Succeeding in the Corporate World
Climbing the corporate ladder is not an appealing path for me. I have seen many people at the top, who had to make difficult choices of cutting costs, yet rousing the troops below to work harder for less money. The troops that brought in revenue were sometimes less recognised than the ones who flit from one meeting to another, making grand plans. At a higher level, increasingly it becomes a matter of perception and subjectivity often decides your fate. How does one prove to be a good leader? Is it good EQ? What if one has good EQ but low IQ? Is it good for an organisation to promote such people? I've seen plenty of people that can sweet talk their way into bosses' hearts, with very little to show for. Anybody below them who emails them for help is ignored. But sharing a gossip with the boss or with peers is par for the course! There are also people who are fighting to increase their sphere of influence. They crave for short term gains in revenue at the expense of society, and claim credit for the damage they have done!
Of course, not everybody is like that. There are those in the organisation who truly deserve to rise to the top. Those who find a balance between profit and conscience. Those who are truly helpful and kind to everyone, whether to those above, on par or below them. It is the luck of the draw in my opinion, whether you rise or fall in an organisation. You may have certain values that you think is right but is not recognised by your superiors.
Not all is bad being in an organisation. Sometimes, you encounter genuine friends at work, who care for you and care about doing the right things. The emotional support that you get at work can be invaluable.
Being a Full-Time Investor
Being a full time investor is a much better option. More things are in my control. I just need to analyse, communicate with stakeholders, make offers to sellers and digest my acquisitions. I can find pleasure in 1) giving back to society by helping the less fortunate, 2) going for short getaways with my loved ones frequently, 3) spend more quality time with my loved ones.
I have often wanted to spend some time helping the disadvantaged children, those who come from broken homes. Some of these kids can be very intelligent and talented, but are born in unstable families. If they can be rescued, they could grow up to be the next Obama, Nelson Mendela or Margaret Tatcher!
The Problem of Home Bias
There are however, challenges when you are investing in real estate. Many investors suffer from the "home bias" effect. They choose to invest in Singapore no matter how little opportunities there are. Let's say that Singapore's industrial, office and residential market is already at its peak. Between now and 2015, the odds are between a 10% gain over three years and a loss of 20%. The average expected return is -5%. If you are a very good investor, you could achieve the upper bound of the expected return, which is 10%, or even 15% over three years. But it takes a lot more effort to find undervalued assets at a time where sellers are unrealistic in their demands and few are under pressure to sell.
However, in cities like in Las Vegas or Houston, the residential market is just beginning to turn after six years of downturn. The expected return of single family homes could range between 30% to 60% over the same period. After all, a typical single family home is worth only US$100,000 now when it was US$250,000 in 2006! Even after a 60% rise, prices are still incredibly cheap at US$160,000! An average investor could achieve 45% over the next three years, without much effort. But if you are really good, you could achieve 60% or even 120% over the same period!
Note that the skill of a very good investor in Singapore and in the US may be the same, but because of home bias effect, the Singaporean investor achieved just a fraction of the US investor's return.
Ways to Overcome Home Bias
If you have a full time job, or if for some reason you cannot leave Singapore, you can aim to diversify overseas by buying from exhibitions in Singapore! This is not a good idea because they tend to be priced 10 - 20% above what the locals are paying. So if the average return in London Zone 2 properties is 30% over three years, you will probably achieve only 10 - 15% over the same period. This is a similar return if you work very hard in Singapore to achieve big Alphas. However, if you fly over to the investment locations during your vacations, you might increase your returns to 15 - 20% during the same period. You can be an average investor in London, but never be on par with the best investors in London!
Hence due to physical constraints one can never truly be the top dog in every country when it comes to real estate! However, you can choose a market like US, which is trading at 60% discount from 2006's peak and aim to achieve average returns even without residing there. How do you do that? By travelling there to walk the ground, doing plenty of research via the internet. 45% return for an average investor in the US is still much better than 15% return for a top investor in Singapore!
Taking Advantage of Different Market Cycles
I've often discussed with my loved ones my intention to live three months at a time in a city that is at the bottom of the cycle. This is to take advantage of investment opportunities that may come our way. For example, if I were a full time investor, it is a waste of time to live in Singapore now, because there are very few opportunities. I would choose to station myself in cities like Barcelona, Madrid, Milan, Houston, or Las Vegas. I would familiarise myself with the market there, make friends with trustworthy advisers who would recommend me good deals! Perhaps in 2013, I would head towards Australia to live in Melbourne, Perth, and Sydney. In 2014, I will return to my home base Singapore to scoop up whatever is at a discount. Imagine sipping champaign while seated at your balcony over looking River Thames or the Hudson River, looking at the O2, Manhattan skyline or Central Park. All you have to worry at the start of each month is the incoming rentals and outgoing taxes and expenses.
Below is a good article from Business Times, which discuss the age where we are at our investment acumen!
Published January 05, 2013
Where you stand in the arc of skill
Luck may play a big part, but success is determined more by skill
TRYING TO FIGURE IT OUT
People lose skill with age but so do organisations. Like ageing individuals, companies rely on methods and rules of thumb that worked well in the past rather than embrace novelty. - PHOTO: REUTERS
People lose skill with age but so do organisations. Like ageing individuals, companies rely on methods and rules of thumb that worked well in the past rather than embrace novelty. - PHOTO: REUTERS
IT IS the new year. We are all a year older. There is no escaping the inexorable march of time.
With age, our physical bodies go into a slow and steady decline. We have more aches and pains. We are not as strong and as fast as before. So old age is not your friend in sports.
How about in areas that require cognitive skills? How about organisations? Well, it seems old age is not your friend either in these two arenas.
I'm reading the book The Success Equation - Untangling Skill and Luck in Business, Sports, and Investing by Michael Mauboussin. The thesis is that, in some aspects of our lives, luck plays a big part. In others, skill is the main determinant of success.
For example, in chess, the better player will almost always win. In baseball, the better team may not always win because there are many interacting elements in a baseball game. Luck plays a bigger role.
Similarly, in the investment world, with so many interacting elements, a certain amount of luck is required. In the short term, the role of luck overwhelms skill. But in the long term, it is skill which determines whether someone comes out ahead.
But there is an arc that skill takes. This was the topic tackled in one of the chapters in the book. In most sports, the peak performance of an athlete is in the 20s.
What about cognitive skills? When it comes to cognitive tasks, skill is closely related to being competent in making decisions. Psychologists Melissa Finucane and Christina Gullion say that the keys to competence include "understanding information, integrating information in an internally consistent manner, identifying the relevance of information in a decision process and inhibiting impulsive responding".
Types of intelligence
Two types of intelligence are involved when we make decisions.
Fluid intelligence refers to the ability to solve problems that you've never seen before.
Crystallised intelligence is the ability to use the knowledge accumulated through learning.
The bad news is, research on fluid and crystallised intelligence shows that fluid intelligence peaks around the age of 20 and declines consistently and steadily throughout life. The ability to reason with numbers also tends to erode with age.
The good news is crystallised intelligence tends to improve with age. Growing knowledge compensates for a reduction in fluidity up to a certain age.
Fluid and crystallised intelligence also manifests in the creative field.
David Galenson, a professor of economics at the University of Chicago, has studied artistic creativity in detail. He argues that there are two types of artistic innovators and that each one peaks at a different time.
The first type, the conceptual innovator, produces work that is novel and different from that of other artists. Prof Galenson considers Pablo Picasso a classic conceptual innovator. His peak productivity came when he was 26.
Experimental innovators, on the other hand, do a lot of research, accumulate knowledge, and rely on slow and incremental progress. Paul Cezanne is the prototypical experimental innovator. His peak of productivity came at age 67.
So as we age, we lose our creativity in solving problems, but we replace it with experience, rules of thumb.
We also become "cognitive misers". We rely on cognitive mechanisms that are fast, low in computational power and require little concentration.
Another characteristic of a cognitive miser is the tendency to reason from an egocentric point of view. Most times, that leads us to less-than-rational decisions.
Such quick decision-making which draws on experience works when the environment is stable. Trouble arises when individuals rely too heavily on their experience in making automatic decisions, says Mr Mauboussin. "This means that we make poorer choices in environments that are complex and unstable."
Business and investing are examples of realms where intuition often fails. Mr Mauboussin said that researchers who studied people making investments found that decisions about those investments grew less wise as they got older.
So what is the peak performance period for an investor? Supposedly, it is 42, with a sharp drop coming at age 70.
Organisational rigidities
Is there a way to slow down the deterioration? I'm guessing constantly exposing oneself to new ideas, new experiences, keeping an open mind and meditating would help?
So people lose skill with age. But guess what, so do organisations.
Mr Mauboussin said the best explanation for why companies decline is that they fall prey to organisational rigidities.
Companies must balance exploiting profitable markets with exploring new ones. Exploiting known markets requires optimising processes and executing these effectively, resulting in reliable, near-term success.
Exploring unknown markets requires search and experimentation and offers none of the immediate benefits of exploitation.
Mr Mauboussin said finding the best balance between exploration and exploitation depends on the rate of change in the environment. When change comes slowly, the balance can tilt towards exploitation. When it comes quickly, an organisation must dedicate more resources to exploration, since profits are quickly exhausted. In general, companies tend to lean more on exploitation, which increases efficiency and profits in the short run but makes the company rigid - and rigidity is a quality that only worsens with age.
Like ageing individuals, companies rely on methods and rules of thumb that worked well in the past rather than embrace novelty.
Companies, too, follow an arc of skill.
Skill rises and falls as a function of age. It is just how nature works. Being aware of where one is in terms of that arc and the associated mental and cognitive habits at that point in time can put us in good stead when it comes to making decisions.
The key thing, for me, is to avoid being too rigid.
With age, our physical bodies go into a slow and steady decline. We have more aches and pains. We are not as strong and as fast as before. So old age is not your friend in sports.
How about in areas that require cognitive skills? How about organisations? Well, it seems old age is not your friend either in these two arenas.
I'm reading the book The Success Equation - Untangling Skill and Luck in Business, Sports, and Investing by Michael Mauboussin. The thesis is that, in some aspects of our lives, luck plays a big part. In others, skill is the main determinant of success.
For example, in chess, the better player will almost always win. In baseball, the better team may not always win because there are many interacting elements in a baseball game. Luck plays a bigger role.
Similarly, in the investment world, with so many interacting elements, a certain amount of luck is required. In the short term, the role of luck overwhelms skill. But in the long term, it is skill which determines whether someone comes out ahead.
But there is an arc that skill takes. This was the topic tackled in one of the chapters in the book. In most sports, the peak performance of an athlete is in the 20s.
What about cognitive skills? When it comes to cognitive tasks, skill is closely related to being competent in making decisions. Psychologists Melissa Finucane and Christina Gullion say that the keys to competence include "understanding information, integrating information in an internally consistent manner, identifying the relevance of information in a decision process and inhibiting impulsive responding".
Types of intelligence
Two types of intelligence are involved when we make decisions.
Fluid intelligence refers to the ability to solve problems that you've never seen before.
Crystallised intelligence is the ability to use the knowledge accumulated through learning.
The bad news is, research on fluid and crystallised intelligence shows that fluid intelligence peaks around the age of 20 and declines consistently and steadily throughout life. The ability to reason with numbers also tends to erode with age.
The good news is crystallised intelligence tends to improve with age. Growing knowledge compensates for a reduction in fluidity up to a certain age.
Fluid and crystallised intelligence also manifests in the creative field.
David Galenson, a professor of economics at the University of Chicago, has studied artistic creativity in detail. He argues that there are two types of artistic innovators and that each one peaks at a different time.
The first type, the conceptual innovator, produces work that is novel and different from that of other artists. Prof Galenson considers Pablo Picasso a classic conceptual innovator. His peak productivity came when he was 26.
Experimental innovators, on the other hand, do a lot of research, accumulate knowledge, and rely on slow and incremental progress. Paul Cezanne is the prototypical experimental innovator. His peak of productivity came at age 67.
So as we age, we lose our creativity in solving problems, but we replace it with experience, rules of thumb.
We also become "cognitive misers". We rely on cognitive mechanisms that are fast, low in computational power and require little concentration.
Another characteristic of a cognitive miser is the tendency to reason from an egocentric point of view. Most times, that leads us to less-than-rational decisions.
Such quick decision-making which draws on experience works when the environment is stable. Trouble arises when individuals rely too heavily on their experience in making automatic decisions, says Mr Mauboussin. "This means that we make poorer choices in environments that are complex and unstable."
Business and investing are examples of realms where intuition often fails. Mr Mauboussin said that researchers who studied people making investments found that decisions about those investments grew less wise as they got older.
So what is the peak performance period for an investor? Supposedly, it is 42, with a sharp drop coming at age 70.
Organisational rigidities
Is there a way to slow down the deterioration? I'm guessing constantly exposing oneself to new ideas, new experiences, keeping an open mind and meditating would help?
So people lose skill with age. But guess what, so do organisations.
Mr Mauboussin said the best explanation for why companies decline is that they fall prey to organisational rigidities.
Companies must balance exploiting profitable markets with exploring new ones. Exploiting known markets requires optimising processes and executing these effectively, resulting in reliable, near-term success.
Exploring unknown markets requires search and experimentation and offers none of the immediate benefits of exploitation.
Mr Mauboussin said finding the best balance between exploration and exploitation depends on the rate of change in the environment. When change comes slowly, the balance can tilt towards exploitation. When it comes quickly, an organisation must dedicate more resources to exploration, since profits are quickly exhausted. In general, companies tend to lean more on exploitation, which increases efficiency and profits in the short run but makes the company rigid - and rigidity is a quality that only worsens with age.
Like ageing individuals, companies rely on methods and rules of thumb that worked well in the past rather than embrace novelty.
Companies, too, follow an arc of skill.
Skill rises and falls as a function of age. It is just how nature works. Being aware of where one is in terms of that arc and the associated mental and cognitive habits at that point in time can put us in good stead when it comes to making decisions.
The key thing, for me, is to avoid being too rigid.
- The writer is a CFA charterholder
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