The 2012 Cheerfulegg Review

Credit: http://www.flickr.com/photos/joka2000/80198350/sizes/m/in/photostream/All the blogs in the world are reviewing 2012 at the moment. In summary, the world didn’t end, Obama got re-elected, the Euro crisis didn’t blow up, and most importantly, Singapore saw a record number of sex scandals. And they said Singaporeans don’t have enough sex.

So I thought it’d be a good time to do a little personal review of my own. I got this idea off Chris Guillebeau’s framework on annual reviews, which he cites as probably the best decision he’s made in terms of working towards multiple goals simultaneously (He’s probably one of the most successful bloggers around, so there’s definitely something going on there).

So this post is the first of a 2-part series on annual reviews. In this post, I’ll review 2012 and what it meant for cheerfulegg.com and for parts of my own life. I’m basing it off Chris’ methodology, and if you haven’t done a 2012 review of your own yet, I highly recommend that you give it a try.

It involves answering 2 questions:

  1. What went well this year?
  2. What didn’t go so well this year?

Yeah, I know it sounds like one of those corny-ass “After-Action Reviews” that your company is so fond of doing – I thought it was pretty lame when I first read it too. But after spending an entire day reflecting on it, I got pretty surprised by the results.

So – enough preamble.  Let’s get started.

What went well this year?

(Please don’t take this section as a bragfest. I try to be as objective and transparent as possible in any reflection and including both the good and bad stuff)

*I grew and developed cheerfulegg.com to a level that I’m pretty happy with for its one-year existence. It’s probably one of my proudest accomplishments of 2012. An idea of what this blog has managed to achieve in the past year:

  1. 71 new posts, to grand total of 77 posts since it started in Dec 2011.
  2. A post that got featured on WordPress’s Freshly Pressed section, generating a record 16,000+ views for that month, and 220+ WordPress followers.
  3. A brand new “cheerfulegg.com” domain name
  4. A cheerfulegg VIP list, which grew to 85 subscribers within a couple of months
  5. Being accepted on blog aggregators theFinance.sg and PaperBlog.com

* I developed, followed, and refined a personal finance system. Writing a book about it really helped because it forced me to solidify the ideas. It isn’t perfect yet, but it’s at a point where I’m about 80-90% satisfied. Will be sharing more of it in some publications that I’m working on.

  1. I apologize if some of you were confused by my previous posts about multiple saving and spending accounts, sometimes with different names and purposes, etc.  It was all part of a process of trying it out and making improvements to make the final version simpler and more effective for everyone. Sometimes I just had to write about it here in order to crystalize the idea.

* I successfully achieved my saving and investing goals, entirely thanks to a system of automation I set up to take care of everything.

* I introduced fixed income and Singapore asset classes into my portfolio, adding a further level of diversification. Contemplating if I should add gold in the coming year (Its historical real returns aren’t the best, but it might be a good diversifier. Check out this blog for more details. I’m still thinking about it though).

*The markets have also been pretty kind to my portfolio this year, which was really encouraging for my first full calendar year in sticking with a passive, indexed-based investment style, which has worked out pretty well thus far.

 What didn’t go so well this year?

* I severely underestimated the effort required to write a book. After spending the best part of August – November writing for three nights a week, I had a 82-page first draft, which was about 60% of my planned book. And I hated it.

It’s not terrible, but it certainly fell short of the vision I had for it as something fresh, engaging and different from the other “how to get your personal finances in order” books.  I’m still going to finish writing it, but I’m now humbled by the effort and the dedication a project like this requires. In the meantime, I’m headed back to the drawing board and I’m only going to ship it to you once I’m satisfied with it.

* I attempted to start some freelancing projects, which pretty much fell through because I couldn’t find an idea that suited me, or that I had enough time for.

* I got fatter this year. Fareals. A combination a dropping metabolic rate, a new job rotation that required me to sit at my desk for longer hours, and my focus on cheerfulegg.com and the book resulted in some serious weight gain. An exercise plan for 2013 is definitely in order. I also definitely didn’t sleep as much as I would have liked.

* I made a conscious decision to give up dance, at least for now, even though it was my entire life just 2 years back. I’ve been pursuing it as a passion for 12 years now, but I really  want to pursue new adventures with this blog and the book. With a full-time day job, it’s pretty much impossible to commit to writing AND dance at the same time after office hours. Still though, I get that twinge of longing whenever I watch YouTube videos.

 Possible goals for next year

I’ll talk more about these after I’ve finalized my plans for 2013, but 2 things that are definitely in the works are:

* Going back to the drawing board to redefine the book, interviewing people to really understand them and coming up with fresh, new ideas. Check out my room wall at the moment:

Ideation

* I now know that this is going be an ongoing process, and it might take several months or more than a year before I see some results. However, this isn’t going to stop me from shipping some stuff out for everyone who’s been waiting patiently for it.

* In the interim, I’m working on pushing out 2 mini-products in 2013 – which are a lot less complex, but still pretty damn awesome. Stay tuned for those 🙂

Happy 2013 everyone!

Using Systems to Dominate Learning (And Anything Else)

The MIT Challenge

Recently read a guest post by blogger Scott Young, who stunned the world by doing the impossible. Scott completed MIT’s notoriously difficult Computer Science curriculum, which usually takes bright MIT students four years to finish, in one year. Watch the TED talk on his MIT Challenge here:

To do this, Scott adopted a carefully constructed learning system that let him compress the concepts of a 4-year education into a short span of time. This wasn’t simply a matter of cramming for exams. Scott not only passed all the exams but also completed all the programming projects, which require a deep understanding of the material. How did he do it?

First, he watched all the lectures online to get a birds-eye view of the material. By watching the video lectures at 1.5x-2x the normal speed, he managed to go through a semester’s worth of lectures in a couple of days.

Next, he spent a lot more time developing insight and drawing connections. He’d first take a piece of paper and write the concept that he was trying to understand at the top. He then wrote out his own explanation, as if he was teaching it to someone else. When he came to a gap in his knowledge, he’d go back to the textbook or find it online. In this way, he systematically filled in all the knowledge gaps until he had a deep, complete, understanding of the material.

Third, he went through practice problems with the solution key in hand. He’d check his work question-by-question, getting immediate feedback for every question he did. Compared to other students who might have to wait weeks before they got back their graded assignments, Scott’s system gave him a tight feedback loop which dramatically improved his effectiveness.

As Scott wrote in a guest post describing his journey: “…the method you use to learn matters a lot. Deeper levels of processing and spaced repetition can, in some cases, double your efficiency (emphasis mine). Indeed, the research in deliberate practice shows us that without the right method, learning can plateau forever.”

In short, Scott wasn’t studying harder; he was using a system to study smarter.

The Power Of Systems

Scott’s MIT Challenge forms the premise of the book I’m currently working on: That adopting the right systems can help you to achieve much, much more than the average individual.

You can use systems to create a desirable habit, deliver happiness to people, get fitter, be more productive, negotiate better.. pretty much anything you want to achieve in life.

Most people don’t know how to improve their own lives because they rely solely on “trying harder”. How many of us make New Years resolutions to go to the gym more often, only to fail miserably before February comes around? How many of us resolve to be more productive at work, but end up online shopping and Facebook stalking before lunchtime? And how many of us resolve to saving and investing more this year, only to have all our extra cash wiped out by a year-end vacation?

Instead of trying harder, applying systems is infinitely more effective. Here’s why:

1. Systems remove the need for “willpower”

The trouble with willpower is that it’s easy to lose steam. We burn out. John Tierney, coauthor of Willpower: Rediscovering the Greatest Human Strength, describes willpower as a finite resource that runs out just as easily as a fuel in your car tank. Systems, on the other hand, take control away from you. They force you onto a certain path so that you don’t have to use willpower. It sounds counterintuitive, but we’re more likely to be successful at something when we are willing to hand over control to a system.

2. Systems are much simpler to follow 

If you’re trying to lose weight, think about the barrage of information out there on weight management. Hundreds of articles and blogs give handy “tips” and nuggets of advice, but they’re often conflicting and confusing. A system, on the other hand, is based on rules. Step 1, 2, 3. Go to a personal trainer and he’ll tell you exactly what you need to eat, how to exercise, and all that jazz. You don’t have to think – all you need to do is stick to the system, and you’ll succeed.

3. Systems are smarter

Think about Scott Young’s system for accelerated learning. It’s a simple formula, but it’ll save you a lot of time and effort when it comes to studying. Think about how much easier it is to set up a GIRO standing instruction that automatically helps you to save every month, instead of putting in time and effort to “save harder”. Finding the right system can help you to do things a lot more efficiently and effectively than most people.

Viewing the world from a systems perspective

Systems are effective, more so than many of us realize. That’s the premise of this blog, as well as the upcoming book. So far, I’ve showed you how to use systems to improve your savings and investments, find the right types of insurance, and spend more efficiently on the things you love. The book will delve a little more deeply into the psychology of saving, spending and investing, and will describe more detail on the systems that will help you tackle your personal finances.

You start to see things differently once you look at life from a systems perspective. Large challenges suddenly don’t seem so daunting anymore, and possibilities start to open up.  Are there any problems that you’re currently stumped by, but could possibly be solved by applying a system? I’d love to hear from you, even if you haven’t found a solution yet. Leave a comment, or send me an email at cheerfulegg@gmail.com.

Cheers 🙂

Don’t Save For Retirement

It is close to midnight on December 29, 1972, and Eastern Air Lines Flight 401 is making its final approach to Miami International Airport. 163 passengers are onboard, most hoping to enjoy their new year in sunny Miami.

As it approaches the airport, the landing wheels are lowered and locked into position. At this point, the captain notices something amiss: the green light linked to the landing wheels has failed to light up. This could mean one of two things: Either the wheels have failed to lock into position, or the light is faulty. The pilots report the situation to Air Traffic Control, who orders the plane to circle back and try their descent again.

At this point, the pilot and co-pilot fixate on the light. They take it out of its fitting, blow on it to remove dust, and try to jam it back. Their conversation goes back and forth as they try to figure out what the fault is. They become so fixated on the light, that they fail to notice the 300-pound gorilla in their midst.

The gorilla, in this case, is the fact that their autopilot is disengaged and that they are rapidly losing altitude. They don’t notice that they are dropping rapidly because it is a moonless night and they can’t see the horizon. The altitude warning alarm rings through the cockpit and the altitude meter is dropping crazily, though neither pilot notices. They are too fixated on the light. Only when the aircraft is 7 seconds to impact, do the pilots realize that something is very wrong. They take evasive action, but it’s too late. The plane crashes, killing 101 people.

Crash investigators later found that the wheels had indeed locked into place – it was the light that was faulty. “The crash occurred due to the failure of a $12 piece of kit,” one journalist pointed out. However, the true cause of the crash was deeper than that – it was the pilots’ fixation on one particular problem, which blinded them from the true danger they were in.*

*story taken from Bounce by Matthew Syed

What other gorillas are you failing to see in your life?

Like the pilots who were overfocused on the green landing gear light, most people are fixated on one goal when it comes to personal finance: retirement. They believe that in order to retire, they need to hoard as much cash as possible, starting now. But they fail to realize the huge gorilla charging towards their bank accounts: inflation.

Two posts ago, I wrote about how inflation would slowly but surely destroy the buying power of your savings. If you’re young, letting your cash sit in your bank account (or in your fixed deposits / CPF / mattress) is like putting it in a nest of termites: it’ll eventually get eaten up.

So here’s my advice when it comes to inflation: Don’t save for retirement.

Say what?

Hear me out for a second. If you’re young and wild and free, there are other, more important things you should be focusing your attention on. Instead of saving up for “retirement” and getting a lot less bang for your buck, there are three more useful things you should be directing your money towards:

1.Save for assets

The best way to tackle the inflation gorilla is to put your money into assets that will grow faster than inflation: Stocks and real estate. Stocks are the most accessible because they don’t require a huge cash outlay, they’re easy to understand, and if you live in Singapore, they’re tax-free. Woot woot! Real estate is pretty nifty too, if you can afford the huge downpayment (or if you can’t afford the huge downpayment, you can also look into REITs – more on that later).

The biggest bonus of all is that if you plough your cash into assets that exceed inflation, you will, in fact, be prepping yourself for retirement.

2. Save for life chapters

Here, I’m talking about big, life chapters that you were planning on spending on regardless of what happens. I’m talking about your wedding, your first house, and your daughter’s upcoming college fees. If any of these are going to be happening within the next 10 years, then you should be saving up for them. Don’t act as if you didn’t know they were coming: If you know you’ll be getting married in 3 years, you should be saving up for your hypothetical $30,000 banquet and $15,000 ring… now.

A caveat: I’m not talking about cars, or vacations, or that new washing machine, that you “know” you’re going to spend on anyway. I’m talking about the big, necessary, life chapters here, people.

3. Save for emergencies

Sh*t happens. You’ll need cash to deal with it. If something bad happens, (like losing your job) the last thing you want is to be dipping into your investments to pay for your meals. If you don’t have an emergency fund of 3 months of income parked in an easily accessible bank account, then you should totally start saving up for one now.

In short…

Don’t bother saving for retirement – inflation will render your efforts futile. Other than cash set aside for emergencies and stuff you’re going to spend on within the next 10 years, everything else should be directed towards assets – Assets that keep pace with inflation. If an insurance agent / banker tries to sell you a fancy schmancy 50-year savings plan, run as fast as you can.

Don’t get too fixated on the wrong things. Just because personal finance “experts” tell you that you should be saving for retirement, doesn’t mean that you should be blindly stuffing cash into a bank account. Keep an eye out for the inflation gorilla in your midst, and take action to deal with it.

PS: the topic for this post came from a friend who replied to my previous post on spending money. To everyone reading this, keep the comments coming! They totally give me the inspiration for future blog posts.

As a young person, what do you think about the 3 ways you should be putting your money towards, instead of saving for retirement? Leave a comment, or drop me an email at cheerfulegg@gmail.com. Hope to hear from you soon 🙂

Smarter Than The Market?

So I attended Invest Fair 2012 this weekend, which was pretty much a marketplace of financial service providers, brokers, insurance companies, and the occasional weird individual trying to tout his own “proprietary” trading system. It was exactly like a marketplace, the kind you’d find at your local heartland HDB estate, with energetic sweaty speakers gesturing at candlestick charts and yelling to crowds of wide-eyed middle aged folks, craning their necks and shoving to get a glimpse of the Secret Millionaire Trading Strategy to Make You Rich. You would’ve thought that the speaker was selling fish, or vacuum cleaners, or a Ginzu Knife, instead of a “highly sophisticated automated trading system”.

Interestingly enough, I didn’t see anyone talk about passive indexing in the 4 hours I was there. There was a brief mention of it in one talk, but the speaker put it way down below in the investing hierarchy. Speaker: “If you don’t have enough time at all, and you ONLY want the market return, you can opt to do passive indexing. That will get you between 7%-11% a year. If you have a bit more time, you can do value investing and momentum investing, which can give you up to 20% a year. But the most profitable of all, the style that I use, is to invest in small caps. That will give you up to 30% a year, but you have to stomach a lot more volatility.”

Now, 30% a year sounds like a helluva attractive option, doesn’t it? Hell, you could double your money in less than 3 years! But let’s think about this for a second.

Why you’re not likely to be smarter than the market

If you make a 30% return in the market, there must be someone else (or a bunch of other people) on the other side of that trade who lost 30%. Every time you buy a stock, there is someone on the other side selling it to you. And every time you sell, there is someone on the other end buying it from you. Every time you win, someone else loses, and every time you lose, someone else wins. Lots of people forget that the stock market is a zero sum game, and you are playing against other people. Now, say you bought a fancy trading strategy at the investment fair and started making 30% a year consistently. This means that you would be consistently beating the majority of the other players in the market, ie: you would consistently be in the “winning” half of the market.

Now think about who the other players are. First, there are the institutional fund managers and mutual fund managers with billions of dollars under their control and have the power to move the market every time they trade. Then, there are the brokers and the flow traders who have a first-hand view of the order books and could front-run you without you even realizing. There are also the hedge fund managers, who hire Nobel Prize winners to develop algorithmic trading strategies for them. There are people like Warren Buffet, whose sheer influence and ownership of certain companies gives them access to information that no one else could possibly access. And then there are the high frequency traders, whose machines execute millions of trades a second. And then there’s you, with your $500 trading system you bought from Invest Fair 2012, and your $99 book on technical analysis. Now, who’s more likely to consistently be on the winning side of the market?

I’m not saying that you’re stupid. In fact, it’s very likely that some of you reading this would have made some money trading some fanciful strategy so far. All I’m saying is that by definition, the majority of you will be painfully average in your ability to beat the market. And once you add the professionals to the mix, it’s more than likely that you, the average retail trader/investor, are likely to be in the losing end of the market if you’re going to play against them. Most of us would like to think that we’re smarter than average – a behavioral bias of overconfidence that makes us think that somehow, we’re that one special person blessed with gifted intelligence and luck that will let us triumph over everyone else. But by definition, that cannot be true for most people, including people like you and me.

So let’s not kid ourselves that we can be consistently smarter than the market. The market consists hundreds of thousands of other participants, some of who are much, much, much smarter than you are. If one or two screw up, there are plenty more to take their place.

Embracing Average

Okay this all sounds very depressing, and it sounds like we should just all get out from the investment game altogether and stuff our money in pillow cases. But wait, there’s hope! Let’s think about things a little differently – let’s entertain the thought that maybe being average is a good thing.

Here’s why – we all know that on average, the market increases by about 8% a year. This 8% is the result of aggregating the entire market’s gains and losses: the mutual funds raking in 20%, the hedge funds blowing up, a retail investor losing everything, and your uncle who got lucky and jumped into tech stocks which rose by 40% in 3 months. Add them all up together, and it averages out to about 8% a year. (it works out to 8% a year, not 0%, because there is a strong upward bias in the market, helped by the fact that businesses in the market grow their earnings as time passes) So when you buy the market and hold it forever, you’ll experience some good years with double-digit returns, and some bad years with scary negative returns, but on average, you’ll be hitting approximately 8% a year.

Honestly, how many of you have been able to consistently rake in 8% a year? I’m willing to bet that the majority of retail investors won’t even come close to this figure. So why bother spending money on trading systems, or financial adviser fees, or commissions, just to earn less than the market return? Do yourself a favor and practice passive indexing – you’re pretty much guaranteed to beat the majority of the masses out there, the same ones who cluelessly invest in small caps (or other things) because they want to earn 30% a year, and think that they’re smarter than everyone else.