Womanizing - things to avoid to preserve your wealth

This post is about women and money. It is written from the perspective of a man and is not relevant to women readers.

I do not want to approach this topic of womanizing as a moralist because I am not qualified to do so. I cannot guarantee to behave like a gentleman should a stunning temptress throws herself freely onto my lap. Rather, I would like to approach this topic from the financial angle.

Womanizing is extremely costly to a married man. Depending on the laws of the country, the woman who sues for divorce can grab half the man's assets plus a chunk of his future income as alimony. The richer the man, the more expensive it is. This is the price you pay to your wife for womanizing.

Even if the wife does not discover your philandering, you still have to pay for the most expensive pets a man can ever keep - mistresses. Mistresses cost much more than a car in Singapore. It is easy to give in to them. It is sad fact of life that men spend more on their mistresses than on their wives. They are more willing to buy expensive jeweleries to please their mistresses than their wives. This is unfair to the wife who made sacrifices to the family for bringing up the children and taking care of the old folks. This is irrational to the pocketbook because if the jewelry had been spent on the wife, it could at least be pawned when the family falls into hardship.

The expensive pets can quickly turn into even more expensive pests when the man tries to disown them. Men, especially men of status, are subjected to blackmail from their mistresses when they fall out. This can be a bottomless pit for your pocket.

The cost of womanizing drops exponentially for bachelors. For men who suffers from sex addiction, it is much cheaper to indulge themselves as swinging bachelors than as cheating husbands. Tigerwoods who reportedly has a sex addiction problem has to pay USD750 million to settle his divorce. For that price, he can hire a high-class prostitute every night to indulge his wildest sexual fantasies till the day his machinery wears off.

When a bachelor womanizes, he might even be respected among his circle of men friends for his conquests. When a married man womanizes, he will be condemned universally. It is a pity so many prominent public figures who could have gone on to do more social good have been destroyed by such scandals.

While the cost of womanizing for bachelors is lower, it is nevertheless an expensive lifestyle to maintain and should be discouraged. The optimal financial scenario for your romance life is to marry the first woman you kiss. Money spent on girlfriends who do not become your wife offers zero returns. If you change girlfriends several times, you have to write off a substantial sum of money spent on useless relationships. It can be worse than useless as former lovers can become sworn enemies if the fall-out is not handled properly. Having too many girlfriends before marriage can be an emotional baggage for the marriage. I would not advise my sister to marry a man with a history of womanizing. Few fathers would want such a man for their daughters unless they are betting on a lucrative divorce settlements.

The most money-saving outcome is to have your first girlfriend become your wife. However, it is better not to marry at all than to marry the wrong one because of the huge cost of getting it wrong.

When my son grows up and seeks advice on such matters, this is what I would tell him;

Take your relationships seriously. Enter into one only if the woman is of marriage material. After marriage, keep your eyes to your wife exclusively. Roving eyes for a married man are simply not affordable, even for the rich.

As a father, I hope to set a living example for my son to follow. One should not womanize out of love for the wife and money. Should one womanize, one runs the risk of losing both wife and money. What happiness is there left?

Relying on fund managers

I started out in the world of investing about 7 years ago. Thinking that it was wiser to get a professional to manage my money rather an amateur like myself, I started off using unit trust fund managers. Being an engineer with no formal financial training, I thought I had better steer clear of the financial markets because I have relatives who got seriously burned. Later, the more I knew about the investing business, the more I steered clear of them. I have nothing against fund managers. I sincerely believe the average IQ of mutual fund managers to be higher than mine and the bottom 5% of hedge fund managers to be much higher than mine. I also do not think they are a untrustworthy group of people. I think they are just normal people who will not place their clients' interests high on the list if the system does not reward them for doing so.

What makes me uncomfortable is that the nature of the money management business has conflicts of interests that put their clients at a disadvantage.

The annual fund management fees provide an incentive to grow the size of their asset under management. It is easier to make an investment returns of 20% on SGD200k than SGD200million. The universe of applicable investment ideas diminishes as the portfolio size grows. Liquidity becomes a greater problem. It is harder to find an investment large enough to absorb your funds to make a difference big enough to move the performance needle when you get it right. On the other hand, if you get it wrong, it is much more expensive to get out due to the slippage and commission fees caused from liquidating a large position. A growing portfolio size is sure to dampen investment returns. An incentive to grow the asset size under management works against the clients.

Career risk distorts fund managers' investing decisions. It makes sense for fund managers to follow the crowd to reduce career risk. If they follow the crowd and get it wrong, clients are more forgivable. If they go against the crowd and get it wrong, they may lose their jobs. During the crazy dot-com bubble, several fund managers of the Graham-and-Dodd school of value investing lost their jobs. If I were a fund manager, I will not invest the same way as I will with my own money. Even hedge fund managers whose stated goal is absolute returns may unconsciously strive for relative returns because of the career risk of disagreeing with the crowd. This could explain why clients of hedge funds who were promised alpha (outperformance over benchmark) ended up with beta (correlation with benchmark). One might as well buy ETFs which I think is the best investing instrument for non-DIY investors. Why pay so much for hedge fund managers if they end up trying to match the benchmark index? One might as well buy cheap ETFs correlated with indices which outperformed most fund managers anyway. The high IQs of fund managers cannot be put to maximum use because they do not solely buy and sell on investment merit but on career risk considerations as well.

I think the best money managers out there are still the hedge fund managers. However, they are out of reach for most middle-class income people like me. If I were eligible someday for their service, I will go for fund managers with zero annual management fees with most of their net worth in their own fund. Their profits will come from outperforming a high watermark. With such a structure, there will be no conflict of interests. There will be no incentive to grow asset size. Career risk takes a backseat to investment risk because if they lose 1% of my net worth, they will lose 10% of their own.

I shall now stop dreaming of that day when I do become eligible. 

Cash becoming a risky asset class because of beast contest

Investing is like a beauty contest. You pick the most beautiful contestant and if the other judges share your opinion, you will make big money. In the stock market, you pick the best stocks with the best potential for capital appreciation and dividend income.

On the other hand, today's currency market is like a beast contest. All the contestants are ugly. Central bankers have disfigured the contestants with their quantitative easing knives and used printed money to bandage their faces. A currency investor tries to pick the least ugly contestant.

My knowledge in currency markets is limited. I do not invest in forex markets because I do not see how an engineer like me with no formal financial training and holding a full-time job can gain an edge over the big financial institutions who can afford to pay smarter minds and provide them with greater resources and time for the job. However, no one can totally ignore the currency markets because it will affect us whether we like it or not. All of us must have cash savings in the form of paper currency. The excessive money printing has render our cash savings increasingly risky as an asset class.

In the short-term, it is uncertain whether deflation or inflation will win out. The financial markets are giving out confusing signals. The gold market suggests that inflation is on the way. The bond market suggests that deflation is coming. In the short term, your guess is as good as mine. However, in the long-term, I will place my bet on inflation.

If deflation rears its ugly head, deflationary forces can be defeated by central bankers through money-printing which is politically acceptable. Alan Greenspan became a celebrated maestro by slashing interest rates to save financial markets whenever Wall Street cries out for help. Paul Volcker was universally hated when he raised interest rates to defeat high inflation in the late 1970s. There is an abundance of regulators who prefer to take the easy, populist route like cutting interest rates and becoming a Wall Street hero (highly rewarding when you join Wall Street later). On the other hand, there is a scarcity of regulators who have the integrity and courage to do what is right, especially if the career risk is not worth it personally.

If inflation rears its ugly head, inflationary forces may not be as easily defeated by central bankers because the country has got to be quite lucky to have another Paul Volcker. Even if the country does have a Paul Volcker reincarnated, he might not have the support of his political master. Debt level today is way much more as compared to the late 1970s. Massive debts have been built up by governments through quantitative easing. By raising interest rates on a huge debt, it is like committing financial suicide when tax revenues eventually cannot service the interest payments. In such a situation, it is politically impossible for the central banker to raise interest rates to kill inflation. What is politically acceptable then and more likely to happen is to allow inflation to kill the burden of debt instead. Besides, much of US debt is held by foreigners. I cannot imagine Obama making a speech to his fellow Americans to tighten their belts so that they can honor their debt to the Chinese. This is political suicide. In a democracy, no politician will antagonize their people who carry votes to appease foreigners with no votes. The easy way out for a politician is to allow inflation and currency debasement to ease the burden of debt to the locals by destroying the value of debt to foreigners. In this event, cash savings in USD will be devastated.

This pessimistic analysis applies for the US situation. However, all countries outside the United States cannot  ignore what happens there. The US dollar is the world's reserve currency. Much of global trade is done in USD. The world's raw materials are priced in USD. Whether they like the USD or not, corporations have to keep a USD bank account because their products or their raw materials are traded in USD. Impact from bad policies by the Federal Reserve will be exported out to the rest of the world.

Inflation is a politically convenient tool to solve sovereign debt problems. This is likelier to happen in highly democratic countries which tends to surrender to the popular vote than in dictatorial countries where politicians simply force unpopular policies down the voters' throats. This is one of the reasons that I think the Singapore dollar looks less ugly than the other beasts at the moment.

Smoking - Things to avoid to preserve your wealth

I have never smoked a single cigarette in my life ever. The purpose of this post is not to talk down to smokers like a parent lecturing his child on why smoking is bad for you. I am not qualified to do that. On an intellectual level, which smoker does not know smoking kills and is harmful to the family? I would like to list down the reasons why I avoid cigarettes the way I avoid the casino with a ten-foot pole.

- Smoking is particularly injurious to your pocket in Singapore.  

Like cars, Singapore is one of the most expensive place to buy cigarettes. Cigarette prices range between SGD8 to SGD15. I am not aware of other countries which sell cigarettes more expensive than Singapore. Smoking is a very expensive indulgence in Singapore.

- Easy target to be picked on by government to raise tax revenue

Smokers are the easiest target group to be picked on by the government to raise tax revenue. It is politically acceptable because most people are non-smokers and they are more than happy to see cigarette prices go up to discourage smokers from polluting the air. To appease the smoker, the government can offer the political viable reason that it is raising the levy for the good of the smokers themselves to stop them from harming themselves and their family.

All governments love to implement policies that can make money off the people while at the same time be seen as doing something good for the people.

Governments need not fear tax revenue from cigarettes will drop drastically due to price increases. In economist terms, cigarettes are price inelastic. This means that demand for cigarettes will hardly change despite price increases. Any product of an addictive nature enjoy the price-inelastic characteristic. A wonderful business will sell products with this kind of characteristic.

- More expensive insurance premium

Smokers have to pay more expensive premiums for their health insurance policies to compensate the insurer for the increased health risk they are undertaking. Smokers can lie to the insurer but they face the risk of being denied claims later. It is not worth the risk. Why risk buying an umbrella that cannot open when it starts raining?

- Increased risk of higher medical bill

Doctors can be highly damaging to your pocket. Unexpected medical problems is a commonly cited reason for middle-class families to slip into poverty. Smokers put themselves and their families (if they are breadwinners) at higher risk of slipping into poverty house.

In Singapore, the poor complains that it is better for them to die than to fall sick. While doctors can save you from a heart attack, their bills can send you another round of heart attack. Smoking brings you one step closer to the doctor. A cigarette a day ensures the doctor's pay (at the smoker's expense).

- Loss of health which impact earnings

Our greatest asset, as able-bodied people, is our ability to earning a living. A failing health will take this asset away. As advertised on every cigarette pack, smoking kills and harms your health. Otherwise, why would insurer charge the extra premium?

- Harmful to pregnant women and kids

Smoking is harmful to pregnant women and raises the chance of having babies with defects. Inhalation of smoke is also bad for the brain development of growing infants/kids. If you want to depend on your children to take care of you in old age, you have to ensure they grow up in a healthy environment.

- Non-smoking bosses do not like smokers

Smokers take breaks during work to smoke. Bosses frown upon the lost productivity from smokers although most keep quiet about it. Some smokers claim smoking helps them concentrate better and aids their memory. Don't say this to your non-smoking bosses. They will probably take this as some kind of bullshit. It is hard to quantify how career prospects are affected when appraised by a non-smoking boss.

- Smokers are not welcomed by non-smokers
Non-smokers do not like smokers who smoke in front of them. They are just being polite when they say ok to a smoker who asks if it is ok to smoke. My wife has made it clear to me that she would not marry me if I were a smoker. That would be a tremendous, unmeasurable loss personally.

Smoking, like the consumption of alcohol and other harmful addictive chemicals, is like spending hard-earned money to harm myself and my family. Therefore, it is not rational to smoke.

Minimum wage - not easy to get it right

The minimum wage has lofty goals of helping the poor. Prominent figures whom I deeply respect have voiced their public support on this policy. I am sure these people have the kindest of intentions. However, it is highly questionable whether the effect of the minimum wage is really beneficial to the poor.

If the minimum wage is set too high, it will create unemployment to people who are worth less than the minimum wage. No employer (unless he is your father) will pay a worker more than what he thinks the worker is worth. Anything more will be charity. It is not fair to expect charity from bosses because they set up companies to make money, not give away money. In a capitalistic economy, a minimum wage which is set too high will lead to higher unemployment among the young, the old and the unskilled. The young will be hit because they still have not accumulated enough work experience to be worth more than the minimum wage. The old will be hit because their market value has depreciated below the minimum wage over the years. The unskilled obviously do not have the skills to be worth the minimum wage. They will be condemned to permanent unemployment because they will not be employed in the first place. Not being employed denies them the opportunities to acquire useful skills on the job which can lead to higher salaries. At least exploitation gives the low-wage worker hopes of gaining useful skills which allows him to command a higher salary later. By protecting workers against exploitation with minimum wage, more potential damage is done. It is exploitation that allows low-paid workers to have on-the-job training opportunities that hopefully will raise their worth later on. They can job-hop to higher-paying jobs after getting enough experience, thanks to exploitation. I think if people recall their job history, some probably felt exploited during their younger days with low salary. But it was this exploitation that allowed them to job-hop to higher-paying jobs later on. Surely, temporary exploitation is better than permanent unemployment.


The most seriously hit will be the poor because they are the group with the most number of people whose market value falls below minimum wage. Instead of helping the poor, the minimum wage may end up raising unemployment among the poor. Given that social welfare in Singapore is near non-existent (due to low taxes), the consequences will be terrible for these people.


If the minimum wage is set too low, one might as well not have this rule in the first place. Why scare off investors and businessmen unnecessarily and create new administrative inconvenience? 

Even if the minimum wage is set optimally initially, it will not stay optimal for long. The optimum level will be fluctuating with economic conditions. It is impossible for government officers to adjust the minimum wage optimally with changing economic conditions. If they can be so in tune with the economy, they might as well speculate in the financial markets and make a bundle.

Because it is so hard to set the optimum minimum wage, I think we should leave wages to be set by the invisible hand of the free market than the well-intentioned but clumsy hand of bureaucrats.

Gambling - Things you must avoid to preserve your wealth

I hate to write a blog post using someone's misery as a starting point. However, I think the case of the Singaporean businessman who lost SGD26 million in 3 days at RWS casino can be converted into a good social cause. His predicament can serve as a useful lesson and reminder to Singaporeans on the danger of gambling. Dear Sir, your misery will not be in vain if this is of any consolation to you. I am sorry.

A businessman without proper risk management is subjected to high risk of failure when bad luck strikes. The gambler was a successful businessman who built up and grew his company over a few decades. So, he probably is armed with the proper risk management concepts. Had he applied his business training to gambling, he would not have sustained the heavy losses. This tells us something about the nature of gambling. There is something about human nature and our basic instincts that drive us to self-destruction once gambling become an addiction. An intelligent well-trained mind is no protection against this vice.

I have stepped into a casino only once and am no authority on it. Read on if you are still interested.

In all the games, the casino always has a winning edge. This is not surprising, otherwise the more visitors the casino receive, the more money it will lose. Although the odds of losing is higher for the gamblers, it does not mean that the gamblers will surely lose on every visit. However, every gambler must surely lose eventually if they play long enough with the odds against them. The mathematical law of large numbers guarantees that.

This is why the casinos intentionally set their house edge low. The purpose of the low house edge is to offer gamblers some hope of winning, thereby enticing them to play more and lose. If the house edge is too high, the gamblers will simply walk away or play less. Then, the law of large numbers cannot work its magic for the casino. You have to let the gamblers win sometimes to keep coming back. Mathematics ensures that gamblers will eventually lose with 100% certainty as long as they keep coming back.

The SGD100 tax that deters Singaporeans from visiting the casinos actually work against them once they are inside the casino. Once you pay SGD100, you will be tempted to stay longer to fully utilize that SGD100. The longer you stay, the more you play, the surer you will lose. The law of large numbers guarantees your loss.

Being a retail investor, I have given some thought to sizing one's bet. When your winnings odds are high, you bet big. When your winning odds are smaller, you bet smaller. In both cases, your winnings odds must be positive to your favor. If your winnings odds are negative against you, the optimal betting size is zero. If the odds are against you, you don't bet. In other words, you should never ever visit the casino. If you love money, please don't.

Even in the unlikely event that you make money from your casino visits, you will lose out in other ways. Your career prospects will be negatively impacted. No boss feels comfortable with an employee who likes gambling. Your boss will consider you a risk to the company if he learns of your regular visits to the casino. Will you embezzle company funds? Will you receive kickbacks from the suppliers? Even if your job has little contact with money (like my engineering job), your boss will still be worried that your performance will be affected by the distractions - distracted by the worries from the losses or distracted by the easy winnings and the greed to make even more. Either way, productivity suffers. All bosses hate that.

Some people think they can become professional gamblers and beat the casinos, drawing inspiration from the MIT card-counters. Making money in this way is possible in the short-term but not sustainable in the long-term. The casinos can simply bar you from entering once you become a consistent winner. Then, all your long hours of training become wasted. The odds of getting rewarded by working hard at your day job and doing something useful is higher than training hard to become a professional gambler.

If you have to visit the casino, set a pre-determined amount that you will lose. Once this amount is lost, leave the casino. The time to set this amount is before you enter the casino, not after. Once inside, one may be too carried away by the beautiful faces and colorful lights to make proper risk-management decisions. By following this practice, the casino becomes a place of entertainment minus the harmful social effects. At the same time, our fellow countrymen working at the casinos can keep their jobs. Treat the gambling losses as entertainment expenses. If you are lucky, you might even get paid for the entertainment.

As for myself, my personal policy is to avoid the casino totally. Some people think they are disciplined enough never to become addicted. They think they can keep their gambling trips as a source of entertainment only. It is like telling yourself I will try drugs just for the sake of experiencing new things but I will not get addicted to it. In the first place, why take the chance? Is there a meaningful gain in exchange for the risk? Hence, I do not even want to give myself a chance to get tempted by getting near to the casino. If smarter and more successful people like the SGD26m businessman have succumbed to this vice, what more for mere mortals like me?

Paying off credit card debts is the best investment you can make

If you have credit card debts on hand, the best investment you can make is to pay off the debts. Guaranteed!

The typical annual interest rate for credit cards is around 20%. If you pay off this high-interest debt, it is as good as making a sure-win investment gain of 20%. Even Warren Buffett cannot guarantee you such a performance.

If you prefer to let the credit card debts to rollover, please go back to school and study compound interest. At 20% compound interest, even a tiny amount of debt can wreak severe damage to your pocket over time. Don't believe? Use a spreadsheet and calculate the amounts you will have to pay over the years. This is the best way to appreciate the power of compounding.

A good understanding of compound interest has convinced me to avoid all high-interest loans like unsecured personal credit lines and credit card debts. On the other hand, I have been encouraged to save and invest hard to reap the power of compounding to my favor.