Saturday, May 26, 2007

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 be as strong as predicted. I may have to wait longer for my stake in Global Test to bear fruit.

My addition of China Precision was due to the price fall to around 6.9 historical P\E. Besides the sufficiently low valuation, this addition was done partly also due to my preference for stock to cash.

My new stake in Shanghai Turbo is rather speculative as it is done more based on gut feel than valuation. My purchase of Shanghai Turbo was prompted by a Westcomb report hinting at the likely recovery of Shanghai Turbo sales. Shanghai Turbo produces vanes for steam turbines used in power plants. Its business was badly hit last year as its main customer decided to in-source the production of vanes and the expansion of power plants in PRC was reined in by the government. In buying Shanghai Turbo, I am betting on the odds that Shanghai Turbo sales would recover due to its expansion into new products (vanes \ components for gas turbines) which would be sold to international customers.

I suppose that international customers would tend not to in-source outsourced components as they would not enjoy the same cost advantages if these customers do not have production in PRC. Nevertheless, as the odds of a recovery in Shanghai Turbo sales remain uncertain, my stake in Shanghai Turbo remains small relative to other stocks. In the worst case scenario, I may lose up to one-third of my stake in Shanghai Turbo. Whatever the outcome is, my stake in Shanghai Turbo will be a good learning experience for me.

Saturday, May 19, 2007

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. http://www.businessweek.com/magazine/content/07_21/b4035001.htm 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 annum.

In another blog, I read that a lot of people are unaware of the high managerial fees in Cityspring. And the fees are clearly shown in the ipo prospectus of Cityspring. This is another case to illustrate why one should detect for unknowns to avoid negative surprises.

Charlie Munger may be right that you can benefit more than you deserve by being more rational. And you can be more rational by first trying to look for blind spots.

Saturday, May 5, 2007

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 www.onlythreequestions.com/ or the Jan –Feb articles in http://www.wallstraits.com/main/index.php

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 of extreme events that are of high impact and low frequency. It is much more philosophical than the author’s first book “Fooled by Randomness” (2nd ed). So far, I have read around half of the book but it seems insufficient to provide a review here. However, I do envy the author having the financial freedom to live by thinking about philosophical stuffs.

Nonetheless, extreme events do deserve our attentions; especially since they do happen in the field of finance. For example, the collapse of LTCM is caused by extreme event(s). For more details on the book or on Nassim’s thoughts on extreme events, you can refer to http://www.fooledbyrandomness.com/. Or for a complete and long review of the book, see http://econophysics.blogspot.com/2007/05/black-swan-well-thats-life.html (too long for me to finish at one go).