A Reflection

 As I approach a significant milestone in my life - the first time in more than 7 years where I will not be getting a salaried income - I thought it would be good to reflect, with the benefit of hindsight, on how I would have approached a couple of key financial decisions.

As with all posts, this is not meant to be treated as financial advice. Instead, some readers may find these perspectives helpful in approaching their own financial decisions.

#1 - Early CPF monies 

Even before I went to university, I had a small amount in my CPF account because I worked in a travel firm during the couple of months between completion of NS and the start of the freshman fall term. This would have been mainly in my CPF Ordinary Account (OA) because CPF allocation rates for young people are set up that way. 

On hindsight, I would have been better off if I have moved most of my OA monies to my Special Account (SA) back then. This would have let me tap on SA's 4+1% interest, which is higher than the OA's 2.5%. The drawback of such OA->SA transfers is that it is one-way, the funds will remain in the SA until I turn 55. This means that, upon such a transfer, I lose the flexibility to use this amount of OA for other purposes (typically housing) in the future. But the amount was pretty small, and honestly wouldn't have made much of a difference by the time I actually got around to a situation where I could potentially use my OA for housing. In that sense, leaving this early amount in the OA rather than transferring to the SA was foregoing potential interest.

To illustrate, assume $1000 left the OA, versus $1000 transferred to the SA. After 10 years, the total amounts including interest accrued would be around $1280 and $1629 respectively. This means that someone who did the OA->SA transfer is 27% better off after 10 years than someone else who did nothing and let the money remain in their OA. 

#2 - Voluntary Contribution to Medisave Account

Almost every Singaporean starting their first job in Singapore will likely experience the joy of receiving their first paycheck, only to have it slightly dampened by the realisation that a significant portion (20%) of their wage must be channeled to their CPF account. While this reduces the amount of disposable income, it actually presents an excellent opportunity to make savvy moves to maximise the longer-term returns from CPF, and the key is to start early.

I recall focusing mostly on the non-CPF part of my salary, i.e. the "cash", and being quite fixated on maximising the interest I could earn from high-yield savings accounts such as OCBC360 and later DBS Multiplier. There was a point in time when OCBC360 was paying 3.05% interest on balances of up to $50k or so, and because of all the hype and marketing, I was more focused on this and largely left my CPF monies as-is. On hindsight, I could have optimised my CPF returns by being more deliberate.

The CPF scheme is fairly complicated, and I don't think I want to cover too much of that here. There's a lot of material available online such as this DollarsAndSense post that readers may find helpful. I wasn't aware back then, but on hindsight I would have paid more attention to the amount in my Medisave Account (MA) and considered a voluntary top-up to this account (sometimes referred to as VCMA). The MA earns the same interest as the SA, i.e. 4% plus an extra 1% on the first $60k of combined OA/SA/MA balances.

In addition to providing income tax relief, the key benefit of topping up the MA is to be able to reach the MA ceiling, known as the Basic Healthcare Sum (BHS), as early as possible. The BHS stands at $63,000 as of 2021 and increases yearly. Upon attaining the BHS, any subsequent CPF contributions that are supposed to go into the MA would flow into the SA instead (assuming one's SA is below the prevailing Full Retirement Sum (FRS) which is almost certainly the case for anyone in the first few years of work). May help to think of it as follows - once the MA "bucket" is full, any overflow from the MA bucket ends up inside the SA bucket. With both the SA and the MA allocation now flowing into the SA, the speed at which the SA grows over time is accelerated, putting the individual on a quicker path to achieving the FRS.

#3 - Retirement Sum Topping Up Scheme or OA-to-SA transfer

The other voluntary contribution covered in the DollarsAndSense article is the Retirement Sum Topping Up Scheme, sometimes referred to as RSTU. If given the option, I would personally have done the VCMA first, then considered the RSTU, but to be frank either option is okay. Similar to VCMA, the RSTU also provides income tax relief, and involves putting cash into the CPF SA to benefit from the 4+1% interest. As I mentioned earlier, once the cash goes in the SA, it will remain there until age 55, so there are some drawbacks compared to having the flexibility of cash. But as the higher-yield savings accounts began to impose more stringent requirements and/or lower overall interest rates, I ought to have considered either VCMA or RSTU as an alternative to put away cash that I did not have a near-term need for. This would have been especially applicable to any cash that was not earning the higher interest rates (banks only gave higher interest on the first $50k-$70k, and a paltry interest beyond that). 

Another way to earn tap on the higher SA interest rate would be to make an OA-to-SA transfer, which I did. At that time, options to invest CPF monies were limited (Endowus - see this post - wasn't an option yet) and I wasn't keen to incur the various recurring fees charged by CPF Investment Scheme (CPFIS) agent banks. And as shared earlier, allocation rates for young people skew heavily towards the OA, so I ended up with quite a lot of money in my OA and not a lot in my SA. In order to tap on the higher interest rate, I moved a portion of my OA to the SA (one-way transfer). On hindsight, I ought to have done this earlier, especially because for the extra 1% on the first $60k of combined OA/SA/MA balances, only up to $20k of the OA balance is eligible - see useful infographic from CPF. This means that I should have gunned for $40k in my combined SA/MA as early as possible. To illustrate more clearly, using three hypothetical persons all with $60k total CPF balance:

• Person A: $45k in OA, $15k in SA+MA. Person A will earn 2.5+1% on first $20k of the $45k, in OA and 2.5% on the remaining $25k in OA, and 4+1% on the $15k. This is roughly $2075 per year in interest earned, or a blended interest rate of 3.458%.
• Person B: $20k in OA, $40k in SA+MA. Person A will earn 2.5+1% on the $20k and 4+1% on the $40k. This is roughly $2700 per year in interest earned, or a blended interest rate of 4.5%.
• Person C: $10k in OA, $50k in SA+MA. Person A will earn 2.5+1% on the $10k and 4+1% on the $50k. This is roughly $2850 per year in interest earned, or a blended interest rate of 4.75%.

I was sort of like person A for quite a while, before finally moving some OA to SA monies and becoming more like persons B/C. Later on, Endowus came into the picture, so now instead of transferring my OA to my SA, I would invest my OA into equities and let that grow over time. Even so, the OA-to-SA transfer remains lucrative because it offers 4% interest risk-free. Of course, if readers foresee needing to tap on OA for housing purchase, then they should plan accordingly, but otherwise as shared in #1, there is  sizeable interest foregone if CPF monies are left untouched in the OA for prolonged periods.

#4 - Set up SRS account

Preamble: the Supplementary Retirement Scheme (SRS) and CPF are two completely different things. If you are not clear, I suggest that you read up elsewhere so that you are clear and do not confuse the two. 

After working for a few years and building up an adequate emergency fund, it may be worth contributing to SRS to enjoy income tax relief. The catch? SRS funds can only be withdrawn when you reach the retirement age at the point that the SRS account is setup. So there's no reason not to set up the SRS first, put in $1, and lock in at the current retirement age (62 as of 2021). If you wait, then you lose the flexibility because eventually your SRS funds can only be withdrawn at an older retirement age. So just set up the SRS account with your preferred local bank as soon as possible.

The question of when to contribute to the SRS account (to enjoy income tax relief) is a more complex one, as it involves individual circumstances, i.e. one's income tax bracket and what one plans to do with the tax savings, so I won't cover it here

Triggering of the Additional MCBs

What does this mean for Singapore Airlines, which has just experienced its "toughest year in its history"?

I'm going light on the narration, because I think the numbers really speak for themselves. I've also shared my thoughts back last year in May 2020 [1] [2] about the 2020 rights issue.

Singapore Airlines pre-covid market cap in July 2019, when travel market was booming: $11.5 bil

Just before the 2020 rights issue, market cap of around $7 bil, on 1.185 billion shares outstanding.

After 2020 rights issue, increase to 2.963 billion shares outstanding. At a low of $3.20, this meant a market cap of around $9 bil. Based on today's closing share price of $4.70, market cap of around $13.9 bil. (Yes, more than pre-covid! But don't forget, SIA raised $5.3 bil cash from the rights issue alone)

If the 2020 MCBs are converted in 2030: 1.3 billion more shares (total 4.26 bil shares)

If the 2021 MCBs are converted in 2031: 2.3 billion more shares (total 6.56 bil shares)

If we assume in 2031 that SIA market cap reaches $20 bil + no early redemption of either tranches of MCB, we are looking at $3.05 per share.

If, on the other hand, we are think that SIA will be able to redeem the first ($3.5b) and second ($6.2b) tranches of MCB before maturity, we are looking at the airline somehow being able to raise a massive sum of money to redeem these bonds. We're talking in the range of $12.4b (if redeemed at the 5th year) to $16.5b (if redeemed at the 9th year).

The numbers well and truly speak for themselves.

Pondering about ticker symbols

So the other day, I was wondering whether ticker symbols had any impact on stock price performance. Specifically, I was curious about whether tickers that came earlier in the alphabet (e.g. AAPL, AMZN) performed differently as compared to tickers further down the alphabet (e.g. TSLA, ZTS).

Impetus for the Idea

The thought struck me while I was looking at my portfolio via Interactive Brokers on my phone. Because of the limited screen size and the default alphabetical sort order of my positions, I observed that I tended to pay more attention to counters that were displayed upfront (those with tickers earlier in the alphabet) as compared to counters that required scrolling in order to be visible (those with tickers later in the alphabet).

Was it just a coincidence that FAANG stocks - Facebook, Apple, Amazon, Netflix and Google - all have tickers that fall within the first half of the 26-letter alphabet, with the sole exception of Netflix, which just tip overs into the 2nd half, with N at the 14th position? A quick look at the five largest public corporations in the world (by market capitalization) [Wikipedia] also showed that the top five, throughout 2020 as well as at 2021, were all of the early-alphabet category. Intrigued!

[factoid: at time of writing, I held only two positions with tickers in the 2nd half of the alphabet: QQQ and ZTS. The rest of my portfolio comprised tickers in the 1st half of the alphabet, i.e. A to M]

Tangential finding from an earlier study

I briefly googled to see if there was any past study done on this (didn't come across, so perhaps an area for novel research!) but instead I found an excerpt of a 2006 Princeton study that found correlation between popularity of a stock after IPO and the ease of pronouncing a company's name. In addition, the study drew similar conclusions about the company's ticker symbol, stating that "...all else being equal, a stock with the symbol BAL should outperform one with the symbol BDL in the first few days of trading."

Now, isn't that fascinating? 

While the study's findings were different from my initial question in two significant ways - (i) it focused on the ease of pronunciation, rather than the alphabetical order; and (ii) it only looked at stock performance right after IPO, whereas I was interested in longer-term performance - the fact that such an observation could be gleaned from real-world data makes me fairly convinced that there could be some sort of association between a stock ticker's alphabetical order, and perhaps either the stock's performance, or interest in the counter. (Interest not necessarily translating to positive returns.)

Basis for my hypothesis

One of the reasons I think such a relationship could exist is the recent emergence of DIY stock trading. As recently as two decades ago, would-be stock purchasers would typically go through a broker, making a phone call to instruct their (human) broker that they wanted to purchase XX shares in YY company at AA price. The would-be purchaser typically would not view any kind of alphabetically-sorted list, before making their instruction. (This is not to say that the would-be purchaser simply plucked their intention out of thin air; they would, in all likelihood, mull over the names - or perhaps tickers - of various companies, before determining that they would want to purchase YY company rather than say ZZ company. The point here is that the would-be purchasers is unlikely to have encountered an alphabetically-ordered list of any kind in the course of their evaluation.)

Today, the typical mode to conduct such a transaction would be via an online broker, either via a web browser, mobile app, or the like. Such platforms provide the added ability to easily view one's portfolio, e.g. through a dashboard. As with any kind of list, there needs to be a default sort order, and I venture that for almost all such brokerage platforms, the default sort order would be alphabetical ascending, placing tickers like AAPL and AMZN at the top, GOOG a bit further down, TSLA further down still... you get the idea. Humans have a natural tendency to cycle through a list from top to bottom, which leads me to believe that there is a possibly-unresearched question of whether ticker symbols correlate with attention paid to the stock, translating into potential interest, and potentially translating into outsized performance. (The point that potential interest may not translate into actual demand for the stock is not lost here, though in this era of meme stocks, I dare hazard that "interest" in a stock tends to translate into positive movements in the stock price.)

Possible angle for research

Acquiring the data required for analysis is probably not insurmountable, given how stock price information is widely available on the internet. The main challenge would be deciding how to measure the dependent variable, and how to control for the various possible interacting factors.

For instance, if we took, say, all 3000 listed companies in the Russell 3000 index, we would expect to find some heterogeneity in the frequency distribution of the leading alphabet of the ticker, for instance, more tickers starting with 'A' than tickers starting with 'V'. We can control for this by taking the average performance for all tickers starting the alphabet, although we may have few data points for certain starting alphabets. Depending on the exact nature of the question we are trying to answer, we could even aggregate our data (e.g. into two groups: Group 1 comprising tickers starting with alphabets A through M, and Group 2 comprising tickers starting N through Z.)

It would then be a matter of testing:

• Null hypothesis: the stock price returns of Group 1 is same as the stock price returns of Group 2
• Alternative hypothesis: the stock price returns of Group 1 is different from the stock price returns of Group 2

We would need to consider controlling for various factors, such as:

• Market cap - if the pre-existing market cap of Group 1 is different from the pre-existing market cap of Group 2, and market cap has correlation with stock price returns, we could end up wrongly rejecting the null hypothesis (Type 1 Error).
• Industry or sectoral concentration - similar to the above, if Group 1 had a higher concentration in fast-growing sectors (e.g. technology) while Group 2 had a higher proportion of slower-growing sectors, we could again commit a Type 1 Error unless this difference is adequately controlled for.
• Ease of pronunciation - with the 2006 Princeton study finding that ease of pronunciation of company name and ticker symbol was positively correlated with purchases of the new stock following its IPO, we would have to find a way to negate any potential effect of Group 1 tickers being generally easier to pronounce than Group 2 tickers, in order to isolate just the effect of alphabetical ordering.

As you can tell, this analysis would not be a trivial exercise, but I feel that existing methods of quantitative research can be easily applied to study this topic and possible yield some interesting insights.

Closing thoughts - What's in a name?

Having posed this question and then regaled you with my idea of how this could potentially be studied, I'll end off with a slightly more pragmatic thought that circles backs to the Princeton study. Danny Oppenheimer, one of the Princeton co-authors, was quoted as saying that "These findings contribute to the notion that psychology has a great deal to contribute to economic theory."

This statement is effectively irrefutable - psychology surfaces in every aspect of human life, and explains how humans have certain biases, or how our perceptions sometimes depart from reality, etc. We probably still don't know how much influence psychology wields over human behaviour leading to economic consequences. Stemming from the observation that easily-pronounced tickers tend to outperform following the IPO, is there then also a possible relationship between the cognitive ease of associating a company's ticker symbol, with object of the company itself, typically represented cognitively by the company name?

On US exchanges, key companies often have ticker symbols that are easily-recognisable variants of the company name, e.g. Apple/AAPL, Tesla/TSLA, General Motors Company/GM, Advanced Micro Devices/AMD etc. This has evolved to become almost a cultural norm of sorts, and companies considering a listing depart from this unwritten rule at their own peril.

But this isn't a global convention. In Hong Kong, for example, listed companies have a numerical ticker (e.g. 9988 for Alibaba). In Singapore, tickers comprise mix of alphabets and numerical digits. At some level, the leading alphabet of the tickers seems to be derived from the company name (e.g. DBS Group/D05, Wing Tai Holdings/W05, UOL Group/U14), but then there are enough exceptions to make this mnemonic useless - Singapore Airlines/C6L, Hong Leong Finance/S41, to name a few. I put forward the notion that the ticker naming system in Singapore makes it more difficult for laypersons to easily recall company-ticker pairs than the US system. 

Could there actually be economic losses arising from the more-difficult-than-necessary association between company names and ticker symbols? Say DBS Group were listed as DBS instead of D05, Singapore Airlines as SQ instead of C6L, City Developments as CDL rather than C09, and Guocoland as GCL rather than F17. Would this have increased market participation and efficiency by lowering, perhaps just ever so slightly, the mental gymnastics required to figure out what is what? I mean, part of the reason why GameStop shot to meme fame was because people could easily input GME and satiate their curiosity on the latest ongoings, rather than having to guess whether it was G48 or F19 or A83. By removing just one additional hurdle, the human brain is freed up just enough to do one additional task - and that task could very well be making a stock purchase decision.

I'm going to put my money that Grab's upcoming listing via the Altimeter SPAC is almost certainly going to gun for the GRAB ticker symbol. The notion that Grab would prefer GB or G01 or GR413 or some other variant over GRAB is beyond absurd. We should then question whether absurd practices, perhaps due to legacy reasons, continue unabated on our very shores, and at what cost.

Rolling out of 2020

The year 2020 has been difficult for pretty much everyone, and most people would welcome 2021 with the hope of some relief and less tumult. This post is intended as a look back on 2020 from an investment perspective, and to list some broad plans for 2021.

SGD Portfolio in 2020

I was not very active on this front, with probably only a single-digit count of transactions for the whole year. The main buzz (see posts from May 2020) were on Singapore Airlines' rights issue, arising from my desire to thoroughly understand the offering in order to correct any misconceptions that my family members and friends may have had. I personally have only a very minor position in Singapore Airlines, so I wasn't massively impacted and in late November I took advantage of a sudden resurgence to trim my position at the favourable price of 4.65, realising some paper losses but deciding that the long-term prospects for the airline are still fairly gloomy.

I wish that I had been more ambitious in creating/adding to positions in Singapore banks (referring to DBS, OCBC, UOB) as there was a brief period where they were looking very undervalued and I was a little too hesitant to pull the trigger. 

Other than that, I begun to effect a regular contribution to my Endowus and Stashaway accounts, and will touch on that later.

USD Portfolio in 2020

Earlier this month, I was looking at the Nasdaq and realised that if I had simply purchased the index, I would be looking at over 40% gains for the year. Who would have known a year ago that tech counters would benefit so greatly from working-from-home, and that the market would continue its feverish ascent after a significant pullback in March?

As my own portfolio has a fairly heavy tech slant, I managed to finish the year with significant upside of around 32%, shy of the Nasdaq but ahead of major indices such as the S&P or the Vanguard Total World. Making use of the excellent custom reports feature of Interactive Brokers, I was also able to learn that my portfolio had a Sharpe return of above 1.1, which is decent.

 

As a long-only, unleveraged portfolio, this has been a year of good returns. That said, some of the gains were offset by weakening of USD against SGD, though I am not overly concerned in the near-term. 

The key drivers were semicon-related, with AMD, MU, and MRVL being big contributors to the positive return. AMD especially has made significant headway against Intel, but Apple threw its hat in the ring with their new M1 silicon which, from all accounts, appears to be a total game-changer. Given that TSMC is fabricating for both AMD and Apple, it feels like an attractive play, but I was unable to find a suitable price at which to enter a position.

I was fortunate to have very limited exposure to US airlines, although I watched with dismay as RLH (mentioned in my November 2019 post as a possible M&A prospect) sank from 3.60 at the start of the year to a low of 1.24 in March 2020. While luxury and business hotels (think Marriott, Hilton etc.) struggled, I felt that there was a case for the economy and mid-range segment due to the continued movement of personnel to temporary accommodation (e.g. medical workers who were being relocated to US states in dire need of more manpower). As RLH Corp (formerly Red Lion Hotels) was in that segment, I was prepared to hold on and even considered adding to my position. Admittedly, it was unnerving to see the price free-fall below 2.00, and even though a good recover was made in June 2020, the stock slowly slipped below again in October, before recovering again in the last two months of the year. As it turned out, my November 2019 post was not at all wrong, and an acquisition offer was just made at $3.50 per share by Sonesta on the second last day of the year. While the offer represents a healthy premium over the last-done price, I can't help but feel that it may have been too soon as I was hoping for a longer runway for recovery before a takeover offer was accepted. We'll see how the deal turns out (my hunch is that it will clear), and if it succeeds then this will be the first M&A I've called having previously exited too early on both Panera Bread and Sodastream. [I'm still mildly surprised that Square has not been acquired, though at current valuations I now see this as a very distant possibility. A crazy 200+% return in 2020 and I kick myself for having exited on that position.] 

What's ahead for 2021?

Having had minimal opportunity to spend money this year, I managed to save up a fair bit of extra cash. I intend to progressively funnel this into Endowus (sign up using my referral link) or Stashaway via monthly contributions, and am targeting to keep a much smaller amount of cash as emergency funds, being mindful that leaving too much cash in the bank at near-zero interest rates is a terrible idea. Endowus has been especially appealing because it offers a way to invest CPF funds, and because of this I no longer view CPF OA -> CPF SA one-way transfers as an attractive option for younger adults. To illustrate, the 1-year TWR of my Endowus CPF 100% equities portfolio was in the region of 9%, and this is pretty much where I hoped it would be. For those of us with a long investment horizon, CPF OA/SA returns of 2.5% or 4% may not be optimal depending on one's overall risk appetite and overall portfolio allocation.

SGD stocks continue to be quite unappealing for me, and I doubt this will change in 2021, especially since REITs - the only thing I would actively like to add to my portfolio at this time - continue to look expensive. I should also look at unwinding from some of the poor-performing counters (looking at you, SIAEC) and rotate this into Endowus or Stashaway, probably after trimming my low-yielding cash.

On the USD portfolio, I think 2020 has demonstrated that my current approach works well, and I will not deviate too much from the tech-heavy playbook. Am feeling good about Apple's latest M1-based products, in particular, and will also keep an eye out for other 5G players. I have never been very well-versed with the bio-tech/pharma sector and the upcoming year could be an opportunity to establish some positions on those. In terms of a post-vaccine recovery play, I am still not too confident for hotels, as I foresee leisure travel to still remain weak, but I think there could be a case for airlines.