Bored!

Christmas please come soon.

Diversification is for the birds

The biggest irony in life is that each of us is unique, just like everyone else.


I've been reading up on alot of financial literature. I've even finished my CFA level 1 which as far as I know, undergrads finish during their 4th year of studies. I've been reading countless textbooks, subscribed to countless financial podcasts and news and magazines. I've devoted all my soul and effort to just be that little smarter and well-equiped with financial knowledge. And as far as I know, I'm still not any further in understanding the financial world as I was when I'm 3.

BTW
I don't think any definition of the word "knowledge" really makes sense to me.

I mean, what the hell do you mean knowledge? If you know something, say the english language, do you really can claim to know it? If you specializing in studying the language for your whole life, speak english really fluently, understanding its culture, its history and et cetera et cetera, can you still claim to be all that knowing? Knowledge is limitless, it's abstract, and just like the sky, it will be ever changing, and given that, nobody can ever master anything, be a guru for anything, or even claim to really know anything.

As far as I know, I dont think I can ever claim to know anything, if there's one thing I know for sure that I know is the things I know I don't know. i.e. I can claim with absolute certainty that I myself do not know things I do not know, and that's that.

And with this thought, I will now change my attention to what this post should be all about. Financial knowledge. And with that, please read the following with just two pinches of salt.

As I've mentioned,
I've been studying really really alot, given the amount of free time I have, I've probably studied more than I ever did in my 18 years of life. Eh look, I can't even do simple chemistry questions now even though I've started science since I was primary 3 and I even got an A for my chemistry in A levels, but hell I've forgotten ALL THE CRAP.
But you can ask me anything about any international business issue that's current, I can tell you alot alot of stuff. Shouldnt that what studying should really be about? Passionate. Self-motivated. Lasting.

And here I introduce to you a few concepts that I've grasped, that I can be sure that will be life-changing for me, and will guide me to where I will go in the future.

First, foremost, and most importantly,
Here's something from Albert Einstein:

YES YOU HEARD ME RIGHT, THE FREAKING SCIENTIST. He's my biggest idol in life, more so than master investors that we all know, like Warren Buffet, like George Soros, or Benjamin Graham the father of value investing (I have the first ever book he has written on value investing and if you're interested, you can get it from me, I must have reread it a thousand times), not for his contributions to science, but for this one quote that has to be the biggest contribution to financial knowledge. I mean the theory of relativity is really amazing (I've been reading this revised book on this theory recently, and they have tried so much to simplify it, but it's still like chemistry to me, and even the publishers abmittedly said that the urban legend that probably only 6 men in this whole wide world can really really grasp the theory has to be true)

But no, I'm not into science.
And here's what Einstein said that really really should have been the greatest lesson he can teach us:

"The most powerful force in the universe is compound interest"

And this is lesson no. 1.
Compound interest, IS INDEED THE MOST POWERFUL FORCE.

This sounds stupid to you?
At first it was to me, until I did the maths myself.

Let's just start with a thousand. USD SGD whatever you want.

Say I have only ONE BUCK with me now, 19 y/o, and that I will make this dollar work really really hard for me in the financials for me, and that I will work till I'm 65, retire, and continue investing till I'm dead, say for simplicity, 79.

That gives me 50-60 years of investing time horizon.
Not too bad, quite the norm nowadays thanks to medicine and doctor.

Only 1 penny for the first year.
60 years to invest.

Let's just assume (FIRST) that I make an average of 20% return on assets annually (that's so unrealistic you yell, but we'll get there).

And further assume for simplicity sake, that I no longer earn any money from any jobs that I have but just focus all my attention to this 1 buck that I have.

So that will give me:

$1.00 (1st year, compounded 60 years at 20%)
$1.20 (2nd year)
$1.14 (3rd year)
.
.
.
WTF 1.44 bucks on the 3rd year you're freaking kidding me you say.


Yah funny, lets do the maths ourselves, SIMPLY by:

1 x 1.2^60 , where 60 is the 60 years I invest.

And there we have it, in 60 years.........

$56,347.51

All from a dollar compounded over 60 years, 56 FREAKING THOUSANDS.
So if I work a thousand for me over 60 years, I will have 56 million.

Yeah... that's nothing much you say? I mean, we can buy a bowl of noodles for 10 cents 60 years ago.

Okay fair enough. Let's take inflation into consideration then. I mean our dollar is very stable, we've all learnt this in economics, all thank god to the managed float system yada yada.

So there are years where the dollar depreciates in value for 1 or 2 %.

BUT LETS TAKE say, 5% a year each year for 60 years of inflation (a figure so high even I will vomit blood for its inaccuracy, but we had our all high 6% this year, so why not 5% every year... Okay fine whatever)

So let's take our 1 buck now, and make it depreciate 5% every year for 60 years while earning 20% a year and investing all the capital I've earned back into my pool of funds to manage. I will skip the boring maths, and tell you, in 60 years this dollar WILL BE WORTH 3016.59 bucks today now)

In other words, or in layman terms, every dollar you spent, on the bus, or the mrt, or the eight one dollars you spent on the movie ticket, should you make it work for you over your lifetime, you are actually spending 3016 bucks on the bus, or the mrt or 24132 bucks on the movie.

WTF RIGHT YOU SAY?

I said that too.
And my estimations are so unrealistic too, I mean we only got a buck? Hell man, I got 20-30k already to start with, plus my whole life time worth of salaries?

and now back to the most important thing here.

Is 20% a year a really realistic goal I've set?

Fairly speaking, it has to be really unrealistic. I mean the freaking banks are only giving us abour 2% on fixed deposits, and soverign bonds of investment grades are on average about 3-5% and less.

Oh yah, then let's take our work year into consideration then.
Say I'm the world's biggest slacker. I only want to work only half the year. (HELL YEAH)

6 months. 4 weeks a month. 5 working days a week. But I decided to slack more, say only 3 working days a week.

That gives me about safely... 72 working days only. HOLY SHIT WHO WORKS THIS LITTLE.

And once again, I'll skip the maths that's boring you out and get straight to the point, if I only work 72 days a year, everyday I must aim to earn about 4% a day. HAHA 4% a day, for 72 days a year.

THATS HELL OF A POSSIBLE TARGET MAN!!!

Just for reference...

And if you're a forex trader and works 365 a year, everyday you only need to earn about 0.8% a day. In other words, for every 10 dollars you have, you only need to earn 8 cents.

That's ridiculously stupid.

So yes rule no.1 is that if there is really any god in existance in this world (sorry no offence but I'm an atheist), then god must be compound interest.

And since I started trading last year, I've made more than 80% on my portfolio this year thanks to the world's craziest bull run ever. (Well, there's also something I read somewhere about how it's suicide for a newbie into the market to gain windfalls like this, because it's blinding and limiting, and that I agree, and I will be careful now after)

That's that for rule no.1.

Rule no. 2 (this is more for people who are somewhere equipped with some knowledge about investing)

is that diversification is for the birds.

Okay, I must have read 10 textbooks on diversification, even CFA encourages it, so here I am challenging conventional wisdom.

I mean, every single day I read about how we should diversify our holdings over many many companies, many many asset classes, and have so many holdings with very little correlation (R^2 <0.6), with the portfolios catered to all our risk appetite and time horizon yada yada. CFA must have like 4 300pages textbooks on this for level 1.
I hear this from structured financial instrument "salesman".
I hear this from the forums.
I hear this from my very own broker that son of a !@#!$.

And yes, the whole world thinks that diversification is the key to financial success.

Oh yah? I beg to differ.
And Warren Buffet agrees too!
Because it is our world's greatest master investor who said this
"DIVERSIFICATION IS FOR THE BIRDS"

I read so much, that when I finally read the investing habits of Warren Buffet and that he said that, I was like FUCK THE WORLD FINALLY SOMEBODY ELSE THINKS SO TOO!!!


And it's from my personal experience that I said this.
When I first started out holding positions in equities, I was already eyeing this 2 equities, with very good business holdings, good balance sheets, good management, ambitious, young, and they were in my opinion, GOLD (not that gold is really worth that much, I mean frankly speaking, a thousand per ounce? that shit has to be the biggest bubble building for hundreds of years and when the world finally thinks that it's not a currency haven but just a useless chunk of rock boom, we will probably see BIG doomsday that makes the Great Depression looks like the world's best bull run ever), but you get my point, they were in my opinion sure earn.
I had alot of liquid in my hands, and I was all that ready to put my 150% portfolio leveraged on them if not more.

Then conventional wisdom got the better of me.

I thought about just holding 2 companies. Then I thought about what I "know", fuck knowledge man seriously school and textbooks get in the way of the greatest minds and what noobie me, I thought about diversification, how even the insurance agent trying to sell me some stupid bank savings account was asking if i do diversify, and there. I got myself into lots of stupid shit.

I decided to diversify.
20 companies first. Across different sectors, holding defensive sectors with things like Raffles Edu in tertiary education and healthcare, to IT, REIT, biotech to offshore platforms, to even exotic ones the world's only listed abalone company which was all such a stupid decision that I will regret I think even to my deathbed.

Then I diversified to more asset classes.
I bought bonds. Relatively safe ones issued locally. Corporate bonds mainly.

Then I diversified further.

30 companies.

Man I only stopped only when I was at my limits. I was so sick of charting, and analyzing and diversifying so to speak.

And my two companies of gold, I was holding a mere 20% of my portfolio in them.


Now about 9 to 10 months later. As I've said, my whole portfolio seen a 80% increase in capital. NOT bad really, for a newbie.
BUT, should I compare myself to a certain benchmark or a certain index say should I just simply invest in S&P 500, I would'nt have made alot more than the benchmark.

AND my hypothesis was right.
My two freaking goldmines, both more than doubled in value each. Why 60% when it could easily have been 200-300%?

Now, I've followed the conventional wisdom against my better judgement. But here's my challenge to it. You may or may not agree, but at least to me, this will be my investment lighthouse for a long time to come, I will improve on it if I may:

When I chose to diversify, I made 2 big mistakes. (Or rather, when even the professional investors themselves, George Soros and Warren Buffet and a handful of other investment kings aside as far as I know they don't seem to be diversifying, choose to diversify they make these 2 big mistakes)

1. When you diversify to different asset classes with little correlation, you make the mistake of losing your comparative advantage in the knowledge you have better in the 1 asset class or the 1 asset type. Say I know S-chips (singapore listed chinese stocks) better(btw one of my gold is a S Chip known as Epure international, they recently just clinched another deal which pushed their stock price higher, but fuck I sold my holdings when I reached my forecasted price though I now think about holding them for say 10-20 years and I've decided to do so), I have a comparative advantage in choosing S-chips over choosing the best companies in other asset classes like IT, I might very well make mistakes choosing the other companies.

And this is no.1, lack of know-how in other asset classes, or lack of advantages of specialization. Be a jack of all trade, and master none.

2. When you diversify, mathematically-wise, you're restricting the very good companies.
Should I invest in a thousand companies. With say a good mix of a handful of good companies and bad ones, when the good companies give good returns to equity, say example if 10 companies stock price doubles, my whole portfolio only grows by 1%.
(remember that in this example, 1 in a hundred company doubles in value)

Now let's combine point 1 and point 2.

Say in a pool of a thousand companies, and that I've comparative advantage in choosing the best companies, and decided to handpick only 100 instead of 1000. Mathematically wise, it's the same, if i handpicked a hundred, and have that 1 in a 100 which doubles in value, and my portfolio will grow only by a mere 1%. But hey, this is conflicting, now remember that I have comparative advantage, because should I handpick the ones I consider the top 100 companies, it is a high probability event that I will pick not just 1 but maybe 2 or 3 or even all of the 10 good companies which doubled in event, in other words, my portfolio will have grew by 10%.

Say I further specialize my holdings, and choose only 10 companies, the ones I consider best amongst the best companies in the 1000.

Now it will be a very high probability event (I can say so with 99% certainty of conviction) that, AT LEAST among the 10 companies which my valuations have shown that it is the BEST amongst the 1000, I will hit one of the 10 companies which doubled in value. I might even handpicked 1 or 2 or 3 or 4 or 5 and even have all the 10 companies well picked. And my portfolio can grow either 10%, 20%, 30% all the way to 100%.

Yup, you should have gotten my point.

Diversification is indeed for the birds. So should hear any one asking you to do so, say go feed my bird down there.

And just for fun's sake, to reiterate point 1,

Should I double my capital base every year for 60 years, I will have made approx. $1,200,000,000,000,000,000 in 60 years from just a single buck.
I think I can feed Singapore for many lifetimes to come with that, thank god to the world's greatest force.

Today I bring

Today I bring to you 3 cool facts of life:

1. Never believe anyone working in and for the financial markets. ESPECIALLY finance ministers!!

From personal experiences recently, I realize that finance ministers always make a global announcement how they won't (for example, true story) depreciate a currency a day before they DO.

2. Believe it even if you don't want to, there is no such thing as altruism.

And this is backed by scientific findings. Should we take it that altruism refers to social behaviour that seeks to promote welfare of another person with absolutely no devotion to oneself's well-being. Put simply, an altruistic act is an action which benefits someone else but not oneself. Then it's simply not possible.

Whenever we help someone else, we will definitely without doubt stand to gain something in return, we can never selflessly help somebody else, be it intangible or tangible gains. Tangible gains are easy to explain, for example, I might willingly help my neighbour to look after his cat during his overseas vacation, deep down expecting someday sooner or later expecting him to repay the favor, like helping me look after my house when I'm gone too. But if we talk about the intangibles, like helping an old lady cross the word or giving up a seat to a needy, we still stand to gain even if we don't mean to. Think of experience, think of the warm fuzzy feeling deep within, they are all caused by a innate-wired rush of endorphins into our brains making us, however much we don't mean to, experience a subtle sense of superiority, or at least satisfaction.

If there's a god, he sure failed creating humans in his image.

3. Never trust therapists.

Simply because therapists are the rapists.
And psychotherapists are psycho the rapists.

Do you know?

Do you know how it feels like going to bed every night with so many thoughts crammed into your brain that you must somehow vomit them out.

Every single night, when I go to bed, I always have some big great ideas I want to put down in words, maybe blog about them, pen them down in a diary or something. And i always end out telling myself, okay maybe I'll just try to remember these ideas and then blog about them tomorrow.

And then I don't.

Because when I wake up, I forget that I even think of these thoughts.

I believe most people, bloggers and non-bloggers alike, have such experiences all the time.

So do you know that I've decided to make a difference.
At least change something for myself.
I decided that I SHALL blog about these thoughts.

And I shall start with this:


You know how your best friends are always right, and you wrong? No, I'm not being sarcastic here. My best friends are indeed almost always right and me, almost always if not always, wrong.
And in this example I'll be talking about the most awesome one of all my best friends. Okay at least, the one with the most awesome brain. Smart guy he is. Kenneth Fok.

Just a while ago, he was talking about how we'll all be living out life chasing dreams, fulling plans. We're always be living our whole life, whether we're just 10 12 15 20 25 30 40 50 55 57 59 okay you get the point, planning for our future which will then be used for planning for the future.

See this.

When we're young, we will be planning about what we aspire to be, what we want to be for the future.

When we're not so young, we will be planning on the best education we can get to be what we once aspired to be what we wanted to be for the future.

Then when we're abit older, abit more educated, we will be planning to work the work to be what we once aspired to be, wanted to be, and then saving money for the future.

And then we'll work our asses off, saving money the way our parents are doing, noble they are yes, so that we, their sons and daughters, then can plan our future. (this part is confusing, but yes you'll get there)

And then soon we'll realize we're at our mid-life crisis, with even more obssession to save money, to plan for our retirement because we think we've got life all figured out. And we tell ourselves how we should die, how we should all die in our death bed, sick, painless, with a smile on our faces.

And let's skip all the boring part from once you become 40 to when you become 85.

And then we die.
And even in death we plan.
Our inheritance. Our funeral. Our ashes all over the sea (or whichever you please).



Dreaming.
Saving money.
Surviving.
Working.
Studying.
All these things humans do, they're all the things we do for the future.

We all seem to live our lives in ignorance of how we're only living for this fleeting ideals we have about how our futures should be, which will then be spent planning on how our future's futures should be.


The money we spent our whole life saving. We can't possibly spend it all.
The knowledge we spent our whole life acquiring. We still can't possible know it all.
The plans we have our life planning. We can't possible achieve them all.

Life isn't supposed to be about the future. Because we're all living in the now, in the present. Life in the future doesn't exist yet. But life exists now, in the nows, in the presents.


And that's the point I want to make. (much thanks to kenneth's for inspiring me on this)

At a certain point in a person's life, and in my case it's now, he will start to question on how should he venture in his life's quest for a life of happiness. Because he realizes that all he has been doing his whole life, has been to achieve to live a life of happiness IN THE FUTURE.

But he may or may not realize that, the real meaning of happiness is that he has to live absolutely in the present with absolutely, get this ABSOLUTELY, no regard for the past or the present.

What's past is gone, we can't live in the past.
And similarly, we shouldnt live for the future.

Because the present is all that matters. Isn't it?

Today we celebrate

Today we celebrate many many many things.

But most importantly,
we celebrate me being at home not working.

I'm in the mood of uncertainty

I swear to god, I'm super uncertain of my mood now. It's like having moodswings perpetually, and swings happening every every sec yknow. How to explain this.

Okay, I have a few good reasons to be really really REALLY happy.
For one, I've earned about 2.5-3k during the 2 weeks I've taken MC doing day to day trading, which is really awesome, considering that I've very very limited capital (I won't hold it a secret really, I've only about 15k liquid assets)
And over my whole trading history since I've opened my trading account (a young investor account) just about 1.5months ago, my whole portfolio appreciated about 40%. Which is really really good, if you really must have a benchmark, take it that the risk-free rate is about <1% per 3 months.

So basically, I've made alot of money recently simple as that. And money though can not buy happiness (as what my mother always tell me), it definitely can bring happiness and satisfaction earning it.

Secondly, I've met new friends at my workplace. And they're awesome. They're cool. And I've met new pretty girls (haha) around, though I never really asked them for their numbers, but still they're awesome. Speaking of which, I just got rejected by this kickass cool girls in front of marshall eugene kenneth gang, but still that's different. Please don't laugh at gavin the loser.
Of course, I'm very much a swinger now, fooling around, playing the field, never being serious and into relationships at the moment, after the failed relationship prior to this month. I HAVE NO FAITH IN LOVE ANYMORE. I swear. Throw me a freaking awesome cool pretty girl who likes me and wants to be my ewwwwkkk girlfriend. I will definitely say no. Dates though, I'm totally cool.

And reasons to be sad.

One, and more than sufficient. Too many people ORD-ing in my camp, my workplace. Everyone is going, and showing off to me, only goes to remind me I've got 317 working days till ORD (I've got a ORD countdown meter installed in my comp in my office). Which sucks I swear.

I lost my phone/wallet/itouch

Hahah, I must have lost my stuff for the 100th time.
Oh well, Im kinda busy repairing the damage Ive done, but if any of you guys read this, kindly leave your name and handphone number behind so that I can sync into my phone!
THANKS!

(: peace out, hope the thief rots in hell and gets eaten by satan for breakfast.