blind_FOMO[def]: TJ.Lin@Chn young techie

A powerful concept and pattern, in search of a shorter name.. like blind_FOMO, as a specific form of breakaway.

Opening example: For many big-ticket products, a novice would often buy the market leading branded version (paying a premium), because he doesn’t know his own needs. FOMO is a suitable descriptor.

— the Main example of this blogpost: TianJue is the first to point this out, when I shared with him the paradox of China’s bachelor tech professionals. See latency无底洞

As soon as the bachelor enrolls at a Beijing/Shanghai college, he would face the same decision that some of his cohort has already decided on — “Will I end up working in 一线 city like 北上广深 ?”. If yes, then the home purchase looks inevitable and requires a whole-family effort starting from Year 1. .. Wrong priority.

I asked TJ “if the price is out of reach for my family, then what about renting?” I don’t remember his response, but perhaps 1 in 3 bachelors could realize “…beyond my capacity” and put away the decision. For the remainder, buying is nearly infeasible but question is “Will I regret if I don’t buy, and rent or work in a Tier2 city?” The more peers make the early decision to buy, the more peer pressure on the helpless bachelor to follow the herd instinct. It’s interesting how semi-consciously we filter our peer group and exclude bulk of the local population.

TJ also pointed out that dating game puts huge pressure on the bachelor. In my younger days, I had to work hard over decades to improve my /status/ in the mating competition. When I first had kids, I didn’t believe the opinions of those likes WQ.Luo. I was driven to improve housing, education resources… for my kids, engaging in the arms race with millions of fellow parents. Similarly, the inflation fear was a widespread brainwash. Medical cost inflation fear was driven by my own parents… All of these “struggles” are taught to every young men as part of Chinese enculturation. As a consequence, I felt perhaps $3M would be needed.

Those around me who gave up on ffree were seen as _quitters_. These are the individuals who decided to keep working till retirement age, buy a house of same size as the peers, save as much as the peers, save up for college funding as the peers… all without a ffree goal. They are seen as not trying hard enough.  Clearly my choices are a breakaway from these “quitters”.

TJ then concluded that by my age, I have figured out my real needs and real priorities. I guess that’s a SelfKnowledgeAdvantage

— eg: the ivy-league fixation + SDXQ fixation among the Chinese middle-class in U.S.
Many immigrants seem to assume that schools rated below 8 are unacceptable… Fear of unknown. They follow their peers [i.e. fellow immigrants] and reject these mainstream choices.

Kyle and I discussed our “insider insight“. With this insight, I hope we can live free of the huge financial burden/obligation. In such a case, I would count myself lucky to understand my own needs.

When I told my father that my kids don’t have to enter any college, he said he would be proud of my son if he gets into Community colleges or Polytechnics. Heroic words of wisdom.

— eg: retirement planning .. Many younger Singaporeans seem unsure how much they would need in retirement. Some follow the marketing propaganda, dismiss the CPF-life amount as inadequate, and take on the huge burden of “SGD 1M nest egg”.

TJ pointed out that by my age, I know my own needs.

— eg: safe European cars .. I put a high value on their extra safety level,  exactly because I don’t really understand the risk. TJ.Lin said the probability of preventable harm from dangerous accident is actually very very low.

— eg: if unsure, buy the dominant brand. In the 1990’s you won’t be at fault if you buy IBM, even if it’s not the best choice in hindsight.
My first smartphone was a Samsung… not “better” than the cheaper Vivo, Oppo, Huawei phones I have used.

BDYK + fwd hazard rate #BGC/MIH

For each overseas rEstate project, there are a few miletones, each with serious hazards/risks

  1. project completion .. Hazards can cause lengthy delays (BGC [1]). Some unreliable developer can disappear (RitzG5). MIH is a good example [2]
    • vicinity development can take decades. Until that vague “milestone”, your building might be the only decent building in the area. No jobs, no parks, no retail, no “buzz
  2. renovation completion .. furnishing, fixing problems. Some units are “completed” but unusable.
  3. land title registered .. Risks? legal risks
  4. mtg approved .. Risks? poor mtg rate or no banks
  5. finding a local agent and negotating the terms .. hazard? Some locations have no agent at all.
  6. first tenant signed.. hazards? May not find anyone at all for years. Perhaps oversupply in the location. Perhaps the location doesn’t have the buzz of Uptown.
  7. Milesstone-9: 1Y probation completed with the agent .. Risks? Many owner-agent relationships don’t work out.
  8. ^^ One of these milestones may appear to be too trivial to be a milestone, but I have seen investors getting stuck at each of these things, always due to some serious hazard.

FHR [forward hazard rate] := the aggregate amount (count and magnitude) of potential derailers [swans, missteps] per year. Usually we ignore the per-year part [4]. In the beginning we face the highest hazard rate i.e. many things could fall on us or derail our train.  At each milestone, our total (forward) hazard rate improves, as uncertianties become well-known and familiar risks.

BDYK [Better the Devil You Know] is a key observation/experience in FHR.

[1] For example, the BGC asset has survived many hazards and is now a much safer asset than it was in 2015, therefore worth a BDYK-adjusted SGD 300k, even if we ignore (or don’t know) the market value changes.

[2] MIH — When I first paid down payment, FHR was huge and off-putting (show stopper to many investors) largely due to credit risk of an unknown developer. After completion, the biggest hazard was removed, and the asset is now worth a BDYK-adjusted USD 200k.

[4] When do we actually use per-year yardstick? In the stable phase. FHR in the per-year sense captures the amount of headaches, stress, derailers (of my bubble)

Does FHR ever worsen? Only in rare swan events like covid19. This exception proves the norm that FHR always improves until Milestone-9 or somewhere nearby.

— paradox of rEstate concentration risk
If you buy in 9 countries you are bound to hate one of them, often due to hazards. It’s then logical to exit that country and increase concentration in the best of those 9 countries.

On a less macro level, once you are familiar with a given country or developer, FHR would be better than X years ago (when you were unfamiliar). It’s now logical to increase concentration with (eg) MIH.

This “logical” allocation ought to be balanced with the (equally logical) need for diversification.

Look at U.S. or China rEstate investors. Most of them stay in home country. Zero diversification by country.

— positive cash flow -> self-sustainable i.e. the highest level of success.

Q: As of 2014, when we heard of SG investors flocking to an overseas “opportunity”, how many percent of them would reach Milestone-9 of positive cashflow with a reliable local rental agent?
A: Below 30%. Possibly 20%. It’s nearly impossible to achieve positive cashflow, if you have a mortgage with P+I. (Biggest problem is P).

Many investors would ask about my appreciation margin. For them self-sustainability is not the highest level of success. I don’t care about their priorities. I don’t even know the valuation, but I’m sure it’s better than my initial. What’s important to me is carefree and positive cashflow, not windfall appreciation.

— appreciation .. I feel after you can demonstrate that your unit has a proven rental yield, you can get a higher valuation than before completion.

This is logical, but many logical predictions don’t happen. I can list many reasons.

FHR has shown a real improvement. Many of the big question marks and big clouds are cleared.

— Overseas rEstate .. is the main focus of this blogpost. Local projects are much easier for investors.
==== Fwd Hazard Rate, without the “per-year” part, is also applicable beyond pff

immigration offenses and criminal record affects a career more in the earlier stage of a longer career. The FWR depends on the “remaining lease”.

FHR affects a marriage the most soon after babies are born and improves as kids become less dependent on the continuing marriage of their parents.

## filter conditions4overseas rEstate #unchanged since 2015

— my filter conditions for overseas

  1. small quantum. Hard limit? 250k?
  2. rental yield .. this depends on the local economy and rental demand
  3. prime location
  4. — minor conditions
  5. FX risk .. I discussed GBP/SGD (3..) and AUD/SGD (1.3..) with MAPIC advisor and my sister.
  6. legal risks

So for many years I have prioritized quantum and primeLocation. That’s why I always pick up tiny units and never bought in developed countries. Other people usually aim at windfall profit, which is a wrong priority for me. I stay away from the exclub temptation. Windfall profit doesn’t enrich my life as additional NNIA does.

— economic maturity .. a tricky “filter”

Developing countries offer more upside (at least in theory), but there is real risk of getting stuck in “protracted_adolescence”.

Perhaps we could switch from super-macro to less macro like municipal level. Some hotspots in a developing country could avoid protracted_adolescence.

— Wallan case study on 26 Feb 2022 .. See also MAPIC: j4$1100. Based on my filter conditions, most of the early indicators that presenter shared are inferior to the early indicators in BGC or Cambodia locations.

The actual surprises included FX risk, developer integrity. However, it’s possible that Megaworld is below-par but not as unethical as I thought.

I still feel my Cambodia deal is much better overall, based on my priorities.

FX loss (in SGD terms) can wipe out all your capital gain + rental income.

[21]Gabbar: no right or wrong@@

 


See also

In my Dec 2021 year-end dinner with 3 colleagues, once again I noticed my breakaway from middle-class, in terms of priorities, blindFOMO

They talked about condo (1.2M was what they discussed), big mtg (like 900k), maid, private internaitonal schools as if there is no choice (They are foreigner in SG. Later I brought up college funding and SDXQ.) They also talked about car ownership… in a well-connected Singapore!

Varun reiterated that there’s no right or wrong, but I do have an opinion. I think some of those items are the wrong priorities for me (and probably for them too), because I have better self-knowledge. I think in old age some of these individuals would regret when they re-evaluate their past decisions in total honesty. Other eg of personal priority where there is no right or wrong:

  • To them, short commute is a good-to-have but low priority.
  • To them, healthy longevity is presumably low priority, and pleasure is high priority. Well, look at Grandpa’s experience after 85.
  • To them, my diet struggle, hazards, availability … are clearly a low priority. I feel some of their waistlines represent their growing income.
  • To many of my peers in their 30s and 40s, more time with kids is a priority, but for me, I don’t want too much time or too little time with kids. I know what I want.

I don’t want to spend on commercially popularized priorities like car, luxury housing, top SDXQ, branded colleges,,,

I’m willing to spend on my personal priorities such as family reunion trips, low-stress/low-pay jobs (like Mvea, Citi…) I think the issue of maid is similar.

— creep vs savings .. I think for some of these colleagues, their savings rate might be decent. However, their burn rate is probably higher than mine due to 1)housing 2)car 3)maid. I remember one Sonic guy used cheap credit to finance private school fees. Even without kids, some of them spend more than I do, perhaps spending 80% of salary.

Their lifestyle creep is probably higher than mine, influenced by peer pressure. Actually I don’t have enough insight. My lifestyle creep is non-trivial.

— high ground .. I feel they won’t reach my level of cashflow high ground any time soon.
I think their burn rate would be 80% of income including mtg P+I.
Their FullerWealth would be much low than mine.

Mtg .. They basically assume that a 30Y loan is “fine”, even though it would impose an extremely stringent obligation to pay $2k-3k/M non-stop.  Well, that’s Not “fine” to me, not a minor thing to me.

I enjoy a high brbr and FullerWealth (my priorities), but to them, those priorities may look like saving money for nothing.

I never buy iPhone #branded uni

iPhone is a poster boy of a class of products that I always say NoThanks. Similarly

  • latest laptops? I buy the reliable low-end models. The one luxury feature for me is touch-screen! A less luxury feature is low-weight.
  • branded pianos
  • fancy big homes with low rental yield
  • luxury college degree? Instead of NoThanks, I did pay for one at UChicago and learnt my lesson.
    • I will limit the topic of college, as it has the tendency to dominate this blogpost 喧宾夺主.
  • luxury cars .. a different category. Safety and quality !

I think the FIRE community of the U.S. would endorse my NoThanks.

— value/price ratio:
A common feature among these cases is the existence of an alternative offer at a fraction of the price.

I define my notion of quality and value (usually including durability and reliability) and I always find these “iPhones” extremely un-competitive in terms of value/price ratio.

By far the biggest case is luxury college. I have many blogposts about the quality question.

— show-off
another common feature — the manufacturers of iPhones spend huge amount of the marketing dollars creating an impression of superior quality, innovative features and sometimes exclub status. Many buyers really fall for it and buy these things to show off.

With the college choice, show-off is a key motivation, but things are more nuanced. I have blogged about the nuances.

As I age, I see more and more similarities between branded college and branded clothing, branded phone etc. The “consumer” here is the parent. East Asian parents spend very large amount of disposable income on these status items.

— FOMO: With iPhone, I feel my wife and other people are often driven by FOMO.

Many parents fear that an unbranded college means their kids are handed a second-best “ticket”. They fear their kids will pay a price in adulthood.