To do remarkably well as an investment trainer, it often helps to have a “Cinderella story”.
A typical story starts by showing how difficult the trainer’s circumstances are – maybe they are poor or come from a broken family. Then they talk about how having the proper investment framework can change a person’s destiny. Like Cinderella’s tale, these stories have happy endings sometimes involving lots of travel in their spare time or even a Ferrari on their backyard.
My Silver Spoon Story
One of the things I wanted to do when I got into this career is NOT to tell a Cinderella story. I started in a position of great privilege – my father was one of the founders of Pet Lovers Centre, and I spent over 30 years of my life living on landed property.
I guess a woke millennial would say that my problems were first world problems – as an only child, I knew that everything would eventually be mine. But here’s the problem, my parents knew that everything would finally be mine, so my parents spoiled me.
One of the worst labels in Cantonese you can apply to a young brat is “Pai3 Kar1 Zhai2” or literally “fail-house-son” (败家子). The closest English term was wastrel – a good for nothing wasteful person. Thanks to my upbringing, I was taught to believe that I can be anything in life – anything but a pai kar zhai.
So my mindset is that although everything will finally fall under control someday, I was never to mismanage our funds nor lose money. This would bring shame to both me and my family.
Consequently, I prepared myself to manage my family assets from really young, taking my first CFA exam barely a year out of University and stopping until I got the FRM and CAIA qualifications. A decade ago, I started coordinating the strategy for investing in my father’s assets after his stroke. We needed to move to a HDB in the heartlands for better access to Polyclinics. Eventually, as my dad’s health did not get any better, I felt the need to better prepare myself to become the best trustee money can buy, so I did my third degree in Law.
The ERM program arose from my privileged access to a seven-figure sum over a decade. At higher levels, the problem is often not about looking for a stock like Tesla, but a broadly diversified, tax-advantaged portfolio that can give about 5-7% yield to support my parents in their old age.
My articles are generally about data science applied to the financial domain, so…
Why am I becoming so personal all of a sudden?
I updated some slides for my previews recently.
One slide created a big controversy that got ex-colleagues and even major characters in the financial blogosphere ‘excited’ for very much the wrong reasons.
If you have been following my past presentations, the numbers have changed because I don’t want accusations of sharing financial pornography. In the past, I only revealed dividends from one account.
I used to keep my family accounts separate from mine in the past, but as my dad passed on in 2019, I legally have full control. So on 1st January 2021, I wanted to assess the total damage the pandemic has inflicted on my family assets. I thought it would be a good idea to show that pandemics do very little damage to high-yielding unleveraged portfolios and paying off more than the median household income is not impossible.
Here are some points to answer some questions about the portfolio I manage because folks are super-curious :
- The numbers do not cover home equity, CPF or SRS.
- I do not factor my leveraged ERM portfolio into the mix. That’s for my community’s eyes only.
- I earned about half the money I manage, through my effort.
To folks who have to manage inherited wealth…
I want to share a few tips with others who may be in a similar situation as myself:
- Guilt and shame is a normal reaction to inherited wealth if you feel any love towards your parent
It’s normal to feel guilt and shame when you inherited assets. Like many of you, I would prefer to give it back to be with my dad for a few more years.
- Keeping the ship steady matters when a handover of assets takes place
I can’t describe the pain of losing some of this money temporarily in March 2020 when the pandemic hit. It’s like my dad handed his life energy to me, and I lost it when REITs tumbled by about 30-40%. Unlike the rest of my funds, I do not apply leverage to inherited wealth, and I made sure it supported my mom in 2020.
In such cases, creating low beta, mean-reverting, and high dividend portfolios help. Sometimes my mum will ask me about tech stocks and Bitcoins. I will tell her it’s not suitable for her, but I do have some of it myself.
In this case, we have to protect our loved ones not optimising returns but by other risk-adjusted measures like the Sortino Ratio or Sharpe Ratio.
- Dividends matter a lot in inherited wealth
Dividends play an emotional role in inherited wealth that cannot be dismissed by financial theories of dividend-equivalence. When you spend capital, it’s like cannibalising on your father’s flesh. When you get dividends in your bank account, the tree your dad planted is bearing fruit for you to eat.
This lesson is one of the things I keep telling my mum, spending the dividends is ok because we reinvested it back into the portfolio. Spending capital is forbidden unless there is a medical emergency.
Today, we reinvest about 66% of our dividends.
- You may just be shepherding the wealth for future generations
My upbringing makes it impossible to spend what I did not earn with my own hands, which may become my children’s problem when I grow older. I believe my dad would want the funds to support my children’s education. That’s probably the only way for me to touch the capital that I managing right now.
If you make your children inheritors, it will start the cycle all over again. The transmission of values will be much more challenging because I saw my dad downgrade to become a production operator after giving up shares in his company, but my kids see me spend one day a week giving lectures. They may grow with really warped ideas about how to earn a living.
- Nevertheless inherited wealth can be a powerful tool even if you do not spend it
Lastly, do not think that I did not benefit from inherited wealth.
I use the spare cash to participate in rights issues. I typically use the family account excess to buy up and exercise rights from REITs before selling them and returning the money to the pot. Recently, I exercised Lippo Mapletree Indonesia Retail Trust at $0.060. As the options exercise price was trading 25% below the Theoretical ex-rights Price or TERP, I sold the shares quickly at $0.067 a few weeks later.
With some leftover cash, we no longer view a rights issue as an adverse event.
As Generation X reaches their 40s and 50s, they will experience one of the largest wealth transfers from Baby Boomers and earlier generations of Singaporeans. Many Pioneer and Merdeka generation, especially those who have invested in landed property, have done well in life.
The generation that takes over the assets will have to contend with guilt and shame that often accompanies such wealth transfer.
I hope that this article would be a useful read to you.
