Thinking of "investing" in the next IPO?

Back when the markets were going hot in 2006 - 2007, just before the Lehman Brothers and Bear Stearns collapse took centre stage, the common water cooler topic was whether you managed to get allotments for shares in the latest IPO on the SGX. It seemed like the gravy train was running full speed ahead on wards to nirvana for retail investors. Not a bad move isn't it, getting some allotments and then selling onto the market, after all in a red hot market the only way is up up and away. It certainly was, till the music stopped and most investors found themselves without the proverbial chair. 

Maybe if you had a better understanding of the IPO process, you probably would have stayed clear of the entire she-bang, so perhaps I can provide you with some insight of what an IPO process is all about, after working in investment banking for a good number of years. Maybe you would then have a better understanding of whether subscribing to allotments in the future would make sense. 

Rationale for an IPO

The IPO exists as a method for either one or a combination or two things. Firstly, to raise new equity for the incumbent shareholder - typically the incumbent tries to tap the equity capital markets for US$[ ]m in exchange for a [ ]% of his company through the issuance of new shares, called a primary issuance. The enlarged company would then be worth US$[ ]m plus the additional US$[ ]m raised through the primary issuance. 

Secondly, to raise proceeds for the incumbent shareholder - typically the incumbent tries to sell down a portion of his shareholding in his company through the equity capital markets, called a secondary issuance. The incumbent sells [ ]% of his company through the exchange of his existing shares for cash. There is no enlargement of anything but the incumbent shareholders' wallet. Sometimes this is called cashing out (exiting) or raising liquidity for the incumbent investor. 

Now... an IPO is most likely a combination of both a primary and secondary issuance, on the pretext of raising capital for expansion (growth story anyone?) and providing the current shareholders with some liquidity as well. There might be many reasons for an IPO, from government privatization exercises to a form of exit for big boys (private equity investors), to a more genuine form of capital raising for expansion purposes by normal businesses. 

Do think about it in more detail though, equity is the most costly form of investment as opposed to debt, so if you are raising capital for expansion through an equity issuance such as an IPO, it probably means that you are tapped out on your leverage and your capital structure really needs some equity. Common sense would dictate that is hardly a good sign... but then again common sense is not really common is it? 

The Investment Banks and your interest do not go hand in hand

The sole job of the investment banks underwriting the IPO is to maximize value for their clients through selling the share issuance. A small technical point is that these days, banks seldom fully underwrite (meaning the banks take the entire risk of the IPO on their books and then tries to sell down in the public market later) IPOs, they do them on a best efforts basis. 

The key word is "selling". And when you sell shit, you want to maximize value for what you get, so there is nil chance of something being fairly valued, or even under-valued. Nil. Donut. Kosong. And that is totally aligned with the investment banker's thoughts, as he wants to maximize deal size in order to generate more fees. Typically these guys are paid 2 - 4% of the total proceeds brought in. 

Ah yes, one small caveat is that if you want recurring customers in the form of institutional investors, you might price down your share issuance a little to provide some "perceived value" so that there is some money left on the table and every one gets rich. But that to me, is pretty much gambling. From a retail investor's perspective, you are betting on the next dude in line bidding your price up as you unload. 

You surely don't get anything at a discount to value, because the sole job of the investment banks are to maximize price for their clients. So if you are thinking of "investing" the next IPO, maybe you should just go play blackjack at MBS, might be a more exciting way of "investing" since you are gambling anyway :) Huat ah! 

Decluttering for the next chapter

Spent pretty much the last two weeks tidying up my life and gosh I haven't felt so at peace with myself in awhile. 

On the physical side of things, I've cut out the usual weekend alcohol after falling ill this week and my mind is starting to feel more lucid and aware instead of the post-week numbness that it usually entertains as a result of a combination of draggy crap it's been saddled through work together with pints of Guinness or drams of whiskey. Have also cleared up the room and literally thrown out bags of trash, cleared out magazines, papers, articles, irrelevant letters from before, and the entire barrage of gifts that ex-girlfriends have sent my way. Somehow managed to put myself through a hard kettlebell workout despite being ill, and suddenly I'm beginning to feel more alive. 

On the softer side of things, I've decided to do a massive clear-out of "friends" on Facebook, the culmination of the last 10 years of acquaintances that I've crossed paths with. Reduced the "Friends" list by c. 70% and it certainly feels pretty good to have some form of control over that to reduce the amount of junk and clutter that you'll have to deal with on social media. I went with the rationale of if I ever saw you on the street and if I didn't have the intention to at least stop and say hi and ask about you for at least a couple of minutes, like a friend would show some concern, I don't think we'll be considered friends. Key word there is "intention". Most people would advise that one should attempt to expand their network and you'll never know when that would be good for your career. 

My thinking on that is to fuck that shit, maybe we should start talking about what it means to have a career instead. Career networking is such as bullshit thing and linking up with potential acquaintances just so they might be of some help in the future smells like such a careerism idea that it makes me gag. I believe in making friends with folks who have similar interests, and if you're interested for career reasons and not because of who I am, what I like and the areas my interests lie in, then yeah I don't think we should be friends. But wait a min, those career networking folks have similar interests - careerism. Oops... 

I guess I like to think of myself as a lone wolf moving through the pine forest in search of nirvana, and sometimes to meet with a pack of like-minded wolves once in a while to have some fun and to bond over some prey. Okay, going on an off tangential spiel now, so I'll end here. 

I've also started meditating a little. Check out this app called "Stop, Breathe, Think". It's pretty helpful for beginners and is a good platform to get started on. 

Boy I feel like a chapter of my life has now closed for a good and a new one is just beginning. Perhaps there is some veracity to the saying "Tomorrow is the first day of the rest of your life". I feel like an animal whose cage doors have just opened and I'm raring to go. 

The Kindle Element

If I could highlight one thing (I hope it's not the only thing) that my parents did right for me when I was growing up as a kid, it would be their belief that their children should have unconditional access to reading materials and literature. 

We would had to earn our way through a mix of savings from pocket money to achieving a certain set of grades in order to purchase luxury items such as a walkman, mp3 player, etc. but we were never denied the books we coveted. Unfortunately, I was more of an active than smart kid who preferred to get my hands dirty at the local playground rather than being holed up somewhere reading a book, thus comparatively to my siblings, I didn't take much advantage of this offer until I started to develop my reading habit in secondary school. 

I remember being recommended James Patterson by a kind auntie from Sunny Bookshop in Far East Plaza (wonder if that place is still around) and I started reading about Alex Cross even before it was turned into a movie. Trust me, the books are way better than the movies. I began to realise how great books for an imaginative mind. The authors did well to transport me to another realm, and there were many a good time I had with these fictional characters and plots. 

As I moved up to junior college, I started to explore the non-fictional genre and discovered the interesting realm of self-help, personal finance, investments and autobiographies. I would say I've been through quite a thick stack of self-help books, but I find that the one which really stood out to me, with its time tested principles, is The 7 Habits of Highly Effective People" by Stephen Covey. We were put through a course on that back in school and I would say that was my first introduction to personal development books. To be honest, despite having the opportunity to read that once through in secondary school, I only did really catch on with the principles in University, having messed around in my secondary school and junior college days. 

And I guess that's the beauty of books. They provide different perspectives at different times of your life when you re-read them. Especially the books on personal development and investments, such as "From Darwin to Munger" by Peter Bevelin - that book is one I try to go through briefly every 9 months or so. Or those books on philosophy such as "This Ugly Civilization", "How I Found Freedom in an Unfree World" or "The Selfish Gene" - they do provide interesting perspectives you probably would not be able to glean if you went about on your merry way through life without every adopting reading as a priority activity. As you can see, I'm a firm believer in investing in yourself through reading. A mind once expanded never goes back to its original shape and size. 

I have to say that the best thing about this decade is the development of technology to accommodate active readers. Prior to the invention of Amazon's Kindle, my house was pretty much stuffed up with hordes of books I had to kinda think twice before I bought anymore. Well it still is filled up with books now, but I haven't had to think twice about storing more books (electronic copies), no thanks to this nifty device. Mind you, my Kindle was one of the earlier versions of the Kindle Touch, and I purchased in in 2011. To date, that has been my best "luxury" purchase over the last four years, thanks for the sheer pleasure and adventures I had through it. 

These days I try to put in some reading on the train trips to and fro from the office, which can take up to an hour each day. Most days I do non-fiction and some days I'll load up some trashy novels to ease off the knowledge expansion project. ha ha! How about you dear reader? If you're reading this piece right now, chances are you'll like reading too. What are some of the best books you've come across that have impacted your lives? And how much heed do you pay to reading? 

Thoughts on Physical Training

One of my biggest fears is the wasting away of my body, and along in that, the wasting of my mind as I continue to plod along the path in search of the pot of gold at the end of the rainbow.

We've all heard stories of fellow schoolmates who were in their prime, the most outstanding and natural sportsmen during our teenage years. Envied by the boys in the compound for their sporting abilities and idolized by the girls from the nearby schools for mainly, their developing bodies (at least on a subconscious level). Well, I've never been an outstanding model of physicality, and had always been a late bloomer in that aspect, suffering from bouts of childhood asthma together with a strong penchant for a "Happy Meal" or "Zinger Burger" on the bus trips home.

Gradually, I decided enough was enough and thus started developing my physical fitness, undertaking certain endurance events through my JC and NS days. Now that I'm more than halfway there to my goal of financial freedom, I've started to dream of the things I'll do once I'm done with investment banking, and I realise from past experiences that I do love pushing the limits of my physical endurance levels, trying out different events would pit me against myself. Definitely one particular realm I'll like to focus my attention on would be adventure racing and self sufficient ultra marathons.

The main takeaway since beginning my journey into developing myself physically is that with the right mindset, discipline and plan, you can pretty much undertake any physical challenge you want to. Go from couch potato to marathoner in 60 days? Drop 30 kg in eight months?  Complete a 10km swim in one continuous attempt? These are all possibilities, as long as the right plan is in place and there is a strong will to follow through and execute your plan.

And little did I realise that was actually a transferable "skillset". You start believing in yourself and your abilities once you've completed those physical goals that hey perhaps I can do something like that in the corporate world, or I can actually retire by 35 with a few million in the bank. You draw strength from your past victories to keep you moving forward in search of future victories. Your goals might not always be reached, but hey, shoot for the stars and even if you don't reach them, you'll at least reach the clouds.

These days, I try to put in at least 3 HIITs (high intensity interval trainings) that lasts anywhere from 15 to 30 minutes, together with a run of  6 - 8km over the weekend. I do have a pedometer (think something like fitbit) and I try to cover about 4 to 5 km through walking daily. Hopefully that will put me in a good position to embark on my sporting adventures post calling it a day in the corporate world. And you know what, I actually feel much better and more effective during the day comparatively to a period where I was just slogging my guts off at work. I bet my heart and body agrees with that to some extent too.

Simple habits that translate into effectiveness in other aspects of life. I think there's a word to describe that - keystone habits. Maybe lacing up your shoes and heading out for the run might do more for your life than just generating endorphins. 

Traveling - best life ever?

A commonly heard phrase - getting to travel on business is fun! Or not? Probably only the uninitiated would agree that business travel (at least in an investment banking context) is fun. See the sights, dine on the Company's dime, jet-setter, real go-getter aye? I don't think so... let's set the record straight.

Traveling for business is not the same as traveling for leisure, the kind that enables you to act as a flaneur in a foreign land, or as a caged up consumer riding in a human transport, stopping along the way to purchase souvenirs and gorge yourself silly as typical tourists.

My kind of business travel under normal circumstances means "day trip". The type where you wake up at 0500, generally after leaving the office at 0100 the night before trying to rush mostly unnecessary prep work for your meeting, in order to catch the 0700 flight to a neighboring country, try to stuff your hand-carry luggage together with your roll-on into the cabin space, squeeze up in economy class, try to get a few winks before some baby starts screaming like there's no tomorrow, disembark speedily and try to beat the crowd at immigration, jump into a taxi to a smorgasbord of client meetings, hope that it does not over-run and try to make it make to the airport to catch your last flight home. In between you hope nothing else on your other transactions blow up, else that means cranking shit out on your laptop whilst your taxi is gyrating in and out of traffic, or even worse, having to head back to the office after you land at 2300 or so (as an Analyst that's pretty much the norm, but when you get to the Associate level and above, there's a secret button called "forward" that allows you to get out of these situations, unless your junior bankers are neck deep in shit and you've got to embrace the suck to get ingrained into some of the details).

In between client meetings, you'll be lucky to sneak in a bite or a coffee at the local Starbucks or Au Bon Pain (pun intended), having awkward conversations that includes subjects such as what's the latest gossip in the office with your senior bankers, which you can't really share because that latest gossip or might I say bitching generally revolves around them. Probably the only sights you get to take in are those from the back of your taxi and of the airport. But hey soon you'll gather enough experience to become an airport, local Starbucks expert and regional flights schedule expert.

So that pretty much sums up day trips, an event that encompasses almost 70-80% of all traveling done in investment banking. My favorite route would be the 0710 Singapore Airlines flight to BKK and the most hated one would be the 0710 to KL, for the reason that you rarely get to experience some shut eye given the short amount of cruising time.

Sometimes you "luck out" and get to go for a roadshow, which encompasses a week or two of meetings all across the globe. Depending on whether that is a Regulation S / 144 A transaction (basically rules that allow you to sell securities in the UK / USA), you'll get to experience London and the USA for a while. But at the very least  ultimate training in service standards if you're junior banker, so much so it'll encourage the concierge at the Grand Budapest Hotel to greet you with a curtsy in recognition of your professionalism. You'll be in charge of ensuring seamless logistics (from arranging transportation, printing of books/meeting materials, making sure hotels are all sorted out), taking care of after meeting dining and entertainment, and being a grade A nanny to your clients, ensuring that the entourage is up and ready for the next day's meetings with potential investors after a big night out and reeking of alcohol.

Most times you'll have a roadshow coordinator who's based out of your home office making travel arrangements in advance, but they work normal hours. Thus anything before 0900 and 1800, you'll be the onsite travel agent. You'll be so good at coordinating last minute changes to travel arrangements from your blackberry earpiece that you'll ought to add that job to your your ever growing resume in lateral skills. Because any fuck ups, it's your head. So better make sure you've got a few readily charged spare blackberry batteries so you'll always have juice.

And oh yeah, don't forget the work that is piling up on other transactions whilst you're traipsing the globe. Hey, but roadshow traveling is done mostly on business class, so at least you have some space to work on your laptop when the shenanigans take a break as you jet across the Atlantic.

Roadshows comprise 10 - 20% of the business travel I've done. The remainder? Those are the good times junior bankers live for. When things go quiet during the December holidays or the summer holidays where you have to attend a simple due diligence meetings overseas with an amicable Associate or senior banker you think you can click with, if time permits, you can have some really good times at dinner, airport lounges or bars downing drinks and building connections that will withstand the test of time in the future. I've had a chance to make some really good friends as a result of the shit that we've gone through and experiences we've shared. And sometimes you might even get a chance to fly for closing dinners, some of which would make your local compliance departments blush. But let's not venture into that realm too much, because these awesome opportunities are generally few and far in between.

So do you still dig business travel?

Making your first few years out of college count as a [Banker] (Part III)

Managing lifestyle inflation

Perhaps this topic could have been tied into the subject of managing your personal finances, but I thought of taking this out for some much needed emphasis. 

Think back to when you were just a mere student. What made you happy and content?

Hmmm maybe it's unwise to frame this within an existential and philosophical structure. I guess the best way would be to focus on a certain material aspects for illustration. 

Let's take food for example. Say, when I was 17 years old, having restaurant food for dinner would be considered luxurious and perhaps only warranted on special occasions. An all you could eat Japanese buffet that costs S$38++ per pax (say Hanabi, I recall that to be super popular at that time) would be a once in a year affair for birthdays, if we got lucky. Fast forward to 27 years old, a couple of years just right out of college, having restaurant meals for dinner (thanks to the dinner allowance =p) would be the normal standard, and for special occasions, it would warrant even higher spending of up to S$100 per pax.

Another example for the 'fun' folks who would be able to identify. When I was 18 years old and just out of junior college, sharing jugs of long island ice tea at Zouk with a couple of friends would be a considered the top end kind of spending for a great night out. One year out into the workforce and sharing jugs would be considered a farce. We would need nothing but bottle service, and sometimes even bottle trains (think of an entourage delivering [3] [Moet Imperial] bottles in multiples of 3) as a minimum for a fun night out. 

So what happened there? Essentially, the mammal brain, together with the ego, decided that since its host was raking in more money than it used to receive back when it was a mere student, it was time to upgrade its lifestyle for a better experience. 

Well, there's certainly nothing wrong with spending more money, as long as you have good self control and discipline to not spend beyond your means. The issue that I grapple with when thinking about lifestyle inflation is that lifestyles are sticky and people tend to think that when things are going well, they would go on forever (the irony is that the thinking is likewise when things are going badly). 

You might think that you'll just try out that fancy champagne brunch place once, that nice hipster coffee joint for your morning cuppa joe this one time, or even take a taxi to work to escape the morning crowd because you feel like doing so today, Before you realise, it feels so good that it turns into a habit. You can read more about habits in "The Power of Habit" by Charles Duhigg. Pretty solid book. 

For chickenshit like food, drinks, etc., it might not matter much if you're earning a sizable salary that can afford these small luxuries, or if you think that you'll be able to change if something untoward changes in your employment earnings, or if you are like majority of my colleagues who think you'll be working for at least 30 or so years (probably works out to be early than the mandatory retirement age of 65, but I still shudder at the thought of spending more than 10 years in investment banking), but if you're aiming for F.I.R.E, then it becomes quite the impediment. 

The other potential issue that might happen is that you somehow get influenced by your inflated lifestyle choice and move on from the small time luxuries to the big time luxuries, say apartments, cars, boats, watches, business class tickets, luxury hotel stays during your holidays, etc (this list can't be exhaustive :) ). Before you know it, you're trapped by debt to service these big time items and have to be committed to the JOB. You begin to worry when bad times come, create unnecessary stress for yourself, and have limited your options in life. Congratulations, you have sold your freedom and your soul for these items. Now your luxurious items own your candy ass. Cheers bro, nice Porsche 911 btw. Looking sweet. 

So how are some ways to avoid lifestyle inflation? 

1) Pamper thyself, but with limits. 

Sometimes you work hard and you need a break. If you're working 100 hour weeks, you're going to feel like going out to party hard when you have time. Or at least drink and eat good food to reward yourself, or buy some fancy shit. Fine with that, but set your limits. Have a budget for these sessions and stick with it. If necessary, set up an "luxury" bank account that GIRO transfers your budget to that account automatically every payday and only utilise a debit card for that account. Also, when you want to reach out for your credit card to purchase luxury goods such as that iPhone six plus (yes I'm looking at you), back off for two weeks or so first and if you find yourself thinking about that constantly as a need, then so be it, but don't do this too frequently. 

2) Change your mindset 

The best Chinese proverb from secondary school that still resonates with me is "一 寸 光 陰 一 寸 金 , 寸 金 難 買 寸 光 陰". What you are doing by being an employee is essentially a barter of money for time. Think of your indulgences as units of time that you'll have to work for and I trust that you'll start to feel the effects when you further indulge. At least I did. 

Also, instead of pampering yourself with too much when times are good, start using that as a base to save more fuck you money to provide yourself with more optionality. You never know when shit is going to happen. I'll adapt the old adage to "make hay and save for the rainy day when the sun is still shining, because pouring rain is not far away".

Also, the act of self deprivation for a period of time helps to enhance the pleasures of experiencing luxuries. You would only know happiness if you feel sadness. Satisfaction can only be felt if you feel hungry as well. To maximize your utility, consider going cold turkey with regard to luxury spending for awhile and you might just find the experience to be even better the next time you go for it.

For example, I believe it's more enjoyable to have a beer once a week after a hot run in the sun as compared to having a beer every night. Trust me, I've been through both phases and I know what works.

3) Find a support group that aligns with your fundamental values and beliefs

Birds of the same feather flock together. If you work as an investment banker, you'll naturally see a group of colleagues that lead the high life, drinking fancy champagne, dining at the hottest spots, driving the fastest cars and staying at the swankiest places in town. Essentially, living large. I'm sure parts of that are on credit, but whether it's overextended credit I have no idea and honestly don't really give a fuck. 

But the thing is if you're a new guy who doesn't really know why you're doing this job, you'll tend to gravitate to the status quo, even if there's no dick measuring competition going around. Contrary to popular belief, not all investment banks have a materialistic competitive culture going around - I think that's because those guys are too drained from working 100 hour weeks to really care. Perhaps keeping up with the joneses and competing on who has the most branded bags and shoes would be more evident in the private banking sector, which I hear is the case..

Thus it's essential to know why you are doing what you are doing, because that helps with motivation. And if motivation is low, try to find a group of like minded friends in the same industry. If you are a loner and those are lacking, I hear the blogosphere has some interesting personal finance blogs and communities that might be helpful for you to connect with =p 

To summarise the lengthy prose, basically, think of practicing delayed gratification with most wants and desires, combine that with the above advice and who knows, your future self might be thanking you 10 years down the road for the choices you have made today. 

The Enchiridion Principles

"The world is governed by divine wisdom, not by blind chance, that we must not give too much importance to Fortune, for she is a fickle lady, taking away with one hand what she has given with the other. We must not become upset when she takes good things away from us; they were never ours to begin with."

"But for your part, do not desire to be a General, or a Senator, or a Consul, but to be free; and the only way to this is a disregard of things which lie not within our own power."


"Anyone who is dissatisfied with the present and what is given by Fortune is an ignorant man in life. But the person who bears all things nobly and rationally, as well as anything that proceeds from them, is worthy of being considered a man. "

"Demand not what events should happen as they wish; but wish them to happen as they do happen, and you will go on well."

"Sickness is an impediment to the body, but not to the will, unless it pleases. Lameness is an impediment to the leg, but not to the will; and say this to yourself with regard to everything that happens. For you will find it to be an impediment to something else, but not truly to yourself."

"If you would improve, be content to be thought foolish and dull with regard to externals. Do not desire to be thought to know anything; and though you should appear to others to be somebody, distrust yourself. For be assured, it is not easy at once to keep your will in harmony with nature and to secure externals; but while you are absorbed in the one, you must of necessity neglect the other. 

"Nothing is portended to me, either to my paltry body, or property, or reputation, or children, or wife. But to me all portents are lucky if I will. For whatsoever happens, it belongs to me to derive advantages therefrom."

"Never proclaim yourself a philosopher, nor make much talk among the ignorant about your principles, but show them by actions. Thus, at an entertainment, do not discourse how people ought to eat, but eat as you ought. For remember that Socrates also universally avoided ostentation. And when persons came to him and desired to be introduced by him to philosophers, he took them and introduced them; so well did he bear being overlooked. So if ever there should be among the ignorant any discussion of principles, be for the most part silent. For there is great danger in hastily throw out what is undigested. 

And if anyone tells you that you know nothing, and you are not nettled by it, then you may be sure that you have really entered on your work. For sheep do not hastily throw up the grass to show the shepherds how much they have eaten, but inwardly digesting their food, they produce it outwardly in wool and milk. Thus, therefore, do you not make an exhibition before the ignorant of your principles, but of the actions to which their digestions give rise.  

"The key is to keep company only with people who uplift you, whose presence calls forth your best."

"The essence of philosophy is that a man should so live that his happiness shall depend as little as possible on external things."

- Epictectus 

Some quotes that I have held dear and have tried to live in accordance to since getting to know about Stoicism almost six years ago. Till this day, I find deeper meaning and relation when re-reading these quotes, and they help to calm my mind and gather focus on the true north. 

The Ministry of Education should have made this essential reading material for literature back in secondary school. It would have set the foundations for generations to come.