More on Kiasu Parents

This post is updated in 2014.

In economics, competition is the best thing that can happen. Competition brings about lower cost, innovation, improvement and makes economic development possible. Competition goes on until it is limited by other factors. E.g. until all producers are loss-making and can no longer make money, or until some input resource is depleted. Which is not always bad in economics bcos it benefits the consumer or it forces innovation (by looking for a substitute).

But for kiasu parents, competing for the best schools is a completely different ball game. After reading a few examples from this book titled, "The Economic Naturalist" by Robert Frank, I could really relate to the plight that our Singapore school children and their parents are in. It's useless excessive competition that ultimately leads to a worse-off situation.

This is a phenomenon known as "tragedy of the commons", but in the book it is merely stated as "competing for self-interest that conflicts with interest of the group". I will highlight some of the interesting examples here:

High heels: One of the examples showed how ladies prefer ever higher heels in order to impress upon the opposite sex ie. us guys... Well, as we now know, there is no turning back. The current global contest of the highest heels has begun to pose safety issues and has affected ladies' feet/mobility. Yet since every woman on this planet is now wearing high heels, a girl simply couldn't stand out even if she splurges on those life-threatening 10-Inch Stilettos, but yet she cannot afford not to wear. The solution would be for all the girls in the world to agree to break all the heels, but alas that's not gonna happen, my dear.

Antlers: Nature provides the case of how antlers with bigger horns can attract more mating partners but run higher risk of getting eaten by lions since the horns will get in the way when they try to escape predators. In this case, natural selection determines the optimal size of the horns. Those with smaller horns ultimately cannot seek partners and their genes died out. Those with horns too big get eaten up. So we are left with horns just right.

Slim models: Another interesting example regarding female models showed how the Association of Fashion Designers came down to dictate the minimum weight for models as it was become a social problem. The issue: all models want to look better than others and they go on a competitive diet regime that ultimately benefits nobody and worse still, influence young girls globally to become anorexic as young girls want to look like their favourite models.

Full automatic rifles: In the US, regulations are imposed to prevent people from easily obtaining full automatic rifles like the M16 or AK47. Again without such restrictions, we can easily imagine robbers buying M16 to rob the neighbourhood stall and the owner picks up his bazooka to fend robbers off.

In the last two examples, the government/authority or entity in power steps in to correct the situation.

In Singapore, I would argue that kiasu parents and their kids are trapped in the same game of de-generative competition. Everyone goes for tuition to try to gain one-up against other students but actually nobody gains. Yet the kids have less play-time, are more stressed, parents' wallets get thinner and the Govt saves money on public education - which is kind of strange plus stupid.

As alluded to with the examples above, this situation can only be solved in 3 ways:

1. Some limiting factor comes into play: parents run out of money to fund the tuition marathons. However, with wider income disparity, this means that only the poor will run out of money and the rich continues to play the game and only the top 1% wins. Well this is happening now.

2. Parents come together and say stop this. Again, as with Kate Moss wannabies and girls going for high heels, this will not happen. This solution happens when the no. of affected parties is limited. E.g. the nuclear arms race came to an end when all the nuclear nations agreed not to increase the no. of warheads. With 2 million parents in Singapore, agreement is gonna be a real long shot.

3. Authorities need to step in with guidelines/regulations. I see this as a viable solution although it has not succeeded meaningfully anywhere in the world. South Korea outlawed tuition but the results are mixed. It went underground and tutors risked going to jail for US$10,000 a month.

Well, we cannot outlaw tuition in Singapore, but I do believe some measures (described in my previous posts as well) might be worth thinking about:

- Smaller class sizes: each child gets more attention.
- Less focus on grades, more on qualitative assessment.
- Scrutinize tuition agencies (highlight scams).
- Set guidelines for parents (on fees, no. of hours per week etc).
- Encourage good teachers to teach in public schools (better pay, environment etc).
- Publish statistics (tuition vs no tuition relative improvement, mental health of kids before/after tuition etc).

The Singapore school system has changed significantly since this blog posted about education (this post originated 2 years ago). I believe we are moving in the right direction. Our Government is not stupid, when they want to change things, they can. They just need to be more caring as well. Heart truths!

And to end this post, some food for thought about competition. While we need some of it to foster the child's urge to better himself, parents must ask when does it become unhealthy?

Insightful read:
http://www.alfiekohn.org/parenting/tcac.htm

On Ministers' Pay

This is sensitive topic that has angered many Singaporeans. Even with a 30% pay cut, people are not happy. So what if the Transport Minister gets paid $1mn instead of $2mn? The train is still breaking down and the taxi fares just went up damnit.

At the risk of getting flamed and BBQ-ed on skewers alive, I would like to chip in my two cents from an economic viewpoint.

There are perhaps 30+ Ministers and high ranking Govt officials that receive on average, say S$2mn in annual package. Let's throw in a generous bonus of another $1mn. So in total, we pay out $100mn to our Ministers plus high ranking officials like Permanent Secretaries, Head of Civil Service, etc.

But our annual Budget is over $30 Billion and our Economy is over $200 Billion. $100mn is a mere 0.3% of the Budget and 0.05% of the Economy. Does it really impact the big picture? In fact it makes perfect sense to pay the best minds to do the job well.

Of course, we can argue if they did the job well. The short conclusion is they did relatively well against most other nations, but not so well against their own track records. Also the benchmark has to be set properly, if they fail to meet - pay cut! Haha! That should satisfy the public.

Yes, our Ministers are the best paid in the world. Much more than the President of the United States, arguably the most powerful person on the planet. So it really doesn't make sense why a PM of a Little Red Dot should be paid more.

My argument here would be that most top officials globally are too lowly paid. It then also says that these people are truly noble, accepting such meagre sums to do such difficult tasks. It then also says that perhaps our leaders are not noble enough.

Of course the other argument would be that Clinton or Reagan can always publish books and give speeches after their term and earn much more. Or retire into a better paying job as advisers, spokespersons etc. And Singapore's leaders can't really do that bcos bestsellers in Singapore at best hit a few hundred thousand copies, maybe over a few years. Not really enough to buy even a cheap condo unit.

And Singapore cannot really afford to wait for noble souls to step up to the task. We need to attract the best talents to do the job. Already being a politician is such a sacrifice (no weekends, no private life, no time for family) that most smart people would shun away, let alone volunteer to step up the plate.

Not to mention, this is a thankless job. How many Singaporeans made the effort to pay their last respects to the late Dr Goh Keng Swee, one of the most important persons that built Singapore to what it is today. A mere 18,000 or so Singaporeans, out of the 3+ million. That's probably lower than the Disney on Ice @ Indoor Stadium ticket sales last year.

Perhaps a better solution would be to provide these Ministers more benefits rather than to give them an enormous paycheck at the start. Say we lower all their salaries to a few hundred thousand SGD, less than the all-important million dollar mark. But they do not need to pay taxes ever. Their healthcare and insurance are taken care of for life. Needless to say, pension would also continue, perhaps sweeten it a little as well.

It might also be useful to simply give retired politicians peace and freedom since monetary benefits wouldn't really matter much for many of them when they are out of office. The late President Dr Wee Kim Wee was happy to revert back as an ordinary citizen and travel with his wife to see the world. Perhaps that was what truly made him happy than all the benefits and huge paychecks.

2012 High Dividend Stocks in Singapore

I have cleaned up the screen in the last post and this is the newest list of co.s with more or less the same criteria:

1. Market cap more than $100mn
2. Dividend yield more than 4%
3. Past 3 yr average ROE more than 12%
4. Past 3 yr FCF yield more than 6%
5. Past 3 yr EBIT margin more than 10%

There are 2 more co.s: Silverlake Axis and Super Group which is not shown due to the screen size of Bloomberg. So this round produces 34 names in all. Well 33 to be exact bcos Singtel is counted twice.

I have tighten the EBIT margin to reflect that a strong co. should at least have 10% margin but loosen on the FCF from 7% to 6%.

To me, this tighter list will weed out some more of those bombs that usually come with generated quant screens.

Again, pls do more homework on these names bcos the qualitative analysis is always much more important than just churning out names using some value factors.

As for the four names mentioned previously, Adampak drops off from this list due to the market cap criteria change (from SGD50m to 100m) while Viz Branz, SATS and Boustead are still here.

I would add that Super Group is also in a good business (same as Viz) with different geographical exposure (ASEAN) but slightly more expensive and a lower dividend yield (4% only).

Finally here's wishing everybody a happy 2012! Hopefully a war doesn't break out in Iran or North Korea this year!

High Dividend Stocks 2011

Holiday seasons are here again and here is the long awaited update on the high dividend names in Singapore. How time files, the last one, which is also the most read post on this blog, was done more than a year ago.

Using almost the same criteria as last yr:

1. Market cap more than $50mn
2. Dividend yield more than 4%
3. Past 3 yr average ROE more than 12%
4. Past 3 yr FCF yield more than 7%
5. Past 3 yr EBIT margin more than 4.5%

We get over 50 stocks. This first installment shows the top 20 names. Actually I tweaked the criteria a bit bcos using the old one (with ROE of 9%) will get close to 70 stocks which will stretch the series too long.

Again I must warn that such lists usually cannot help investors make money. It is a mere first cut for diligent analysts to dig further for gems.

A couple of names on last year's list is gone now. One of top names: Best World completely collapsed. It's sales decline 30% and its share price halved. I didn't drill into the details, but you can imagine there would be a few of these bombs in a list like this.

So pls do your homework!

Incidentally, the name we discussed in the post last year: Transpac did very well. It returned $1.1 to shareholders but it's share price only fell from $1.7 to $1.5, this means that people who bought in Sep 2010 when the post was out would have made 50% in 1 year excluding tax effects.

But as alluded to last year, it is a difficult co. to understand as they are not running a normal manufacturing business. Rather it's now more an investment holding company.

Anyways here's the bonus (or bomb! depending on how the stocks will do in the next 3-5 yrs). Based on my limited experience, I believe the following co.s are genuinely good businesses to own and should help perserve capital over the long run.

These are co.s that either have a reputation for quality management or in a good business or both. Investors who had looked at Sg stocks for some time would be familiar. Again, caveat emptor, pls don't just buy blindly. Do your own homework.

1. Adampak: Packaging co., makes stickers and films and also helps distribute 3M products. Key risk: High exposure to HDD.

2. Boustead: Engineering co. run by FF Wong, an astute manager. Key risk: cyclical nature of business. Fellow blogger Musicwhiz covers this stock very well.

3. Viz Branz: 3-in-coffee and cereal maker. Great business in China and Asia but weaker than Super Coffee. Key risk: Battle for control within family members.

4. SATS: Big food supplier in Singapore (for Changi and the Army), blue chip. Key risk: Declining Sg male population, SIA squeezing them and relatively high valuation and payout already.

So, that's all folks. Stay tuned for the next few installments!

Meaningless Millionaires

We might have reached the end of the line for fiat currencies. This has been talked about in economic circles but perhaps the most people are still not aware of its drastic consequences. While nobody thinks it will be anything like Germany after WWI or Singapore's banana money after WWII, the end result is not great. We are going to see a lot of meaningless millionaires.

I just found a good description of what it means to be a millionaire from my favourite encyclopedia.

From Wikipedia: A millionaire is an individual whose net worth or wealth is equal to or exceeds one million units of currency. It can also be a person who owns one million units of currency in a bank account or savings account. Depending on the currency, a certain level of prestige is associated with being a millionaire, which makes that amount of wealth a goal for some, and almost unattainable for others.

The story started in 2008 during the Lehman collapse. The US govt pulled out all the stops to save the global financial system. It printed and printed and printed money. It is often said, Bernanke is a student of the Great Depression. If he had to throw sacks of dollar bills out of the helicopter to encourage people to spend, he would do it. And he did, figuratively.

This lead to the debasement of the US dollar, the world reserve currency.

Now we are seeing it in Europe. While the political bickering stopped the 27 governments from carrying out its actions promptly, ultimately, back-stopping everything that can go wrong by printing is recognized as the way out.

Well, there is another painful path, which is to let parts of the system fail and start over, like Iceland. However, policy makers cannot risk that and thus we go back to the printing press. Anyways this path also leads to the collapse of the currencies involved.

China had done its part with the 4 trillion stimulus although the effect on the yuan is less visible due to the peg. Most of it ended up in shadow banking and also the foreign reserves.

The Swiss came out with a bang with its unlimited intervention to keep the Swiss franc competitive.

The British more or less didn't have to do anything while the market sells its pound to historical lows.

The last major currency holding out is the Yen. But with its Government debt to GDP at 200%, higher than Greece, Italy and Spain, it might just be a matter of time before the yen implodes. Meanwhile, they are doing some stealth intervention.

What about the Singapore dollar? Our Govt has always maintained that we need the SGD to remain strong in order to offset inflation.

But there is a limit to how strong SGD can get, if not, our exports will crumble, or worse: we might give the Chinese or global HNWI (High Net Worth Idiots Individuals) the impression that Singapore's property is the safest haven in the world and the SGD can never depreciate. ie all the more reason they push up the red-hot property sector. This will lead to more unhappy Singaporeans and bring about the end of the PAP regime. So that's a no-no.

So basically all global currencies are going into competitive devaluation, what this means is inflation, or worse stagflation - inflation without real growth.

Actually, the story didn't start in 2008. The prequel was when Alan Greenspan took over as Fed Chairman in 1987. And for the next 20 years he re-engineered growth of the global economy into a one that doesn't go through normal business cycles of boom and bust but rather grow in a 45 degree straight line for more or less 20 years.

This has a drastic impact on inflation longer term but the effects were not felt for the most part of the last 2 decades. The true inflation is also masked by obscure methods of calculating inflation like adjusting for productivity or quality. For example a laptop bought this year at the same price as last year is counted as -50% in price (bcos the CPU speed doubled), imagine the impact on inflation with a portion of the 350 items counted like that!

All-in-all, what these means is that money is worth less, much much less than it was 20 years ago. Long term inflation as stated in textbooks is always roughly 2-3% per year. But I would say that the true inflation over the last 20 years might be closer to 5-6%.

In the last 3-4 years, inflation basically went stratospheric, in Singapore it is 5-6%, but again, the true rate might be double of that at 10-12% or even more. Just roughly speaking, taxi prices when from $15 for airport to town, to $30 now, with peak surcharge and airport surcharge and ERP and another couple more dollars if you suay suay ganna the premium cabs like the black Chrysler.

That is roughly over the span of the last 5 years, so that's 100% inflation over 5 years - ie 20% per year.

With that in mind, 6% inflation for the last 16 years, and 12% for the last 4 yrs.
That means that 100 dollars 20 years ago, is probably worth like 25 dollars today.
This also means that a millionaire today only has 1/4 of the true net worth or spending power compared to a millionaire 20 years ago.

In a capitalist society like Singapore where aspirations of financial freedom, millionaire by age thirty-five are abound, the implications are profound. Who wants to be a millionaire? Sorry, it's actually who wants to be a $250k-aire?

The truth is, being a millionaire is no longer enough. A millionaire today is not even half of what it was.

A millionaire tomorrow is basically meaningless.

It means you can probably buy a HDB flat (which would have taken up 70% of that amount) and live happily for like 5 years. Then inflation catches up and you realize that a proper restaurant meal costs $150 (today it's about $60 today for a family of four), your car cost $200k and your insurance can cover your taxi fare to the hospital ONLY.

Even if you don't count the first property (which is traditionally the way to determine a true millionaire, ie not counting the first property), it's still pretty meaningless. Bcos a millionaire definitely cannot buy a 2nd property anywhere in Sg and the same food, transport, medical inflation would destroy wealth faster than you can say "final answer".

So, who wants to be a millionaire?

Problems and Solutions to Singapore’s Education System – Part 4

This is the last post of a four part discussion on education, interested readers can read from the first post.

Teachers, or rather the lack of good old-fashion responsible teachers, the inability of the system to retain the talented ones, the low teacher to student ratio, the mind-boggling ECA workload, the long hours are all the woes we hear about teaching.

It is said that being a teacher is no longer about teaching. It’s about writing proposals to help the school win awards or about going through motion since the students would then learn from the private tutors anyways. Even better, teaching is simply a way to get oneself out of the unemployment ratio.

I believe the whole teacher/teaching system is due for a huge revamp. The solutions are pretty straight forward to me although I must admit this is just really from my layperson point of view.

1. The admin workload of writing proposals, involved in ECAs

It is pretty clear that there is a need to increase admin headcounts for these jobs. Teachers are supposed to teach and they should be compensated for teaching and rewarded for being able to teach well ie the students genuinely love learning from the good teachers and their grades improve when they get a good form teacher.

As for the admin staff, they would be involved in the ECAs, the awards, event organizations and their compensation would reflect their output on these jobs.

2. Inability to retain talent

Partly related to the first point, as teachers spend more time doing work that they don’t like, working long hours but getting less satisfaction, is it a wonder that most good teachers would leave to become private tutors? Of course, we forgot to mention that teachers’ salaries have not risen to match other professions bcos it is not set by the market, but by the Govt.

Hence the solutions are pretty simple. Make teaching enjoyable again by reducing the workload, reducing the working hours and increasing the pay of teachers. In the old days, I believe teachers would be in the top quartile of income earners in Singapore. It was regarded as a profession, and a noble one. Today, as income rises exponentially, teachers are no longer earning as much in a relative sense and private tuition pays bcos it is set by the market. As we have discussed, since the whole system creates these scarcity premiums all over the place, prices skyrocket and the best teachers leave to become private tutors. And the best private tutors charge the best prices.

3. Overall lack of teachers

It is a well-known fact that our teacher to student ratio has not improved in the past 20 years. It was one teacher to forty students then, it still is today! We don’t have enough teachers! Why? Bcos they keep leaving to become private tutors and we keep importing foreigners and their children to our schools. So we are back to square one, we need to make teaching a job that people covet. We need to increase the pay, reduce the working hours and improve the working environment.

There might also be a need to de-emphasize the ECAs and the awards so that schools focus on what is most important: the students and their learning experience.

4. Performance assessment of teachers

Currently, there are also situations where teachers who excel in doing ECAs get promoted bcos this work is more visible and definitely what the principal needs. Real teachers who just want to impart knowledge are marginalized.

Hence we are back to the first point where teachers should simply teach, and admin staff can handle the ECAs. And the performance of teachers should be based solely on their teaching ability. Also the principals should not be judged on how many awards the school wins, or how well they do their ECAs.

The focus should be on the children and their learning experience. Education in the early years should be about learning basic stuff in a more holistic manner. It’s not just about mathematics, science and languages and high stakes exams. It should be about nature, music, art, history, hands-on, sports etc.

The best teachers are those who have the passion to help our children learn about all these. They have the knowledge, the patience and the enthusiasm to teach and they should be judged by these yardsticks. Not quantitative measures like how many awards, or how many initiatives.

Teaching should be made noble again and learning fun.

See all posts!
Part 1
Part 2
Part 3
Part 4

There is also more discussion on kiasu parents.

Problems and Solutions to Singapore’s Education System – Part 3

This is the 3rd post out of four part discussion on education, interested readers can read from the first post.

The phenomenon of having more private tuition to supplement school education is a very Eastern phenomenon. We see it in almost all East Asian countries like China, Korea, Taiwan and Japan. We might argue that this is a cultural issue. Parents in Asian countries going through this phase of development see the importance of being ahead of the crowd in education and hence are willing to pay through their noses to let their child have this head start.

This is also the argument used by MOE. The Govt cannot stop parents from sending their kids to private tutors. Blame the kiasu parents. They are not called kiasu for nothing. No matter the changes put to the system, since kaisu parents want their kids to be one-up, private tuition will continue, and prices for the best private tutors will keep on rising.

Well, let’s see if this argument really stands.

Putting on the economics hat again, I can again identify a fundamental economics problem here. Yes, the supply and demand issue again that we discussed. In short, the whole elitist system drives demand for private tuition. If the system is made less competitive (well at least in the primary school level), more holistic, with more qualitative assessment, less high stakes exams, it would become irrelevant to game the system with more tuition. In Finland, lower primary is just about learning and how to make it fun. There are no numerical grades, no high stakes exams. Yet their students do as well in international competitions.

It might be a good idea to completely do away with PSLE and replace it with qualitative assessment and simple grades with no numbers or granularities ie just A, B, C, D. Then you might ask how to differentiate between the good and the bad students? Now, by asking that question, you just missed the big idea. The idea is: there is no need to differentiate them at such a young age. The education mission is to allow the child to learn about our world in their first 9-10 school years. Each child should be given the same opportunity at this stage. It is not about differentiating and just bringing up our best children.

Of course, at the big picture level, when we achieve the grand goal of having so many good schools that eliminates the scarcity premium of the top schools, there is no longer any need to compete for the limited spaces.

On the supply side, there is a lack of good teachers and a system to retain the best teachers in schools that resulted in Singapore’s phenomenon. We all hear anecdotal stories of how some of our teacher friends started noble wanting to teach, only to be discouraged by low pay and poor working environment and they move into private tuition. Now if we can change that, put these best teachers into the schools again and at the same time further increase the quantity of good teachers, can we address part of this issue?

We might.

I say might bcos we have not tackled the other part. The kiasu part.

Parents are inherently kiasu, even if you put the best teachers back in schools, or you revamp to whole system, since they want their kids to be one-up, they will still go for private tuition. There is no solution to this problem.

Is that really so?

The kiasu conundrum is an interesting one. I see it as somewhat similar to the famous Prisoner’s Dilemma in Game Theory. If you confess, you get a light sentence and the other guy suffers. But if both confess, both are worse off. The parents are in exactly the same situation. They think that by going to private tuition, they gain one-up. But in reality, since everyone is doing that, we are all worse off. Only the private tuition agencies gain.

The issue here is one of information. If all the prisoners know that the other parties are not going to confess, they will all keep mum and all stand to benefit. This is how most Singapore oligopolies play the game. Look at the telcos, or the petrol kiosks, or the transport co.s. Nobody ever cut prices. Nobody ever confesses and every player benefits, except the consumers.

Twisting the situation around, the policemen also have the full information picture. They know whether the other prisoners have confessed. In fact, at the start, they could have engineered the results they wanted. They could have tell the prisoners no one is confessing, if you do, you sabo everyone. But if everyone doesn’t confess, everyone is better off.

MOE is the police here. The official stance is always that they should not meddle with the private tuition industry. But the fact of the matter is that private tuition is now mainstream education! And by the way, private tuition is now a multi-billion dollar industry in Singapore, bigger than the budget of some Ministries. In time it WILL be bigger than the budget of MOE.

There is a need to educate the parents, to show that everyone is worse off with tuition in a relative sense. Yes the child do improve on absolute terms, maybe they learn fractions faster or can read Shakespeare earlier. But since everyone can, we are all the same in a relative sense. Just that the parents’ wallets are thinner. I believe some parents figured this out, but their response is: no choice, bcos everyone is doing it, we cannot lose out. So if it can be shown that there something can be done, the parents would bite. Information is the key here. Inform the parents that tuition does not help.

Perhaps MOE or other relevant bodies can commission a study to show that the stress level of students are much higher, or they have less sleep time, less play time and hence affecting their development as a result of tuition. And bcos everyone is going for private tuition, nobody actually gains. The media can definitely publish more articles on these issues. The media can also highlight how some tuition agencies are not adding value at all and how some private tutors are irresponsible and are there just for the money.

On a more hardline tone, MOE can regulate the industry since it is becoming such a big part of education. In Korea, they outlawed private tuition some time back ie anyone caught giving tuition goes to JAIL, and the tutee pays a FINE! That’s a bold move! That might not go down well in Singapore. But MOE can still have some measures.

All primary school classes have form teachers who know their students well, they can discourage parents from sending kids for tuition, not encourage them by telling parents they MUST send their kids for tuition. Of course this works better when the class size gets down from current 40 plus to 20 or less. They can give exact instructions to parents on how to help their kids improve in weak areas like focus on spelling, or multiplication etc. Or where the child show world-class potential and can really develop a REAL “one-up” against others. The idea here is to curb demand.

To regulate supply, MOE should ensure that all private tutors are qualified and licensed and have fee guidelines, protection against scam tutors etc. These measures also discourage some of the bad practices.

Again the solutions proposed here involve a destruction of the billion dollar private tuition industry and is definitely a bitter pill for many, many people. However for the sake of our children, I believe it is a worthwhile effort.

Next post, we talk about being a teacher!

See all posts!
Part 1
Part 2
Part 3
Part 4

Blood on the Streets

We have to digress from our topic on education a bit as the financial markets are entering interesting times. Here is my attempt to answer a question on many people's mind: time to buy?

The last couple of months were pretty awful for those who are involved the markets. Most indices were down double digits. Europe was down 20%, Asia high single digits and Latam was also down teens. Only US did ok with single digit declines. What an irony, US the birthplace of this current mess actually suffered the least…

Market commentators are talking about 1/3 chance of recession, but I believe the reality is that we are already in recession. It is double dipped chocolate with whip cream. Unemployment no.s are going to rise and real assets are likely to fall (finally! A chance to buy property!), hopefully.

So the big question: when is it time to buy? Now or still must wait?

Well, I must admit, I am THE worst market timer, so I won’t answer that question outright. I would say look at valuations. If the valuations look cheap enough, then probably it’s ok to buy. But if we go into a recession, things will get cheaper. Value investing cannot help you time the bottom. Market idiosyncrasies can bring a PB 0.5x stock go to 0.3x, even when the book is perfectly good, with no impairment, write-downs or other balance sheet risks.

So the trick would be to keep some bullets. This is for those with ample liquidity who can afford to buy a bit now, wait for more blood on the streets and average down. Not forgetting, there would be transaction costs involved too!

Why do something like that? Why not just wait for real bloody mess and then bet the house?

Well for those who have gone through Lehman or previous messes, we know it’s easier said than done. First, something like Lehman might not happen. Markets might not fall further bcos it is already pretty cheap (at least some markets are, like Brazil which are at single digit PE and giving 4% yield). So if we didn’t buy now, we might miss the boat before we even realize.

Second, when it does come, we don’t dare to buy, bcos we think it’s the end of the world, better keep cash or gold. And when things recover, again, we miss the boat. Of course, the 2nd lesson learnt here would be that if Lehman does happen again (ie global markets fall 20% in one week), we just have to bite the bullet and buy.

Ultimately stock markets will recover. Stock markets have survived the Great Depression, Wars, Oil shocks, Hyper-inflation etc. The only exception is Japan which is mired in major issues which deserves a couple of posts to discuss. But I guess it is the safe to say that as long as companies meet their cost of capital (which most of them do), they would continue to create value for shareholders and that’s the reason stocks will continue to go up over time.

Problems and Solutions to Singapore’s Education System – Part 2

So, what is the solution?

As I have alluded to in the last post, it is the elimination of scarcity value. This means eliminating our branded schools, or creating more schools that are as good. It will also incorporate changes to the grading system to make it more holistic, encompassing many more subjects, making the system less granular and qualitative assessments from form teachers. It will also involve redistributing resources from elite schools to the entire system and upping the Education budget, making it bigger than Defence.

There are a few ways to create more good schools, mostly involving hard measures but for the greater good. We can redeploy the best teachers to other places and rotate these best teachers and principals so that they spread the best practices. We can nurture promising schools so as they can rival the top schools. These are tough choices. There will be a lot of unhappiness and resistance and it will take a decade if not more to achieve but our children and the future generations will benefit.

Think about the day where parents no longer need to scramble to get their kids into branded schools, because they know that most schools in Singapore are as good. There will be no volunteering for mundane tasks, no fighting to be a grassroots leader, or buying properties for the sake of getting 1km from the school etc. Students receive equal opportunities no matter which school they go. They get a chance to learn from the best teachers and more importantly to learn more holistically.

These are not simple changes. We need to attract talented people and convince them teaching is again a good, noble, highly sought after profession, like in the old days. We might need to double the salaries of teachers, and pay the better ones even more. We need to put money into nurturing promising schools. It is not an impossible task. A good example would be Rulang Primary, which was never highly regarded just perhaps 10 years ago but is today one of the most coveted schools in Jurong. We need a lot more Rulangs and the people who made that possible.

The strength of a good system is to make the best the lowest denominator. In basketball, if we pit Chicago Bulls with Michael Jordan against and All Star Team, which team is likely to win? It’s Chicago Bulls, bcos in the good team, Michael Jordan in the lowest denominator, while in an All Star Team, the weakest Star is the lowest denominator, and the weakest All Star is inferior to Michael Jordan. Currently Singapore’s primary school system has the worse schools as the lowest denominator. And in the schools, the worse students are the lowest denominator, dragging down the class, or even the school. Hence the parents scramble to put their children into the best schools, not wanting to be dragged down.

On changes to the grading system, by making it more holistic means more manpower as well. The current PSLE is efficient and achieve its purpose of sorting out the best students. The new system wants to put the child at the centre of the equation. It means form teachers making qualitative assessments, ie smaller classes. Emphasizing other subjects, more specialized teachers. Infrastructure changes would likely be needed as well: a science garden, history and geography rooms, music rooms, sports facilities, like swimming pools in every school etc.

Again, such changes are not easy, but would be for the greater good and the benefit for the children of Singapore.

Next post, we talk about kiasu parents!

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Problems and Solutions to Singapore’s Education System Part I

This is a discussion dedicated to most parents who suffer from the idiosyncrasies of our education system. I have spent some time thinking about this and have decided to blog this despite its irrelevance to investment, although economics would help us understand how we can try to tackle some of the issues.

The discussions here would be focused on primary education rather than the whole education system which I believe deserves more scrutiny and research. I have identified 3 main issues or problems that are probably well-recognized by most Singaporeans. They are

1. Elitism in our education system
2. Escalating peripheral costs: predominantly private tuition
3. Good teachers, or the lack of them

Elitism in our education system usually refers to pouring resources into the top performers in the belief that the best brains in our country should be allowed to develop their full potential and when they in turn contribute to society, the benefits would be shared by all. I would not delve into this elitism topic by itself bcos I think that would probably need an entirely new blog. Rather I am looking at how elitism affect the economics of our education system.

One side effect of this elitist system is this: it creates scarcity. In economics, scarcity is a big thing. We all know economics is about supply and demand. Scarcity limits supply, encourages demand and causes prices to skyrocket. Think branded goods, gold and precious commodities, iPad 2, iPhone 5, luxury sports cars, exclusive events etc.

In our elitist education system, scarcity is created in multiple arenas: we emphasize exam grades on just four subjects, we have branded schools like Raffles, Nanyang, we have our Gifted Education Programs, SAP schools, through-trains, ex-teachers turned tutors that are highly sought after. All these drive up scarcity premium, encourage high demand and drive up prices. From tuition fees to property prices near schools to perhaps even prices of school buses.

In fact, we can argue that the whole Singapore system seems to have this indulgence with scarcity, or creating bottlenecks in the system that drive prices one way: up. Think ERP, COE, HDB flats, Class A wards, private hospitals, high-end restaurants, exclusive clubs, high-end condominiums, high-end spa and gyms, high-end this, high-end that, Singapore Airlines PPS membership, Solitaire membership, the list continues.

Well we can understand that listed co.s might want to have more of these scarcity premium to earn better profits to satisfy shareholders. But as a Government, the objective might well be the opposite. To eliminated scarcity as much as possible so that the bulk of the society benefits.

Partly related to this point of scarcity is the big issue of our education system being reductionist ie not holistic, or not well-rounded. In fact, at the primary school level, it’s basically about language and science. I did a quick Wikipedia read-up and found out that primary education in other countries usually also involve subjects like music, drawing, elementary instructions in nature, history, geography, sports and lessons combined with practical work experiences around the school compound.

Sure, we do have some of these in Singapore, but they are never emphasized and not part of PLSE, the all important high stake exam, and hence easily neglected. Whereas in other countries, it is the overall performance that counts, not one exam. The overall performance incorporates all subjects, including sports and music and qualitative assessment of the form teachers.

Elites need to be separated from the rest of the junk. We rank our schools, our classes, our teachers, our kids and we have this super granular system whereby each PSLE student has a three digit score. Btw I still remember mine! Why are we obsessed with ranking? Bcos we want to rank these PSLE students so that we can figure out who are the elites and can go to the limited number of top schools, where significant amount of resources are poured in to nurture our best talents. Yes, we want to create scarcity!

While rankings are required at the tertiary or higher levels to facilitate university entrance, it might be counter-productive at the primary school level. It takes the fun out of learning and turns learning into stress. Again, a simple wiki-study will reveal that most primary schools in other countries employ a more holistic and less granular grading system. In Finland, the country regarded as having the best education system in world, numerical grading is not found on report cards in the early years. And, there are also no high stakes exams. Ever. Well at least in primary school level.

Learning is about the children, not about grades and rankings.

Next post, we look at the solutions.

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