Month: March 2016

I Thought Operating Income was Conservative…

By LaurMG. (Cropped from “File:Frustrated man at a desk.jpg”.) [CC BY-SA 3.0 (], via Wikimedia Commons

But I’ve decided that even Operating Income isn’t conservative enough when used for valuation.

The reason being that even though Operating Income is more conservative than Net Income due to the lower room for accounting manipulation, it’s still susceptible to accounting manipulation that masks the true picture.

An example is Exxon Mobil (3.41% of my net worth as of this writing).

If judged by a 5 year average Operating Income / (Market Cap – NNWC), it’s currently yielding at ~12% [1], which is a bargain for long term oriented shareholders (eg. The Operating Income maybe muted last year and for the next foreseeable 2-3 years, but Oil prices must rise again in the long term due to increasing demand globally).

But I don’t want to talk about speculations on when Oil Prices will rise and by how much, I want to talk about the shortcomings of Operating Income.

You see, even though 5 year average Operating Income / (Market Cap – NNWC), Free Cash Flow / (Market Cap – NNWC) is at an astonishing 3.02%[2]!!

The reason why this is astonishing is two-fold:

  • Free Cash Flow (FCF) is a company’s Operating Cash Flow – Capital Expenditures, which means that’s what shareholders would expect to receive after deducting from the Cash Flow what’s required to keep operations going if shareholders required the company to distribute 100% what’s leftover (a.k.a. True Earnings)
  • As of 2015-12 Annual Report, Exxon Mobil’s dividend / share is $2.88 while its FCF / share is only $0.98, which means the dividends are nowhere nearly as safe as the 60% payout ratio indicates

Which makes me uncomfortable, because what we’re looking at is a potential double whammy to my original Exxon Mobil investment thesis, which bet on Exxon Mobil using its disciplined capital allocation streak and strong balance sheet to make distressed investments. Based on the burn rate of dividends on FCF, it seems unlikely Exxon Mobil would be able to make any distressed investments without damaging its Triple A credit rating since the amount of cash needed to do both investments and pay an increasing dividend must come at a cost of balance sheet health deterioration due to the insufficiency of FCF to cover both activities simultaneously.

So I’m exiting Exxon Mobile (thankfully at a profit if I can sell at today’s price of $84.20), since I no longer see it as an attractive investment due to the better insight I have on hand.

And I will be looking at 5 year average FCF / (Market Cap – NNWC) in the future for any non-financial company for valuation.


[1] 5 year average Operating Income ($56.9 Billion); Market Cap (Mar 21st 2016 = $349.7 Billion); NNWC (2015-12 Annual Report = -$137.8 Billion)

5 year average Operating Income / (Market Cap – NNWC) = 11.67%

[2] 5 year average Free Cash Flow ($14.7 Billion); Market Cap (Mar 21st 2016 = $349.7 Billion); NNWC (2015-12 Annual Report = -$137.8 Billion)

5 year average Free Cash Flow / (Market Cap – NNWC) = 3.02%



What I Learnt Cutting My Hair For A Few Months

This was my hairstyle before and after the few months cutting my own hair.


This was my hairstyle (freshly cut) during the few months cutting my own hair.


And this was my hairstyle when my hair grew out more.


So what did I learn about cutting my own hair for a few months (from around mid-July 2015 to around mid-Jan 2016)?

1. If it doesn’t cost much to learn and do something, and you’re intrigued, go for it.

I had the idea of cutting my own hair one weekend when I thought to myself, “I’m paying QB House $50 every month just to cut a very simple haircut (see the 1st photo). Why don’t I go cut my own hair and save that money?”

And so I did. I paid $498 for a Philips QG-3362 Multigroom Plus and went ahead and taught myself how to cut my own hair referencing this article called “How To Cut Your Own Hair With Clippers“.

2. Bank on the activity’s ROI on the fun you get from fulfilling your intrigue rather than financial ROI.

Theoretically speaking, a $498 hair clipper would break-even after 10 cuts. Considering I cut my hair around once every 3 weeks, I probably only did cut my hair for 9 times.

Which means I never did break-even before I called quits.

I think the same can be said about my Kindle, since I don’t think I’ve broke-even yet on the price I bought the Kindle with the savings I made on cheaper e-Books versus hard copy books.

And that taught me a good lesson, which is any purchase that promises to save you money on a long haul should be carefully reviewed before committing to it, because the premise of the long term savings relies on consistently reaping the benefits of the purchase, but I usually over-estimate / under-estimate how much I can or am willing to commit to any purchase.

You might save more on the average unit cost theoretically, but in reality you might end up spending more on average unit cost if you don’t fully utilize your purchase.

3. When making a purchase that promises to save you money on a long haul, take your salary into consideration

I usually quantitatively measure my time’s worth based on the hourly rate of my monthly salary divided every hour in a month. I call it my passive hourly rate (money I’d make by just being alive).

It might sound ridiculous that I consider myself getting paid outside of work as well, but essentially the clause in my contract of not being able to do part time work unless getting approval by my line manager is implying that my company owns my time at work and off work.

And from a company or personal perspective, rest is work, because maximizing productivity in a short term but risking the employee burning out doesn’t make much business sense. A well rested employee that has consistently good productivity makes business sense.

And making those calculations made me realize that cutting my own hair just wasn’t worth it. The number of hours required to cut my hair and clean up * passive hourly rate was higher than the savings I was making versus my alternative (which was QB House).

Couple with the fact that I also had to break-even my Philips hair clipper purchase first before I could reap any financial benefits, then the whole thing made less and less financial sense a few months into the project.

4. If the displeasure from hassle > pleasure from activity, really consider quitting

I quit cutting my own hair at least 2-3 months late.

I probably continued because I was lazy to switch my decision (which is ironic since committing to cutting my own hair cost me even more hours). Or maybe it was sunk cost bias of not wanting to let my hair clipper’s investment go to waste. But either way, I was stupidly 2-3 months late in calling quits.

And the signs were so obvious I should’ve been quitting earlier:

  • I really hated having to clean up my hair every time I cut (I grow hair very fast).
  • It was always frustrating to get my hairstyle right (even though I was already choosing a relatively easy style, the High and Tight), especially on the back side with no additional help.
  • As I improved in hair cutting skills it created a sense of discontentment as I realized that if I really wanted to cut my hair the way I really wanted it, I would need to buy more equipment (hair trimmer and hair thinning scissors) and spend more time per haircut to perfect the fading.

And that just killed the fun out of the activity.

The original premise was that I’d cut my own hair and have an easy time because my hairstyle was a simple one, but for something that could be done in 10 minutes by a barber I would require so much more time since I had to constantly evaluate my hair cutting progress with many mirrors and measurements.

5. Some kinds of money really deserve to be earned by the professionals

This cut my own hair experience really gave me a new appreciation for barbers.

Something that seemed so simple was simply because the barber has paid his / her due to be able to cut a decent hairstyle in 10 minutes (I’m still referencing QB House). Plus he / she has all the equipment to get the job done in 10 minutes, rather than mimic different effects with just one equipment (hair clipper).

And to an extent, for $60 / haircut (yes QB House has increased their price recently), the money I pay for knowledge / experience / equipment arbitrage is really nothing.

It saves me money compared to cutting my own hair, it’s much more fun, and I end up liking the end product more (since I can better communicate with the barber what I want since I know about the hair cutting techniques better).

But all in all I enjoyed the experience, and I have no regrets going ahead to do something like this.

Poor Charlie’s Almanack Notes

By Nick (Charlie Munger) [CC BY 2.0 (], via Wikimedia Commons

I’ve finished reading Poor Charlie’s Almanack, and wanted to jot down some notes that I would continually reference upon without the book since I’m about to lend it to someone.

25 Common Tendencies of Human Psychology Misjudgments:

  1. Reward and Punishment Superresponse Tendency
  2. Liking / Loving Tendency
  3. Disliking / Hating Tendency
  4. Doubt-Avoidance Tendency
  5. Inconsistency-Avoidance Tendency
  6. Curiosity Tendency
  7. Kantian Fairness Tendency
  8. Envy / Jealousy Tendency
  9. Reciprocation Tendency
  10. Influence-from-Mere-Association Tendency (Steroetypes)
  11. Simple, Pain-Avoiding Pyschological Denial
  12. Excessive Self-Regard Tendency
  13. Overoptimism Tendecy
  14. Deprival-Superreaction Tendency
  15. Social-Proof Tendency
  16. Contrast-Misreaction Tendency
  17. Stress-Influence Tendency
  18. Availability-Misweighting Tendency
  19. Use-It-or-Lose-It Tendency
  20. Drug-Misinfluence Tendency
  21. Senescence-Misinfluence Tendency (Affected by by old age)
  22. Authority-Misinfluence Tendency
  23. Twaddle Tendency
  24. Reason-Respecting Tendency
  25. Lollapalooza Tendency

10 Examples of Eliminating / Minimizing Common Tendencies of Human Psychology Misjudgments:

  1. Carl Braun’s communication practices (5Ws for each communication)
  2. The use of simulators in pilot training
  3. The system of Alcoholics Anonymous
  4. Clinical training methods in medical schools
  5. The rules of the U.S. Constitutional Convention (totally secret meetings, no recorded vote by name until final vote, votes reversible at any time before end of convention, one vote on whole constitution)
  6. The use of Granny’s incentive-driven rule to manipulate oneself toward better performance of one’s duties
  7. The Harvard Business School’s emphasis on decision trees
  8. The use of autopsy equivalent at Johnson & Johnson
  9. Double blind studies required in drug research by F.D.A.
  10. Warren Buffett rule for open-outcry auctions: Don’t go.

Charlie Munger’s Recommended Books:

  • Deep Simplicity: Bringing Order to Chaos and Complexity (John Gribbin)
  • F.I.A.S.C.O.: The Insider Story of a Wall Street Trader (Frank Partnoy)
  • Ice Age (John & Mary Gribbin)
  • How the Scots Invented the Modern World: The True Story of How Western Europe’s Poorest Nation Created Our World & Everything in It (Arthur Herman)
  • Models of My Life (Herbert A. Simon)
  • A Matter of Degrees: What Temperature Reveals About the Past and Future of Our Species, Planet and Universe
  • Andrew Carnegie (John Franzier Wall)
  • Guns, Germs and Steel: The Fates of Human Societies (Jared M. Diamond)
  • The Third Chimpanzee: The Evolution and Future of the Human Animal (Jared M. Diamond)
  • Influence: The Psychology of Persuasion (Robert B. Cialdini)
  • The Autobiography of Benjamin Franklin (Benjamin Franklin)
  • Living Within Limits: Ecology, Economics, and Population Taboos (Garrett Hardin)
  • The Selfish Gene (Richard Dawkins)
  • Titan: The Life of John D. Rockefeller, Sr. (Ron Chernow)
  • The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor (David S. Landes)
  • The Warren Buffett Portfolio: Mastering the Poewr of the Focus Investment Strategy (Robert G. Hagstrom)
  • Genome: The Autobiography of a Species in 23 Chapters (Matt Ridley)
  • Getting to Yes: Negotiating Agreement Without Giving In (Roger Fisher, William Ury and Bruce Patton)
  • Three Scientists and Their Gods: Looking for Meaning in an Age of Information (Robert Wright)
  • Only the Paranoid Survive (Andy Grove)

Peter D. Kaufman’s Recommended Books:

  • Les Schwab: Pride in Performance (Les Schwab)
  • Men and Rubber: The Story of Business (Harvey S. Firestone)
  • Men to Match My Mountains: The Opening of the Far West (Irving Stone)

The Dilemma of Seeking Fun and Seeking Meaning at Work

By J. Johnson (Own work) [CC0], via Wikimedia Commons

Well it’s not a dilemma anymore, as I’ve solved it just now, but wanted to write down my thought process of dealing with the dilemma before I forget.

So basically I’ve kept thinking about the relationship with finding fun and finding meaning in a career since “Getting Hit By A 8,000 Tonne Train… 2 Times“.

The problem I had with where I was in terms of my career was it’s just not optimized for meaning that I want to seek, which for me is making Earth a more sustainable place.

But I’ve realize one thing when I was discussing with the girl I’m seeing, it is status anxiety that’s causing the dilemma.

The reason why I had that epiphany was because, first of all I just read Status Anxiety only a few weeks ago, and second of all it was a sentence the girl I’m seeing said that made me think really hard, which (paraphrased) was “Of course it’s great that passion and meaning can both exist, but if it’s impossible, then the only thing you can do is chase what you’re passionate about and then donate money to atone for your sins, since work really does take up a large part of someone’s life“.

And what am I passionate about? Knowledge accumulation. Just non-stop reading, thinking, learning and having quality conversations.

It’s what I do all the time outside of work.

And that’s what I had a problem with. I had a problem with how other would view me if they knew I spent most of my day just reading, thinking, learning and having quality conversations, only spending very little time actually investing (I have a system that takes away 99% of the manual work required) and not doing much productive work otherwise.

I also had a problem with accumulating knowledge at such a rapid rate, having new insights / ideas through the exponential increase of cross-pollination admist all my knowledge from different fields, yet failing to proportionately give back that knowledge to society or putting it in good use (since investing in public equities really doesn’t have that much social value).

And that’s why I try so hard to find meaning in my work. I seem to focus a lot on finding meaning to justify my objective of an unconventional lifestyle. And that disturbs me, because it means I’m living my life not on my terms but on other people’s terms. I’ve literally got my balls clutched by society’s potential judgment on me.

The good thing about this thought struggle is the clarity it gives me on what motivates me, which is the speed of knowledge accumulation.

If I don’t learn enough, I’m stagnating; and if I stagnate, I’m dying.

If that isn’t fulfilled from my current company, then I will leave for a place that can fulfill it, even if it means worse work life balance and pay.

If there’s no alternative to better speed of knowledge accumulation, I will then look for alternatives of same speed of knowledge accumulation but more meaning.

But if there’s no better alternative in both learning and meaning, I’ll stay put until I’m financially free and just switch to full time hermit mode (read, think, learn, quality conversations) until a better alternative (provided better speed of knowledge accumulation or equal rate knowledge accumulation with more meaning) shows up.

As for Snowball Blessing, I think that’s something I’ll keep doing regardless of career. It’s just something I feel compelled to do considering how it affects all of us if nothing’s done about it.