. You may fall sick. You may need to work on a project that requires you to be in the office 24×7 for a few months. You may break up with your (girl|boy)friend and as the result you can’t concentrate on your study for a month. Etc., etc., etc. Plan for the unexpected and put some buffer in your plan.
6. Solve, solve, and re-solve a lot of practice questions. I did thousands of practice questions from Schweser QBank. I use them for 2 specific purposes. The first one is to have a review of the whole material regularly. The second one is to gauge your mastery of a topic before moving on to the next one.
7. Get some kind of notes. A number of people write their own notes. I started writing one myself too. I quickly found that–for me at least–it was a huge waste of time. I ended up buying Schweser Notes and center my study around those notes. I’ve heard that this strategy doesn’t really work for L2, but meh, this is L1. It worked beautifully for me.
8. Most importantly, be consistent. Pace yourself.  I think one single thing that helps me the most is that I managed to maintain a roughly consistent level of studying throughout. It’s better to study 1 hour per day for 7 days than to study 7 hours on a Sunday. Don’t burn out too soon!
9. Take leave before the exam. Preferably one week or more. It really helps in getting you to the exam mindset and forgets everything else. Obviously you need to let your boss know early about this kind of thing!
10. Practice with your calculator. NPV, IRR, cash flow, mean, standard deviation, variance… these need to be your second nature. And make sure that you get the right type of calculator! You’d think that for an exam like this, people would take the time to make sure they get the right type… well… no. Some idiots still bring the wrong calculator for the exam. Don’t be one of them.

Before The Exam (1 month – 1 week before the exam)

1. Start taking the mock exams. I can’t emphasize enough the importance of taking CFA mock exams. I suggest taking both mock exams 2 weeks before the actual exam to identify your weak points. Patch those weak points ASAP.
2. Check your ticket when it is available. Do this early. Make sure that your name there match the name that is listed on your ID. Make sure that you’ve got the right exam center.
3. Get into exam mode. At this point, you shouldn’t really have any material left to cover. You should be just working on re-inforcing what you’ve learned and applying them in solving the questions.
4. Review Ethics every 2-3 days. You’ll be happy that you did. Memorize the Code of Ethics.

The Last Week (1 week – 1 day before the exam)

Gears of War!

Most of the things here are easy stuff that a lot of people forget anyway!

1. Buy a new calculator battery, and change it 2 days before the exam. Why 2 days? So that if for some reason your calculator gets screwed up while you’re changing the battery, you can still buy another one.
2. Buy TWO HB pencils. Sharpen them and use them just a bit to get the right sharpness.
3. Buy an eraser. If you’re like me, you will make mistakes. Get a good eraser that will erase mistakes cleanly.
4. Buy a pencil sharpener. A number of dudes asked to borrow my pencil sharpener. Apparently they only brought one pencil with them, and they were broken. Duh!
5. Make you you know the way to the exam center! Don’t find everything out at the last minute.
6. Get some good sleep the day before. You don’t even need to try hard to sleep. Just lie down and read something light. Hopefully then you’ll doze off and sleep. But realize that, even if you don’t sleep well, the excitement of the exam day tomorrow will help you to go through it anyway. I slept at 2AM, woke up at 6AM, and I went through the exam just fine.
7. Figure out what you should wear in advance if possible. I went for the exam in a thin T-shirt and three-quarters because I didn’t want to get bothered by Singapore heat during the exam! Well… I should’ve brought a jacket. It was freakin freezing cold in there! The air conditioners were working in full blast!
8. Try to arrange for lunch if possible. My friends had told me way in advance that I should arrange for lunch beforehand. Well, I didn’t do it. Big mistake. The exam place was so packed that the only lunch I got was a smalll piece of bread from 7/11 (that was pretty much the only piece left I think). That, and a can of coffee. Hardly an ideal lunch. By the time the exam was finished I was exhausted, hungry, and cold. Don’t be an idiot like me. Arrange for lunch.

Exam Day

1. Bring your: passport, watch, CFA exam ticket, 2 HB pencils, 1 approved calculator, 1 eraser, 1 pencil sharpener, lunch. I don’t know about you, but I’m not the type who leaves my handphone unattended along with thousands of other bags. So I didn’t carry my handphone on that day. It’s your call.
2. Read the instructions carefully, and remember that proctors got POWERS that day. You’ve spent all those weeks/months so that you can pass. Pay attention and obey the proctors and you’ll be fine.
3. Be calm, don’t care about others. I saw more than a few people went out with more than one hour to spare. Not me. I stayed till the very end verifying my answers. What I’m suggesting here is: just stick to your own style and don’t get affected by what others do.

I’ll see you all at CFA Email Study Group! A bunch of us passed Level 1 in June, so drop by and ask questions if you like. If you’re going for L2 i 2010, please join us in preparing too!

August 6th, 2009 | Category: CFA, Level 1 | Comments (12)

Congratulations! You've been selected to be our slave for the next one year!

July 31st, 2009 | Category: CFA, Level 2 | Comments (12)

I’m VERY HAPPY to report that my learning strategies apparently worked!!!

Pure Unadulterated Awesomeness

Obviously the big major humongous thanks go to:

1. My wife, who’d been very patient with me for geeking out for many, many weekends, and was supportive through and through. My parents, who had been very supportive and were obviously very proud to hear that I passed this
2. My bosses! Who have been very understanding and very supportive through and through. Better bosses than you guys, I can’t really find!
3. My fellow CFA candidates over at CFA Email Study Group! You guys have been AWESOME Congrats to all of you who have passed! Those of you who didn’t, I’m looking forward to see you in June 2010 for L2 anyway, because I KNOW YOU WILL KILL L1 IN DECEMBER!
4. His Awesomeness, His Coolness, His Hipness, my one and only:

This thing? IT ROCKS, BABY.

I have to say I hesitated for a while before I signed up for Level 2. Do I really want to burn all those weekends away again? Really? Really really? For another year until June 2010? What am I thinking?

Unfortunately, my fingers are faster than my doubts. There goes my weekends again in 2010…

Man, I Must Love CFA Really Bad To Do This...

See you all in Level 2, folks

July 28th, 2009 | Category: CFA, Level 1, Level 2 | Comments (15)

Finally, CFA Level 1 Exam is behind us! Let’s hope that we won’t need to go through the same thing all over again for December

So back to our regular programming here: net worth! Recently I took another look at my current net worth, which has been going up and down thanks to currency fluctuations, but has been generally going up. The problem is, it’s still too far. I’ve been working on this for about a year now (I started this whole thing August last year), and I’m still short of S$4,307,334. That’s a LOT of money to be made in the remaining 9 years!

Now, if I were Warren Buffett working during the years between 1965 to 2007, getting a return of 21.1% on my money year after year (a feat in the past that Buffett himself said: “can’t be duplicated or even approached“), then… I’m pretty much set. Just work hard, be good, live well beyond my means for 9 years, and this 5m10y project will become reality!

With a much more realistic return of 5%, though, I need to put in roughly SGD400k (US$250k) a year to hit my target. Which is wayyyyy above what I earn in an entire year!

Ahhh. So far, and yet so far.

July 2nd, 2009 | Category: Saving, Wealth | Comments (1)

Finally, I got myself a Facebook account Please, drop by and say hi!

June 21st, 2009 | Category: Uncategorized | Leave a comment

Because she has such an unbelievable singing voice that actually moves me to tears. Real men are NOT supposed to cry! I have NEVER been moved by someone’s singing like that in my life. The way she sings, it just… touches me to the core. 

The 47-year old unemployed, unmarried, “never been kissed” (in her own words) woman moved the audience and actually made Simon Cowell look like this:

I've never seen him like this!

You just have to hear her for yourself. (Sorry, wanted to embed the video and the person who uploaded it disabled embedding on purpose.)

April 15th, 2009 | Category: Inspirations | Comments (16)

Fail. FAIL!!!

Wasn’t it only a few short weeks ago when this “key influencer” guy made one of the worst Twitter posts ever? And offended his multimillion dollar client (Fedex) in the process? (The fact that he committed that blunder while he was on his way to coach Fedex on how to use online social media is just priceless. You can’t make up stuff like this!)

And of course, now we have the Cisco Fatty, a.k.a.: How To Tweet Your Way Out of a Job. Poor girl tweeted that she hated the fatty (that is, well-paid) Cisco job she just got offered for. Somebody from Cisco saw it. And the internet rejoices!

To me, it’s plain and simple. Both of these people screwed up big time. But what’s interesting in both cases is that there are always people who are outraged that these days we cannot say anything we want online. 

“Can’t we be honest about what we think anymore? I think it reflects badly on <insert the offended company here>” 

“He tweeted it during his private time, in his own account!”

“So what if she says she hates the job? Do we have to be delirious of every job offer we get?”

Duh.

Can’t we make this simple? How about this: think whatever the heck you want.

But if it’s something that you won’t say in front of your client/friends/the government/whoever might be listening, then either:

1. Make damn sure that you’re saying it anonymously (which is VERY HARD–perfect anonymity is pretty much impossible), or, much better,
2. DO NOT SAY IT AT ALL.

The internet is NOT a place for you to let it all hang out and be honest about your true feelings. If you want to complain about your boss, your clients, etc., go and complain to your trusted friends. Verbally.

Do not, EVER, publish anything online that you don’t want to be traced back to you. Think long term. What you think is OK to say when you’re in your early 20s may come back to haunt you when  you’re vying for that corner office 15 years later. 

(That goes to YOU too, you female acquaintance who keeps publishing your marital woes in Facebook and complains constantly about your boss in your very public blog!)

(Image courtesy of playerx @ flickr.)

March 20th, 2009 | Category: Career | Leave a comment

I’ve been going through the Corporate Finance practice questions, many of which are about calculating Weighted Average Cost of Capital (WACC), a.k.a.: Marginal Cost of Capital (MCC).

The formula is simple:

WACC = w_d[k_d(1 - t)] + w_psk_ps + w_cek_ce

So just like its name, it’s basically a weighted average of the 3 capital components: debt, preferred stock, and common equity.

In some questions, the weights are given as percentage numbers, e.g.: 30% debt, and 70% equity. This is straightforward. We just use 30 and 70 as the weights. 

But sometimes, they are given as debt-to-equity ratio, e.g.: target debt/equity ratio = 0.4. Then Schweser usually explains how to calculate w_d and w_e  from this given ratio in greater details:

First, calculate the weights for debt and equity 
w_d + w_e = 1
w_e = 1 − w_d
w_d / w_e = 0.40
w_d = 0.40 × (1 − w_d)
w_d = 0.40 − 0.40w_d
1.40w_d = 0.40
w_d = 0.286, w_e = 0.714

Dropping unnecessary calculations

This is not necessary–it’s too slow. We don’t need to perform this calculation at all. 

The key point here is that what matters about weights is really their proportion relative to one another, instead of the actual values we use as weights.

That is, if debt/equity ratio is 0.4, it doesn’t matter whether we enter 

w_d = 0.286, w_e = 0.714 

after doing that calculation above, or

w_d = 0.4, w_e = 1 

As long as the d/e ratio is 0.4, we can use 4 and 10. Or 40 and 100. 2 and 5. Or whatever two numbers has that ratio–the most obvious of which is of course 0.4 and 1. So whatever debt/equity ratio is given, just enter that ratio for w_d, and 1 for w_e. Easier, yes?

And of course, here’s the way we do weighted average in HP12c:

1. Clear the statistics registers: f – CLEAR – ∑
2. <Enter value> – Enter – <Enter weight> - ∑+ (an easy way to remember to enter value before weight, is to remember that v comes before w in the alphabet)
3. Repeat step 2 as many times as necessary
4. Display the result: g – 6 (that is, g, and then number 6 key–that’ll give you the weighted average.)

March 15th, 2009 | Category: CFA, Level 1 | Comments (4)