Thursday, January 19, 2012

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:

Wednesday, January 11, 2012

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.

Friday, January 06, 2012

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!