Showing posts from 2007

Final 2007 Portfolio Update

As the year closes in a week time, this post will provide a final update to my portfolio. My current holdings are:

China Precision
Fujian Plastic
Two HK stocks

Transactions made since last update:

Sold: Hengxin
Partial Sold: China Precision, Hongwei, one of the HK stocks
Added: Valutronics
Newly added: Cacola

The selling was done partially to fund the purchases and partially to reduce positions that are subjectively less desirable compared to other holdings.

Overall, my year-to-date returns (based on unit value method) is similar to year-to-date Sesdaq returns.

Book Review: The Panic of 1907

"The Panic of 1907", by Bruner and Carr, depicts the monetary panic in USA during 1907, where lack of monetary liquidity, trusts and bank runs come after one another. Due to the lack of liquidity, the stock market has also crashed severely during this period. The liquidity shortage was so severe that the brokerages have to borrow from Mr JP Morgan and the banks such that the brokerages can pay their counterparties and the stock exchange can continue to function.

Overall the book is a very interesting read, especially for those who are interested in monetary economics or the markets. The book is available in NLB.

A short summary of the lessons from the Panic of 1907:

1) For a panic like 1907 to occur, there must be a system-like architecture in place that allows troubles to spread and probably also allow the amplification of these troubles (e.g. self-reinforcing loop). Also, the system may be complicated in the manner that it may be difficult to know the location and the nature …

Book Review: Super Crunchers

This is a review on the book "Super Crunchers" by Ian Ayres. "Super Crunches" is available in NLB at 519.5 AYR

Super Chrunchers describes how regression and randomization has been applied in reality. For people who are studying or have studied statistics or econometrics, the book will show you how these statistical stuff are applied in reality. Overall, I find that this is a fascinating book. However, if you do not understand regression/randomization or if you hate numbers, you may not like this book.

Some interesting points:
1) Companies are using algorithms or super crunching to exploit the long tail. In other words, super crunching may help companies to sell the same product to different customers closer to the customer's reserve (maximum price that the customer is willing to pay).

2) On the other hand, super crunching also helps customer to discern price differences better. Examples are Priceline etc.

3) Randomization (Real-life small scale experiments using ran…

Downward Volatility exist in Value Investing

Recently, as my portfolio bleeds day by day, I am reminded of, besides Graham's sayings, the observation that downward volatility exist in value investing.

In my opinion, value investing should minimize the risk of total capital losses in the long run. Unless unexpected and very adverse events occur. However, value investing may not imply low volatility in portfolio value in the short run.

A simple (unscientific) example can be found in Warren Buffett's famous speech "The Superinvestors of Graham-and-Doddsville" (Can be found in "The Intelligent Investor"). The speech contains performance records on several value investors which show large negative returns between 30-40% negative returns in 1973-4, in addition to the excellent overall compounded returns. This example indicates that large downward volatility exist in real-life value investing.

Hence, I do expect downward volatitlity to happen from time to time. But it is nevertheless painful for me to stick to …

Recent Trades

I have done quite a bit of trading over the past weeks due to the quarterly annoucement of results:

Pared down my position in Hongwei to raise cash to buy others.

Bought and sold Shanghai Turbo, to raise cash to buy others and also due to its disappointing 3Q results. Originally bought as a turnaround play, but its 3Q results shows that the turnaround is not that certain.

Bought Hengxin at a higher price than its current price. I am thinking that the market may be undervaluing the stock given its higher sales, its significant market share in co-axial cables and future expansion in capacity. However, Hengxin seems to lack pricing power and its lower than FY06 net profit margin seems to show weakness in cost-control. Nonetheless, my assumption is that the low price may have more than compensated for its weakness.

Bought Valuetronics. This is quite an undervalued stock going by its PER of less than 5.

All in all, stocks have been going for bargain prices recently. If the oncoming quarters pro…

Some thoughts on the market

I am penning my thoughts here, in case I would want to refer to them a months later. This would prevent me from recalling the wrong thoughts.

First, the market is getting more dual-tracked. While I guess that both the blue chips and the small stocks would dive in coming week (or weeks), I can see some value in the small stocks. So much so that I am currently fully invested in the market. I have tried to see whether I can sell any of my position, but somehow, I find my positions too inexpensive to be sold. Maybe I may sell if I can spot much better bargains in the coming weeks.

Second, I see that some of the high-flying China stocks may be in for a bad time due to poorer than expected results. Hopefully, this does not happen to the China stocks that I hold. Anyway, if it happens to the stocks that I hold, the damage may be contained, given that these tend to be low PE stocks. (Note: A low PE ratio alone may not imply positve expected returns.)

Third, I am guessing that the broader market,…

Book Review: Pop! : why bubbles are great for the economy

I have recently read the book Pop! : why bubbles are great for the economy, by Daniel Gross. The book can be borrowed from NLB (332.6 GRO). Overall, the book is short and interesting as it presents the positive aspect of bubbles, instead of the negative sides (ie the losses sufferred by investors etc).

Some learning points are:
1) Economic bubbles are good in the sense that they provide positive externalities to the other sectors/people. For example, bubbles can help to hasten the construction of the neccesary infrastructure for businesses and the general public. The US railroad building bubble has lead to lower cost and faster transport of goods and people in a shorter timeframe compared to the Eurporean countries where railroad building bubble does not exist.

2) For investors, during bubble period, avoid the acquisitors. Instead, aim for those who are supplying the raw materials. After the bubble period, aim for the acquisitors who are on the brink of bankruptcy and they are holding va…

How lucky. I will not be the next WB.

The Interative Investor Blog (IIB) has discussed a controversial article by Mark Sellers.

Mark Sellers is a hedge fund manager (using value investing) and writer (he contributes for FT). Mr Seller has just released an article highlighting the seven traits for a successful value investors (ie investors like Warren Buffett, Bill Miller who can compound at 20-25% over their careers.)

Mr Seller penned that successful investors should have the seven traits. And interestingly, he defined these seven traits as either you have it by twelve years old or you don't have it.

Well, as I am a pre-dominantly left-brainer and an abysmal painter, I would have fail his six trait (having a good two-sided brain). And this implies that I would not be the next Warren Buffett or a successful value investor. How lucky.

Mad Selling in a Over-Cautious Mood

Well, I guess I may have done it again. I may have succumbed to the falling market and my over-cautious mood last week.

I have sold C&G, Techcomp, Tuan Sing and UE at low prices and even loss-making prices. On hindsight, my portfolio may have performed better if I have not sold them.

On hindsight, I do not even have to sell most of them in the first place if my margin of safety is larger. Since I may not own them in the first place. Hence, I decide to increase my required margin of safety before I should buy a stock. A higher margin of safety should also help in lowering number of trades.

Well, let's hope that a higher margin of safety works out for me.

Porfolio as at Mid-Oct

My portfolio:

China Precision
Fujian Plastics
United Engineers
Tuan Sing
1 HK Stock
1 Hk Stock

Over the past few weeks, I have been paring the Techcomp stake since Techcomp has announced a placement of shares. The Techcomp proceeds are used to purchase United Engineers, Tuan Sing and 1 HK stock.

The purchase of United Engineers is mainly due to a NRA research report (seen in SGX website). The report states that United Engineer is trading at a XX% discount to its sum-of-parts valuation. Furthermore, upon a look at the Annual Report, it seems that United Engineer may have the intention of disposing of non-core business which may help to unlock some of the asset value. Hence this is more of an asset play to me, where the catalyst lies in the possible unlocking and further enhancement of asset value. (Despite the fact that Unitied Engineer is trading at 1.3 NAV.)

The purchase of Tuan Sing is also more of an asset play to me, where the catalyst lies in the re-valuation of its …

Measuring Portfolio Performance

How can we measure portfolio performance? Do you know that the returns that are seen in the blogs or newspaper may be imprecise?

Recently, Interative Investor Blog (IIB)has two posts that cover them. I find them quite interesting and relevant. The posts:

Prior to reading the posts, I use unit value method and monthly time-weighted method to compute my portfolio performance. The unit value method is used to give me a weekly price of my portfolio, while I use the monthly-weighted method for a real-time returns. The returns are year-to-date returns.

IIB's posts introduces XIRR (a form of internal rate of return computation) method. I have tried out the XIRR. XIRR measures the yearly internal rate of return. Hence, it would give me a higher percentage return (compared to the returns I am already computing) This is becasue XIRR would adjust the year-to-date 2007 return to an annual return. Or a higher return…

Book Review: The markets and The media

This post is a review on 'The Markets And The Media' by Thomas Schuster. It can be borrowed from NLB (at 332.63222).

The book has three chapters, a afterword and tons of references since the three chapters are drawn from many sources: academic papers, books and articles etc.

Basically, if you are interested in how the media may influence the market, you may want to read the book. And perhaps if you have read Nassim Taleb's book(s), you may better understand why Taleb prefers to read literary stuffs than to be exposed to the media after you have read 'The Markets And The Media'.

Learning points:
1) The book explains that stock recommendations by the media (tv shows, newspaper, internet forums) tend not to outperform the market (indices). The stocks mentioned in the media may have moved before their appearance in the media. Hence any news on the stocks may have already reflected in the prices.

2) It is difficult to explain stock price movements using media as the main rea…

Another fall into my behavioral biases

My past posts in June and July suggest that I am having a separate view of my investments and of the general market. In late June, I have a dim view of the market but a optimistic view of my own holdings. Hence, I have been too over-confident about my stocks and suffer from the disparity between intellect (on the general market) and emotions (on my own holdings).

This few days, I have been feeling my behavioral biases again. And I have succumbed to these biases. For the past few days, I have been (too) eagerly searching for stocks to buy, since I have disposed of my holdings in China Print & Dye due to my gradual dislike in its huge leverage.

I have looked around and today afternoon, having chance upon a NRA report of United Engineers. The report states that UE is trading at around 39% of sum-of-parts valuation. Due to a combination of time constraints (lunchtime about to end), desire to add to property sector and the eagerness to use the cash to buy something, I decide to buy in UE…

My portfolio as at 16 Sept

My portfolio currently are:
China Precision
China Print & Dye
C&O Industrial
A HK stock

Currently, my portfolio is around 10% below its July peak. I did not have any trades except adding to the HK stock for the past week.

In the subprice downturn, I have added to or re-initiate (for Techcomp) all my positions. Perhaps, I do feel a tinge of regret that I did not buy Metro at 0.85-0.89, even though I have pointed out to a few friends and my family that Metro can be bought at that level.

I have also looked at my past post in June and July. It seems that I have been too over-confident about my stocks, while I feel pessimistic about the market. In future, I shall try to view my dissonance between my over-confidence in my stocks and my pessimism about the market as a contrary indicator. This implies that I will start to go into cash when I am quite pessimistic about the euphoric market, perhaps in a bid to reduce downward volatility if the correction comes in future.

Book Review: Trade with Passion and Purpose

This post is a review on Trade with Passion and Purpose by Mark Whistler. The book is recently published in 2007. Mark Whistler, as he mentioned in the book, is a staitisical arbitrage trader.

Basically, the book belongs to trader psychology literature. However, it brings about a slightly different dimension when compared to other trader psychology's psychology book as its chapters are arranged by charactor traits: Honesty, Humble, Courageous, Fear, Adversity and Anxiety; and followed by EQ, gratitute, relaxation and a last section on developing a game plan. Developing a game plan touches on trading plan and risk understanding.

Some interesting points:
1) The book starts by having a mission statement and using Morita therapy: acknowledging and accepting your own feelings as they arise. For example, if you feel worried about a trade, you should acknowledge and accept your feeling. Personally, I do find that acknowledge and accept my own feelings would help me in investing as well as o…

Book Review: SuperMoney

This post is a review on SuperMoney by Adam Smith. The book is first published in 1972 and re-introduced in 2006. The NLB does not seem to have the book.

The book is a description of financial markets in the period roughly around 1965-1975. Supermoney is interesting to me in a few aspects.

1) Supermoney has a chapter on Benjamin Graham and Warren Buffett, even before Warren Buffett becomes famous. The author conducts his interview at around the time where Buffett no longer manages money (somewhere after 1969) but rather working as an owner of Bershire. And it seems that Buffet's famous Rule of 'Don't lose money' comes from Benjamin Graham. I shan't say much here, since it will spoil the joy of reading that chapter.

2) Another interesting event is the Penn Central bankruptcy. The event is a bit similar to the subprime fallout now. I shall briefly describe what happen from my understanding from the book.

At that point of time, Penn Central files for bankruptcy and its co…

Book Review: A Demon Of Our Own Design

This post is a review on A Demon Of Our Own Design: Markets, Hedge Funds, And The Perils Of Financial Innovation' by Richard Bookstaber. Website:

I have bought this book during the recent subprime Credit Debt Obligations (CDOs) meltdown, so as to better understand how the subprime leads to market meltdown. Essentially, from what I understand from the book, the recent market meltdown is due to liquidity crunch, wherely hedge funds simultatneously sold their equities position and the market is not able to absorb. This transpire to lower prices for the equities and with the momentum traders further shorting action to pre-empt and in the process profiting from the selldown, the market meltdown was exacerberated.

Other interesting points from the book are:
1) Correlation of different assets is likely to converge to 1 during liquidity crunch.
2) There are liquidity demanders and liquidity providers in the market. Interestingly, value investors tend to be liquidit…

Not Much Activity

I did not have much activity this week given that I have expended most of my funds. What I have done is to add a bit more to one of my position and to wait for a lower price in China Precision.

In the last post, I have expressed that Hongwei is my best pick now. Let me explain why.

First, it has low price to conservative valuation. Assuming no growth, a discount rate of 10%, lifteime annual profits per share at 2x of its HY07 EPS, Hongwei's valuation will be at 52 cents.

Second, Hongwei is likely to worth much more than 52cents as its EPS is growing. Hongwei's new synthetic cotten factory would be completed in 3Q2007,which will double its synthetic cotten production from 8000 to 16000.

Hence, at the currect price, you are getting below no-growth valuation, a freebie onlikely growth in eps. There may be possible future expansion and interesting R&D results. It seems low-risk and high reward pick in my view. Of course, I may be wrong. But it is a good value bet to me, just like …

Well, well, an underestimation of market panic

I conceded defeat. I have underestimated the extent of selling panic, so much so that I keep buying and buying. Yes, I have somehow reached my target of being more than 100% invested. Probably in the weeks to come, I will put my tiny bit of savings year-to-date into this lowly valued market.

It is interesting to note that my portfolio has fallen around 33% from its highest point in mid-Jul. And this is worse than the 25% fall I suffered last year. However, emotionally wise, I seem to feel less pain compared to last yaer. Is this a form of adaption to extreme volatility or am I not out of dreamland of thinking that the stocks will recover? Or perhaps I do not see money as important as before despite my portfolio having grown larger. As usual, I do not know.

Anyway, my portfolio has 30% in Hongwei. And none of the 30% is bought at the current low price of $0.305. I think that Hongwei is my best pick of this correction, similar to my pick of CG Tech in the 2006 June correction. However, as…

Costly Mistake

I have discovered that I have made a blunder in my valuation of Hongwei and Contel. That is, I did not take into account of their newly issued shares. Newly issued shares would lower eps and lead to lower valuation. The blunder is due to not reading or taking into account of every announcement carefully.
Given that I prefer less uncertainty, I may feel that the growth achieved from the equity raised by issuing of shares may not make up for the eps fall.

I have sold off all my Contel and one-third of my position in Hongwei. This may be regardless of valuation. It may be more to smooth my nerves and reduce possible negative consequences later. I do not really understand Contel's rationale in doling out convertible bonds continuously. Do they need the money for expansion or is it because it is due to cashflow problems? I can't tell, so I have to sell.

The Contel and Hongwei mistake seems rather severe as it has at least contributed to half of the losses (-17.35% from the highest poi…

A great time to buy stocks

This is a great time to buy small caps. To buy when people are selling without any view with respect to the fundamentals. This is a high probability for long term gains but with high uncertainty and high probability for short term losses.

Despite seeing some pessimism around the forums, I am feeling quite optimistic or happy. I guess this is because my opportunities for bargain hunting may increase considerably from now on. This is also despite my 13% losses in my overall portfolio. Maybe it may accumulate to 25% losses as in June last year. I don't know.

However, I will buy more as stocks become cheaper. I have bought more of Hongwei and Contel today. Sadly I have also disposed my position in Techcomp, my last saleable stock to raise cash. My remaining holdings, besides Hongwei and Contel, are China Print & Dye, GMG, a HK stock anda newly initiated position today. They are most likely to remain unsaleable unless their incoming results contain unpleasant surprises.

I still have s…

Book Review: Don't Believe Everything You Think

This post is a review on 'Don't Believe Everything You Think: The Six Mistakes We Made in Thinking' by Thomas Kida. It can be borrowed from NLB (at 153.42 KID).

As explained in the title, the book highlights six thinking mistakes:
1) We prefer statistics to story.
2) We seek to confirm
3) We rarely appreciate the role of change and coincidence in life
4) We can misperceive our world
5) We oversimplify
6) We have faulty memories

Overall the book is quite interesting. It touches on the above six points and also other aspects such as the use of science (eg hypothesis testing in statistics) to overcome our thinking mistakes. It is rather readable to me and I do detect certain overlapping materials with Taleb's "Fooled by Randomness" and "The Black Swan". This is not surprising given that Taleb draws a lot of materials from psychologists.

Before I end this post, maybe I can briefly share how these points can be relevant to investing. Pt 1) explains why listed com…

Been Raising Cash

Last week, I have quite a number of trades. Besides buying Hongwei and one other stock before the selldown, I have also disposed two other positions on Friday so as to raise cash.

I have sold my positions in China Precision, C&G Industrial and SP Chemical. Even though China Precision and C&G Industrial are considered to be still undervalued by me, the degree of undervaluation is lower compared to my other positions, in my opinion. Also, I sell them to raise cash, which I have started to do since the last Mar selldown.

The act to raise cash serves a psychological purpose, which is to show that I have taken action to reduce losses in case the market corrects further. In other words, the act to raise cash is to reduce regret aversion. Or in chess terms, you can call it a prophylactic move to avert regret.

The act to raise cash may also help if the market corrects more. I will have the cash to purchase more undervalued stocks. Nonetheless, this may backfire at times if the market rec…

What is your motive for investing / trading?

Buffett has mentioned that an investor should be animated by greed but not be controlled by it. Van Tharp, in Schwager's Market Wizards, said that movitation in making money is not an important trait in expert traders. Martin Pring, in Investment Psychology Explained, noted that great investors and traders invests/trade because they love the investing/trading, and not because of the money.

What is your motive for investing / trading? Is it because of the money or is it because you love investing? If you have not examined your motives thoroughly, you may wish to examine it again.

Personally, I started to invest due to the motivation to make more money. However, slowly and slowly, I realise that investing allows me to profit from ideas. I can expose myself to (new) ideas, synthesize or combine a few ideas, test them through the markets and in the process, gain feedback from the maket. This process of coming up with new ideas, testing the new ideas by staking one's money on it and …

Insights from The Black Swan: Pt1

At present, I am re-reading some chapters of The Black Swan (TBS) by Nassim Taleb. In my first reading of TBS, I find it more philosophical than Taleb's last book 'Fooled by Randomness'. Which is why I did not dare to give a review. I do not want to review something I do not fathom.

I find TBS more provocative than other books. TBS may, at some point, trigger some thoughts of mine which will link TBS concepts to my real life investing.

In a previous post, I mentioned that TBS highlights the rear-view mirror or restrospective problem. That is, humans tend to theorize the past based on ex-post results. For example, historians may use the actual occurance of World War I (WWI) to highlight that the events before WWI can be used to predict WWI. This is a form of rear-view mirror theorizing as one looks for possible explanations for something that have happened, and one likely would dismiss randomness as one of its causes. (Research using bond prices indicates that the market did …

Acheiving Competency in Investing (and maybe, trading)

How can one acheive competency in investing?
1) Read
2) Think
3) Practice
4) Repeat 1), 2) and 3) every week, every month, every quarter and every year

The above four steps, in my personal view, are the basic steps to acheive competence. This is also what I have been doing for the past few years to improve my investing skills.

While it is amazing how much I can learn by doing the four steps, I am amazed by the commitment one needs to do the four steps. You can always try out these steps and see if I am lying on the commitment required.

To get you started in step 1), I shall list down a few books that are important, regardless of whether one is an investor or a trader. Just ignore the titles and read them.
1) The Winning Investment Habits of Warren Buffett & George Soros by Mark Tier
2) Trade Your Way To Financial Freedom by Van K. Tharp
3) Way of the Turtle by Chris Faith
4) Enhancing Trader…

The Government giving a Black Swan?

The government has given us a black swan today. The markets falls cascadingly when the development charges increase from 50% to 70%. And the most badly hit was the Sesdaq.

It's a pity that there is no put warrants on Sesdaq, else I may have bought some yesterday. I was looking at STI warrants yesterday, but I did not buy.

Euphoria turns to pessimism. Contel drop back to my purchase price. I do hope it drop further, so I can bear to buy more. I also hope some of my targeted stocks drop, so I can also buy more.

While I am fully vested in the market now, I do have spare funds and borrowed funds left unused. I do use a little leverage which is less 15% of my funds. This leverage has been lying in the bank some months back as I cannot find many bargains since the last Feb/Mar drop. Probably the leverage can be put to use soon. Maybe I should see if I can get more leverage. I don't know.

In the more deeper June correction last year, I manage to find better bargains such as CG Tech at 26…

Deja Vu Again

Today os a day where most stocks went up a lot. Today is the day where Sesdaq hits 300, giving a year-to-date return of 111.5%!

Today is perhaps a lucky day for me too where I just bought Contel at an average 0.242 and it has hit 0.275 in two days. My last purchase was at 0.285 today. Contel is a stock that I have missed out. I should have bought it earlier. It was an ommission mistake

Interestingly, I have also corrected a mistake by doing a one-day contra or selling what I had mistakenly bought yesterday. The mistake is due to faulty analysis.

But I think tomorrow or the morrows after that may be worse. The optimism is a bit too high, too high for my comfort. However, I suffer from over-confidence. I do not really want to sell, as the stocks I am holding are not near my valuation yet.

I do not know whether this is a bad move in not selling. However, I know that I am 100% in the stock market now. I am also underperforming Sesdaq by around 25%. Probably my returns will be better if I have…

A Regret and some trades

I shall post some of my recent trades here. However, first I will state a regret or maybe an error of mine.

Recently Shanghai Asia has rose to near $0.30. As I have posted sometime ago that I have sold Shanghai Asia and thus I have missed the run from low $0.2x to near $0.30. This is my error in not being able to be more patient.

My impatience or psychological weakness may have shone again as I sold Jardine Strategic when the STI drops around 50+ on a certain day. On the other hand, the sale was made as my strategy is to raise cash when market starts to fall. The cash raised will be handy to pick up bargains if market fall becomes a market correction. So far, Jardine Strategic has risen above my selling price. I am not certain whether I am willing to buy it back at the current price given my caution for high margin of safety. I would prefer to buy when it's at below $13.

Besides selling Jardine Strategic, I have also sold part of my Global Testing position. The sale of Global Testing…

Shout out: A dangerous time to be in Singapore market

I can't resist myself. I can't resist shouting that the Singapore small caps market is dangerous now. It has risen 60+% last year and now, it has risen 82% year-to-date.

Currently many small caps stocks are moving upwards, especially those that have some properties element. Also, small caps with funny fundamentals are also starting to move. I think the small cap market is showing quite an exuberance now, similar to the China Spore-listed stocks at start of 2006.

History almost never repeats. But most servere corrections come after a period of extreme exuberance. We are currently in exuberance stage, perhaps in extreme exuberance stage. I don't know. Likewise, I do not know when the small caps market may crash or correct.

But my guess is someday sometime the crash or correction will come. The only question is time.

Book Review: Happiness Lessons from a New Science

I have just finished reading the book “Happiness: Lessons from a New Science” by Richard Layard. This book has a few controversial points, which people may find them disagreeable. However, I shall start with the more agreeable points first. Before I start, I shall state that this content in this book is lighter than most non-fiction books and it is not a bad read. The book can be found in NLB under 302.5 LAY.

1) We (humans) tend to seek happiness. That is, we would want to feel better.

2) We tend to prefer to be with company most of the time than to be alone. This is supported y research that friendship and marriage tend to improve happiness. Unemployment, on the other hand, lead to unhappiness as one of the reasons is that it cuts away the social ties one has with one’s former colleagues.

3) We will be happier if we can trust people more. For example, if you can trust your family, friends or colleagues, you tend to worry less and enjoy their company more.

4) We are attached to status quo…

Oak Value Fund Manager Interview

Have just read this informative interview of Oak Value Fund Managers at Motley Fool.

Here are some excerpts. Happy reading.


But I will tell you, one of the things we have wrestled with often is when you find a good company,if you find a great company -- and in many ways youhave talked about your interest in eBay, and I thinkwe would all probably agree, it really has many of thecharacteristics of a great company.

Valuation is the hard part. We run a worst case, abest case, and a base case. We do our work using abase case of what we think is a very reasonable,rational, and what we usually find to be a veryconservative thought process of what will unfold. Therisk to us is that if we find a really great one, andthere are not that many really great…

A book on America Fringe Economy

This post will present a short review on a book ”Shortchanged” by Howard Karger. Next, a personal niggling thought on the stock market is posted.

”Shortchanged” is a book depicting the financial life and debt in the fringe economy in America. It tries to show how financial companies (e.g. pawnshops, credit card, cash cashiers) do business with the low-income as well as debt-ridden consumer (which is the fringe economy). As these low-income or debt-ridden consumers are usually deemed as high-risk borrowers, they are not able to borrow funds at the normal interest rate. Neither do they have the funds to purchased discounted white goods without the use of installments. As such, the financial companies would levy higher interest rate (too high, in fact, as the book describe some interest rate charged is around a few hundred percent a year!) on the loans given to these group of people.

Of course, these low-income consumers are likely to lack the financial education or time to read through th…

The Power of Diversity

I have recently read the book “The Difference” by Scott Page. It is a book on how diversity can create better groups, firms, schools and societies. Similar to previous post, I would recommend you to buy the book and read it. I am not sure if the local bookstores have it as I got mine from

I shall list the learning points I gathered from the book below. However, these points may not be correct or may not be complete as it depends on my understanding from my first read of the book.

1) Diversity helps to solve difficult problems given certain assumptions. The assumptions are that the group of diversified people can coordinate well, the diverse group has different skills and the group must be smart.

2) Why diversity helps. Given that a smart person in a diverse group may get stuck at a sub-optimal solution to a difficult problem, another person in the diverse group may be able to start from the sub-optimal solution to get to a better solution using different skills and knowledge f…

An Engine, Not a Camera

The following are my notes (or what I have learnt) from the book, ‘An Engine, Not a Camera'. It is written by a sociologist. I would recommend those who are interested in financial theories and its effects on the market to read it. My notes may not be self-explanatory if one lacks the context behind the book.

The notes are:

1) Financial theories may be performacity or counter-performacity. Performacity are theories that act to make the markets to conform more towards the theory. For example, B-S options model when known actually help the option prices to converge to B_S model. But after 1987, B-S model becomes off-the-mark as traders become more risk-averse (introduction of volatility smile). Efficient market hpothesis (EMH) lead to index funds which may have the counter-performacity effects. Shares that are announced to be included in the S&P index may have an increase in prices of these shares. The announcement of shares being removed from an index would lead to a decrease in …

Buying and Selling

I have been selling and buying over the past week. Out goes my position in SP Chem, and in comes a HK stock, additional positions in Global Test and China Precision, and a new stake Shanghai Turbo.

SP Chem was sold mainly to finance my purchases. Maybe I may buy it back again if it falls to $1. Earlier on, I have also sold my largest holding, C&O Pharm as it seems to have recovered fully from the inventory problem.

I shall not reveal the HK stock as the stock idea is not mine. The addition of Global Test was more of an emotional reaction to the rising price of Global Test. Despite the knowledge that I wa reacting to the price rise when I am buying, I did not cancel my purchase as I did not wish to suffer any regret if Global Test continued to rise. However, I did know that my purchase price of Global Test was still at an acceptable range and Global Test, to me, is a play on semiconductor recovery. Recently, I have seen reports that the semiconductor sales recovery this year may not …

Looking for blind spots

“You can get away with more than you deserve in life by being slightly more rational.”
-- Charlie Munger

I am back to urban lifestyle after a week of national reservist. Back to reading and blogging. First, I shall blog on looking for blind spots

One can be more rational by knowing that blind spots (or more technically, unknown unknowns or known unknowns) always exist. And one should try to look for these blind spots, especially in financial stuffs. Hopefully, not much important stones are not left unturned.

Why do I say so? Just look at this article on poverty business. The articles show that people may have been outsmart by lending corporations because they do not look for blind spots before they decide. They may forget to read the clauses or ask how the other party benefits when they do business with you. Or perhaps, they didn’t know to ask the salesperson to convert the interest rates into effective interest rate per annu…

Been Reading

My ordered books from Amazon have arrived two weeks ago. Currently, I am spending my time reading on “The Three Questions that count” by Kenneth Fisher and “The Black Swan” by Nassim Taleb.

“The Three Questions that count”, as described by Fisher, are three questions that can be used to answer one question.”What is it, that you know and others do not know, which gives you the advantage over others in the market?” The book is thick but worth the time reading. I have not finished the book. However, I can give you the three questions here. You will learn much more by reading the book to know how these three questions can be applied. For more details, you can refer to or the Jan –Feb articles in

The three questions are:
1) What do you believe that is actually false?
2) What can you fathom that others find unfathomable?
3) What the heck is my brain doing to blindside me now?

The other book “The Black Swan” discuss on the topic…

Nothing to post

I guess I have nothing to post for this weekend. I see that people are posting their portfolio in channelnewasia. Maybe I will do the same here. My portfolio is as followed:

China Preci
SP Chem
Shanghai Asia
China Printing
Jardine Strategic
Global Test

In value terms, it is just a small and poor portfolio. That's all, it is a short post this weekend.

Which is more undervalued: Jardine Strategic or Jardine Matheson?

I have bought into Jardine Strategic (JSH) this week. In my opinion, I think that JSH is undervalued as it trades at around 70% of its end 2006 market net asset value (MNav). I define MNav at valuing the company’s net asset at market value. This opinion has been addressed in my previous post.

In this post, I will attempt to illustrate another opinion. That is, I think JSH is more undervalued than Jardine Matheson (JMH). In my previous post, I have stated that JMH and JSH have cross-holdings in one another. JMH owns 80% of JSH and JSH owns 53% of JMH. After I has attempted to remove the cross-holdings, I find that JMH’s annual report uses the net number of shares after accounting for cross-holdings to compute its Nav and EPS (earnings per share).

The table below shows my finding on MNav of JSH and JMH. My finding show that JSH may be trading at a discount of 30% to its MNav, while JMH trades at a discount of 5% to its MNav. Again, this finding may be wrong as there are some assumptions b…

What is the true NAV for Jardine Strategic?

Looking on page 5 of its 2006 Annual Report, Jardine Startegic (JSH) at US$13.40 may be trading at 70% of its net asset value (NAV) of US$19.38, which is calculated based on market price of its holdings and excluding 455 million shares held by Jardine Matheson (JMH).

JSH excludes JMH's 455m shares due to cross holdings. JMH owns 80% of JSH and JSH owns 53% of JMH. JSH has a total of 1072m shares. As such, JSH effectively owns the 455 shares out of the JMH's 858m shares in JSH, which may mean that there are effectively 617m shares, instead of the 1072m shares on paper.

If we use the full 1072m shares to compute JSH's NAV, the undervaluation disappears as the NAV will then be at around US$11.15 per share using the figures in its 2006 AR.

JSH owns, besides 53% of JMH (note: JMH owns 80% of JSH),
- 64% of Jar C&C
- 78% of Diary farm
- 74% of Mandarin Oriental
- 47% of HongKong Land (HK Lands owns 70+% of MCL Land and is also one of the three partners for Marina Biz Fin Centre and…

Pain from Investing Process

I have mentioned that investing (or more precisely, DIY investing) is a painful process to me. I shall elaborate on why investing is painful in this post. However, I shall start with what I enjoy about investing.

I do enjoy certain aspect of investing. I enjoy the ideas generation and the merging of ideas in investing. For example, you will encounter the idea of expected value in statistics. Simply put, expect value is the sum of the multiples between the probabilities and its outcomes

Expected value is quite dry to me in terms of statistics until I see it taking place in the field of stocks investment. In stock investment, your expected returns on a stock can then be derived in a similar manner, by taking the sum of subjective probabilities multiplied by the respective outcomes. If one invests using value-investing approach, one is basically buying below stocks at prices below one’s subjective expected value of a stock.

Why is investing painful? One, it is painful because investing, whe…

Short Review on my Disposed and Added positions in March Correction

The market has recovered and soared since the March correction. Perhaps it is a good time for me to look at the positions I have disposed or added during the March correction.

During the late February and early March, I have disposed two positions, CG Tech at around 0.71 and Sunray at around 0.22. CG Tech is quite profitable to me as I have last bought it at late 2006. Sunray is a loss for me as my average price is around 0.27.

At that period, I have also added three new positions. They are China Precision, Techcomp and Orchard Parade. I have discussed Orchard Parade in my earlier post.

So far, all these three new positions are profitable and I have not cut down on any of my positions in these three stocks. Techcomp was more of an undiscovered stock when I bought it, so it may be luck that its price has reached 0.40 in around a month.

China Precision was a stock that I have bought much earlier at 0.40 and sold it at a slight loss before its poor 2006 FY announcement. Thus I have been foll…

Under-Reaction to Property Plays

If investors has certain biasness to over-react to certain situations like a single bad quarter, investors may also have some biasness to under-react to other situations. And recently, I discover my own biasness to under-react to a property play as I bought smaller stake in that property stock than I would buy if it is some other stock.

I do not normally buy property stocks due to my lack of understanding to value them in the long run. Or in other words, it is difficult for me to apply discounted dividends or cash-flow method to property stocks. In most local research reports, they would use a RNAV (Realized Net Asset Value, if I’m not wrong) to value property stocks. I recognize that I lack the understanding in properties to do an estimate of RNAV, so I generally do not buy property stocks until two weeks ago.

Around two weeks ago, I bought into Orchard Parade at $1.10 as I think that it may be a rare case of a property stock that I recognize as low-risk with good gains. There are two …

Market Crying Wolf (or Bear)?

As this week passed, many people judged that the market correction is finally over. The STI has recovered to 3205 as at Friday 22 Mar 2007.

I am, of course like many investors, glad that the market has recovered. In this episode, I have hopefully learnt to withstand market volatility better and not to panic when disaster strikes again.

And as I have said before, it is quite fortunate that I returned to the market much faster than I would have thought, after disposing around 50% of my holdings. Yet, I have not fully recovered from the peak before the correction. Last year, it took around four to five months from the May-June correction before my portfolio return to the peak during April 2006. Maybe this year’s recovery may come sooner or it may not come. I don’t know.

When I look at the 2006 and 2007 correction, it may seem like a correction on hindsight. Or metaphorically, it is like the market crying wolf. Yet, as the story goes, sooner or later the wolf appears but when it appears, it …

An put warrant loss, solace in Graham philosophy

On a certain day during last week, I have purchased a put warrant on STI when STI drops around 80 points. The original intention of the purchase is to hedge my portfolio. At the end of that day, I feel like a genius as my put warrants show a significant profit.

And in the next day, I was made to feel like a fool when I disposed my put warrants at a significant loss. As the US markets had recovered overnight, the STI on the following morning followed the US markets and jumped around 40-60 points. To cut the possibility of further losses as well as to remove the hedge, I dispose of my put. This experience or hedge set me back by around 800 dollars.

On further post evaluation of the put warrant incident, I figure that I am bounded to have expected losses in warrants if I am to invest or speculate in warrants. This is because I lack a strategy to derive positive expected profits in warrants. Assuming that the market is close to random and warrants are priced at a premium, my probability of …

Perhaps Too Panicky?

After a week, the market seems to have recovered with the STI at 3182. On hindsight, I may have made silly decisions to liquidate around 50% of my portfolio into cash. If I have not sold during the crash, probably my current portfolio would look better when the market recover.

At the end of last week, I have taken steps to re-build my portfolio by buying into the stocks I am still holding and a new stock holding. This somewhat relieves the pressure of underperformance when the market is or seems to be recovering. And today, I have further added on to my holdings. I’m not sure if buying now will be correct in the coming days or weeks.

It is very difficult to act on foresight and easy to evaluate on hindsight. I do not mind the heavy liquidation done last week as I would not have known if the market would continue to correct or not.

Furthermore, I do not believe in technical investing. Or to put in another way, there is no solid logical ground showing that technical investing will outperfo…