Interview with Reza from EncoreYourLife
First off thank you for taking time to get involved in this interview for my readers.
We first met on Facebook prior to you moving to Malaysia from Hong Kong and hit it off straight away. Since moving here, we have shared many conversations of what it’s like to be an expat in Malaysia.
Your story is inspiring, one that many readers would be interested to hear.
From working 12-hour days in finance in Hong Kong to being semi-retired and settling into the FIRE lifestyle – all at the young age of just 34!
Recently you have set up your blog to discuss this transition and to share your experiences and thoughts of how you can change your lifestyle. You now get to spend lots of family time and life live on your terms.
So, thanks again for Reza for spending time with me today. Let’s jump straight into this with our first question.
1. It would be great to get some background on where you’re from, your early life, studying and career.
Thanks, Adam. It’s great to have connected to you before moving out to Penang. Through your network, I’ve had the chance to meet some fascinating people in the digital nomad space and learn about an array of industries I didn’t even know existed.
As for my background, I’ve been quite fortunate in having an international upbringing. For starters, I’m half Japanese, half Sri Lankan. I was born and raised in Tokyo, which is one of the most insular societies imaginable. Because of that, I was always an outsider despite being a Japanese national.
Now, as I reflect on it, I think this helped shape my character into someone comfortable being outside of the norm.
In the land where ‘the nail that sticks out gets hammered down,’ I didn’t fit in as I don’t look Japanese for starters, and instead of going local, I was at an international school. My differences worked to my advantage though. Because my upbringing was fairly privileged, my differences were a source of pride instead of shame.
Unfortunately, mixed-race kids in Japan are still ostracised today and even bullied for being different if they attend local schools.
After graduating from University, I was unemployed for a while as I learned first hand how useless a psychology degree is as a tool to enter the corporate world. Miraculously though, I landed a role at an advertising agency working as a junior strategist. Unfortunately, my elation was short-lived as they lost the account I was hired for and got the boot once my probation period ended.
Such was my introduction to the harsh reality that is the corporate world.
It’s almost comical that after this, I had a front-row seat into the brutality of the financial industry through the aftermath of the 2008 financial crisis.
These experiences taught me how fickle having a job is and how your livelihood depends on factors well out of your control.
After losing the advertising gig, I didn’t have much to do, so I played a lot of basketball while also teaching English part-time.
It turned out that one of the guys I played ball with was the CEO of a brokerage firm. Without knowing this, I mentioned how I was applying for jobs at investment banks. In one of the kindest acts anyone has done for me, he told me to intern for him so that ‘I know what the hell I’m talking about in the interviews.’
His offer changed the course of my life.
I ended up hitting it off with a senior trader during my internship, who hired me as his junior trader.
After three years, I got my wish and transferred to the Hong Kong office where all the action was. I then landed a highly desirable job four years later as a trader at one of the world’s largest asset management firms where I worked for a further four years.
2. You spent 8-years working what sounds like a hard and frantic life in finance in Hong Kong. Can you give us a little snapshot of how this was?
Sure thing. I think a good place to start is covering a bit of background on my role.
On a trading floor, you’ll find traders siloed into different areas of expertise. Mine was Program Trading.
The best way to describe it is that we execute baskets of stocks for clients. And each basket could be well over a hundred names.
A simple example to illustrate this in action is to describe what happens when you decide to buy shares of an S&P 500 ETF. When you and others like you do this, then additional shares of the 500 companies making up the S&P index need to be purchased. The someone doing that final execution of buying the individual shares on the stock exchange has traditionally been a program trader such as myself.
On any given day, I would have several baskets, each with their highly convoluted instructions. It’s pretty stressful because you’re responsible for overlooking A LOT of orders, easily in the thousands. It’s a demanding job anywhere, but I would say that program traders in Hong Kong have it the worst because of the multiple markets traded.
For example, if you work in the US, then your single market opens at 9:30 am and closes at 4 pm. By 5 pm, you’re high-fiving your teammates, as Americans do, and then you go home.
In Hong Kong, if you’re a program trader, then you’re responsible for trading every market in Asia. Australia is the first ‘real’ market and opens at 7 am. Why I say real is because New Zealand, which you’re still responsible for, opens at 5:30 am, but as it’s so small, clients don’t expect coverage for the first stretch of it.
Then other markets stagger their open throughout the morning. Japan & Korea at 8 am, Singapore 9 am, Hong Kong 9:30, Indonesia 10 am, India at noon. These are only the major markets I’m mentioning.
Noon is the hump. After India opens, we shift into the staggered closes. Australia at 1 pm, Japan & Korea at 2 pm. So on and so forth until India is the last significant market closing at 6 pm. If you’re unlucky enough to have a Pakistan order on a Friday, you’re stuck at work until 7:30 pm which is when it closes.
The reason I’m mentioning all these market open and closing times is because they’re the most stressful moments of a traders day. Each open and close for a major market merits a countdown because you’re in a frenzy getting all your trades set up, so you don’t miss anything. If you happen to miss trading an order on either the open or close then you’ve committed a cardinal sin and are stuck holding an error position.
An error is the worst thing that can happen because you owe your client the fill that would have been executed on the market and have to eat whatever the potential loss is.
Error positions can turn into large notional losses that impact not just your reputation amongst management, but your annual compensation number too.
Now, for a glimpse into what a typical day was for me.
When I get to my desk at 6:30 am, I have to be fully functional and ready to go. Meaning, I would have already gone through all my work emails on my phone as well as read up on all major news events and market movements overnight.
Once I log into my systems, clients and everyone in the industry can see my status change to ‘green’ on my Bloomberg terminal, meaning I’m logged on. Some US clients are waiting for that as they have Aussie orders to send in before they go home which I’ve kept them from doing. Therefore it wasn’t uncommon for my first human interaction of the day to be a verbal berating by one of them over the phone. Human decency can often be an after thought in the financial industry.
The period between 6:30 am – 7 am is often the most frantic. There’s so much to do within that little space and your racing against the clock. I would have to accept all the orders sent overnight, tying out on all shares and instructions to ensure there are no discrepancies. Often, if there’s a basket of stocks including Australian shares then I’d have to set the whole thing up before 7 am.
Once things have settled down, and Australia is out of the way, if I’m not too busy, then I would pop open the cereal box and bowl from my drawer and grab some milk from the pantry.
It was fairly common that I wouldn’t have a chance to do even that.
So to summarize my day. It was stressing out about making sure I’ve set up orders throughout the morning before the respective markets open. Through the day, I would have to monitor all the trades. By monitoring, I mean making sure the algorithms are trading my orders as intended. There’s no way to trade so many orders by hand and so you resort to executing trades via ‘algo’s’, each designed for different instructions.
And client trading instructions could be SUPER random. Some examples would be to trade the buys and sells throughout the day within a certain balanced ratio so that their completion rates are similar. Sounds simple, but this is over several hundred stocks with different open and closing times. Or other clients would have us trade their stocks with price limits relative to the movement of the specific sector the stock is in.
So in a basket of stocks with multiple market sectors (think retail vs financials or real estate), each has a different dynamically moving limit. If you trade outside those limits, then you’re stuck with an ERROR.
So you can’t just set things up and cruise through the day. You’re also getting additional orders sent in live time throughout it all too.
As the day progresses and markets begin closing, your stress levels spike once more. When a market closes, the window to fix any issues or missed executions has ended. If anything has gone wrong then you have an ERROR on your hands. And these ERRORS are the worst because you have to hold the position overnight, exposed to any market-moving news.
All this continues until 6 pm, when India closes.
On a busy day, your brain is fried. There’s also a sales element to the job and you have to keep your clients happy by updating them on their trades and reporting executions.
It goes without saying that having lunch off the desk is unheard of. It’s understood that you will grab some food as quick as possible to come back and eat on the desk to minimize the time someone else needs to help cover for you and watch your trades.
Similarly, going for coffee meetings is pretty uncommon. You might do so once or twice a year and only after planning it well in advance with your desk.
Oh, and anytime you go to the bathroom you quietly tell the person sitting next to you so they know where you are.
The job wears you down.
3. What was the turning point that made you stand back and think, nope this isn’t the life for me? Did you decide you needed a change, or had you seen alternatives first that seemed appealing?
I don’t think it would come as a surprise for me to say that I used to dread coming into work that early in the morning.
I stumbled into this industry as an unqualified outsider. I’d also miraculously held onto my seat throughout the turbulent times following the financial crisis.
I fantasied about leaving my job repeatedly and brainstormed what the alternatives were. Everyone I know in the same job has done the same.
The reality is that it pays well, and you can’t make similar bank anywhere else if leaving.
So after a while, you get used to the grind and stop thinking about it.
Like in Plato’s ‘Allegory of the Cave‘, the caveman trader would prefer to forget he’s living a two-dimensional life in a three-dimensional world and just get on with living his flat existence.
For me, that was until one miserable and rainy Saturday morning.
I was on the treadmill listening to the ‘The Tim Ferris Show’ podcast. In this episode, he was interviewing someone with the ridiculous name Mr. Money Mustache, whom I never heard of.
The interview blew me away.
What he said really resonated. He had retired at the age of 30 and was discussing something called FIRE (Financial Independence Retire Early). Everything he said made sense. If you’re willing to make a few significant changes in your life, then you can live luxuriously for really cheap and even quit your job.
Mr. Money Mustache made a name for himself by blogging on how he lives on US$25,000 a year with his wife and son. But instead of living a hobo-ish existence, their life sounds incredible. They live in a beautiful small town in rural Colorado in a stylish home he built himself. And instead of driving places, they ride their bikes to do things like buy groceries and local organic produce.
His breakfast the morning of the interview was organic coffee with organic coconut milk and other goodies like organic nuts and cacao bits mixed in for substance. Since he bought all the ingredients in bulk the total cost of his coffee was less than a dollar.
Listening to this sparked something within me.
I researched the different places globally where we could live a high quality life on the cheap and settled on the island of Penang in Malaysia.
It ticked all our boxes such as affordable housing, incredible food, and international schools we’d actually be able to pay for. But most of all, it has a really progressive retirement visa program which is open to people of all ages.
In contrast, Hong Kong where we were, ranks as the most expensive real estate market in the world. We were paying US$6,400 at the time for a 950sq ft apartment that was pretty run down.
The high cost of real estate transfers to all other expenses such as food and daycare as well.
Luckily we both had well-paying jobs so were able to save the bulk of our combined household income despite this.
On a scouting trip, when visiting Penang, we were shocked at the quality of life we could have on a shoestring budget.
What started in my mind as an insurance plan for later in life quickly turned into what I wanted now. As I obsessively crunched the numbers into my spreadsheets, I decided we could do it on some reasonably conservative investment returns.
We went back to Penang a second time to finalize our retirement visa.
After returning to Hong Kong, we had an extra day off work while the kids were at school, so we went to see the Han Solo movie at the cinema.
Watching a young Han Solo galavanting across the galaxy hardened our resolve.
We no longer wanted the soul-crushing existence we had and told our bosses the next day we were quitting.
4. The FIRE movement is becoming more popular with the opportunities for location independence. Do you follow a particular strategy financially and how passive is this really?
Unfortunately, I couldn’t set things up before leaving work as my compliance department restricted me from buying most stocks and bonds.
That said, my plan was quite simple.
Own a mix of stocks and bonds that pay a decent enough coupon or dividend that would finance our livings costs. By owning enough of the right stocks, the share prices over time should rise with inflation, or ideally higher. Also, in any market downturn, I wouldn’t need to sell any holdings as I rely on the dividend payment, and not capital appreciation for my income.
Having traded stocks for a living has turned me off from ever trying to time the market. Because of this the idea of holding stocks in perpetuity for the dividend payment appeals to me more than attempting to trade in and out for any potential gain.
I only buy shares of companies I’m fully confident will do well in the long run, so am pretty indifferent to short term moves. If the stock I hold moves lower, I still get the dividend payment so my life doesn’t really change.
Yes I would say once you have purchased the shares in companies that fit your criteria then the process is very passive.
Once we left our jobs we didn’t want to put everything into stocks right away so we went with a laddering approach using short term duration bonds. We bought a few bonds with maturity dates staggered through a 2-3 year period. The thinking is that once each of these bonds expires, we’ll have an additional traunch of capital freed up to then invest in more dividend yielding stocks.
In addition to this, we also have a percent of the portfolio allocated to uncorrelated assets like gold which I think will do extremely well in the next few years and should act as a partial hedge for our equity holdings.
I know a popular strategy in the FIRE movement is the 4% rule.
The basic premise is that by holding an ETF representing the greater market, history shows that you can get a 7% return on average. The thinking goes that if you get a 7% return and withdraw only 4% to fund your life, you are leaving the rest invested to track inflation. This has worked phenomenally well over the past decade as the stock market has been on a tear.
I believe anyone who’s following this investment philosophy will struggle in a market downturn as the only way to pay for living costs is to cannibalise your invested capital.
A prolonged downturn spanning several years can be detrimental and is why I prefer to rely on just the dividend yield.
5. From our conversations I know as well as passive investing, you’re also actively trading in options. For the layman (as in me) how does this work and is this something you see being involved long-term?
Trading options is something I was interested to try as a way of making a bit of extra income after leaving work.
I planned to dedicate a small portion of our portfolio to doing this. To my surprise, the return has been consistent and significant. Over the last few months, the profits each month have covered our living expenses and more.
I think the best way to describe options is as an insurance market for stocks. And how I make money by trading options is through the selling of insurance policies.
It’s easiest to explain this via a real-life example:
Options Trading for beginners
The price of a share of Nike stock is US$ 100. I sell a short-term, two-week insurance policy to a holder of Nike shares to protect his investment at a price of $95 (5% below the current price). If the share price of Nike falls below $95 during this period, he can sell his shares to me at the agreed price of $95.
In this example, he has paid me $1 for this insurance. I might then go out and buy my own re-insurance policy for $0.2 and protect myself at a price of $90 (10% below the market). This way if the share price tanks 20% then I had to buy the shares at $95 but my downside is protected because I can sell out the same shares at a price of $90.
After the two week period if the insurance policies all expire worthless because the Nike share price is still above $95, then I’ve made 80cents ($1 paid to me initially minus the $0.2 I paid for re-insurance).
Anyone keen to understand more about trading options – check this out.
This, in a nutshell, represents the bread and butter of what I’m currently doing across many names. And it’s all done via my online brokerage account accessing the options market.
As for whether I see this as something I’d like to be involved with long term?
I’m just scratching the surface of options trading. The number of options strategies for creating income is endless.
For the past few weeks, I’ve spent a lot of time studying and trying out an options strategy based on large moves in either direction after earnings announcements. When set-up correctly, you can profit from a move that happens either up or down in the underlying stock.
I’d like to learn more strategies that aren’t dependent on the market moving higher and see the holy grail as having a portfolio that is market agnostic. This means a portfolio that is indifferent to whether the market goes up or down as either way it will continue profiting.
6. You have a blog that writes about finance and lifestyle. I enjoy reading your weekly post where you often challenge the conventional way of thinking.
Thanks a lot!
Setting up a platform like a blog to voice my thoughts has been incredibly rewarding. It’s all new to me, and as you know, I’m learning as I go along.
I’ve found through this that I love writing and using it as a method to formulate my thoughts.
I’ve always had a fascination with the human psyche. And my experience of working in the financial industry has provided me with an interesting vantage point from which to observe how people interact with money.
A lot of money is generated in the financial industry. And I’ve always found it interesting to take a step back and reflect on the bigger picture questions such as where it all comes from, where it goes, how it’s spent and wasted.
I love that I now have a place to write about these thoughts. Especially as I think they’re relevant to anyone who works for a living.
7. What direction do you see your blogging going in? I have found your information on investing really down to earth and easy to understand. Do you foresee having a financial or FIRE education service or course?
For the time being, I’m genuinely enjoying the overall creative process of writing content and posting it on the blog.
I’ve also been publishing my writing on medium.com and have made a few hundred dollars from people choosing to read my content there. I love it as I’m just starting out and this not only confirms my writing has substance but that it’s something I may be able to develop further.
I haven’t yet tried to monetize the blog, but I suppose that would be the natural progression once I feel like I have some value to add by doing so.
I’d gladly keep doing this for free as I feel it’s a platform that allows me to not only grow myself, but interact with people in unexpected ways.
That said, when I feel like I have something of value to provide others, then I won’t hesitate to act on it. What that will be, I don’t yet know, but it would have to be worthwhile and enjoyable for me to do.
For now, writing an engaging article a week is challenging enough.
8. Now that you achieved financial freedom and you’re more time free, do you have any other goals you would like to tick off?
I do have a list of projects percolating in the back of my mind.
My experience has taught me, though, that once you verbalize your ambitions, there’s no shortage of people who want to tell you why you’ll fail.
Because of that, I’m just going to keep them to myself and continue to doodle away on the little yellow notepad I use to formulate my ideas 🙂
Thanks for your time again Reza. I look forward each week to each blog post you write.
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