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  • For Gen Z, greed isn't always good

    “They talk about work-life balance. That’s a term I didn’t even know when I was their age. Work-life balance. When I was their age, if there was no work, there was no life.” - Morris Chang iscovering and understanding what drives my younger colleagues and friends intrigues me. Some of my more senior co-workers often use a ‘carrot and stick’ approach to motivate (or push) their Gen Z subordinates. The truth is, I think the Gen Z people don’t really care anymore. Many of them have chosen to lie flat (躺平) or quiet quit. There is a huge mindset difference between those in their mid 30s and 40s compared to the Gen Z population, categorised as those born after the year 2000 or those in their 20s who have just graduated. If you are one of those who believe in working hard and earning lots of money for your future retirement or to be financially free, you probably belong to the mid-30s and 40s group. Gen Z doesn’t care for money. Gen Z also doesn’t think that far. Their manifesto in life revolves around "YOLO" (You live only once), a term I first heard only when I spoke to a colleague about the importance of having CPF savings in 2019. “水至清则无鱼” (An old Chinese saying: "Fish prefer muddy waters and avoid clear streams") When Jack Ma was “rusticated” after his speech at the Bund Summit in 2020, I think it might have sent a certain message to the business community about the new rules of capitalism in China. I don’t think he intentionally meant to sound like he was going against the authorities, that innovation isn't afraid of regulation. Some dislocation in the market is always good for entrepreneurship as long as those in the game play by the rules. But the concept of risk-reward is viewed very differently the moment you take away the opportunity for any abnormal upside in a free market. This trend further permeated when the term "common prosperity" was introduced in 2021 as part of China attempting to bridge the wealth gap. What followed was a series of events including the ongoing purge of corrupt civil servants, clampdowns in the private online education and peer-to-peer lending segments. Not that the occurence of any of these events had anything directly to do with the worrying youth unemployment statistics today. But it is interesting to note that for Gen Z, coincidentally, this was a period whereby most of them had started to enter the workforce. They should be brimming with excitement and hope for the future. Regardless, the contagion caused ripples across the industry, essentially discouraging the pursuit of excessive wealth and high incomes, almost similar to imposing a virtual red line on how much one can earn. And people generally stop trying too hard the moment you put limits on how much they can achieve. “The point is ladies and gentlemen that greed, for lack of a better word, is good.” - Gordon Gekko Gen Z looks at money very differently. Aside from graduating into a generation characterised by apathy, most of them are financially cushioned by the wealth of their parents, who are mostly Gen X. Gen Z’s outlook on life and material values are quite different. They are not obsessed with going after flashy items, brands or asset ownership. Why Calvin Klein when you can Uniqlo? Why Louis Vuitton when you can MUJI? And renting isn’t such a bad idea when home ownership is too far-fetched at current income levels. Besides, there is always that option to stay with their parents if all else fails. According to Morgan Housel, the mindsets and lifetime investment decisions of people are heavily anchored to the experiences in their own generation, especially those in their adult life. “The differences in how people have experienced money are not small, even among those you might think are pretty similar. Take stocks. If you were born in 1970, the S&P 500 increased almost 10-fold, adjusted for inflation, during your teens and 20s. That’s an amazing return. If you were born in 1950, the market went literally nowhere in your teens and 20s adjusted for inflation. Two groups of people, separated by chance of their birth year, go through life with a completely different view on how the stock market works:” Because of that, when it comes to the perception of money, what one group of people think as ridiculous might sound totally fine for another group of people. While the vast majority of Gen Z’s parents have put in the hours, sown the seeds and reap the harvest of their hard work, most have also concluded after two or three decades of their working life that earning lots of money is nothing but simply a means to an end. There is no point in chipping your life away and earn so much only to spend it when you are too old and frail to enjoy. In this vein, financial freedom to Gen Z means that I only need enough to survive and get by instead of the need for any passive income from an investment asset. Furthermore, most of these people have been brought up in an environment in which they have been very likely been told to “do what makes them happy” rather than get into a mindless pursuit of money, the rat race. Social media for what it is, also plays a big part in influencing the way they think of lifestyle and money. You can almost live your whole life online in the digital realm. Some people even make money simply just by live streaming (直播) their day-to-day activities! Apparently people pay to watch $^*t like that... So why work the regimental hours when you can make a living sitting at home doing stuff on your own terms? Ironic, but the biggest ultimate sponsors of these initiatives are the parents of Gen Z, the same group of people who believe in decent wages for decent work done. These are just some of the mindset challenges faced by employers today in a workforce increasingly dominated by Gen Z workers. They don’t care for the high incomes. If these people do not find their work purposeful, they leave. If pushed too hard, they leave. They just simply don’t care anymore. There is nothing right or wrong with that way of thinking. But it is the rat race mentality that propels the economy. The rat race makes people to want to earn more and live better than their peers. For good or for bad, it forces creativity and innovation. Today, there is no incentive to do that, no incentive to go above and beyond the call of duty, no upside. They just want to lie flat. You can continue to whip the proverbial horse but you can’t make it go faster. The point is ladies and gentlemen that greed, for lack of alternatives, is good for the economy. There isn’t a perfect solution for how employers and managers should work with the younger generation. Some might say “shut up and listen to your elders and seniors” but I think that would only invite more resistance. However it does help to understand how the post-millenials of today think and behave the way they do. Given the youth unemployment rates and the current state of the economy today, maybe a little dose of “Jack Ma” wouldn’t hurt... Have a great week.

  • Musings from a few interesting people

    Words from a few folks which I had whiskey with today: lot of investment firms out there have earned themselves a reputation for doing such lousy deals that attending their annual investor meetings almost feels like a good deal origination opportunity for distressed investors. One of the best things to do is to track all the projects that these guys put money into. Everything they touch just turns from gold to brass. Instead of the “Midas” touch, they have the “minus” touch. Like the Forbes under 40, there should be a separate league table for investment deals called “Forty under 40”: The top forty deals that have an IRR of -40% or less... o many investors from the West fail terribly in China simply because they don’t understand who the most important stakeholders in the deal are. These people come into a transaction and they want control, they want to change things, shake things up and stuff. But deals in China are all about people... he problem in private equity is that most of the buy-side professionals focused on execution are paid to invest / deploy. Whereas it is usually the senior partners who are paid on exit. Some professionals just get paid from the publicity of doing a deal. This is apparently a big disproportionate allocation of risk-reward incentive. nyone can make that decision to invest when a deal is priced at 4x EBITDA. Even a 4-year old kid can make that decision. The real test of a chief investment officer is making the call to invest or not to invest in a deal which is richly priced at 12-14x EBITDA. he Head of FIG for a large unnamed sovereign wealth fund once asked me what is the EBITDA multiple on a financial services company (I mean, who looks at EBITDA in a FIG deal??). I knew at once this was a guy I had to keep in touch with. The world needs enough stupid investors for astute investors to thrive. ne of the largest (hedge) funds I know used to decorate his office with the most expensive fine art just to show off to prospective investors. I propose to you: Hire ex-models to front your investor relations. Hire especially those who couldn’t make the cut in a professional modelling career. Get a team to do the number crunching in the background but put your IR person in front of investors, get them to show up at events and conferences. Hire pretty people at your front desk to greet visitors and facilitate in-person meetings. Get a technically sound team back in the office to draft the emails but get your IR person to send them. Everyone who comes by your office won’t be looking at fine art that line your corridors. Their eyes will go straight for the receptionist counter. Also, this will dramatically reduce your dining and entertainment expenses. Which fund manager will think twice whether to pick up the tab for a business lunch with your pretty Head of IR? Apparently there are some people who would prefer to invest for ego rather than based on rational thinking.

  • Welcome to the world's largest gambling den

    "This is the nature of capitalism, get over it." - Kevin O'Leary After nearly two decades of being in finance I still don't think I appreciate how capital markets work. It's not that I don't know how it works. There is a fine difference between not knowing and not appreciating. In 2008, most of the world lost faith in Wall Street: The housing market crash, the financial bailouts, quantitative easing... Sure, a few banks went under and were eliminated, but there was so much greed and risk taking followed by cheap money being flooded into the financial system. The events that followed made a lot of people lose faith in the traditional financial markets as we knew it. And so most of bitcoin and cryptocurrency came into existence as investors started to look for an alternative store of wealth. Cryptocurrency and digital assets were meant to be a good thing. It would be digitally secure and essentially "un-fraudable". But human nature eventually catches up. The series of unfortunate events that led to the downfall of SBF in late 2022, the poster boy for cryptocurrency, just goes to show that the process of trying to do a good thing can sometimes turn out bad, if not executed under the right moral guidance. FTX, once touted as one of the world's largest cryptocurrency exchange used to be valued at more than the NASDAQ. Its recent bankruptcy is a rude wake up call for those who religiously believe cryptocurrency is the future. Look, I'm not dismissing the credibility of crypto assets and bitcoin. But all of the digital tokens that changed hands on the platform had to start from somewhere: Cold hard cash being used to buy tokens. Someone who trades on any cryptocurrency platform ultimately believes that at some point of time in the future, those tokens can be exchanged for cash, ideally at a higher value. The buying and selling of stocks, listed options and contracts for difference work pretty much in the same way. Aside from the issuance of new shares, none of the money in those transactions flow to the company for expanding its business, or used towards investing in innovation or research. It just stays on the platform in circulation amongst the punters and speculators, creating a whole lot of flow volume, which translates to revenue for the intermediaries who facilitate this flow. The secondary market is the world's largest legalised gambling den. Anyone can make a bet on anything. The possibility of a business achieving a certain milestone, hitting a certain profit target, releasing a certain product. And people further make bets on those bets through structuring warrants, put and call options, CFDs, products that don't require people to come up with all the capital, just enough cash margin to buffer any unexpected losses. It's just comes down to finding enough buyers and sellers on both ends of the trade, effectively making the market. As long as those in the game keep the ball rolling i.e. someone is buying those shares and someone else is getting their capital back, prices continue to hold up and no one gets hurt. Sounds like a Ponzi scheme no? All crashes in the market happen primarily due to a crisis of confidence: A whole lot of people just wanting to get out. "Entrepreneurs must be powerful storytellers to win early stage support" Here is why I could never wrap my head around putting money in the markets: Investors (typically) pay the price of a share based on the amount of dividends the company pays in the future (this is essentially the dividend discount model). Let's just say this company one day receives a huge order from a customer which could potentially double its revenue, but unfortunately it doesn't have that much manufacturing capacity. It decides to raise money from shareholders or banks, in which those proceeds would be used to buy or build a new factory, thereby solving for the shortfall in production capacity. Investors then do the math involving the costs and benefits of putting their money into this initiative and decide how much to put in. With this new factory in place, the business now generates twice as much revenue, but it also implies that profits could potentially double, as with the value of the business. Suddenly, the idea of ownership in a larger company, the prospect of the business being a market leader and the reputation of being part of a billion-dollar enterprise with a high market value dawns on shareholders. They start to get carried away with window-dressing and telling fancy stories about the future of the business in order to drive the company's valuation, rather than focusing on product deliveries and execution. This is how modern-day capital markets management looks like. Share prices driven by stories and narratives rather than business fundamentals. If everyone is telling stories then who's telling the truth? Cryptocurrencies, like financial derivative products, also do nothing to drive the real economy. Aside from making up for flow volume and its re-saleability (which again, benefits the intermediaries), there is no real intrinsic value. There aren't enough merchants around the world today that would accept bitcoins or tokens in exchange for goods and services. Cryptocurrency isn't backed by an underlying business. Most bank accounts don't even offer virtual asset wallets that you can use for day-to-day transactions. You can't take out a loan using cryptocurrency as collateral. And regulators around the world are still wrapping their heads around how they should deal with this asset class. Gambling is a well known vice in society. There are always winners and losers on both sides with middlemen profiting from it. But as long as there is sufficient law and order, and no one creates a hole too big that it swallows the entire house, the show will go on. People will continue to speculate on the value of derivatives and bitcoin. No one calls fraud when things are smooth sailing and the pie is large enough to be shared. It just takes one bad egg, one wilful misstep, to screw everything up.

  • In the end, it will all make sense

    "At twenty, you don’t get the life you deserve, you are just the product of the environment you were lucky or unlucky to have. Then, as you get older, and enter your thirties, forties, and beyond, you notice how much agency you actually had on your life. Maybe you moved abroad, learned another language, another culture, another mindset, and became an entirely different person. Maybe you decided you had nothing to lose, and invested all your meager savings into the bet of a lifetime, and it worked out. Maybe you changed all your habits, and realized that you could be much healthier, smarter, stronger than you thought, if you simply maintain a better diet, a better training, a better sleep, a better routine. Maybe you fell in love, and realized that a great marriage was about so much more than physical attraction and intellectual compatibility: if you find yourself walking alongside with a kind, thoughtful, honest person who loves you back, you actually won the lottery. Maybe you met some great people during your journey, shared with them parts of your journey, overcame difficult challenges together, finally understood the real meaning of “friendship,” and that some people are worth trusting and making sacrifices for. Maybe you also had health issues, lost a few precious people that you loved, understood the fragility of life and the pain that comes with truly loving someone else, but also finally gained enough wisdom to appreciate the simple things in life, that are free and in abundance. It’s a long journey. The best and the worst things will happen to you. You can choose to act like a victim, or you can choose to respect yourself and be more resilient, mentally stronger, overall better. In the end, you will look back, you will connect the dots, and it will all make sense, that you got exactly what you deserved." Source: X (Twitter), Orange Book

  • Hong Kong needs a “Taylor Swift event"

    I love Shenzhen. I like its wide city roads that are peppered with electric taxis. There are virtually so many electric cars on the street that if one pulls up just next to you at the junction you wouldn’t even realise it’s there. The street layouts, traffic lights and well-paved roads resemble something taken straight out of a Lego model. And there are dozens of cafes that serve up a good coffee as well as numerous shops offering spicy Hunan, Sichuan and Chongqing cuisine. Nanshan district, which is home to China’s tech giants and hundreds of budding tech unicorns has a coastline that somewhat resembles Singapore’s East Coast Park. Commonly known as China’s Silicon Valley, Nanshan is characterised by lush trees and shrubs neatly placed on both sides of its roads. Further down the road east towards the Futian district, pockets of greenery weave between towering skyscrapers and mid-century modern styled office buildings. And on some evenings, you can even enjoy the fancy laser light shows against the city skyline with the iconic Ping An Financial Center in the background. Despite its urban backdrop, you can still find traces of history and heritage in the back alleys of the old towns (城中村). This co-existence of old and new is what makes the city unique in its own way, in some ways similar to Shanghai’s Xujiahui district, or Singapore’s Tiong Bahru estate. If not for the Internet restrictions and WeChat Pay / Alipay, the neighbourhoods do not even feel like China but more like an adapted version of Hong Kong. This is just Shenzhen. In close proximity are at least seven other cities in the Greater Bay Area with a similar profile. Each with its own distinctive heritage, each bubbling with its own economic engine, each liveable in its own way, each with the potential to displace Hong Kong as the new regional powerhouse, if not for Hong Kong’s legacy infrastructure and position as an international financial hub. Some might even say this is the dark side of the Greater Bay Area initiative. If you are a frequent traveler to Hong Kong or reside in the city like me, there is a noticeable quietness in Central, which is traditionally home to all the big banks and funds. Even being in Singapore recently, there is an observable contrast to Singapore’s Marina Bay city centre. Standing at the lobby of the Marina Bay Financial Center, you can even feel the difference in energy level and vibe. Part of the quietness in Hong Kong is also attributed to the out flows of travellers across the border. Hundred thousands of people flock to Shenzhen on a daily basis from Hong Kong. Coffee for one is significantly cheaper in Shenzhen. It’s on average RMB 28 vs HKD 45 for a flat white depending on where you get your daily grind. At some cafes such as Manner Coffee, flat whites are going for only RMB 18, and the quality of coffee is no less than decent. Eating in Shenzhen is generally much cheaper as well, not to mention the good variety of both Asian and Western cuisines. Chinese food (all kinds) is undoubtedly more authentic in Shenzhen, no question here. Also, you can get cheap food and groceries delivered to the doorstep at basically any time of the day. The gig economy is extremely vibrant. Meituan is incredibly accessible and affordable compared to Deliveroo or Foodpanda in Hong Kong. Those who struggle with the high rents and suffocating spaces in Hong Kong are finding it attractive to stay in Shenzhen while continuing to work in Hong Kong, putting up with the 1+ hour commute. Bloomberg even has a report on this. Truth be told, Shenzhen is even more accessible than you can imagine. There are abundant car pools, buses, even the East Rail Line (东铁线) on the Hong Kong MTR goes directly to Lok Ma Chau and Lo Wu in under 60 minutes. If you are impatient, there is always the 15-minute high speed rail option departing from the West Kowloon station in Hong.Kong. I have tried them all and the journey (even passing through immigration with a passport) is seamless, despite the crowds and rush hour. Hong Kong should in theory, benefit economically from this flow of people within the Greater Bay Area. But this has been disproportionate, with more people traveling out of Hong Kong in recent years to spend on entertainment and retail across the border. Once known as the “promised land” for doing business in China, Hong Kong has been haemorrhaging capital and resources. The big bucks and high life that people used to be drawn to 10 to 20 years ago do not exist anymore. There are lingering doubts as to whether it is still possible to make good returns from investing in China using Hong Kong as a springboard. Affluent residents are spending meticulously, but are also more careful about flaunting their wealth. I think the music started to slow in 2019 with the protests, followed by COVID restrictions which really broke the camel’s back. Decades of growth and reputation unwound in just a couple of years. These are indeed delicate times. The firms that used to be paying top dollar have moved out or relocated their bases elsewhere. If people are not earning the top dollars, they simply won’t be spending, whether it is dining out, partying or buying property. And no consumption simply means no economic growth. No wonder Thailand and Philippines are jealous about Taylor Swift’s exclusive performance in Singapore, which quite inadvertently channelled tourist arrivals, entertainment and retail activity away to the little red dot. More than just its Canto-pop concerts, Hong Kong needs a “Taylor Swift event” to bring back the buzz and hype to the city. [Photo credits: mine]

  • What the whales own matter to the fishes

    The study of capital markets has always been both intriguing and amusing to me. A lot of its theories are backed by mathematics and statistics. But the system in reality is stochastic, complex, and at times even volatile. We can learn from our mistakes or the mistakes of others. History often serves as a good guide for making decisions but no one can guarantee a discrete outcome. Whether it is technical analysis with charts or regression models, the past is never a predictor of the future. With trading stocks, be it day trading or the well-thought through strategies adopted by the large hedge funds, I have always felt that one principle remains consistent: Both smart and dumb money goes wherever the big boys go. Those who got rich from trading think they know it all, but they were merely riding on the shoulders of giants. And so, it pays to know what the whales are doing. Last month, one fund manager became an unfortunate statistic of this system. The letter widely circulated on social media attracted a flood of comments from the online community, some applauding his honesty for admitting his mistakes, cutting losses and returning money to LPs. Others lamented that he should have done better by hedging his positions like any respectable hedge fund. Nevertheless, for someone who has been in this business for over thirty years, this is a huge setback both personally to him and the investor community. One would think that any funds entrusted to a veteran fund manager would be in a safe pair of hands. But reality can be brutal. As one user puts it on Twitter: It only takes one bad month. One wrongly sized bad trade. It just goes to show that what we think we know of the workings involving financial markets do not always hold true. Whether you are managing ten thousand or ten million dollars, in the end, stock prices are driven by the simple economics of supply and demand. It always comes down to flows and the biggest whale here is obviously the government.

  • “Don’t waste time on the WACC” what I constantly tell the folks in my practical valuation and financial modelling classes. I sometimes feel bad for saying this. But I see myself as a practitioner of valuation and finance. As far as finance theories go, 90% of the people I deal with don’t understand the academic workings of capital markets. Even if they do, most deals are done largely based on the “directive” of someone higher up. The consequences, good or bad, are irrelevant to those who do not have skin in the game. I once worked on a deal that was priced based on a valuation report that had been outdated for at least two years. The numbers were stale and these figures weren’t even related to discount rates. These were input costs e.g. construction costs, equipment prices, etc. This deviation wasn't significant but the project sponsor simply refused to refresh those numbers because they didn’t want to raise any eyebrows when submitting the documents to the regulators. Do you really think that adding up discounted cash flows will help you decide whether to invest or not? Chances are, even before running the numbers, you most likely have already made up your mind. You are just looking for enough agreeable accomplices, or a scientific way to justify the decision to yourself (or someone else) - just in case you end up with an egg on your face. Don’t get me wrong. I have nothing against finance theories. People often misunderstand the objective of valuing a business as the end result of a series of carefully curated mathematical formulas. In reality, the process of doing valuation is more important than the result. As far as the weighted average cost of capital (WACC) goes, the result of combining the cost of debt and cost of equity is only as relevant to the extent of how you are trying to raise capital. And I’m not talking about the proportions involving the amounts of debt and equity. I’m referring to the nature of those capital. A large multi-billion asset manager that buys public equities will have a very different expectation of investment returns as compared a private equity fund, even though their cost of funds might be roughly the same. Fundamentally, their investment mandates are also very different, and because of that, the way they approach valuing a business differs. CAPM models are irrelevant when I want a 30% annualised return on investment. And who cares about the “optimal debt-to-equity ratio” when I am confident of gearing up the company on cheap debt? We also adapt the dividend discount model to derive terminal value. The math is sound. The irony here is spending the bulk of the work digesting profitability, working capital, capital expenditures and what drives the cash flows for the first five to seven years, only to cast approximately 70% of it into the terminal value, which is ultimately driven by just one year of cash flow data, a discount rate and a long term growth rate (which I always felt was somewhat arbitrary). Again, I discredit the finance academics too much by underplaying the way we look at valuation. The theories of financial markets that are taught in schools are robust. But most of the ways in which we learn valuation and deal structuring originated from the West - leveraged buyouts, senior debt, subordinated debt, junior debt, mezzanine debt, etc. We have fanciful financial jargon such as ‘bullet’ repayments, ‘balloon’ repayments, cash sweep, debt sweep, cash flow waterfalls, valuation football fields, etc. We also have all these funky methodologies relating to how to accurately price an asset: Two-stage DCF, three-stage DCF, Adjusted Present Value, Merton Model, Economic Value-Added, etc. Most people in Asia are less sophisticated and more sentimental: I’ll do the deal if I like you. I know you got my back when shit hits the fan. Full stop. Try putting a price tag on that. So does this mean that we abandon the math behind business valuation? Should we avoid building financial models at all? I don’t think that’s possible. Financial models exist to allow us to simulate an outcome of a decision based on certain parameters, perhaps more specifically, those parameters which potentially result in losing money. By varying those parameters, we test our tolerance towards uncertainties in the forecasts, the thresholds of our risk appetite and also how far we are willing go in order to get the deal done. But there is also another more important aspect of building models which is highly underrated: Gaining a deeper insight into the inner workings of a business. Spreadsheets help facilitate the way we organise and analyse data. Using Excel, we can easily work out price x quantity over a period of time. By linking up the various cells in a spreadsheet, we are embedding business logic into meaningful numbers. And by iteratively questioning and challenging the underlying assumptions, we are subconsciously forcing ourselves to understand what really impacts the revenue and the costs. There are so many factors that can drive a business. Sometimes knowing what drives a business is more important than the outcome of its financial model.

  • Cultural learnings

    As I enter my third year of working for a Chinese company and living in China, it felt apt to reflect on and summarise a few takeaways from a cultural perspective. Gift giving is almost always a norm (and expected) when visiting someone. When in doubt on what to buy, more expensive equals more sincerity. Face apparently is still a big thing. You can leave home without bringing a wallet. Everything you need is stored in your phone - from money to your national ID. You can even buy meat from the market and pay via Wechat or Alipay. This is the power of putting a smartphone in the hands of one billion people and having an incredibly decent mobile broadband network. Buying stuff online is often cheaper than buying it offline or over the counter. The Internet has completely eradicated the need for any human interaction. Why bother negotiating for an extra shot with the counter-top casual banter when you can get discounted deals through an online menu? The catch here is whether you can navigate the complex menu sequence... Patriotism is in their blood. While some of the Chinese people may not agree entirely with the ideologies and methods of their government, they remain very proud of their own achievements and feel a strong sense of loyalty to their country. People all around the world aren't very different. Nearly everyone watches douyin (抖音). Contrary to being an unhealthy social addiction, I find douyin quite intriguing, and an excellent source of entertainment and general knowledge, not only about China but also the state of world affairs. Needless to say, the Chinese media is skewed. But who is to say that Western media and media all over the world is not?. Watch, rinse and filter accordingly. You can live your life without stepping out of the house - getting food, groceries, plumbing, courier, train tickets, etc. This is even more evident after 2020 when every one was forced to stay indoors during the pandemic outbreak. You can also hire anyone to do almost anything from queuing up to valet driving you home when you've had too much to drink. Because everything is transacted online, merchants take consumer ratings very seriously. Any negative comment in the forums can easily go viral and equivalent to being served a death penalty. The guiding principle being: The opinions of one billion people can’t go wrong. The stark income differential between the developing and urbanised areas is probably what keeps quality and service standards high and input costs low. Take for instance the food delivery sector. There are many videos online that showcase how riders - many of whom are in the low income bracket - risk life and limb just to make sure food gets to people’s doorstep on time. They earn only a fraction of a white collar income, but that huge population and wide domestic income gap is what keeps the gig industry going and the domestic economy resilient. The main reason why stuff in China appears so relatively cheap is simply because of its vast population. We know this but still choose to believe that cheap equals “lousy”. You just need to have a discerning eye when shopping for stuff online (especially on Taobao 淘宝). If you can ignore how some of these brands are named, you will realise that there are many places which are reputed for wholesaling high quality white label products for many global upmarket brands e.g. electronics in Dongguan, Guangzhou; furniture in Foshan; industrial parts from Wuxi; textiles from Jiangsu and Shandong region, etc. Everything is “made in China”. The trillion dollar luxury goods market thrives on the fact that consumers like variety and perhaps more importantly, ultimately fall prey to effective advertising. University entrance exams are incredibly cutthroat. Being based in a certain province or city could pigeonhole you into a certain career or an industry for life. As a result, parents often go all lengths to ensure that their kids receive the best education the system can offer. Only the rich can afford sending their kids overseas. Beijing (北大) and Tsinghua (清华) are regarded as the "OxBridge" equivalent, and considered the crème de la crème, at least within the country. There is also a vast difference between a local and a foreigner gaining admission into either of these universities, the former considered more prestigious as the attrition rates for locals are incredibly high. As a matter of fact, the locals don't really care if a foreigner gains admission to 清华 or 北大. Ownership of real estate is still considered a status symbol for many Chinese. As a result, many will do whatever it takes to hold on to their property even if the prices are falling. This trend however seems to be changing with the demographics as younger Chinese are increasingly being more knowledgeable about investing their savings into wealth management products. Happy third work anniversary.

  • The perils of a suitcase life

    “There’s nothing for you in Singapore.” During the initial years of starting IJK, we contemplated the option of moving me from Singapore to Shanghai. It would have been a huge move but it was also a natural and strategic option. China was a huge market and we thought we had what it took to succeed in that market. This was outside my comfort zone, not only in terms of the language but more so because the resources that I had mustered over the last 10+ years at that point of time were all within Southeast Asia - the connections, relationships and appreciation of the culturally diverse landscape. I felt that I knew relatively better how to navigate in Southeast Asia as compared to China. But China as an economy was the largest in Asia compared to the playing field in Southeast Asia. It was hard and impossible to ignore. I made that decision not to re-locate, staying put in Singapore while spending the next 4 years shuttling in and out Shanghai and many other cities, making stopovers in Hong Kong. By early 2020, our startup journey had taken us to Moscow, Saint Petersburg, Seoul, Riyadh, Astana, Budapest...the list goes on. As for the adventures we had over those 4 years, those stories are for another day. I never posted any of those trips on social media. We had travelled to many exotic places and I got to know many people whom I would have not met if we never started this business. More importantly for me, I succeeded in breaking away from the comfort zone I was in as an investment banker, the typical grunt of an employee. While I had picked up most of my accounting knowledge, financial modelling and structuring skills in a formal professional setting, I really only learned how to set up meetings, present ideas and sell when I became a business owner. These are lifelong skills that cannot be taught and follow you around for a long time. Look, the point here is not about the fancy globetrotting or the invaluable lessons learned. There is also no success story to tell. At the risk of being overly blunt and transactional: The business acquaintances and relationships acquired only make sense if you can convert them into fees at some point of time. The cash flows (if any), only sustain you for a finite period, and then you have to look for the next elephant to bag, and the next, and so on and so forth. The truth is we paid for many of these business expenses without getting anything in return. Many people choose to interpret and believe what they see on the outside. It’s not as good as it sounds. There is no glamour in running your own business. It is more like living life in a constant state of uncertainty. And when you are in a constant state of uncertainty, it gets difficult to plan for anything long term. Then at the end of 2020, in a twist of an opportunity, I made the decision to relocate to Hong Kong, taking that uncertainty into a whole new dimension. Over these last two years, many friends have asked me how I cope with living overseas for an extended period of time away from home. All I can say is that it is not as easy as one might think, even for those who are accustomed to frequent traveling for business. When I think about it, the people who travel and live overseas for work generally comes down to three buckets: Those who relocate early on in their lives either for study or upon graduation; Those in their mid-careers who relocate for work as a temporary arrangement and; Those in their mid-careers who relocate indefinitely. I have many friends in the first bucket. They had gone over mostly upon graduation and have called those cities home. Those I know have stayed overseas for easily more than ten years. They had built their social ecosystems and familial support there and did not have to uproot anything back home or had little to nothing to give up. For them, life started overseas. Those in the second bucket are slightly older and had more work experience. They had gone overseas midway into their careers or got seconded as part of a project. In nearly all of the cases I knew, there was always clear visibility in terms of when they were going back home, be it two years, three years or five years. There was always an end goal. Something to look forward to so to speak. Then there are those in the third bucket. I know of very few people who are in this bucket and they are mostly in C-suite positions. I sometimes wonder how they do it. How they manage their families at home is a miracle in itself. You can only truly empathise with this if you are in this bucket. The thing is: When you already have a life back home, relocating overseas for work indefinitely is much harder than it sounds on paper and what you hear from others. A lot of people take it for granted because they either feel that the remuneration package compensates for that inconvenience or they simply just think they are adaptable enough. But when you take a step back and really evaluate the circumstances that could potentially impact you - the distance, the unfamiliar environment, the lack of social and familial support, there is always a chance that you over-estimate yourself. The real question is: Money can only go so far in helping you settle the logistics of moving, but how does one psychologically prepare for and cope for the change to a new environment?

  • Inner peace and self-realisation

    Come next year on 3 January, I would have clocked three years into my current company. Unknown to many, this would be my longest ever unbroken stint at any organisation (apart from the one I started). For most of you out there, staying at one company for many years is a given. But for me when I graduated, “jumping ship” (switching companies) was something of a norm, a necessary rite of passage in order to get a significant pay raise or moving up the corporate ladder. Indeed, my perceptions towards career progression and life overall in general had changed dramatically over the last 17 years. I had moved (or evolved) from being a relatively young desktop grunt, crunching numbers and producing eye-catching powerpoint presentations at breakneck speed, into a mid-senior management role, where I am called upon to show up at meetings either because I am a subject matter expert in a particular area, or simply because the ratio of grey hairs to black hairs on my head is higher than average (I like to think that it is due to the former). They say you can only appreciate most of the learnings in life once you have clocked sufficient mileage. I’ve had my share of experiences, both the good ones and the bad ones. I have pulled all-nighters at work, got promoted at work, take part in at least one billion-dollar transaction, sat and moderated a number of interesting M&A negotiations, seen corporate re-organisations resulting in teams being shuttered, getting laid off, laying people off, watching people get laid off, etc. I'm not particularly proud of some of the things I've done, including sacrificing a lot of my personal time for work, but for good or for bad, it has made me the person I am today. When I was younger in my career, I had looked towards those who were older (presumably have clocked more mileage than me) for a professional role model - both the positive and negative examples. I learned that there isn’t one perfect epitome of a successful person. I have had colleagues who leave the office promptly at 6pm, pulling off a sustainable work-life balance (defined here as getting off work on time). And then there are also those who are religiously back at the office every weekends regardless of family. I have had seniors who were extremely competent in execution but suck terribly at management. Some were nice people but couldn’t execute. Some use looks to get by. Some put in the gruelling hours to prove their worth. Each of their characteristics were unique in a homogeneous and somewhat brutal environment, which makes understanding them both interesting and complex at the same time. And people being complex creatures, are what makes them interesting. But then again, at the end of the day, who decides if they should be deemed successful? As I grew older, I realised that these hallmarks in which we define how well we do in life increasingly deviates from the professional workplace and quantifying the material possessions. But to say this assumes that we have been lucky to be able to earn well - well enough to get by in life comfortably, keeping the lights on, and putting food on the table. There are many other aspects that we consistently take for granted such as a happy family, your parents, your siblings, kids, friends you can rely on, good health, and for some, the ability to travel overseas at whim, and perhaps quite importantly, the peace of mind. No amount of money can buy any of these. But life will occasionally throw you a wrench to test how far you would stray from the path to give up on any of these, and if you had subconsciously forgotten the most important things around you. You can listen to anyone's experience and draw conclusions on how you should live your life and solve your problems. But at the end of the day, in reality, everyone’s position is different, and you bear the consequences of the decisions you make solely by yourself. Because what works for one person may not work for another. Many of life’s lessons and takeaways don’t need to be drawn from the advice and anecdotes of other people. It just comes from a position of inner peace and self-realisation.

  • Twelve rules of success

    I have been on a bit of a hiatus lately, but that does not mean I have stopped moving, thinking... or writing. It is common to find a copy of the bible in the drawer of the bedside cabinet at most hotels. Almost always, I ignore this. Partly because I don't have any affinity for the bible but also, like most travellers, I tend to overlook and treat this as simply part of the hotel room fittings (apologies to the folks at Gideon International). So as I was searching for some writing material in my Marriott hotel room in Shanghai, instead of a bible, I stumbled upon a book titled "Spirit to Serve - Our Stories" . The book basically showcased the lives and experiences of various hotel employees from all over the world, each summarized with a caption and a 1 to 2 page writeup. I am not usually fond of reading corporate marketing material but ended up flipping through the pages. Inside were interesting stories about Marriott's employees - from hotel managers, room attendants, concierge staff, chefs to butlers and bellboys / bellmen. One of those stories included a head bartender who moved from Cambodia to Washington DC more than 30 years ago and he described how many memorable friendships were forged with the returning guests. There was also a story about a mother of four and how she juggled work at the hotel and family time at home. I found many of these stories intriguing and ended up going through most of them. Towards the end of the book, I came across this afterword which I thought was quite meaningful and that it should have been placed right up front: Continually challenge your team to do better. Take good care of your employees, and they'll take good care of your customers, and the customers will come back. Celebrate your people's successes, not your own. Know what you're good at and mine those competencies for all you're worth. Do it and do it now. Err on the side of taking action. Communicate. Listen to your customers, associates and competitors. See and be seen. Get out of your office, walk around, make yourself visible and accessible. Success is in the details. It's more important to hire people with the right qualities than with specific experience. Customer needs may vary, but their bias for quality never does. Eliminate the cause of a mistake. Don't just clean it up. View every problem as an opportunity to grow. I have stayed at my hotel in Hong Kong for nearly three years now. Truth be told, the guest-facing staff hasn't changed that much. In fact, most of them recognise me, even if I had gone on an overseas trip for a long time and haven't been back for weeks. I know this because they always pass me my courier packages as soon as they see me step in through the main lobby entrance. In fact, some time back, I heard that it is quite common to see hotel employees working with the same hotel for more than twenty years. I don't think many of them are paid top dollar, and the skills for the service industry are somewhat transferrable. On the contrary, for many white-collared jobs, it is relatively more commonplace to see people moving around only after a few years. So it got me thinking: Assuming we say that Marriott is a successful brand / corporation, if it's not about the money, then what keeps these people working at the same place for years and even decades? Is there a hidden incentive scheme that I am unaware of? Or is it the familiarity of the environment? The social support that comes with forging familial relationships with colleagues? A genuine sense of satisfaction from a customer service role? A good line manager? Or is it mostly just a lack of better options out there? For corporations that are religiously fixated on pursuing performance and the bottom-line results, have they sacrificed some aspects of their corporate branding and employee loyalty in the process of being successful? "Today's analysts will be tomorrow's managers. Today's managers will be tomorrow's Vice Presidents. Today's Vice Presidents will be tomorrow's CEOs and business owners."

  • Lessons from Singapore Airlines

    Singapore Airlines posted record net profits for its full year ending 2023 results - "the highest in its 76-year history". This shouldn't be surprising given the effects of inflation over multiple decades and the fact that people tend to be more well-travelled these days, both for leisure and business. Still, it is a spectacular achievement on all fronts, for both the company and shareholders, considering how air travel had been severely impacted by the pandemic. Just think about it: Not very long ago, most airlines had been doomed for bankruptcy when COVID-19 brought air travel to a standstill. People were even mocking at the idea of ordering takeaway cabin food at home, selling SQ-branded merchandise and even "flights-to-nowhere". All these seemingly whimsical initiatives were targeted at keeping customers engaged and satisfying the insatiable demands of wanderlust travelers, but most of all, I think it was meant to generate some cash flow, if any. Those flights-to-nowhere were subsequently scrapped due to environmental criticisms from the public but that didn't stop SQ from offering customers a unique dining experience aboard the A350 aircraft (on the ground of course). When the going gets tough, it's not only the bootstrapping start-up companies with the least bargaining power who have to creatively pull ideas out of their asses. Big companies with elephant-sized egos need to do this as well. When the world surprises the hell out of you and leaves you at the mercy of cash flows, anything and everything goes. "What doesn't kill you makes you stronger." Looking back on the last three years, it might be easy to conclude that there is a simple recipe for surviving the pandemic: Just stick around long enough, don't die in the process, and things will get better. But simply "sticking around" understates the numerous organisational and technical complexities that firms have to go through. In the case of SIA, this means re-allocation of manpower resources, deciding which planes to put in long term storage and the costs involved in such an operation (both the tangible and opportunity costs), as well as the means to raise sufficient capital to tide a potentially longer than expected winter. When you are neck-deep in a sticky situation it can sometimes be difficult to see how the longer term picture can potentially play out. Check out these depressing headlines from 2020: Even ECB President Christine Lagarde in mid 2020 said that the pandemic was probably "past the lowest point" and cautioned that any rebound would be “uneven”, “incomplete” and “transformational” - hinting that some industries such as air travel and entertainment might never recover. Well, when the central bank says something, you listen. Yet even so, very few emerge well from this period of crisis. This is not about hiring competent management to fix operational inefficiencies but the ability to weather a sudden economic shock. Moments like these test the effectiveness of a company's business continuity plan. Fortunately for Singapore Airlines, it also has a unique political and financial backing, not many firms have this benefit. To some extent, SQ is Singapore and Singapore is SQ. This leads to another less obvious factor that has contributed to SQ's record profits. Timing is everything. Six months was all that stood between SQ and its closest competitor, Cathay Pacific. That window was sufficient to give any well deserving airline a good head start in cannibalising market share along major competing sectors. If you compare SQ's FY2023 financial performance with the pre-pandemic periods in 2018 and 2019, operating expenses including staff and fuel costs were almost at the same levels, implying that SQ had returned to nearly full operational status. CX on the other hand struggled with mobilising its fleet and dealing with the stubborn re-opening of Mainland China, one of its major revenue contributing segments. When life returned to normal, the dislocation in the supply and demand of air tickets, coupled with the tactical re-opening of Singapore borders six months earlier than Hong Kong / China, was probably what gave SQ the additional bump in profits. Had the Singapore government been slightly slower in its re-opening, we might have missed the boat on capturing tourist arrivals, the perennial fintech festival and numerous MICE events targeting business travelers and conference-goers especially towards the year end. Of course nothing is permanent. Supply pressures will eventually abate which should ease demand and bring down air fares. Unless Cathay Pacific screws it up big time, consumers being consumers will always seek out a variety of airlines to choose from. The key is whether SQ can continue to keep costs under control or will it get complacent from here on. In an interview with Charlie Rose in 2013, Mike Moritz said of Sequoia Capital: "I think we've -- we've always been afraid of going out of business. ...and so we've worked hard on trying to figure out how we make Sequoia Capital endure. And I think that's been the reason why we've been able to do what we've been able to do. Because we've assumed that tomorrow isn't like yesterday. We can't afford to rest on our laurels. We can't be complacent. We can't assume that yesterday's success translates into tomorrow's good fortune."

  • In search of a quaint type of peace

    I have never been much of a waterfront-living type of person, but the view of the Victoria harbour can be quite addictive. Quiet mornings overlooking the harbour are some of my most enjoyable moments over the weekends in Hong Kong. I realised recently that for a lot of companies out there, it's actually the season of promotions. For a number of friends whom I've known for some time and who were newly minted, I'm truly happy for them. Those that I have been acquainted with on a more personal level have all been very consistent people. Some of them came from relatively humble beginnings, either from totally unrelated backgrounds or started off in companies that practically had no bragging rights when you showed up at social events. A lot of them were hungry for technical skills and deal experience, and wanted to acquire these in the course of their work. Technical skills were important as juniors, but I think what made them stand out were often the softer aspects: the ability to make friends, staying in touch, knowing how to navigate politics at the workplace, or just having the ability to survive in an environment with repeated rounds of layoffs and corporate re-organisations. Looking back on more than 17 years of being in the workforce, you realise that consistency and patience are sometimes all highly under-rated attributes. That said, success means different things to everyone. I think that most consider landing a promotion, a big bonus payout, being publicly recognised or associated with someone reputable or distinguished in their field, the hallmarks of success. Being appreciated and recognised at the workplace is being important. The need for career progression has also been deeply inculcated as part of "life after graduation", especially for those who have had the privilege of going to school. No matter which it was, it mostly all came down to being able to accumulate more money, and so, all of success seems to come down to that moment of glory and the wealth that accompanies it. But the most valuable form of wealth is not having to impress anyone. Social comparison is the biggest culprit of dissatisfaction. See, because not everything can be measured in dollars and cents. The same way not everything is measured in terms of lofty positions and titles, or material possessions. Also, I learned recently that more important than getting rich is how to stay rich. A good number of people I know earn an average or less-than-average income and stay in very humble houses. In theory, they should be worse off when compared to those who are earning a lot more. But many of them are "doing well" simply because they didn't take excessive risk with their money, stayed consistent and perhaps well-grounded in their material expectations. Most of all, I think they stayed contented. "At your highest moment, be careful, that’s when the devil comes for you." This was what Denzel Washington said to Will Smith after his notorious outburst on Chris Rock at the Oscars in 2022. Although Will Smith won an award that night, he was subsequently banned from the Academy events for the next ten years. Today’s success story can very quickly turn into tomorrow’s failure. At any point of time, nothing is ever so good or bad as it seems.

  • This is home, truly♩

    It feels weird to say I'm traveling 'back' to Hong Kong after a business trip. I have spent the majority of my time here for the last 2+ years and there's a certain feeling of familiarity. Yet it feels nothing like going back home in Singapore. It's not a bad thing, just different. Whenever I travel, I often think about what it would be like to live in the visiting city. Not for a few days, but for months, and even years. Universities nowadays offer abundant opportunities for students to do this in the form of student exchange programs. It's an invaluable experience of learning to be independent and making more friends. Yet there is a subtle difference. With exchange programs, there is always a finish line. Exchange programs are pretty much like extended holidays with a simple commitment to set aside some hours for study, take an exam at the end of it all, and then go back to the comfort of home with an album full of instagram-able stories. Most who work overseas don't have a clear finish line, unless of course you have been sent there on a secondment with a visible plan of returning after a certain number of years. Unlike school, there is a commitment to deliver and perform in a largely unfamiliar environment. And if your familial and social support is back at home, there is sometimes also little to look forward to at the end of the day. The various circumstances, both external and internal, faced by those who venture abroad, are what makes them more tough and resilient, each in their own ways. People who have been born, bred and work in their home environment, or have assimilated into the indigenous fabric of society with their families may find this difficult to understand. This year marks my third year in Hong Kong. The experience of relocating in the capacity of a working professional, as I sometimes describe to colleagues and friends, comes down essentially to four things: Getting used to living apart from loved ones for an extended period of time Learning to use a second language as the lingua franca Embracing culture - both in the social and business setting Adapting to a new corporate environment or business function Some people adjust very quickly. Young folks and fresh graduates in particular, are almost like sponges, soaking everything up around them when thrown into a foreign place. When you relocate as an experienced hire, the slate is not empty and the "soaking" tends to be a bit slower. But in any case, anyone who has lived overseas for an extended period of time inevitably goes through at least one or more of the above. Each overlapping the other, each influencing the other. Everyone navigates this differently. Whether you are a budding professional or a seasoned hand, whether you are living overseas or starting work in a new environment, one of the most effective ways to get the most out of living in any foreign environment is to fully imbue yourself in the local life. In short: The faster you 'acclimatise' to all aspects of your surroundings, the easier life becomes. "Comfort of home" is the term most people use to describe the country that they were born in. I might live out of a thirty-square-metre space without a kitchen stove or windows that open, but when traveling back from Beijing, Hong Kong is pretty much as good a home as is Singapore. PS: This week officially marks two years of me residing in Hong Kong.

  • The things I say and do

    Eating hotpot is great even if you are doing it alone. I do lots of things by myself, sometimes to the extent people think I’m an oddball. Time alone is priceless and highly underrated. Waking up at 7:00 am every day consistently regardless of whether it is a working day is not only an issue of discipline, but a conscious effort to carpe diem. Some of my most enjoyable and productive moments take place sitting out of a quiet cafe at 8:00 am in the morning. Nodding doesn't imply that I understand every single word that's being said in a dialogue. Some times it is simply an acknowledgement that I have been attentively listening, but more importantly it also shows a certain amount of respect to the other party. Nevertheless I'm grateful that most people give me the benefit of that doubt. Walking and pacing stimulates my thinking. It’s been shown that walking for 20 minutes increases brain activity and facilitates idea generation. As a result I tend to pace around a lot while on conference calls. There was even an occasion in which I had spent an entire hour on a conference call while walking outdoors from home to the office. Teaching is more showmanship than a demonstration of knowledge and experience. I realised this when I started giving lectures on valuation and financial modelling. You can be the most knowledgeable and technical person at the workplace, but in a classroom setting, it is all about entertaining the audience. In the words of The Kinks: Give the people what they want. Writing helps me consolidate and organise my learnings in a somewhat meaningful and chronological way. Unlike drafting publicity flyers, marketing materials, investment memos and work emails, I don't write to sell. I write to simply share. Disagreeing with people is sometimes pointless and tiring for me. In most cases, I usually just indulge them. Most people cannot accept, and don't like to be told that they are wrong. Besides, there’s really no point in proving that you are right if you can’t get to "keep your money [#40]". Investing is highly personal. Each individual's perception of risk and expectation of returns can be vastly different. For example, I trade a lot of options and also use it to hedge my long and short positions. I don’t bother explaining this to a lot of people. Half don’t know how tradable options work. The other half don’t really care because they adopt a totally different approach towards putting money to work. Either way, it doesn't bother me because I’m not staking someone else’s capital on the table. Walking away doesn’t always necessarily mean you are giving up. It’s simply a risk management strategy involving the elimination of uncertainty. Morgan Housel talks about "getting the goalpost to stop moving" in his book, The Psychology of Money: "It gets dangerous when the taste of having more—more money, more power, more prestige—increases ambition faster than satisfaction. In that case one step forward pushes the goalpost two steps ahead. You feel as if you’re falling behind, and the only way to catch up is to take greater and greater amounts of risk." Most people experience what we commonly know as the fear of missing out (FOMO), which is exacerbated especially when others say "if only you had [done this]”. You have to remember that what works for others may not work for you because people prioritise and value things differently. I think that one of the biggest masteries in life is not only to be at peace with the decisions you make, but also to make peace with the outcomes that follow.

  • Why is Starbucks coffee so bad?

    "Why is Starbucks coffee so bad?" was the thought that came to my mind as I was writing this in one of the Starbucks outlet located in Harbour City on a weekend morning. I had gone here obviously not for the coffee but mostly because it was relatively less populated due to the fact that is at least a 7 minute walk from the main shopping arcade. If you are a coffee "connoisseur" like me, you will appreciate what goes into a good cuppa. The type of coffee beans, the quality of the milk used (for lattes and whites), the crema at the top when it is served. Yet Starbucks, despite all its Seattle legacy, fails to impress those (or perhaps just me) who have acquired a certain palette for quality coffee. Most of us will also agree that for the same volume, prices have gone up significantly over the years. The topic of Starbucks is a perennial topic in my valuation classes. The argument being people are willing to pay premium, attributed to classy branding over the traditional local chains. In addition to brand, the quality of coffee beans used in the grind are also a contributing factor. There is also the element of Starbucks selling ambience. Based on my limited observations of several cafes in Asia, most operators tend to shun patrons who hang out for too long at their premises. From minimum spend, time-limited seating to restrictions on the use of Wi-fi, cafes in Asia use a variety of tactics to maximise table-turnover. Understandably, they don't really like their customers sitting around for too long as this is bad for business. This is quite different in the US, based on this this Starbucks story which glamourises one entrepreneur's experience of working out of an outlet located in San Francisco. This of course raises a more fundamental question: Is Starbucks selling overly-priced coffee, a lifestyle or something else? Starbucks has been known to drive up the prices of real estate in the places they have been opened. In 1999, Starbucks also made headlines when it opened its first store in China. It's almost like a bellwether for the gentrification of cities. So maybe Starbucks coffee tastes so bad because Starbucks isn't really selling coffee but real estate. The cup of coffee buys you the right to sit in one of their outlets. Those who order takeaways are basically just an added bonus for the shop. The value of that right to sit in the shop comes in different forms: a business meeting, catch-up with friends, quiet time alone to work on your proposal or simply arriving early and waiting for someone. Just for trivial comparison, retail rents in Singapore ranges anywhere between $8 to $37 psf monthly. In Hong Kong, the range is between HK$1,200 to HK$1,400 monthly. Here's a very rough breakdown of what it takes to keep that coffee outlet afloat: A few things to note here: Breakeven sittings per day and gross profit excludes manpower costs. We also assume that the outlet operates for 30 days a month Monthly rent and price per cuppa varies by location The average real estate per sitting is much smaller in HK as compared to Singapore. Also, each sitting assumes an average of 1 to 2 pax, hence 1.5. Pax count and sitting real estate again varies depending on location and the interior decor of each outlet. Rental cost per sitting assumes that 50% of the lettable area is for customers i.e. not the entire shop space is for sitting, half is set aside for common areas, the barista, cashier counter and the kitchen. Configurations vary per outlet. Gross margins are roughly between 70-80%, inputs costs comprises ingredients, electricity, and packaging. Excludes additional revenue earned from other products and channels e.g. food items, takeaway and online orders In fact, many retail businesses find it helpful to think about their business in terms of sales per square foot/meters rather than units sold, which enables the business to re-focus on asset-utilisation since a huge part of the overheads are attributed to maintaining the store front (i.e. real estate). Here's another helpful tip: By breaking down the cost-economics by real estate and sittings, you can essentially monitor the number of table-turns over the day to assess (i) whether you have achieved break-even (ii) which days are you making more money, and potentially (iii) which sittings have the highest turnover. Like real estate, retail yield is also a function of the footfall and surrounding amenities. Because a good number of people go to Starbucks for the space and not so much the coffee, it is probably also more helpful to evaluate the business on an income per area basis. At a breakeven of seven to eight cups per day, feel free to sit freely in your cafes. Starbucks isn't selling coffee, you are after all paying for the lease, and the nice drink is just a bonus. [updated for number of cups]

  • A few observations

    "Illiquidity Is The New Leverage And Flows Are More Important Than Fundamentals" - Eric Peters, CIO, One River Asset Management Tulip mania. The tulip mania in 1634 remains one of the most classic examples of how a frenzied rush can lead to exorbitant pricing. Tulips were something that was fashionable, and people pay for fashion. "It was unimaginable to most people that something as common as a flower could be worth so much more money than most people earned in a year." - Anne Goldar, Tulipmania When the hype ended, prices came crashing down and thousands lost their money. It is not about whether the tulips were indeed valuable but the simple existence of flow, the flow of capital and goods - a willing buyer and a willing seller on both ends of the transaction. Initial public offerings. The holy grail of PE/VC funds, early stage investors and founders of companies. Statistical studies have shown that the presence of cornerstone investors supports higher valuation multiples at IPO launch and sends an important signal to the rest of the market about the credibility of the issuer. Very often, the retail tranche of these offerings tend to be oversubscribed, and upon listing, typically drives up the share prices further in the secondary market. Hence a key unspoken difference in the way pitch books are being crafted by the ECM and M&A teams in investment banks: A generic M&A pitch book is carefully curated, well thought through and systematic. It includes meticulously calculated financial data of the target company, possible synergies, the sale process, negotiation strategy and a range of prices in which the outgoing shareholders or prospective buyers are likely to accept. An IPO deck is usually a storytelling process revolving around thematic information and capital flows, for example, what have the largest institutional investors been buying? Where in the world are investors putting their money over the next 12 months? What are the most attractive industry sectors right now? How big of a check are they writing? In banking jargon: Investor targeting. For the company going public, all that shareholders are really interested in is whether the deal will go through. A lot of institutional demand for a company's shares hinges on the 'flow quality' of a company's shares. This effectively translates to two things: (i) a sizeable public float and (ii) a large enough daily trading volume, oftentimes prioritised over profitability. Because every institutional PM knows that regardless of how solid your revenue and profits are, they want the comfort knowing that they will be able to sell down their stake in the shortest possible time, just in case you f*&k up on the fundamentals. Flows are critical because they can happen very quickly, whereas fundamentals can be slightly more complex to appreciate, they take a little more information spoon-feeding and time to digest. Lehman Brothers. At the peak of the financial crisis in 2008, Lehman Brothers had raised USD 11.9 billion of capital, an amount that apparently "more than offsets the impact of write downs", and the firm had one of the lowest leverage ever in its history of being a public listed company. Even in those tumultuous times, S&P even gave and stood by its 'A' rating. But when KDB eventually terminated talks of a potential investment in the troubled firm, the shares tanked. The downfall of Lehman Brothers was in a large part due to money flowing out faster than it was coming in, as with its clients and staff. SVB. The case of Silicon Valley Bank was a classic mis-step in asset-liability mismatch. Don't borrow 'fast moving money' to invest in slow-moving' money. The firm made some bad calls involving the forced liquidation of long-dated government securities leading to asset write downs, but the real nail in the coffin was due to the fact that many of its clients had pulled their money from the bank accounts at digital speed. CASA in banks are extremely short-term liabilities (effectively customer deposits) that can vanish quickly and significantly deplete a bank's cash position in a very short period of time. This was exacerbated with the rise of internet banking. While cost of deposits might appear cheap, deploying these relatively short-term funds and putting it to work in long-term investments was an obvious recipe for trouble, no matter how stable you think those long-term investments are. In SVB's case, these were risk-free government securities. Everyone in finance knows that the value of fixed-income investments goes down when interest rates go up. So it ended up as a double whammy: No one had expected the sudden account withdrawals. Just as no one expected the Fed to increase interest rates ten-fold within a year in its unrelenting fight against inflation. SVB could have held those long-term securities to maturity and not lose a single cent, no need for asset write downs, no need for panic. But the inevitable still happened and it all came down to capital flows. COVID-19. One of the key issues about the COVID-19 pandemic wasn’t just about the high mortality rate. Thousands of people young and old die from flu and pneumonia on a daily basis. Sure enough, cities and governments had to shutter their borders to put the spread of the virus under control. But a bigger issue was also the fact that many countries weren’t equipped to handle the large number of cases. It wasn’t just about keeping people alive or having sufficient beds and ventilators. It was also about the fact that there are only so many doctors and nurses at any given point of time. You can install top-quality healthcare amenities, bring in the best doctors and nurses and invest in state-of-the-art technology to develop the world's most powerful vaccine. But the system ain't shock-proof and just isn't designed to accommodate a scenario for which everyone visits the clinics or the hospitals at the same time. The flow of people will simply overwhelm any resources we have in place and cause our existing infrastructure to collapse. In the banking business, you can have the best relationship managers, the strictest compliance, the most bullet-proof risk management, excellent capital adequacy and a healthy net interest margin. But you can still go out of business if an abnormally large number of customers decide to take their money out, all at the same time. We conveniently assume that no one will really do this. Despite being robust and sophisticated, our banking ecosystem, capital markets, and state of our healthcare infrastructure just isn’t designed to handle extremities on any level. When it comes to decision making, scientific reasoning can only go as far as the human mind can comprehend and accept. For example, academic wisdom tells us to invest if the net present value of a project is more than zero. And we can always mathematically compute the value of a company based on future cash flows, but we still fall back on comparing IRRs across comparable companies and different industries to determine if we are getting a good deal on the table. Despite extensive research and studies in the area of finance, valuation in the real world is mostly driven by market comparison. We also subscribe to the concept of risk-reward trade-offs i.e. if you buy something on the cheap, expect a higher chance of something not going according to plan. And if it does work out, expect a huge payout. But some times the world works in very funny ways: You can pay a lot for something just because you think the risks are low, and still lose everything to a tail event. Also, valuation multiples say something about the correlation between the value of a business and its profits i.e. higher profits translates to higher value. Yet, trivially applying this to companies with low profitability can sometimes result in abnormally high or low multiples simply because sometimes the markets take a slightly longer time to appreciate the meaning of those profits. Banking and investing is all about flows. The most highly paid investment bankers aren't the ones who provided the most astute advice to corporate stakeholders, neither are they rewarded based on the outcome of those deals. They are rewarded based on the size of transactions closed. Investment banking is a flows business. Fundraising in the Southeast venture capital space hit a high of $2 billion in 2019, 75% more than 2018. No surprise that in that same period, the region was also coined as the "next tech battleground" for many large corporates, especially Chinese companies. The tech unicorns (billion-dollar companies on paper) that emerged was no doubt largely credited to significantly huge flows of capital into the region. Whatever happened to fundamentals? There isn't an exact figure, but it won't be surprising to know that even a large number of the most well-funded startups are losing money. Startup companies are meant to sacrifice profits in the short term for long-term gains. I'm not saying these companies are lousy. It's just that in the real world, the flows often do not always reflect the fundamentals. It's important to have enough "stupid money" in the system. Regardless of how badly or well a company is doing, valuation always needs to be supported by flows in the capital markets. “You can fight that trend, and invest in companies, for instance that are deeply undervalued and mismanaged – and some people are successful investing in the dregs – but very few over the long term. To use a whitewater kayaking analogy, freshwater seeks salt water, and you can fight that if you want, but paddling upstream eventually is likely to become highly problematic.” - Ron Maciver

  • A convenient size

    My first experience of altitude-sickness was in 2008 while on a trip to run a marathon in Leh, northern India. I had gone on a small excursion to the Ladakh ranges on the first day, arriving at one of the mountain passes which was more than 5,300m above sea-level (as a reference, K1 base camp is 7,800m). The area was large and hilly, and in my excitement then, I sprinted up one of the knolls for a panoramic view of the landscape. On the journey back to the hotel that day, I became totally out of commission, and basically had to stay in bed for the rest of the day right up to the following morning. I initially thought it had been motion-sickness from the winding roads but later realised it was most likely due to the lack of oxygen from the thin air. Because the marathon was held in an area of high altitude, the race required a mandatory four-day, no-exertion acclimatisation process. No exercises, no jogging, no training, no hiking, just sitting back and relax. Also, on the third day the doctors would make everyone run a short two kilometre stretch outdoors and take your heart rate at the end point. If it was too high or deemed dangerous, they had the right to revoke your participation on race day beyond contestation. Following that incident I learned that: You can try to test those limits, and if you are lucky, get away with it. I also read later on that altitude sickness, if not managed properly, can result in potentially a life-and-death situation. It all made sense. Before any race, every athlete knows to do sufficient interval trainings and regular runs with a gradual ramp up in distance and intensity. By pushing your body in a short time and disrespecting the importance of progressive physical conditioning, you could end up as what we used to call a one-burst wonder: someone who would give his 100% during one race and then retire forever. Even if you are an above-average fit person doesn't mean you can always push your body to extremes under a short period of time. To perform well for extended periods, one must follow an appropriate and natural course of physical conditioning. "There appears to be a link between accelerated growth and lifespan: rapid growth early in life is associated with impaired later performance and reduced longevity" - Neil B Metcalfe, Pat Monaghan Some studies on ecology talks about how bigger body sizes improve short-term survivability by reducing the risk of being caught by a larger predator. In fact a bigger body size also increases the chances of successfully making a kill to get food. With size also comes the ability to accumulate energy reserves that reduces the risk of starvation. From a Darwinian perspective, it is only in the best interest to grow big as fast as possible. This is not difficult to relate to. From big bullies to big companies, size does matter. Growing quickly maximises your chances of outperforming or eliminating the competition. Yet, observations on lab mice and other animals have statistically shown that with rapid juvenile growth comes reduced lifespans in adult years. Seems like any desire for rapid growth comes at a cost. For example, Red Bull might "give you wings" but the energy surge from one drink can last for up to 4 hours before most people descend into withdrawal-like symptoms and 'crash' the rest of the day. Also, performance enhancing drugs such as steroids have somewhat permanent damages on the body, years after those who use them have stopped. These damages often result in the human body using up additional resources which could otherwise be directed towards the normal upkeep and functioning of the biological system. Every sentient object follows a certain natural order of growth and size: "Each animal, as a product of chance mutation and natural selection over geologic time, 'has a most convenient size'. We don’t expect, for example, to see cheetah-like elephants or elephant-like eagles in the wild, do we?" - J.B.S Haldane But there are elephants that want to run like cheetahs, and cheetahs who want to fly like eagles. In the business setting, Damodaran also talks about the importance of companies to 'act their corporate age' within the corporate finance cycle: Young companies are all about growth. Unless you have a legacy like a Walmart or a Coca-Cola, chances are the markets are pretty unforgiving towards 'small-ish' companies and those who demonstrate an unimpressive growth rate. Some large companies today continue to be unrelenting in the pursuit for innovative growth. As a result, ambitious sales and profit targets are drawn up to satisfy stakeholders. More is good, bigger is better. In today's market, it's extremely easy to enter the penalty box with a zero or negative growth rate. You get left behind easily once you stop moving. Growing up is indeed hard to do. On the other hand, if you consume too much steroids to bulk up, you might do this at the expense of sustainability and sometimes even survivability. A HBR article written in 1983 talks about how ineffective work delegation and poor management of cashflow increases the possibility of failure for companies in the "take-off" phase (Stage IV below). Without a solid foundation of management, a firm that grows too quickly puts its operational hierarchy at risk. Delegation of responsibilities and work fail, resulting in higher costs, lower efficiencies, outflow of talent, higher requirements for working capital and therefore cash flow. In the worst case scenario, it may even result in a fallback to the Survival stage or fail. "Companies are born, they mature, they decline. It's the nature of that process." - Damodaran Like the laws of nature, there needs to be a healthy respect for the inner workings and dynamics of industry and markets. Knowing one's limits and when to lift or push the pedal on the accelerator is an inevitable truth that both businesses and individuals need to eventually come to terms with.

  • The use of a world map

    During my first interview upon graduating from university, I showed up at the offices of an IT consulting business. The premises were then at the under-construction Biopolis area of Buona Vista in Singapore. Started by a pair of French founders, it was a fledging business that provided IT consulting services, primarily targeting large European companies that had a significant presence in Asia. Like most of my peers, I was an eager young freshie looking not just for hands-on work experience but also an opportunity to gain more geographical exposure. I was told that the role required someone who was not only conversant on the technology front but also good at communicating with clients. Someone who could be like a Marissa Mayer of Google, traversing between the technical and the business aspects. This person had to be able to navigate conversations with potentially blue-chip clients of the world, yet possess the programming skills to write code for television. The goal was to eventually create a simulation prototype to be showcased to the Chief Engineer and the CEO, so that they could launch the final product in the global market. They wanted the best of the best, and I did want to be the best of the best. Midway into the conversation, I was also shown a huge wall-hung map of Asia Pacific as the founder himself stood in front of it, pointing to various cities while sharing his grand plans of expanding within the region. I had liked what I heard and was convinced that this was the company I wanted to join: A regional role, growth prospects, ownership. Money aside, there was also the hybrid business-tech angle, the entrepreneurial experience, and being part of that rewarding journey. If I had pressed on about comps, they probably would have also talked about employee share options and long-term incentive plans. Everyone likes share options – an equity stake in the business, unlimited upside, bragging rights to call yourself a shareholder. The founder’s pitch had worked. Never mind that I wasn’t a client. I had been sold into doing something bigger. I am less impressionable these days (no discredit to that company that I interviewed with in 2005). Much later, I also realized the effective-ness of talking to a prop of a world map when it came to showcasing the vision and geographical reach of any business. Some firms give away equity as part of selling their story. You might be able to get away with paying out less cash to employees who are clueless on how to value a business. Many fail to realize that equity is only worth something if it can be converted into money. Besides, for privately held companies, the roadmap to a liquidity event is sometimes not that straightforward. “Ownership is usually a bust unless your company is being fast-tracked to sell for big bucks.” - Karen E Klein, Bloomberg Then there are also those who will take a lower pay for a great working environment. For many startups and emerging businesses, founders and management have to find out what motivates their people to go above and beyond. Surprisingly, it’s usually not money. Adrenalin wears away quickly and no amount of money can compensate for working in a toxic environment. Corporate culture at its very essence is what makes a business successful in the long run: How do we provide support and training for newly onboarded staff? Do we have an environment that allows individuals to develop themselves both professionally and personally? How do we stay in touch with those who leave the firm? What is the first thing that comes to mind when people hear about the firm's name? Do we have Friday happy hour drinks? Do we make it an effort to listen to what employees really want, or are we just forcing-feeding the narrative at every townhall meeting? When you are pulling the hours and going the extra mile, it all comes down to manifestations of corporate culture. Selling equity isn’t enough. Value needs to be communicated, and maybe that was what I saw in that world map.

  • The changing narrative on China

    "Do you know how big is a billion? Just imagine every person tossing a coin at you at the same time." This was how one of my flatmates used to light-heartedly describe the scale, the 'massive-ness' of China and its potential market opportunity when I was living in Shanghai back in 2004. Some weeks back, Mark Mobius, a seasoned investor renowned for his bullishness on emerging markets and China said that he "cannot get his money out". Mr Mobius' experience might have just come down to a technical glitch in his personal bank account, and the media obviously loves to blow this out of proportion to create headlines. Capital controls have been existent since China's opening up and reforms decades ago. Everyone who ventures into the country knows and understands this. There are many ways in which flows of capital are designed, structured and moved in and out of China - the VIE structure, SAFE registration, designated cash pools, etc. That said, earlier this year, the NDRC also published an article guiding the application and use of long-term foreign debt in China. Among other finer details, it states that the process has become more substantive rather than procedural i.e. a more explicit approval is required for companies in China wanting to bring in foreign debt. No more "FYI"s. To complicate things further, over the last 12 months, SOFR rates - the benchmark for most USD-denominated lending - had risen dramatically, in quite the opposite direction from the PBOC benchmark lending rate. Numerous factors, both macro and on the ground, seem to hint at discouraging the flow of foreign capital to and from the country. One cannot ignore the nagging feeling that the narrative on China, in spite of its huge market potential, has been changing on a tectonic level. For years, fund managers have profited from the risk premiums between emerging and mature markets of the world. The business of investing sometimes all simply boils down to simple principles of comparison: All else being the same, money should go to where it has the lowest risk i.e. where it is most familiar The lower the odds of something happening, the higher the expected return. Tails drive everything. Risk premiums are fundamentally priced off interest rates, a tool used to keep inflation in check; and foreign currency exchange swaps, effectively a measure of how risky one country stacks up against another. Lately those odds have been somewhat warped: Emerging from the pandemic, one would expect central banks to maintain its near zero-interest rate monetary stance and encourage growth. But the bloating in asset prices happened to quickly and by the time governments intervened, it was too late. China, on the other hand, which was much closed out from the rest of the world during this period, went in an opposite direction. Short-term dollar-based deposit rates today have elevated to the levels of 4 to 5%, which means investors get compensated with a 5% return just by not doing anything. Approximately 3-5 years ago, a 5% return was the average expected return for investing in a 'stable market' regime and not doing anything yields anywhere from 0.3% to 0.5%. Just the arbitrage on risk premiums have compressed so much globally, making it incredibly difficult for many fund managers to justify dollar-based investments in emerging markets. For China, there is an added wrinkle of politics at play. Last year, the CPC announced slashing the compensation for senior executives at Chinese investment banks. Even state-run financial firms and regulators were not spared either as part of the reforms highlighted at the recent two sessions (两会). Also, last month, Bao Fan, Chairman and chief of China Renaissance, the deal-making rock star of many tech darlings in China, went missing only to re-surface some weeks later with news that he was assisting the authorities with investigations. One might say that all of this started in Shanghai after Jack Ma's controversial speech in 2020, and also part of China's push for common prosperity. Either way, all of this seems to be the un-intended consequence of "doing well" or achieving outsized returns in China. If you are facing high cost of funds and still have to contend with limited returns in a regime that is largely state-controlled, it can be really challenging to drive that equity story home. The billion-people market opportunity obviously doesn't sell as well as before. Embracing policy is a choice for investors offshore but a necessity for firms operating in China. That said, ultimately one just needs to be a believer. A believer in the policies and directions set forth by the incumbent few who are in power, and possibly a lot of faith, something which happens to be incredibly difficult to come by these days.

  • The end of free market principles

    Remember how people used to queue for Hello Kitty toys at McDonalds? Consider this extreme: You are queueing in line for that limited edition item and suddenly realise that it'll be sold out by the time it reaches you. The thought of walking away empty-handed drives you to think of other ways, including negotiating with the folks in front of you. But everyone respects the unwritten rule of the queue - first come first served, get in line and wait for your turn. Desperate and frantic, you decide to go bat-crap crazy and threaten to burn the whole store down if you don't get your toy, putting the entire queue and McDonalds store in jeopardy. Suddenly the store manager comes over to appease you, bringing you to the front of the queue, effectively guaranteeing a reward for your troubles. Make enough noise, create enough damage and you'll get something. For years, practitioners in the industry have been taught, have understood, and have accepted that equity holders stand behind debt holders in the queue to redeem cash flows of a business. These are the rules of the game relating to the priority of how cash in a business would be distributed, if and when assets are being liquidated. It's a basic principle codified in financial markets theory. But that rule seemed to have changed forever when Credit Suisse decided to write off a huge chunk of their AT1 debt last week and facilitate any residual payments to shareholders. "Protectionism, geopolitical self-interest and state intervention, in other words, seem to have over-ruled free-market principles." - FT By allowing the "free market principles" to take reign and go its natural course, the Swiss government runs the risk of embarrassing a certain influential Middle Eastern shareholder who recently invested in Credit Suisse, and in the process, taking the rap for the bank's current state of affairs. Investors and onlookers would ask, "why bother even doing a capital raise in the first place only to write it all off within months?". There would be a crisis of confidence in management, possibly wider overhanging doubts over stability in the region, including the country's position as a global wealth management hub. And then no one would put money in Switzerland anymore, a cost possibly too high for the government to bear. When the reputation of your country is at stake, all concepts of equity and debt gets thrown out of the window. Bottomline: Rather than adhere by the rules governing capitalist theory, it is far better to offend those who can afford to be offended than to risk a systemic meltdown. Of course extreme situations call for extreme measures. Under the normal course of business, every one is happy to stand in line and play by the rules. Decent wages for decent work, a fair share of the pie for a fair amount of effort invested. Most investors who walk into a share agreement try not to think too much about a material adverse outcome. But when the house is on fire, everything is up for grabs and all stakeholders - equity and debt - will scramble for the exit. I think the uncomfortable truth today, that no one talks about explicitly, is that: rather than fight a war using conventional arms, political decision-makers around the world have found a way to weaponise the workings of financial markets and monetary policies to drive their own agendas, in the process distorting how we perceive value. Any country in world can 'own' another country by simply imposing trade sanctions, ridiculous tariffs, and in extreme cases, confiscate assets - assuming one country is heavily reliant on the other for the import of certain critical goods and services. By creating dependency, you are weakening the bargaining power of the other party, and lesser bargaining power generally comes with lower value. Nassim Taleb also talks about this in his book under the section: "How to legally own a person": Every organization wants a certain number of people associated with it to be deprived of a certain share of their freedom. How do you own these people? First, by conditioning and psychological manipulation; second, by tweaking them to have some skin in the game, forcing them to have something significant to lose if they disobey authority—something hard to do with gyrovague beggars who flout their scorn for material possessions. In the orders of the mafia, things are simple: made men (that is, ordained) can be whacked if the capo suspects a lack of allegiance, with a transitory stay in the trunk of a car—and a guaranteed presence of the boss at their funerals. For other professions, skin in the game comes in more subtle forms. For good or for bad, sovereign risk has become even more closely intertwined with equity risk. When you buy a stock or a bond, it is no longer as simple as taking a view on profitability, future cash flows and room for improvements, but also the strategic importance of a company's position in the ecosystem. DCF does not capture all of that. In fact, no amount of number crunching and analysis allow for an accurate appraisal of any company's fair value today, primarily because the so-called free market is no longer that free. Instead of willing buyer, willing seller, the market economy is now to a good extent, influenced by statecraft, driven by the common interests of various governments. The treatment of Credit Suisse's AT1 bonds has also further demonstrated and reinforced how loosely-held and trivial the definition of equity and debt can be when push comes to shove. For what it is worth (as it has always been), value will forever be driven by the willingness of another party to take the asset off your hands at their own free will.

  • Fair value vs high value

    General Electric (GE) in the 20th century was known for the implementation of many successful business and management practices, including the lesser-known origination of the modern day investor relations (IR) function. It was apparently pioneered by a guy called Ralph Cordiner, who was GE's CEO and Chairman from 1958 to 1963. The roots of IR were evolved in the early days due to the need for companies to compete for capital in a systematic and strategic way, beyond the customary one-directional promotional advertisements. Money markets back then were a lot less developed with far fewer investors, and the large part of' IR work was subsumed under public relations, which was primarily focused on getting word out into the market and letting investors decide for themselves whether they wanted to buy the stock of a company. Over time, the tactics for investor targeting have grown increasingly sophisticated, characterised not only by demonstrating financial competency, but also the need for bi-directional communication and interaction. The fierce competition for capital also required companies to 'up' their game with the goal of optimising cost of funds to deliver higher shareholder returns while adapting to the changing tides of the capital markets. There is obviously a lot of art and science in IR today, from analyzing changes in shareholding patterns, proactive capital markets management, to dancing the tango between the company's management team and investors brokered by securities firms and investment banks. Because share price is often taken to be the holy grail of a company's success, IR functions are often expected to be part of corporate decision-making process, with investor engagement being an extremely core part of that consideration. Rightfully speaking, this dialogue with investors should guide towards a true and accurate reflection of a company's fair value, but the world is more complicated than that. As many business units within the firm including C-suite functions tend to be graded based on share price performance, there is almost always a natural incentive to curate and design the short-term narrative towards a high value, which sometimes comes at a cost. Beyond the obvious moral hazard, this ultimately results in share price and trading volume volatility. In the textbook context, these attributes are conventionally perceived as risk, which in today's market can be capitalised and profiteered by creative investment managers seeking to take advantage of the wild swing in prices. And the swing in share price can sometimes put a lot of pressure on those in IR roles. I recently "counselled" a couple of colleagues on the above, hoping to help them put things in perspective, and perhaps more importantly, not to beat up themselves too much if things don't go according to plan. There are things that you can change and there are those that you can't. The world is that complex a place. "When something that previously didn’t work suddenly does, it doesn’t necessarily mean the people who tried it first were wrong. It usually means other parts of the system have evolved in a way that allows what was once impossible to now become practical." - Morgan Housel Because of all these moving parts, any success or failure in an IR function becomes incredibly difficult to measure. Take for instance, should IR be judged based on a decline in the share price of a public listed company? Even though inherently we know that share price is correlated to fundamental performance such as net profit. Conversely, how much credit should be given if there is a two or three fold increase in share price over the same period of time? Underlying all this: Should a company's share price performance be a key performance indicator for an IR team? These are sometimes the result of fundamental reasons ranging from revenue and profit (which are partly driven by the business and macro environment), to irrational and unpredictable events such as someone firing a missile from a certain peninsula in Asia. Both of which are not within the direct influence of the IR function. The reality is that changes in share price are subject to multi-dimensional catalysts. And if these are mis-read, can unwittingly lead the company down the wrong path of decision-making.

  • Career longevity

    "You either die a hero or you live long enough to see yourself become the villain." - Harvey Dent, The Dark Knight Nearly everyone I know who started out in banking or private equity had the image of a five figure monthly salary in mind, being able to buy a home at an early age, take leisurely trips around the world, shopping at whim. It was the idea of a certain kind of financial freedom that caught us. No need for a billion dollars, just enough to live life on our terms. If you extrapolate that income over a period of say 7 to 10 years, it is easy to see how that could be possible. When you are a twenty-something year-old looking at someone else in their late thirties or forties working in the same career as you, it can be extremely easy to be disillusioned into thinking you can do this forever. But life is often never that straight. Pulling the hours and all nighters for that long a time can be both mentally and physically exhausting. It comes with the sacrifice of personal time, family and friends. Most people are oblivious to how much you have to give up (and put up with) when you work almost 7-days a week, go home past midnight and never see your family and friends for extended periods of time - all for that juicy bonus at the end of every year. Then there is also that temptation of starting a business, or a side gig, open a shop or something like that. After all what is the use of earning the big bucks when you can’t get to be your own boss one day? Some of us would go on to invest a part of that income into either public equities or the private markets. Both pathways requires staking a significant portion of capital. The lucky ones got out alive and sometimes with a decent profit. But there are also those who unfortunately come out with losses on the other end. Either way, statistically, it always seem to play out to the same result: We continue struggling to keep the lights on and do the jobs we do in order to justify our aspirations and lifestyles, whatever that may be. If you are a smart guy, you’ll figure the right time to get out before the hamster wheel consumes you. After all, the whole point of why we got into the high paying jobs was because it was always more than just about amassing money, correct? David Rubenstein, one of the co-founders of private equity firm, Carlyle, has his own talk show where it would seem that he is having a ball interviewing leaders and celebrities globally and from all walks of life. Both Steve Schwarzman (Blackstone) and Ray Dalio (Bridgewater) have turned to writing memoirs to share their collective experience and wisdom from doing business over the years. Andrew Ross Sorkin, no doubt a much younger chap and has a somewhat parallel career to Wall Street, has made his name both as a successful finance journalist and producer of TV show, Billions. Recently, one of my younger friends also highlighted to me that even the chief of Goldman Sachs, David Solomon, has apparently also started his own gig as a DJ. While they are not the best examples (primarily because they are either in the celebrity realm or billionaires), it demonstrates that there is possibly an alternative life beyond Wall Street. And everyone who has made it in some way or another, finds self-fulfilment in doing something either unrelated or tangential to finance, publicly or in the private domain. When you are in your twenties, you spend most years in the accumulation of cash. If you are the ambitious type, you might even set your sights on climbing the corporate or industry ladder. You work all-nighters and pump nitro just to get there. By the time you reach the thirties and touching forty, and if you are lucky enough to have some credentials, you find yourself in a nice position whereby you can capitalise on the knowledge, experience and the resources. It is relatively easy to earn well from here on, but also just as easy to get caught up in workplace politics and corporate re-orgs. You are a high-cost resource treading on a thin line and might find yourself working twice as hard just to justify your existence. It’s a never-ending cycle of work and more work. Many years back, a friend sent me this article titled “Your Professional Decline is Coming Sooner Than You Think”. It talks about how high performance individuals often struggle personally for many years past their prime. And it is important that we start to think about what comes next when the music starts to slow down. I have kept re-reading this article from time to time over the years, not because I’m not getting any younger, but more as a reminder of the fact that we are not invincible forever. We have been taught to plan our careers upon graduation but no one ever mentions about how we should plan the second good half of our professional lives, and that, I think, is important.

  • Redundancies

    "You don't have to have every single answer. It doesn't matter how many blue trucks a company owns. More important is what can you do in the business, in the the 20% that will really drive the results and drive the outcome" - Talks at GS, Henry Kravis Examining financial statements can be tricky and tedious. From an accountant's point of view, the ledger has to be always complete and accurate, even if it means laying out a few hundred lines of items. From a banker's point of view, we tend to be only interested in the top 3 to 5 items that affect the top and bottom line. There is always room for uncertainty and nothing is ever absolute. Unlike accountants, we talk about numbers in ranges and what-ifs. Nothing is ever precise. Sometimes we bankers talk too much as well. There is a lot of art in balancing uncertainty and precision when it comes financial modelling. One must be careful to avoid being caught up in too much detail such that it hinders decision-making and deviates from what we hope to achieve from building the model. This is where the 20-80 rule is useful. This rule can apply to cost cutting initiatives too. Conventional wisdom and numerous precedents dictate that the elimination of jobs should start at the top where it takes up presumably the bulk of costs. But removing the top brass could be potentially detrimental to an organization, especially if senior managers are instrumental in steering the business. The case here being: Better and more cost-effective to remove the head of a business unit than three or five cogs in the wheels. On the flip side, by removing the cogs i.e. shaving away a huge number of "low-cost" people, we also run the risk of overburdening remaining managers and employees with more work, which can lead to dampened motivation and workplace fatigue. Aside from headcount measures, firms tend to also cut back on business travel, entertainment and other petty expenses as part of cost saving initiatives. While prudence is a commendable attribute, if we put too much focus on the small items, this will ultimately hinder business development initiatives in the bigger scheme of things and sometimes limit creativity and innovation. So to sum it all up, no easy way out. And all of the above fundamentally relates to cost savings - a convenient way to justify improving profitability to shareholders. However, most companies tend to neglect that "the short term cost savings provided by a layoff are often overshadowed by bad publicity, loss of knowledge, weakened engagement, higher voluntary turnover, and lower innovation — all of which hurt profits in the long run." In times like these, it is even more important for the firm to be upfront when communicating to staff. In late 2010 with the onset of the Eurozone crisis, I remembered my entire team being rounded up in a meeting room to be given a brief "heads up" of the looming uncertainties. No promises were made. The job cuts came about 3 to 4 months later. It was a difficult time but that short briefing gave everyone sufficient time to get mentally and logistically prepared. No one benefits from such a situation - the folks who are departing obviously lose their jobs and the ones who stay on shoulder more work and responsibility. But as much as possible, you want to avoid having huge clouds of uncertainty hanging over everyone's head. It is of course also hard to be encouraging but still absolutely necessary for the firm and managers to communicate the facts to the team in terms of what to expect, rather than soldier on silently. Employees will be employees and 99% of them will always feel victimised in a situation like this. There is also another good cause for initiating cost-cutting from the top - solidarity. Collective hardship and pain are a good band aid for fostering some camaraderie during turbulent times. And perhaps more important than solidarity is trust. The relationship between a firm and employee extends beyond just a contractual agreement but a psychological one. Most employees who have been laid off don't feel that they should be penalised for the underperformance of the company, especially if the employee isn't in a leadership or senior management role. At the risk of sounding unfair to those with skin in the game, there is an inherent perceived disproportionate balance of risk and reward, in which the employee feels involuntarily placed in a weaker bargaining position, subject to the whims of their employer i.e. the firm ultimately reserves the right to terminate them during a period of economic uncertainty. But feelings of negativity and distrust can be contagious and can spread quickly within the rank and file. In the strictly commercial sense, profitability and shareholder value are both important metrics to measuring corporate performance. There are no jobs without the existence of a company, no company to speak of without the investment of capital. No capital without shareholders / stakeholders. But even as we strive to maximise profitability, it is equally important to ensure sustainability in generating profits, to go beyond the numbers and dive into corporate culture to examine the quality of earnings being generated. By solving for profitability in the near term, are we putting the longer term strategy of the firm at risk? In the words of the founders of 3G Capital: “Culture is not about supporting strategy, culture is the strategy.”

  • Age and risk management

    [Disclaimer: I’m neither a parent nor speaking on behalf of all parents] I was walking on the pedestrian bridge to Pacific Place in Hong Kong, watching people from various walks of life - young and old - pass when this thought came to mind: They say that those who have kids tend to look and behave older than they really are. It’s not just the result of long term fatigue and physical exertion, but also the experience and wisdom that comes with it - Knowing what to avoid, where to step, how fast to go, what not to eat. Older people, like parents, likewise share an inherent trait of being highly averse to risks, especially overly-high risks. Risk management is a very underrated attribute. It is boring, dull and invisible. Its virtues are often only realised in times of ruin or in hindsight as we grow older. Contrary to what we conveniently assume, wealth has little correlation with a person's line of work but more about just being around at the right place and the right time. I have seen high-flying bankers who used to hold lofty pay-checks, being being so-called "reduced" to the common man. And it's not only bankers, celebrities share a similar fate as well. People such as Michael Jackson, Mike Tyson and Nicholas Cage went into financial debt splurging on extravagant items. Hard to imagine sometimes. Being in a highly-desired job and earning a five-digit monthly pay-check upon graduation doesn't guarantee that you'll be financially well off in your 30s and 40s. And even if you find yourself in a financially advantageous position in your 40s, circumstances can change quickly overnight if you make a misstep. I find those swaggering in this category while exuding an air of arrogance incredibly vulnerable and borderline repulsive. So risk management isn't sometimes about portfolio growth and diversification, but more about avoiding bad decisions with drastic outcomes. Knowing when not to act when everyone else is getting excited about hopping on the bandwagon, learning how to avoid FOMO, and also when to move when everyone else is cowering. Those who are ruin-averse tend to be more humble and better at doing this. Experience is oftentimes good teacher. Steve Schwarzman of Blackstone once said in an interview with Bloomberg. There are no brave old people in finance. Because if you’re brave, you mostly get destroyed in your 30s and 40s. If you make it to your 50s and 60s and you’re still prospering, you have a very good sense of how to avoid problems and when to be conservative or aggressive with your investments.

  • Quarantine free travel to Shenzhen

    Finally and for the first-time, I took the high speed rail from Hong Kong into Shenzhen. Despite the lunar new year festive period, the station didn't seem as crowded as I remembered it pre-COVID. I got my tickets online from, the official site of China Railway for all rail passes in China. I collected the hard copies from one of the counters the day before to avoid any long queues on the day itself. Once you pass through the gantry, numerous signboards will prompt you to fill up an online health and itinerary declaration form, which will generate a unique QR code for scanning at the border control points. While there are no swab or PCR tests at this point, you are required to obtain a negative PCR report within 48 hours before departure. And that's it - this post is as short as the journey on the high speed rail.

  • Summertime soldier

    It was 2011. The government debt crisis in the EU had reached a stage that required the bailout of several countries long thought to be considered creditworthy and stable. I was a senior analyst then and the bank that I was working for wasn't spared from this contagion. The outlook was bleak and the bank's share price had taken quite a beating. As part of 'austerity measures', there were also talks of bonus and job cuts across the offices from Europe to Asia. The economic turbulence and uncertainty kept everyone on their toes. On one afternoon that year, I was pulled into my CEO's room for a chat. A few words were said, the message wasn't direct, but in short, I had been given a "golden ticket". I had also just been recommended for an overseas training trip to HQ. At that point of time, I had no idea what this meant. After more than a year into the job, I felt I didn't need the training and as a result, gave it up to another colleague whom I felt needed it more. Much later on, I realised that it was in fact an all-expenses paid two-week trip to wine, dine, possibly stroll along the Champs-Élysées, and rub shoulders with our colleagues from all over the globe. The valuation training was simply a side show. A few weeks later, I resigned to join a competitor bank for a no-brainer 60% increase in pay. The money came at a time where I had to fund several huge upcoming expenses including the downpayment on my new house. But the news of my departure didn't go down too well. While everyone else was 'congratulating' me, my CEO refused to speak with me during my final days at the firm. Later in that year, I also discovered that the entire analyst/associate pool had basically been decimated, leaving only the VPs and one analyst. That was supposed to be my golden ticket. I was supposed to be the last man standing, for better or for worse. A couple of years later, the team that I jumped ship for was shut down as part of an internal cost cutting and re-organization exercise (talk about karma). Decisions like these can be tough. Some might say it was foolish to trade goodwill for money. I was paid a handsome amount in the process and without that money otherwise, I probably would not have been able to fund the purchase of my house amongst other things. Besides, goodwill (to be blatantly transactional) is only good if you can derive something tangible from it in the future. Don't get me wrong that we should do something only if it pays in the short-term. Many of the benefits and opportunities I enjoy today are the seeds of goodwill planted 10-20 years ago. But being able to effectively gauge when to cut your losses and call it day, versus hanging around and sticking it out requires a certain amount of psychological conditioning, constant self-persuasion and perhaps a certain wisdom (some say craziness) - even more so if you have something seemingly more commercially lucrative on the table. "Summertime soldiers" are what Marc Andreessen calls those "who only joined [a company] in the first place because [it was] already successful and have no interest in really bearing down and applying themselves to a challenge". These people while hardworking, are also not the type of people you want to retain and groom. As an employee, it isn't technically wrong to jump ship for a better paying job, and I never regretted what I did. Given the choice to re-write history, I might have went for that incentive trip, soldier on being the lone analyst within the firm and later on down the road, find a way to make back that 60% increase in pay.

  • A quiet new year

    After two years and given that it was the year end, I thought it was timely that I should spend some time to consolidate and reflect on the takeaways, the hits and the misses during this time. But nothing actually came to mind. So I spent the crossing-over to the new year in a relatively low key fashion. No celebration, not a lot of booze, no chugging of beers, no fanciful dinners or gatherings. All I did was head up to the open-air rooftop of my hotel at approximately 23:50 in anticipation of the fireworks overlooking the Hong Kong city skyline. Even after the clock struck 00:00, there was also no spectacular display of fireworks, not at least from where I stood. Yet, this was how I enjoyed the new year crossing. The simple peace and serenity of taking in the cool 15 degrees outdoor air, the sensation of looking forward to a restful morning on the following day. And perhaps more importantly that the rest of the world only wakes up and starts to go to work two days later. Some might even call it a short reprieve from the shitstorm of work awaiting in the first week of the new year. During my investment banking analyst days, a VP once asked me what I did on weekends. I gave him the rhetoric of being too busy catching up on work to be able to plan for anything else. It was true anyway. Whenever anyone asked me about my banking days, I always told them that we worked seven day weeks, had after dinner drinks at 9pm, went back up to work around 11pm, got off past midnight and then back into the office the next day at 930am. That routine changed slightly as we grew into our jobs with travel increasingly becoming a part of it but the hours never really changed. Aside from the mandatory 2-week compliance leave that we were entitled to, there was hardly any downtime, and hardly a moment to "switch off". This daily cycle can put a toll on you, both physically and mentally. I recalled one of my colleagues popping pills to regulate this blood pressure because he was getting increasingly affected by the incessant badgering, the non-stop phone calls and the never-ending refreshing of pitchbooks and financial models. "Regardless of how little time we have, one must learn how to block out work when it is time to rest. Otherwise, you would go crazy." - that was what the VP had said to me. There is stress everywhere, in every blue-collar and white collar job, no matter how much you try to justify it using salary. It could take the form of overtime hours, a nasty boss, an unreasonable client, unhealthy working environment, etc. Everyone deals with the vicissitudes at work differently. Some say this deprivation of normality over long periods of working in a high pressure environment leads to overcompensation through the splurging on the extravagant stuff. Despite what the rest of the world says and thinks, I think one of the biggest takeaways from doing investment banking wasn't really the money, but the fact that you can put yourself under tremendous pressure and yet pull off functioning as a normal person under any circumstance (at least for those of us who made it out sane). Yet, there are those who seemingly made it out but never really left. You can of course leave an investment banking career and still stay rooted in a toxic mentality. These are the same people who continue to measure success through lofty titles, name dropping and the size of their pay checks. You can always sniff these people out by what they choose to talk about with you. Only just recently, I was re-connecting with an ex-colleague over WeChat. Much to my surprise, within a few text exchanges, he started asking where I was now, if it paid well and other stuff related to corporate hierarchies and knowing who's who. I did not write him again. And so, there will always be nasty people to meet and unpleasant experiences, but there is also the mindset we take with us to deal with it. We can continue to complain about working on weekends, how much of a pile of work awaits us on Mondays, how we are not commensurately comp-ed to our peers, how much we are sacrificing personal, social and family time for work, or how sucky the markets are. Endless worries. Life will forever be a struggle, but to some extent, we are almost always in control of the decisions we make and always have the choice of deciding how we want to let the little things shape us and the way we move forward.

  • The era of bullshitting is over

    Social media had only really started to take off some time in 2009. In the 2020 TV documentary The Social Dilemma, the show talks about how creators of social media encourage and nurture the addictions of users to help companies make money. But the impact of social media went beyond commercial exploits. Over the years, it also subtly cultivated a deep and unhealthy sense of emptiness. Luke Burgis talks about this using the story of a man with his martini in his book, Wanting: Social media has successfully helped billions to overcome geographical boundaries, bringing people together or re-connecting friends who have lost touch with each other over decades. It has also allowed us to keep up to date with what is going on around the world such as browsing someone else's holiday pictures on Facebook or reading about a friend closing a multi-million dollar deal with several well-known investors. We have been given the privilege of gaining access to more information, but this has also on the flip side, amplified and nurtured the feelings of envy, insecurity and greed, subtly creating a false impression of what we deem to be important or credible. By acknowledging what drives these feelings could help us better understand why so many companies and founders choose to believe that they read, to inflate their corporate identities and "social circles", probably in hope that some investor will come along and bite the bait. This is manifested in corporate websites, social media snippets, such as trumpeting about a media interview, or showcasing participation in high profile conferences. And so, we've been led to believe that: If something is sensational and disseminated widely enough, it often the "truth". Even better if someone prominent says something about it (see BN Group). But curating a healthy media presence is one thing. Bullshitting in order to feed your ego is another. "It’s easy for someone to become an overnight expert on 'productivity' merely because they got published in the right place" - Excerpt from 'Wanting' Remember the reality TV show Shark Tank? Kevin O' Leary, aka Mr Wonderful, recently revealed taking a $15 million 'deal' from FTX to be its spokesperson. Never mind whether or not Mr Wonderful was a cryptocurrency-skeptic-turned-ambassador. In today's world, it seems that at the right price, people are willing to say enough bullshit to endorse a product or a company, regardless of whether they believe in it or not. This strategy has been effective in the business and investment world, social media just made it better. People who consume bullshit will believe in bullshit. Feelings of envy and FOMO often drive people (and investors) to make foolish decisions. One of the biggest fears of any VC is to be left out in a multi-bagger deal. Some compensate for this through 'diversifying' their portfolios. Those who have staked their money have a vested interest. They want to make sure they don't look bad doing the deal, and therefore will do anything to ensure that the equity story holds up, at least long enough until they exit. This is the state of fundraising in the world today. This is the reason why we have so many asset bubbles. In light of the many recent frauds, scandals and apparent lapses in due diligence, investors have started to increasingly become more discerning about who they deal with, what they read in the media, the kind of information they are fed with, and perhaps even more importantly, where they put their money. If they haven't, they should. The era of bullshitting is over. Companies and people need to wake up to reality and stop the proverbial fake it till you make it, "over-packaging" their products and services, and start getting real about talking about fundamentals and their numbers.

  • Handling year-end appraisals

    For many, it is that time of the year again for festivities and holidays. However, it is also the time of the year for many companies to round up the hits and misses. Simon Sinek says that "you can’t incentivize performance, you can only incentivize behavior". But what happens to an organization if you reward the right behaviour and fail to deliver on results? Embracing the philosophy of 'survival of the fittest' might be their best chance of staying afloat, should they continue to reward good behaviour at the expense of performance? Goldman Sachs, has an annual 'culling' ritual whereby it shaves off the underperforming 5% of its workforce. This might sound brutal but that practice is probably one of the key reasons why the investment bank has successfully maintained its leading edge amongst the rest of its competitors. In the book "Dream Big", Jim Collins also talks about private equity firm 3G Capital's corporate culture: "The very best people crave meritocracy, and mediocre people fear it." Generally, those who seek to cruise their way to a natural retirement should be eliminated for the greater commercial good of the company. Yet this is not always so. Large companies often have blind spots and loopholes within their organisational hierarchy for underperforming people to hide away. Sometimes, it is also more costly to replace a long-serving employee who has been too familiar with keeping up with the firm's day to day operations. But trimming the fat is a crucial aspect for staying alive. And in all of these scenarios, the firm pays the ultimate price in terms of profitability and efficiency. It can be very easy to feel victimised when you don't get credited or rewarded (monetarily) for the efforts that you put into a particular project or for achieving a breakthrough for the company. It could also be a certain line manager or a higher up finding fault with you. And this could be anything from a missed deadline, falling short of KPIs, or even not trying hard enough. Sometimes the way things work (or don’t work) within the company is not entirely your fault. The larger the company, the more complex and inter-connected the workings are. The reality is everyone is entitled to their opinion. Just remember that the ones who have real skin in the game (those who have something to really lose when things go bad) have the absolute right to ask questions and demand for results - even if they sound unreasonable. Don’t beat yourself up too much. But remember, as an employee, also don't be too quick to give yourself more credit than you deserve for your achievements at the workplace.

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