Sunday, December 10, 2017

My favourite charities as a selfish person

I am a selfish person at heart. My saving grace is that I am not hypocritical about it.

My number one favorite charity as a selfish person is buying term insurance. The lucky subsidizes the unlucky. The lucky ones are those who do not need to make claims because nothing unfortunate happened. The unlucky ones are those who met with some unfortunate events that cost a huge sum but were saved by the insurance claims. Without "charity" from the lucky ones, the unlucky ones will have to absorb the full financial cost of their bad luck. Nobody starting out in life will know how their luck will turn out later in life. So, I try to be selfishly charitable by donating to "charity" to help the unlucky ones in case I turn out to be among the unlucky ones later.

My number two favorite charity as a selfish person is investing in the shares of great companies which make plenty of money and create lots of social good along the way. If the "charity" turns out poorly and I lose all my money, fine. It is charity anyway. If the "charity" turns out wonderfully well, it is "charity" at its best. The "charity" makes money. The customers are happy to pay money because the value provided by the product/service is worth more than the money paid. Suppliers make money. The employees make money. (Isn't this better than simply giving money to the jobless poor who still remain jobless with shame and no dignity?) Most important of all, I make money :)  Being charitable is good, particularly when it yields benefits to selfish people like me :)

Hopefully, my selfishness will wear off later in life. As a person grows wealthier, he actually becomes less selfish. No wonder the world's greatest philanthropist, Bill Gates, is also the world's richest man. The world's greatest capital allocator, at one time the world's second richest man, has decided to selflessly allocate the bulk of his wealth to the world's richest man's philanthropic foundation. These two selfless charitable donors really put selfish "charitable donors" like me to shame. I feel like a selfish bastard and rightly so. However, I assure everyone not to be wary of selfish people like me. If one day, I suddenly say things like "Money is not important. I just want to help people and make this world a better place. Helping people is my passion blah blah ...", then you really have to be wary of me. Be very careful of people who talk like selfless do-gooders and have yet to earn their big pot of gold. 

One of the big social risks today in the world is the huge inequity in the wealth distribution of the population. Too much wealth in too few hands for those who don't need that much money while the many who need more are starved. We all start off as being selfish looking out for ourselves and family only. That is perfectly normal human nature. After some make it, it is also human nature that some of them will follow the shining examples of Mr Gates and Mr Buffett to give back to society. I hope I have the goodness in me to behave as well as these 2 gentlemen after I achieve 0.00X% of their wealth. If I am indeed that blessed but still stay like a selfish bastard, here is a gentle reminder to myself to read the history of the French Revolution and study what happened to the rich when the many who were poor revolted. I promise to let the poor eat more cake at my expense if I am blessed enough so that my head does not end up in the pike. Hmm ... being selfish again?

Sunday, November 12, 2017

In memory of Dr Michael Leong, founder of ShareInvestor

This is a very belated post. Dr Michael Leong died on 12Feb2016 after battling colon cancer for more than a year. I still remember him for his helpfulness to his online readers.

I have never met him in person but he was kind to an online stranger like me. When I was jobless in 2012, he sent me an email to extend help.

Hyom, I read about your retrenchment in your blog. I understand that you
are from the electronics industry and from the way you write, I assume that
***. Sometime back I was told that *** maybe
on the lookout for ***. If you are keen, do let me know and I
will try to put you in touch with them.

I was touched because he was a man of reputation in the business world. He puts his own reputation at risk when he makes a referral for someone whom he has not even met face-to-face. He could have looked like a complete idiot. I did not take up his offer because I already found a job. To this day almost 2 years after his death, I still remember him for his kind act. The least I did was to send him a wreath on his funeral wake, together with a group of grateful ShareInvestor customers who benefited from the community that his company ShareInvestor created.

It was in Dr Leong's DNA to share his investment insights freely and generously. He had no financial agenda in sharing. He had already achieved financial freedom through investing in the financial markets before he sold his successful company (Shareinvestor) to SPH. There was no need for him to make money in conducting investment courses. What better person to learn from as a novice? He was highly qualified with a long and successful track record, willing to teach, happy to teach and yet not asking for teaching fees.

God bless all the generous, rich investors who have been willing to share their insights to newbies like Dr Leong.

In Dr Leong's own words,

For those of us who make money directly from the markets, we know how difficult it is for the novice investor to start investing. The least we can do is to show you the ropes free of charge. We will never want to take any part of your savings just to show you the ropes. This money is needed by you to start off your investment journey. Hence, my conscience will certainly not allow me to take such money. I rather share freely, or not at all.

This is not to say he was against trainers who charge for conducting trading/investment courses.

I still feel that one needs a different moral compass from mine if one charges thousands of dollars for a get rich quick scheme. Of course I am not against those who charge generally accepted rates for teaching. Put another way, an honest day's pay for an honest day's work.

I have blogged positively about investment courses that charge less than $100 for a day's work.

However, for courses that charge 4-digit figures, the student should consider free alternatives such as library books and online forums. I speak from personal experience that books and forums work just as well. I have never paid for any investment course or even attended a single free investment seminar. A budding novice should read all he can about all kinds of investment styles/methods while keeping an open mind, pay the necessary school fees to Mr Market and tweak his investment style to something that suits him personally as he progresses in the school of hard knocks. After experiencing at least 1 boom-bust cycle (5-8 years), there should be a long enough track record to assess if he is suited for this game. If he is not willing to put in the hard work which may not pay off anyway, passive index ETFs/funds are his best bets based on historical performance data. Even hiring expensive under-performing professional fund managers is better than investing on his own if he is someone who only loves the money but not the game.

While Dr Leong was generous and successful, I think some of his investment methods are not suitable for the majority. Dr Leong made a fortune from a concentrated portfolio and he once said "Put all your eggs in one basket and watch that basket carefully". It worked for him but this is dangerous for most. He had a unique background. He was a successful entrepreneur and his CEO position in Shareinvestor gave him access to the wisdom of other successful entrepreneurs. He was also highly intelligent given his medical background. His entrepreneur background gave him an edge in picking the right businesses to invest in. Concentration which worked for him will probably be harmful for most. I humbly admit I am not as good as him, so I did not follow him on this. I believe that most of us are better off with diversification and if you have no reason to think you should be better than most, stick with diversification.

Dr Leong's intial investment strategy which made him a fortune was similar to Benjamin Graham's net-net strategy. It is akin to buying companies selling at well below their liquidation value which is supported by solid, tangible assets such as properties, marketable securities and cash.

He later tweaked his strategy to invest in top entrepreneurs. He had bad experience investing in net-net companies run by entrepreneurs who did not treat minority shareholders fairly. He later changed his style to invest in top entrepreneurs like Elon Musk, not intelligent but conservative "care-taker" management executives. The Elon Musk type of entrepreneurs are less concerned with adding a few more zeros to their bank account and more interested in changing the world for the better with their products/services. "Care-taker" management, in my view, are more like "wealth managers" who invests in safe businesses, avoid rocking the boat, averse to taking big risks and not keen to see bad things happen under their watch. These people are usually very smart (surely smarter than me) but as a Singaporean, I hope to see more of our leading local companies led by trail-blazing "entrepreneurs" and not "care-taker" clever managers.

Again, I find Dr Leong's new strategy unsuitable for the majority of investors. This strategy suits his entrepreneurial background but it is very difficult to execute for the rest of us. His earlier net-net strategy was not only easier to execute but much less risky as well. What an investor need to execute the net-net strategy is the ability to read a balance sheet. This can be easily picked up by almost anyone willing to spare the time to learn basic accounting.

Even if a person has the good fortune to meet a helpful "mentor" like Dr Leong, he needs to have the humility to admit that what works for others may not work for him. Conversely, he also needs the "arrogance" to try and succeed at what most people failed if he thinks he has got what it takes. If a person thinks he can succeed with a concentrated portfolio and/or possess the sharp eye like Masayoshi Son to spot great entrepreneurs such as Jack Ma who had no business plan and revenue at that time, why shouldn't he give it a try?

Dr Leong was a devoted family man. I recalled that he remarked that the most stressful period of his life was when his son was hospitalized. Given that he was the founder of a successful start-up, I am sure he had very stressful periods in his life but his son's hospitalization topped it all. When I asked him how did he manage to find time for his family and yet have a successful career, he replied that he was lucky to have found a job with IBM that allowed him to work from home. He admitted there is no easy solution. I guess Dr Leong must have found a good wife who was a wonderful mother to his kids and also gave him the free time to focus on his business.

Although Dr Leong has passed away, the Shareinvestor business that he left behind is still making a difference to customers' lives. I have been a subscriber of Shareinvestor for > 10 years. His legacy has taken on a life of its own. I think the emotional satisfaction from being a successful entrepreneur is higher than a successful investor. Besides money rolling into the bank account, the entrepreneur gets additional satisfaction that his product/service is making a difference in his customers' lives, on top of the jobs created for his employees and sales for his suppliers.

Dr Michael Leong led a meaningful life. I am sure his family is very proud of him.

Monday, August 10, 2015

More Singaporeans need to be entrepreneurs but ...

I have always respected entrepreneurs. Even more if they are fellow Singaporeans. They dare to execute on their dreams despite the high odds of failure. How to not respect? I am glad to be of assistance to give free product reviews of fellow worthy entrepreneurs on my blog in the past.

I recently stumbled on an article which lamented that Singaporeans are not risk-taking enough and that this is bad for the country because the country needs more entrepreneurs and more workers to join risky entrepreneurial start-ups to create value. The writer, Mr Devadas Krishnadas, is an entrepreneur with a shining career history in the civil service. He earns my admiration to have the courage to quit a high-paying and stable job to become an entrepreneur. He walks the talk. However, there are some points which I do not agree with the article from the perspective of a salary worker and investor.
The young woman sitting across me was being interviewed to join my firm as a consultant. Well-travelled, highly qualified and poised, she spoke eloquently on why she wanted to join the firm - indigenous, small but growing.

Having gone through several stages of recruitment, we were finalising her appointment. She suddenly said she wanted a much higher compensation than the range discussed.

When prompted as to why, she replied that it was a great risk to work for a small local firm. I asked her to expand on her logic. She said her best option was to work for the civil service or a multinational company and that she was, in effect, doing the firm a favour by joining, and thus merited a market premium.

This attitude towards risk is disappointing individually, but troubling when we expand it to the national scale. It suggests that the young generation value the payoff for their education in terms of occupational safety. While at one level rational, such an attitude may help explain why small and medium-sized enterprises (SMEs) have great difficulty engaging the best talent.

- See more at:
The attitude of the job applicant makes perfect sense and not at all troubling even if we expand it to the national scale. When a SME asks for a loan from a bank, the bank charges higher interest rate compared to a big company because of the higher risk. Similarly, for someone applying for a job at a SME, it is absolutely reasonable to ask for higher compensation because of the higher risk. It will be very troubling if a bank does not expand this risk-management practice on a national scale. The country's financial system may face systemic risks due to too much bad debt later. Likewise, given the very low odds of success for start-ups, several families will be in financial trouble if there are many Singaporeans who are not compensated enough when they lose their jobs working in start-ups.

Job seekers should not be expected to take risks. Otherwise, they would have become entrepreneurs. What is troubling on a national scale is that we do not have enough talented Singaporeans who have a higher chance of success as entrepreneurs but choose to remain as salary workers. Singapore needs more people like Mr Devadas Krishnadas who resigned from a good job to create risk-driven value as an entrepreneur. However, can we blame most Singaporeans, including myself, for not being like him?

Some reasons I can think of why there is a serious shortage of entrepreneurs in Singapore. I am not qualified to comment as an entrepreneur. I write from the angle of a salary worker.

  • It does not make financial sense for Singapore's best minds to become entrepreneurs
The dumbest reason to become an entrepreneur is to become rich. Look at the numbers. Most start-ups fail. Not just that. Most of the promising start-ups who got venture capital funding fail. Why would our best and brightest Singaporeans who have the option to work in the civil service and big MNCs want to become an entrepreneur? The risk-reward ratio simply does not make sense. Does it make sense for someone to exchange a low-risk-high-gain job, say in the civil service, to become an entrepreneur with no work-life balance, negligible or negative pay and despite all these sacrifice, the odds of having nothing to show at the end of the day is very high? I have met entrepreneurs in the course of my engineering work. I know they have no work-life balance because some have unwittingly made appointments on weekends and public holidays. They worked so hard until they forgot which days are weekends and public holidays. Unlike salary workers, they fail to appreciate that today is Friday although they have no Monday blues as well because they HAVE TO love what they do. Given the low odds of reward and guaranteed sacrifice, how to sustain without passion?

A worrisome trend has been developing in the Singapore economy in recent years. Some big MNCs are moving out. This explains the government's generous moves to support local SMEs in the form of grants and innovation support. Singapore has got to build our own indigenous big companies to replace these MNCs. Fortunately or unfortunately, I believe there will be more entrepreneurs as a result of the MNCs moving away. Mid-career professionals who got retrenched by the MNCs may start thinking of becoming entrepreneurs because they have lesser to lose now. Besides, their chances of success is higher due to the long experience and network built working in industry. Unfortunately, I believe most of the concentrated local talent in the civil service will remain locked in the public sector because the risk-reward ratio is simply too compelling to stay.

If a person just wants to be rich, please don't become an entrepreneur. He will surely give up later. He has a better chance at becoming rich by slogging as a high-level big company executive or government scholar earning a high-paying, stable salary. If he holds a middle-class job that pays around the national median-income, he still has a fair chance of becoming comfortably well-off by keeping to a simple lifestyle, patiently saving and investing for at least a decade.

Just don't be an entrepreneur if your sole objective is to be rich.

  • Cannot afford to take the financial risks of an entrepreneur
Many Singaporeans have financial obligations to support the family. For a Singaporean breadwinner, it would actually be irresponsible of him to become an entrepreneur if he does not have adequate savings to cover the initial years of building up the business. During this dry period, there is probably no income to feed the family. Even if he is able to get funding from investors, it is unlikely the salary will be high. If I were a venture capitalist, I want the entrepreneur to have skin in the game and not pay him as if he is back to working as a salary worker in a low-risk environment. The entrepreneur should not expect his investor to take risk that he would not take himself. The entrepreneur's workers, if any, will probably earn more than him in the initial years.

Most young, energetic Singaporeans have taken up huge loans to buy property. This cannot be helped. In the Singapore context, they probably have to in order to get married. The girlfriend and future parents-in-law may disapprove if the man cannot afford a HDB. Unfortunately, some middle-aged Singaporeans who have otherwise accumulated enough savings to take on the financial risks to become an entrepreneur have taken up even larger loans to invest in a second property. A person in huge debt cannot afford to take on the financial risks of an entrepreneur. His interest expense comes due every month. Without a salary job that generates a stable cash-flow, the risk of financial ruin is not low. This issue indirectly affects me not because I invested in a second property (I prefer stocks and avoid huge debt to keep my options open for entrepreneurship), but because I am not able to find peers as potential entrepreneurial partners. I have personal weaknesses and I hope to find partners who can complement and make up for my weaknesses before taking on this risky path. However, if I want to become an entrepreneur, I do not want a heavily indebted partner who is forced to be in a hurry to make money. From my investing experience, those who are in a hurry to make money end up making less or lose money. I believe it will be even worse for entrepreneurs who are in a hurry to make money. They may end up not only losing money but their reputation as well by short-changing customers and their investors. I can afford to lose money but not my reputation. Emotionally, I find the latter extremely depressing whereas I am numb to losing money. As an investor, you have got to get used to losing some $$$ now in order to make more $$$ later.

  • Majority of people do not have the temperament to be entrepreneurs
This is a problem common everywhere and not just Singapore. For an economy to function normally, most people should work as salary workers. If not, where are the entrepreneurs going to find the workers? Besides, most people do not have the temperament to be entrepreneurs. The moment you broach the idea of becoming an entrepreneur, everyone around you, particularly your family, starts to make discouraging remarks. This happened to me and my beloved, normally supportive wife was the strongest opposition voice. It is not easy to go ahead with a risky project when well-meaning friends and family says negative things and they all sound right. Like investing, there is merit in being contrarian as an entrepreneur. A contrarian entrepreneur is likely to move into or even create a niche business where the profit margins are higher and the competition is lesser. In this kind of business environment, it is easier to earn more money while working less hard compared to businesses with cut-throat competition. It is easy to be a contrarian investor but much harder to be a contrarian entrepreneur. I am a lone operator in my investing/trading activites. I think being a lonewolf helps in the investment process because I do not have to deal with distracting and negative views. No entrepreneur can be a loner because there is so much to do and so little time and no one person can possibly have both the strengths and time to do everything himself. An entrepreneur has to persevere against all odds despite the negativity from well-meaning people around him.

Fellow financial blogger Christopher Ng has suggested that a fertile soil to cultivate potential entrepreneurs are kids from rich families. I will add one more group - middle-aged workers who have accumulated enough savings and investments to weather the storm. I agree with Christopher and will not repeat the details on the how. I will talk more about the why. Given that most start-ups fail, would-be entrepreneurs better be able to afford failure. Rich people can afford to fail. In fact, this may even help narrow the wealth-inequality social problem if losses from failed start-ups are concentrated to the rich. On the other hand, out of the few who will succeed spectacularly, no one will begrudge them for getting even richer if they create value to their customers, employees and suppliers as entrepreneurs. The poor will not begrudge the rich if the wealth-inequality is caused by value-driven entrepreneurial activity. If those who cannot afford to fail rashly choose to become entrepreneurs, there will be social problems when enough of them fail and most of them will.

Singaporeans have been complaining about job discrimination in our own country. The foreign PMET (Professionals, Managers, Executives and Technicians) workforce has gained critical mass in Singapore labor market, giving rise to the foreigner-hire-foreigner complaints. It is only human nature that people tend to feel comfortable working with people similar to themselves and hire according to these in-built prejudices. To be fair to the foreigners, they could complain the same about Singaporean employers preferring to hire Singaporeans. I am confident our government is able to solve the infrastructure-overload problem given the talents employed in the civil service and the money they can throw at the problem. However, I am doubtful the rising PMET unemployment problem attributed to unfair discrimination can be eased. It is a problem that money and intelligence cannot solve. It is a social problem that involves changing people's behavior and this will take lots of time. Furthermore, even if this problem does not exist in Singapore, foreigners can still take away our jobs without coming here. Foreign MNCs are already moving out of Singapore to cheaper locations. Instead of complaining and waiting for solutions from the government, unemployed PMETs who can afford to take risk should partner each other to start their own companies. Create jobs for yourselves. You have lesser to lose financially when you are jobless. Having said that, I admit I lack the moral authority to encourage entrepreneurship. I am hiding behind a full-time salary job on weekdays and a part-time investment job on weekends/public holidays. As an investor, I do not feel as socially useful compared to entrepreneurs. I mean no offense to fellow investors but entrepreneurs do create much higher social value. (*I take a deep bow to all the entrepreneurs in Singapore*)