My Decade-Long Journey To Five Million

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 | Leave a comment

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 (6)

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)

I'm betting that this will happen.

My journey, your journeys, and everybody’s journeys will end in roughly around 1284 days, that is, December 21^st 2012.

According to the Mayans.

Whose civilization kinda collapsed around one millennia ago.

Whose predictions, in all probability, are not any less bullshit than some random stuff a typical modern-day stoner can make up on the spot for you. 

I’ve been looking for somebody to have a bet with about this whole 2012 doomsday thing, but so far nobody is daring enough to take me up on that. 

It’s simple, really. Let’s define and agree on a few catastrophies on a global scale. If on 22 December 2012, those catastrophies haven’t happened, you donate USD1000 to a charity of my choice, under my name. If they do happen, in which case we’re probably won’t live much longer… well… it’s kinda tough. But I’ll try to donate USD1000 to the charity of your choice under your name, before we all go extinct.

Do we have a deal? We can use Long Bets for this.

But before that, please read this, and this. And stop being so gullible!

(Image courtesy of simonlesleyphoto @ flickr.)

March 9th, 2009 | Category: Uncategorized | Leave a comment

I have to admit, I’m struggling with the Financial Reporting and Analysis (FRA, SS7 to SS10) part of CFA Level 1 curriculum. The available texts, both CFAI and Schweser, continue to read like Latin to me.

The big problem is that FRA is not like Quants or Econs, whose concepts you can wrap your head around. Instead, FRA, at least to me, is very much like a bunch of arbitrary rules that I just have to memorize blindly. 

Well, I hope you’re finding it easier than I am. If you’re struggling as well though, here’s something that may help: 

The Merrill Lynch Guide to Understanding Financial Reports (PDF)

Quote:

“This Guide to Understanding Financial Reports is an initiative by Merrill Lynch and its communications partner, Addison, to provide a clear, practical explanation on how to read and interpret a corporate report. We encourage you to use this resource to help you play a more active and informed role in working with your Financial Advisor—and ultimately gain better control of your investment activities.”

They really try to walk you through the basics there. I find this document very useful in just understanding the high-level concepts first, before delving further into the level of details presented in the CFAI and Schweser texts. 

Hope someone will find this document to be as useful as it is for me.

February 28th, 2009 | Category: CFA, Level 1 | Comments (1)

I don’t know how to write this post without sounding like I’m boasting, so I’ll write it anyway. 

To make a long story short, after cashing out my investments recently, I am sitting on an amount of cash that qualifies me to be a premier/priority banking client in Singapore.

Now, I know that premier/priority banking is just a poor man’s version of the true private banking, which is still in the future for me. Not now. But I’d be lying if I said that I wasn’t at least a bit excited though. 

I mean, hey, imagine not having to queue with 745 other people in front of me everytime I need to go to a bank! Imagine getting “personalized attention” thing from this “dedicated Relationship Manager” person! Imagine having a limousine fetching you from Changi airport to your home! (That last one is not there anymore.) 

Sounds good, no? 

Well… unfortunately, my experience with a few of the local banks that offer premier/priority banking turned out to be frustrating, humbling, and eye-opening, all at the same time.

In the grand scheme of things

They must've learned from this guy.

First of all, there are the Relationship Managers. My first impressions of those premier banking Relationship Managers (RMs) were terrible.

They are horrible, horrible listeners! Not a single one of them stopped for even a second to listen and understand what I need from them. Instead, throughout the whole discussions they were just aggressively trying to sell me products. It never felt like I was having a discussion. The whole conversation was just sales pitch after sales pitch after sales pitch after sales pitch after sales pitch. 

It was disappointing, really. I get better service from the tellers whom I see in my usual, decidedly non-premier, regular banking. 

It made me wonder, really. Aren’t premier banking RMs supposed to give you better service than this? Isn’t the service you get here supposed to be way above what you get from the POSB tellers? 

Then it dawned on me. In the grand scheme of things, SGD200k might be a big amount for you (it certainly is a big amount for me!). But in the world of premier banking, SGD200k is just an entry level, minimum amount, that puts you at the very bottom of the premier banking ladder. 

Now that explains a lot of things, doesn’t it? No wonder I get better service from the non-premier banking people! I was a reasonably-sized fish in the normal, non-premier pond. But in the premier banking pond, I am just one ikan bilis among the halibuts and the salmons swimming in this pond. Coming in at SGD200k, I am literally the poorest client they have! No wonder those RMs didn’t even bother to pretend that they care!

5m10y: "Premier Anchovy"

I’m guessing here, that those people who’ve just barely made it into the private banking pond are getting the same bottom-of-the-barrel treatment as well in the private pond. (Of course I might be wrong here–I’ll write about it in this blog when I’ve become a millionaire a few years from now.)

But back to premier banking. So what’s so special about it? If the only thing you get from becoming a premier banking customer is more sales calls, why bother at all? 

Well, the other things that premier banking is supposed to give you are: (a) preferential rates, and (b) access to products that “normal” banking customers don’t have access to, and (c) lifestyle privileges. 

Let’s see how big of a deal these things are.

Preferential victims

Preferential rates. The word preferential is supposed to make you feel warm and fuzzy inside. After working hard for all those years, now, after all, you are a preferred person. Ahhh… that feels good doesn’t it? 

Naw, sorry. Preferential rates, if my discussions with the premier RMs are any indicators, really mean that they prefer to screw you than other people.

Preferential? Why don't you kiss my... my potato!

Consider the deal I was offered, to buy a certain ETF with the “special rate commission” of only 0.5%. So if I buy USD100k, the commission is USD500. Quite small, isn’t it? Until you realize that in optionsxpress, you can get the same thing for USD68, and don’t even get me started on Interactive Brokers–those guys will only take around USD20.

Those dual currency deposit that they do is equally bad too. You’re basically selling a put option cheaply to them, quite a lot cheaper than what they could get from the market, and they’re still quote you a spot rate that is quite far from what they can get from the market. Here’s a very good post about this by icecold1967.

These preferential rates can vary widely from bank to bank too. At one point I got two offers for exactly the same product, same terms, and the interest for one offer is 20% higher than the other (close to 8% vs. 6+%, if I remember correctly).

Preferential? Not very much so, I’m afraid. 

How about those special products nobody else can have access to?

Early in 2008, I met up with my (now ex) financial advisor, who was “VERY excited” because she was able to “get me special access to products which, until recently, were only accessible to accredited investors“. The only condition was that I had to put in at least SGD50k, and the commission was way heftier than what I had been used to pay. 

I rejected it right there and then. In my experience, this kind of deal is almost always a rip off, especially for the little people. The price you’re paying is almost never worth whatever it is you’re supposed to get from those special, otherwise inaccessible things. Lucky me. If I had gone with that special deal of hers, I would have lost much, much more, than just exorbitant commissions. 

Look, here’s the thing, kay? There are certainly products that only certain people can have access to. And it is true that some of those products are better. People like Warren Buffett, for example, get a lot better deal when he invests in a company. Way better deal than what regular investors like me can ever hope to get. 

Hitting the high notes: not for DBS customers.

But products aren’t automatically better for you and me just because normally they are inaccessible to us! For instance, don’t you feel a bit lucky if you’re not one of the richer people who would have qualified to invest with Bernard Madoff, unlike this Singapore-based gentleman?

And of course, those of us in Singapore is very familiar with DBS High Notes, again one of those special products offered by these Relationship Managers to DBS’s wealthier clients–which, unfortunately, includes older people who don’t know anything about credit linked notes too.

All I’m saying is, drop the notion that just because something is inaccessible to us it is automatically better than the readily available options.

Sometimes, you’ll get screwed more, for less return. No good.

Lifestyle Privileges

Honestly, for my personality, among the “benefits” of premier banking, this is probably the most useless one. You’re not helping me one bit by giving me 5% discount if I spend 1000 dollars in some overpriced spa. Duh. Discount my bill by 20%, then we’ll talk. Okay?

Will I still go for priority banking?

Yes. But I’m not going all starry-eyed about this. I’m going in after comparing all the features, perks, and convenience that different banks can offer me. And when it comes to actually buying products, I will shop for the best deals, even if it means taking money off my balance with the bank and losing my “premier” status.

The only way those RMs can get commission out of me is if they have something that I really want, at a price that can’t be beaten anywhere else. Nobody can manage your money better than yourself! Only you are interested in you–your RM doesn’t give a damn about you! You shouldn’t give a damn about them either–just use whatever service and help they can give you. Now to me, that’s what this whole premier/priority banking is all about.

UPDATE (17 March, 2009): and be sure to read this article about private banking, written by my favourite author Doc Money. That article has convinced me even more that once I’ve reached the private banking level, I’ll be sorely disappointed again.  

(Images courtesy of rick @ flickr, the US Federal Government, Decadent @ flickr, and daveiam @ flickr in the order of appearance.)

February 22nd, 2009 | Category: Investing, Saving | Comments (4)

These days, hardly a day can go by without something about Wall Street bonuses in the news.

The fact that banks like Merrill Lynch paid out $15 billion bonuses after $42 billion losses, or that Citigroup paid out $4 billion after two multibillion-dollar rescues, have been discussed and beaten to death. 

People were outraged, politicians were in disbelief, and President Obama called it the height of irresponsibility and shameful. But the biggest surprise for me in this whole matter is finding out how stupid these erstwhile “financial masters of the universe” are with their own money. 

There are many articles about disgruntled bankers (like the ones working for Citigroup, who only got $4 billion dollars in bonuses this year) who spend way more than their salaries, and therefore are royally screwed when they find that their bonus for 2008 is nowhere near the ones in 2007. 

Weird, eh? On one hand, these Wall Street people are supposed to be a lot smarter than us financially. But talk about personal finance, and these guys are no different from Mike Tyson or Michael Jackson! I mean, honestly, I won’t be surprised to find that a lot of people are smarter financially than Mike or Michael (note to self: don’t name son Mike or Michael). But being smarter financially than a guy who makes 10 to 100 times what you make? That’s gotta make you stop and think for a while, eh? 

Do this so you can self-proclaim yourself smart

So what I, a self-proclaimed “financially smarter than Wall Street bankers” guy did with my bonus, which just came in a few days ago (in January)? Well, I (1) gave some money to my parents, (2) planned a nice dinner with my family and (3) am going for a simple holiday later this year with my family.

The rest of it (around 90% of it) will be allocated this way:

1. 25% will go into either a AUD or a GBP fixed deposit.
2. 15% will go into ready cash for investments, in case a good one comes along (been eyeing MSFT for sometime now).
3. The rest will go into strengthening my safety net. We don’t know whether we’ll still keep our jobs tomorrow these days.

I like to think that that plan of bonus usage is pretty smart (Please feel free to let me know if you have any other ideas though!)

One of my friends bought a high-end home entertainment system. One of them bought a freakin car (on credit! The bonus is used for down payment). Another planned a holiday to Japan (which is a freakin expensive country, not to mention the strength of the yen right now).

(It kinda made me wonder actually: am I the only one who’s feeling the urgency of this financial crisis?)

Later on I realized something: it’s not that they don’t feel the economic pressure. They do. But the way they experience pleasure is totally different from me. They need to spend bonuses and reward themselves to get motivated.

Whereas for me, seeing the bonus figure is all the motivation and reward I need. I don’t get any kick out of spending money–my kick is from earning and investing money. And no, I’m not saying this to boast or feel self-righteous. I’m not sure why I’m wired this way either.

Oh well. That’s probably why I liked uncle Scrooge McDuck so much as a kid :)

(Images courtesy of AMagill @ flickr and Kanou Hiroki @ flickr, in the order of appearance.)

February 3rd, 2009 | Tags: Salary, Saving, Wealth | Category: Salary, Saving, Wealth | Comments (2)