Friday, September 23, 2016

Reading up on Cryptocurrencies

I have been reading up on Cryptocurrencies lately. This post will serve as a summary of what I have learned from my readings. Specifically, Don and Alex Tapscott's Blockchain Revolution and Prypto's Bitcoin for Dummies.

Blockchain revolution exposed me to the concept of the blockchain - the underlying technology that supports cryptocurrencies such as Bitcoin. In fact, people should focus on the blockchain rather than on the individual cryptocurrencies such as bitcoin because of its potential applications beyond finance. I will be listing the points which stood out in my reading as well as my thoughts:

- Blockchain technology could be used to supplant remittance services. The poor migrant worker often had to pay high transaction fees to send their money back to their home countries. With blockchain, migrants could bypass such remittance services altogether. If the blockchain does take off, firms such as Western Union could see their moats eroding. (I used to wonder why Neratel would be agreeable to sell their payment solutions business, but after observing how FinTech and the Blockchain are encroaching on this space, I now have a new perspective on the situation).

- Companies' balance sheet could be accessed in real-time if it is deployed on the blockchain. Presently, balance sheets serve as a snapshot of companies' assets, liabilities, and equity at a particular point in time. If balance sheets are shifted onto the blockchain, investors are able to see any changes in assets, liabilities, and equity in real-time. (Personally, I don't think I'll be able to benefit from this. I'm already experiencing information overload in my financial journey thus far. Flood me with even more information? No thank you. However, I'm sure it will be very useful for the canny investors).

- Companies have started IPO-ing on the blockchain.

- The disrupters could get disrupted. Companies such as Airbnb and Uber may face disruption themselves. Consumers could directly liaise with providers through the blockchain instead of going through a platform.

- Estonia has adopted the blockchain into its infrastructure (*Note to self* Read up more on Estonia).

- Musicians, composers, artists, and creative professionals are adopting the blockchain. Though it is still in its nascent stage, investors are given the opportunity to invest in songs/arts/creative works and reap royalties from it.

While it is eye-opening to read about the potentials of the new technology, I still remained utterly clueless as to how to get started in it. To that end, I read Bitcoin for Dummies.

To get myself started, I have downloaded a mobile bitcoin wallet. However, I have not done anything with it yet. One thing's for sure, if I do get any cryptocurrencies, I'll spread the funds between a mobile wallet and a paper wallet. Placing funds in an online wallet kinda defeats the purpose of cryptocurrencies. Besides, there have been hacks on such online platforms before.

Cloud mining seems interesting, but I'll have to read more to weigh the pros and cons.

My purpose in dabbling with cryptocurrencies is just for fun. I am not looking at it from an investment/capital gain perspective.

Wednesday, September 14, 2016

MAMA and Investing

No, I'm not referring to your mother. I'm referring to the words underlying the acronym MAMA - Moratorium Achievement Moratorium Achievement.

Let me take a step back. How do individuals develop their sense of identity in life? When do they develop their own sense of personal identity? Is identity fixed or is it a fluid concept?

While there are many psychological theories that aim to explain identity development in humans, today I will only be discussing the work by psychologist James Marcia. His thesis is that identity is a result of the dialectical interplay between exploration and commitment. In life, we explore the various options the world offers us. Once we have made a decision, we commit to it. In so doing, our decision gets intertwined with our identity.

However, this is not the end of the story. Often, we have other personal aspirations, interests, side projects or even a complete change of heart. We recommit ourselves to these new endeavours/incorporate these new endeavours within our core identity, formulating a much more nuanced concept of identity.

According to Marcia, each one of us could be categorized into one of four Identity Status categories: Identity Foreclosure, Identity Diffusion, Identity Moratorium, and Identity Achievement.

Identity Foreclosure occurs when an individual made a commitment without exploring any alternatives. Example: "I must go into Banking/Law/Medicine because my parents said that only those careers will lead to a high pay and a bright future. Therefore, I follow lor!"

Identity Diffusion is characterized by neither exploring nor committing to a particular facet of life. Example: "What do I want in life? Don't know. Never thought about it before leh."

Identity Moratorium occurs when an individual experiences crisis in his or her life. Values, beliefs, and choices are called into question and the individual is forced to re-examine his or her value/belief system and past choices. Example: "Alamak. I chose this Major but I realized that I have made a wrong decision. What do I do now?"

Identity Achievement happens once an individual experiences and overcomes a crisis by evaluating beliefs, values, and choices and committing to a plan of action. Example: "I know what I want. I have done my research. I have consulted experienced people who have walked this path. I know the strengths and the weaknesses of my choice and I'll go all in!"

However, Identity Achievement is not a permanent state. Neither is the world nor our desires static. There will come a time when we either experience a crisis or a dissatisfaction with the way our current life is. That is when we re-enter the Moratorium stage, putting our values, beliefs, and life choices into the spotlight again (That's where you see all the midlife crisis/career change/and what not). Hence, the MAMA cycle.

Me being me, I appropriated his theory to investing. I believe I'm somewhere in Identity Moratorium with regards to the investing facet of my life. I know the importance of savings and investing. I personally took the decision to invest, without any external influence from anyone. I started by DCA-ing into the STI ETF through the POSB Invest Saver plan.

However, I realized that the above method did not suit my needs. I preferred cash flow through dividends/distributions over capital gains. Given a choice, I would rather prefer a higher proportion of total returns to be from dividends than from capital gains. Though I have some high-yielding REITs in my portfolio, they are but a small position. Low leverage, positive free cash flow, and cheap valuations are the way to go for me. :)

Yes, I am aware that "optimally" I should be pursuing value investing over income investing given my age. In some circles, it is said that capital gains (dividends included) from a value investing approach possess a higher probability of outperforming income investing. I'm still fine with that.

Do I have a lot more to learn about investing as well as my own investment temperament? I sure do. In fact, sometimes I get frustrated with my own progress in investment knowledge. I fail to understand the ramifications of various company announcements. If I progress on, I'll learn.

Are there flaws in my investment strategy at the moment? Yes. Do I know how to rectify or mitigate their impact? Somewhat.

What about you readers? Which stage are you in? One thing's for sure, none of you are in the Identity Diffusion stage. Why else would you bother reading my post?

Monday, September 5, 2016

Thoughts on the HI Module

Insurance is important and I know zilch about it. As part of my quest for personal development, I have spent the past 2 weeks studying for the Health Insurance (HI) Module offered by the Singapore College of Insurance (SCI). Why 2 weeks when I could have scheduled the examination at any time? Because I came across another blogger who shared that it could be done within 2 weeks. Well, I passed the module, but I now know I should allow myself additional buffer time when I do attempt the remaining SCI modules in the future.

Hopefully, as I take up more insurance modules, I would be able to reach a point where I am able to advise myself as to what insurance products I would need. Also, I could join the insurance industry in the event my main career and my backup careers fail me. However, I doubt that. Couple the notions of "insurance agent" and an "extreme introvert" and you'll have a person-job mismatch of epic proportions. Still, additional options doesn't hurt.

The following points are what I've learned from the HI module and which I've applied to my personal situation. Your mileage may vary; each person's financial situation is unique.

1). I do not think I need a Disability Income/Income Replacement insurance. As an income investor, I hope that the income stream from my portfolio will, one day, be sufficient to serve as a Disability Income insurance. Furthermore, you may not be able to receive the full benefits of an Disability Income insurance if you have income from other sources/high net worth. Under the coordination of benefits clause, the insurer could reduce the benefits pay-out if you have other sources of unearned income, let's say, dividends from an income portfolio.

In the intervening period (which is, I am at the most vulnerable as the income from my portfolio is pretty underwhelming.

2). I don't think I need a Hospital Cash insurance either. A Hospital Cash insurance pays you for each day you stay in the hospital. I think my income portfolio could also be used to carry this burden.

3). With Medishield Life, I am, to some extent, covered for Class C/B2 wards. If I do want better amenities (Class B1/A wards/private hospitals), I could get an Integrated Shield Plan. There are cases in which individual over-insure themselves with an Integrated Shield Plan and yet opt for a C/B2 ward out of ignorance of their insurance policies. This highlighted to me that I should thoroughly know what I want and insure myself accordingly.

4). While a medical expense insurance will take the full brunt of one's medical needs, an individual still has to fork out some cash to pay for the deductible and co-insurance. An emergency fund would be useful in paying down these out-of-pocket expenses.

Now, time to hit the books again. Onwards for personal development!