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Covid Scare and Cash Flow Gaming
Covid Scare and Cash Flow Gaming
June is an eventful month on my personal front. Despite being fully vaccinated with booster shots via the Moderna vaccine, I was infected on 13 June (Monday the 13th) and was forced to WFH to clear some time sensitive assignments. Although I was fortunate to not suffer any long term side effects from the virus, it reawakened a sense of paranoia in me that my introverted nature may have led to me being underachieving on my personal life, and I will kick the bucket early before truly clearing off my bucket list. I decided to make a deliberate decision to be more outgoing after this covid scare, abiding by the motto to live < every week to do something foolish, something creative, and something generous>. I am attempting to explore outgoing hobbies outside work as well as the chance to meet more people.
<Cash Flow 101> was a game created by Robert Kiyosaki, the infamous author of the book <Rich Dad Poor Dad> which book is an inspirational read for the average office drone/ corporate slave. His true method to achieving his riches are quite devious and manipulative (playing around with tax evasion, promoting get rich quick schemes, and using narratives to propagate his views which is not supported by the numbers), but I am curious to see this heavily promoted game is about and signed up for a session. As a complete novice to the game, I was allocated to a table against hardcore gamers, with a husband-wife Duo whom is trying to pool their riches to corner the housing market, two veteran friends whom are equipped with their own rulebooks and already figured the metagame out, an elderly gentleman whom is really into dividend stocks in his real life, and me whom was hit by a huge streak of bad luck (reverse split) / Doodads (lose initial capital, turn losses) right at the start of the game.
What is truly dumb is that I actually managed to win the game despite the odds stacked against me, by practicing a deviant strategy of abandoning the manipulated housing market (with my low capital overlay) and going all in on stocks and buying them as they hit new lows (at USD1) , and rewarded immensely when the game makers announced a (Covid Stock Boom) and artificially promoted all stocks to be price at USD100. The hundred baggers I had allowed me to achieve financial freedom when I diversified my stock portfolio to real estate, earning me the reputation <Roaring Kitty> and prompting the game-maker to make me share the thoughts of my winning strategy with my veteran peers.
Dumb Strategy that allowed me to win the game
1) Identify what are assets VS liabilities, and always seek to accumulate assets.
2) Position correctly and get lucky. Luck > Skill and knowledge via veteran players
3) In a game whereby you know nothing compared to everyone else, seek to get a market quote around the table so that you can know its estimated true value
4) Importance of active cash flow management (estimate the probability on the duration / turns before your next paycheck, the rate of return of each real estate investment, and the payback period whereby your investment will get your money back)
5) Leverage aggressively when the risk reward are good, and importance of deleveraging to 0 cash to minimize the bank interest.
6) Bad luck at the start (disrupting the compounding effect) don't always doom you. Then again, my life story in this game has uncanny parallels to 'Roaring Kitty' and the sample size of 1 is probably not a good rule of thumb
Although I am thrilled that I won the game, through discussing with veteran players, this game is rigged towards utilizing leverage as real estate that was bought has no real downside (you can leverage without limitations or risk of margin calls as long as you meet your interest payments, and with no risk of market downturns compared to real-life auction driven markets). A (leveraged-dividend-investing Strategy) with the janitor (low expense) job can easily succeed as long as the player don't have kids (unpopular but factual opinion) propagated by the game. Although I didn't think I learnt anything meaningful from this over-simplistic view of real life finance, it was a fun night and I might attend future sessions moving forward.
Investment decisions for the month of June
I initiated an initial position AMD at 27 Jun 2022 at the price of USD 86.036 as I am bullish about the demand/supply dynamics of the semiconductor industry. The demand of semiconductor chips is still going strong and there is no real impairment in the pricing power/ demand of chips in smart cars / hardware / data centers / personal computing as the world is getting more digitalised. As I was wary of the elevated valuations last year and find it difficult to value the company due to the cyclical nature of the industry, I hope this margin of safety will render the forecast unnecessary and the growth / pricing power of the company can outlive inflation worries.
I averaged down on MSFT at 30 Jun 2022 at the price of USD 257.29. My initial purchase decision was for Berkshire but it continues its steady ascent upwards which prevented me from getting the company at an attractive enough discount. Google and Microsoft experienced a sharp drop at end of June and I decided to go for these great companies at an attractive discount. As my warchest is extremely limited, I decided to go for MSFT for now and will wait for earnings season next month.
Operating from my circle of competence in tech stocks, I am exceptionally wary about the prospects of Data center REITS / Real estate stocks that are immensely loved (and overvalued by retail investors) in Singapore. Singapore based Data Center REITs have no pricing power as they ultimately manage data server rental, and large firms like google are downsizing their data rental space and preparing for economic contraction. FANGM companies can easily adopt a real estate strategy (self ownership) to position them in cheaper ASEAN countries like Malaysia / India/ Underwater data centers to reduce cooling costs, compounded by cheaper electricity and manpower costs overseas . Pricing packages of these REITs are competitive and these REITS underprice their packages to go for the relationship / customer base, and data server rental is ultimately a commodity business that market demand is being compacted at this moment.
I was lucky enough to get an slight increment at my role due to good performance, and I will have more capital next month to allocate to my warchest. Inflation is an insidious tax and I can see it affecting all aspects of my life, from lunch budgeting, utilities cost and groceries. Nonetheless, this sour sentiment is probably already being priced in by the headlines and market sentiment and I am still confident that this stagflation / tightened interest rates is not the end of the world, as long as the underlying companies perform decently. As my warchest is super tight, I might need to hold off capital allocation to twice a month. I shall maintain a disciplined posture as interesting opportunities emerge!