Author: Growing your tree of prosperity

Charles Goodhart is an Economics Professor from the London School of Economics. He said that “Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes” One interpretation is that when a measurement becomes a target, it ceases to be a good measure.  I was expecting to lose money when I ploughed my trainer’s fees into the portfolio created by my third batch of students. After all, the Capricorn effect is long over and REITs have already completed a fairly good run in the markets. Furthermore, the worse decision we made as a...

A fully blown discussion on Network Analysis goes beyond what is possible for a simple blog article. I’m only going to focus on qualitative analysis of networks and just one trait that is important for layman readers.  The betweenness of a network is defined as the number of paths of minimum length connecting two nodes of a network that passes through a node. This is mathematically expressed as a percentage. The higher the betweenness of a node the more powerful or influential a node is. People or communities that have a high betweenness score wield extraordinary levels of power...

I thought it would be a good time for a personal update since we’re into our third month of 2019. a) Work falling into place At this point in my career, a broad strategy is falling into place. This blog will remain fairly niche that will discuss the use of models in financial markets in 2019. If I get to do any quantitative backtesting, I may share some of my results and insights here. Occasionally, I will do an article that will provoke most readers – right now I am not done with Polytechnic students yet, but I would...

Suppose we are trying to get a board of six directors to agree on something. In this case, the board is has six members. Faction A has three directors that act in tandem. Faction B has two directors that vote together. Faction C has only one director. Suppose to pass a resolution, 4 votes are required. Suppose you are trying to influence the board and they slowly come round to agreeing with you, the Shapeley-Shubik index of power can be used to measure the influence of each faction. If you convince Faction A first, you will have three votes....

I was still recovering from yesterday’s talk and the traction for this Seedly event has been amazing. At this point of time, bloggers have already beaten me to this game, and there is at least one summary that I think it’s worth reading if you missed yesterday’s event. Interestingly, I don’t have any negative things to say about the speakers before me. I typically conduct a critique of other speakers in the pane in a blog article that follows the event. Initially, I felt that some of Victor Chng’s approach towards calculating yields based on original cost did cause...

Convexity are functions with an increasing slope. Most of us are familiar with the eighth wonder of the world compound interest, without which the financial markets would not exist : V(t) = V(0)(1+R) ^ t Another variant of convexity is exponential decay. In these models, the slow begins at a negative value and increases towards zero. A half-life model can predict that your engineering degree would be halve its value every 4-5 years. Concave models are the opposite being functions with a decreasing slope. One possible function is the log function : V(t) = N log Rt Where the...

To understand a linear model, such as y = mx + b, you need to know that the dependent variable like y varies linearly with an independent variable like x. In real life, you can model almost anything linearly, such as modelling a person’s math’s score as a linear function of the number of hours studied, family socioeconomic status and number of accelerated classes. In the earlier math example, the number of hours studied makes the biggest difference in math scores, followed by number of accelerated classes, followed by socioeconomic status ( yes ! ). This coefficient m in...

Sometimes I make mistakes when I teach a class. Fortunately, the smart folks who attend the session call me out very quickly and I can adjust my position rapidly on the spot. In this case, I made a glaring mistake projecting the yield of Astrea IV bonds, taking the coupons and dividing it by market price to get more than 4% yields. One of my students is a brilliant CFA III candidate and he pointed out my mistake immediately after punching numbers into his Texas BA II calculator. I have overestimated the yield to maturity of the bond. The...

<<  Sharing this to readers as it is also a personal update. First time running a course while on pain-killers. >>Dear Students of Batch 3, It’s been a great honour and privilege to be able to conduct a 2-Day Early Retirement Workshop for you. This is the first class that I am conducting under a regime of painkillers. I had a toothache a day before and did not want to risk surgical extraction before conducting the lesson. I am grateful that a student introduced his dentist friend to conduct the procedure for me although I am not too sure whether...

This Valentine’s Day, readers are in for a treat ! Today, I will explain in detail my quantitative approach towards finding a significant other. If I become a dating coach, I will become so rich, Warren Buffett will be asking me for financial advice. If every guy follows my approach towards meeting women, SDN will cease to exist and no one will use Tinder anymore. Here is how to adopt a quantitative approach to seeking love. a) Decide to make a choice about your life partner. Once upon a time, I was matchmade to a lady banker. After two...

Long Tails are the bane of many investors. As I derive a lot of investment insights from quantitative investing, I have to accept the precarious position of comparing investment strategies using mean and variances while obviously being aware that markets do not act “normally”. Unlike the normal distribution, long tails are modelled differently. One example is the size of cities. Cities have a tendency to arrange themselves in power-law distributions which is governed by Zipf Law. The rank of a city multiplied by its size is a constant. New York has a population of 8.6M. Second in rank is...

Yesterday I gave a talk to 200+ graduates of Dr Wealth programs and it was really fun ! I have a different approach towards conducting investment training, very much preferring to learn from my students as my students learn from me. As such, this blog readers can benefit from the positive interaction I have with my audience. Most of the content of my talk yesterday was to describe the results of the portfolios built by my trainees and how successful I have been so far when I invested in our co-created portfolios. But as a crazy science experiment, I...