The CPF debacle: the gambler's pitfall

Hi everyone. Much has been said of late about the CPF minimum sum threshold increase and this has been captured quite succinctly by cartoonist Demon-cratic. I have left a comment on that cartoon on his Facebook page (that the only way to get your full CPF money out is by migrating and renouncing your Singaporean citizenship) and it did generate an angry response. I am not the kind of person to get into an argument on Facebook, I would rather deal with it calmly on my blog. Firstly, let's kick off with Demon-cratic's cartoon, just in case you have not seen it yet.

Now the comment I posted on his cartoon was, "Can I state the obvious? The only way to withdraw your CPF is when you migrate to another country and renounce your Singaporean citizenship." This is of course, factually true - but someone by the name of Vto PAP reacted rather angrily to my statement. He said, "Then u have fallen into the Fuck Party's trap. When u migrate, more reasons to import trashes from Third World country and screw my families staying put. I did not serve NS to quit my country. Quit the party that betray you!! Singaporeans are more than that! VTO!!"

Now, let's calmly deal with this sticky issue. I have made no apologies about the way I have always taken the path of least resistance by choosing to leave Singapore as soon as I could, rather than stay and try to get rid of the PAP. Believe you me, I dislike the PAP more than most Singaporeans - that was why I was out of Singapore within a few weeks of my ORD in 1997. I studied in France and the UK in the period 1997 to 2000 and then worked all over Europe and Asia since 2000 - including a brief period in Singapore in 2011 as a British foreign talent. I have really enjoyed the experience of working and living in so many differences countries.  I have long renounced my Singaporean citizenship and acquired British citizenship to enable me to work in the EU more easily - yes I realize that in gaining this convenience, I was giving up a chance to vote the PAP out, but it was a small price to pay because I doubt my one vote would ever make much of a difference in Singapore given how over 60% of the population still gladly vote for the PAP.

Limpeh working in Germany in 2006. 

For me, this fight against the PAP it's a lost cause - whether you like them or hate them (and believe you me, I hate the PAP), I recognize and acknowledge that Singapore will always be PAP land and I am choosing to walk away and not be a part of it. I'm sorry if my attitude frustrates people like this 'Vto PAP' but I choose to pick my battles wisely. I would like to analyze his attitude a little bit more closely as I feel need to understand this person.

Now his bone of contention seems to boil down to this, "I did not serve NS to quit my country." Well brother, I did serve NS too - all 2 years 4 months of it back in 1995 to 1997. It seems clear that 'Vto PAP' expects some kind of return on his investment (the investment being the time he served in NS) whilst I was more than happy to write it off as something I just had to do before I could leave Singapore. Allow me to use an analogy from the world of finance to illustrate my point - this is a true story but I cannot name the company involved or risk getting sued for a lot of money.

Do you expect anything in return for having served NS? 

This story goes back to the period 2011-2012 when I was working with hedge funds - there was this hedge fund, let's call it the XYZ fund since I cannot identify it for legal reasons. The XYZ fund had a really good performance from the period 2007 to 2011 but in 2012, it started doing badly - losing about 12% in the first six months of the year. The investors started panicking and were wondering why this fund which had been doing so well was suddenly losing money. The truth is the fund managers were engaged in a legal battle pertaining to the management of the company and had effectively neglected the fund - they were so busy going to court everyday as they were being sued and were counter-suing the other company that they simply didn't have time to manage the fund, hence the poor performance.

There was a small run on the fund - please let me explain what this means: when investors lose confidence in the entity holding their money (this could be anything from a fund, a bond or a bank), they will rush to withdraw their money, even if it means making a loss on their initial investment. Now anyone who went to withdraw their investment at that point would have probably made a loss (how much the loss is depended on when they invested and what the price was at that point) - but these investors were simply keen to get their money out and cut their losses. If too many investors redeemed their money at the same time, this would lead to a chain reaction: word would get out that investors had totally lost confidence in that bank/fund/whatever investment entity and it would collapse totally if all the investors tried to get their money out. The classic case of this has been South Americans banks in the 1980s and 1990s which have collapsed when little old ladies queued overnight to try to withdraw their life savings to no avail.

The XYZ fund turned out to be a disaster.

Now I had two friends approach me for my advice at that point, let's call them Mr A and Mrs B, They had both invested about £100,000 at the same time and if they made a redemption now, it would represent a loss of about 10% (ie. they will lose £10,000 and get back only £90,000). Mr A decided to stay invested in the fund, Mrs B had already made up her mind to make that redemption, cut her losses and was asking me what else she should be investing in instead. Why did Mr A want to stay invested in the fund? He felt frustrated because the fund was making money initially before it started making losses in January 2012 - he was told by his financial advisor that this was a sound investment and that the fund ought to recover in the long run, that all he had to do was to ride out the next six months or so.

This confused me as I thought that wasn't particularly good advice that Mr A was getting. I then did a bit of digging using my insider's knowledge. I found out that the management at XYZ fund had become very concerned that there would be a run on the fund. So they embarked on a charm campaign with the financial advisors - you see, they sold most of their funds through financial advisors rather than directly to the public. Many rich people would engage the services of a financial advisor (know as 'financial brokers' in Singapore) and would simply ask the financial advisor, "tell me what I ought to invest in". Well in the UK, financial advisors used to get huge bonuses from the funds they recommended? XYZ fund was paying these financial advisors pretty handsome fees to get them to recommend their XYZ fund - so when the fund was doing badly, they poured more champagne down the throats of these financial advisors, gave them even bigger fees to get them to continue recommending the XYZ fund despite it doing badly.

Some financial advisors were giving bad advice about the XYZ fund.

Both Mr A and Mrs B heard the same advice from their financial advisors to stay with XYZ fund - Mr A heard what he wanted to hear and chose to stay invested in the XYZ fund. Mrs B (with my help) managed to identify another fund that was doing very well, let's call it the NEW fund. Hence we encounter the concept of the opportunity cost: in choosing to keep his money with the XYZ fund, Mr A passed up on the chance to invest in the NEW fund. Well, I'll jump to the punchline: Mrs B did extremely well out of the NEW fund and made a huge profit with it. As for Mr A, only his financial advisor made money as a result of him staying with the XYZ fund - the fund has currently lost 50% of its launch price and shown no sign of recovering (and Mr A is still holding on to that fund).

What is the moral of the story? Well to begin with, we have to accept that in life, we need to be sensible about how we react when we are facing a loss and consider what the opportunity cost may be. In Mr A's case, I told him to invest in the NEW fund like Mrs B, but he refused to listen to me. "What if it doesn't work out?" He asked me. "What if the NEW fund performs badly and XYZ fund recovers?" In the case of 'Vto PAP', this guy has paid a price - like me, he has served NS and he wants it to count for something. He feels that if he leaves Singapore now after having served NS would mean that all that suffering during NS would count for nothing. I can see his point - but what about the opportunity cost involved in such a decision? Has he even considered his opportunity cost in doing so?

If I had stayed in Singapore, I would have given up working in Europe.

In choosing to spend his most productive years (his 20s, 30s and 40s) in Singapore, he is passing up on the chance of spending it elsewhere, in another country where he may be happier. Of course, it is a question mark whether or not he would be happier elsewhere - so much of that depends on whether or not he can successfully adapt to another country (the way I have) and thrive there. But to choose to stay in Singapore simply to make his grand sacrifice of NS mean something is a somewhat illogical way to approach the issue. That makes as much sense as Mr A choosing to remain invested in XYZ fund simply to prove that he didn't make a bad decision in the first place.

There is a fundamental difference though between Mr A and guys born in Singapore like 'Vto PAP' and myself. Mr A chose to invest in the XYZ fund - I didn't choose to be born in Singapore, it just... happened. So whilst I accept that I simply have to serve NS as a result, I don't feel obliged to 'make it count' for anything. I simply make the choices to maximize my well-being - to be honest, the CPF issue doesn't really come to mind, for me it's simply choosing to not to live in Singapore where I know I will end up as frustrated as 'Vto PAP' and the teenage vandals who were responsible for the anti-PAP graffiti in Toa Payoh, knowing that I am in the minority, knowing that 60.14% of the electorate still support the PAP. Well, the 60.14% do have a choice and they did choose to support the PAP.

Such is the nature of democracy I am afraid - even if you don't like the outcome of the result, you will have to accept the will of the majority. No amount of protesting can change the fact that the majority has spoken and you simply cannot change the result. So whilst 'Vto PAP' may not like the PAP, there is only so much he can do about the situation and yes, that is an intensely frustrating position to be in. In fact, he is showing signs of the gambler's pitfall.

How do some people get sucked into gambling and end up losing a large amount of money? Why do some people manage to walk out of the casino after losing $50 and others walk out after losing $500 and then there are those who walk out after not only after losing every dollar to their name but borrowing money from loan sharks to keep on gambling? Simple - it is this ability to balance our desire to recoup our losses by staying and cutting our losses by walking away. There are times when it does make sense to stay and continue fighting but only if you know your chances of victory are reasonably high. If your odds of victory are low, then the pragmatic thing is simply to walk away and cut your losses - but you then move on to something else which will hopefully be a lot better for you.

Why are some people totally sucked into gambling?

This 'gambler's pitfall' can apply in so many real life situations - a friend (let's call him "Zac" - not his real name) was recently dumped by his girlfriend despite having made a genuine effort to try to rescue the relationship. His girlfriend has dumped him recently because she found him way too intense: a few months into the relationship he was already talking about marriage and children (as if that was a foregone conclusion), well that scared her off. Zac was heartbroken because not only did he genuinely love her. He had made a genuine effort to woo her, to make the relationship work - he had spent so much time and money on her, so if he were to break up now, it would all have been for nothing. So he's desperately trying to win her back but she's already moved on and nothing we can say to him can change his mind on the issue. I swear his ex is going to get a restraining order against Zac if he persists. Zac is totally incapable of seeing things from her point of view - it's all about what he wants and "it's not fair, after all I have done for her blah blah blah". Instead of moving on (to a happier state of affairs), Zac is prolonging his agony by trying to win back his ex. Can you see the similarities between Zac's situation and 'Vto PAP' and Mr A's situation?

There are times in life when the only sensible option is to cut our losses and move on when the chances of a favourable outcome is very low. It's all a question of mathematics: to be precise, you need to calculate the probability of you getting what you want. In the case of Zac, the chance of his ex-girlfriend returning to him is so low that it is downright foolish to persist. And feel free to disagree with me if you want, but I also feel that 'Vto PAP's' chances of getting the outcome he wants (of a Singapore without the PAP in charge) is very low. The odds are just stacked against him. Base your decision on the probability of you getting what you want, rather than your irrational passions based on your desires. That way, you don't go barking up the wrong tree by picking battles you simply cannot win.

What do I choose? What are the odds? 

The situation with the CPF is never going to improve - not whilst the PAP are in charge and the chance of them still being in charge for the foreseeable future is high, extremely high. Hence I say, cut your losses - simply walk away and start afresh elsewhere. You could be far happier in another country, you will never know unless you try - no one can promise you anything about your future in another country, but this much I can promise you. It is a choice between a future in PAP's Singapore or possibly greener pastures elsewhere. If you do choose to stay in Singapore for whatever reasons you may have, then fine - accept things for the way they are and appreciate the nicer things that Singapore can offer. But do not stay in Singapore and expect the PAP to give you the kind of country you want - oh no, you have a choice to either accept the kind of Singapore they have created or simply leave. And that is going to be the case as long as the PAP is in power, get real people. This is Singapore we're talking about.

So that's it from me on this issue. What do you think? Am I just too pessimistic? Or am I on the right side of being pragmatic and practical? Do you think the PAP will always be in power in Singapore? What are your expectations of the PAP when it comes to the issue of CPF? Would you leave Singapore if given the chance? Is it possible to get the PAP out of power within the next 50 years? Do let me know what you think, please leave a comment below, thanks!