Showing posts from 2010

Book Review: Risk and the Smart Investor

‘Risk and the Smart Investor’ is written by David X Martin. Interestingly, the author is a former risk manager of Citibank. The book is available in NLB.The book provides a risk management framework with anecdotes and a fictional story. It also contains some very practical advice on thinking and acting on risk. Overall, I find the book not bad.Interesting Points:a) Risk Management Framework:i) Assessment- Know where you are. Assess your current position.- Know what you do not know. Grasp the limits of your knowledge. Question the assumptions.ii) The Rules of the Game- Find out your risk tolerance in relation to your goals- Demand Transparency. Seek to fully understand the risk. Discuss the risks openly.- Diversify- Ensure that checks and balance are in place. - Risk management never ends.iii) Decision Making- Consider all options. Always provide yourself with an exit strategy. - Ensure that risk is managed in every step of the process- Reputation is important. Check the reputation of …

Book Review: Billion-Dollar Lessons

Billion-Dollar Lessons, What you can learn from the most inexcusable Business Failures of the Last 25 years is written by Paul Carroll and Chunka Mui. The book is available at NLB.I am a believer in learning from other people’s failures. Thus, I am happy to see this book available in NLB. The book has two portions. One is about the failure patterns and two is on how to avoid the same mistakes.Generally, I find the first portion of the book interesting. The second portion will be a bit dry. Nonetheless, it should be a good read for investors, since the authors did have investors (besides the corporate managers) in their mind, when they wrote this book.Interesting Points from the book:a)These corporate failures often do not result from failure to execute. Neither are they due to luck or timing. Instead, most failures are due to bad strategies. In other words, the strategies are bound to fail from the start, unless the company change courses. b)Half of these failures may be avoided if co…

Afterthoughts about recent selling decisions

I shall record some afterthoughts of my selling decisions in the last two months.
First, I dispose my Bright World stake at around 35 cents, which is much lower than the 50+ cents now. What interests me is not the 'gains' lost. Rather, my interest is piqued by the thought that my lack of knowledge (or failure to predict) the quick rise in stock price is the cause for the gains lost. As I do not know any story that may lead to further large gains in the price of Bright World, it becomes logical for me to sell Bright World and switch to other more attractive stocks.
In short, I find it interesting that the 'gains' lost is somewhat deserved, since I do not know any reasons for further large price increases in Bright World.
Second, I dispose my Valutronics stake, after reading in a book that entering into adjacent markets may not be profitable at times. Perhaps I become more risk-averse after reading the book. Or probably, my selling decision is due to the availability bias…

Thoughts about earlier thoughts

In an earlier post, I expressed my regrets about not buying Best World:
"I have another reason for selling Best World -- Q1 results are below my expectations. I did somewhat regret refusing to buy Best World back at higher price (compared to my selling price), as Best World seems fundamentally more solid relative to my other positions."
My regrets arose because I felt that Best World's problems will be resolved quickly. Probably by 3Q 2010, Best World will have shown substantial recovery in profits. Given Best World's historical profit records and the probable recovery in profits, I concluded that Best Word seemed fundamentally better relative to my other positions.
Now, after Best World reported losses for its 3Q 2010 results, my earlier thoughts look incorrect. Best World may not be recovering as fast as I have thought. Rather, Best World's problems may turn out to be less temporary than I thought. Its Indonesia sales may not recover as fast as I anticipated. In a…

Portfolio as at end Sep 2010

This is a post on my portfolio holdings as at end Sept 2010.

My portfolio, as at end Jun 2010, contains the following stocks:
Bright World; China Gaoxian; Eratat; Heeton; Hiap HoeRoxy; Techcomp; Valutronics; Ziwo
In the quarter end Sept 2010, my portfolio has experienced some turnover, as I sold off the construction stocks and technology stocks; and bought more S-chips.
Sold: HockLianSeng (HLS), Ryobi, Viz branz, Broadway I have sold off the construction stocks HLS and Ryobi, as I find myself unable to make proper value assessments since the construction revenues tend to be of uncertain nature.
Viz Branz is sold before the share split, as I think the upside may be limited. From the present price, I may be wrong in my earlier assessment.
Broadway was sold as I feel pretty uncertain about Seagate's HDD sales in the coming quarters. Hence, I decide to be more conservative and sell first. However, I am not sure if this decision may turn out to be a wise one.
Bought and Sold: Koh Brothers
Koh …

Portfolio as at end Jun 2010

This is a post on my portfolio holdings as at end Jun 2010.

My portfolio, as at end Jun 2010, contains the following stocks:
China Gaoxian; China Eratat; Heeton;
HockLianSeng (HLS); Roxy; Ryobi; Techcomp;
Viz branz

In the last quarter, my portfolio has experienced larger turnover, as I pared my positions during the downturn in May 2010 and increased my positions in June.

Sold: Best World, China Zaino, Metro, Fujian Zhenyun (FJZY), UOA
Metro and Zaino was sold to raise cash to buy other stocks. FJZY was sold when it announces that its auditors cannot close the accounting books within the stipulated timeline. Best World and UOA were sold so as to increase cash position during the downturn in May.

I have another reason for selling Best World -- Q1 results are below my expectations. I did somewaht regret refusing to buy Best World back at higher price (compared to my selling price), as Best World seems fundamentally more solid relative to my other positions. Nonetheless, I will not be bu…

Book Review: The Holy Grail of Macroeconomics

The Holy Grail of MacroEconomics: Lessons From Japan's Great Recession, by Richard Koo, talks aboun the macroeconomic lessons that can be learnt from Japan Recession and applied to the US Great Depression.

Interesting Points:
1) Japan's Recession is due to balance sheet recession. A balance sheet recession is one whereby the private firms seek to pay down debt and stops investment. These scenario arises out from the huge debt owned by the firms due to the huge decline in asset prices and the large leverage the firms have used to purchased the assets at a high price during the bubble stage.

2) In a balance sheet recession, monetary policy become ineffective as firms will not borrow regardless how low the interest rate becomes.

3) Only expansionary fiscal policy is effective in balance sheet recession. Given the fall in investment, it is up to the government to increase spending and prop up the GDP.

4) If the government choose to cut its government spending (due to the wish to reduc…

Book Review: Trade-Off

Trade-Off , by Kevin Maney, discuss his idea on the trade-off between high fidelity and high convenience. He defines fidelity as the total experience of something (e.g. concert).
Interesting points: a) Fidelity vs convenience. Products/service must either position themselves as high fidelity or high convenience. Customers will always trade fidelity for convenience or convenience for fidelity (e.g. consider eating out at a further high-class restaurant or a near-by fast-food restaurant.)
b) Tech effect. Technology always improves both fidelity and convenience. In other words, if a product is of the highest convenience/fidelity today, technology will ensure that a higher convenience/fidelity will be created in future.
c) Fidelity belly. Product that is not of high/sufficient fidelity or convenience resides in the fidelity belly. An example is music CD.
d) Fidelity Mirage. Companies who choose to position their products as both high fidelity and high convenience will fail.
e) Super Fidelity…

Investing and IQ

Success in investing doesn't correlate with I.Q. once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.-- Warren Buffett
Lots of people have used the above statement to illustrate that intelligence does not matter in investing. Well, they are wrong, if Buffet really meant IQ above 125.
If you refer to Wikipedia, an IQ of 125 is the 95th percentile of the population. A IQ above 125 will put you the top 5% of the population! Hence, if Buffett really meant IQ above 125, success in investing would correlate with intelligence. It is just that success in investing would not correlate with high intelligence.
Either Mr Buffett has gotten the IQ score wrong, or his definition of ordinary intelligence does not mean average intelligence. Well, to each his own.
P.S. Personally, I find it strange if intelligence does not matter in investing. To some extent, intelligence will…

Memories of My Psychology

Today, I have thought about the behavioral traps that I have fallen during the last few years, which include a stock market boom and a stock market burst.
Trap #1: Anchoring When the market was trending downwards, I thought that the market was quite undervalued, compared to the valuations seen in the earlier stock market boom. It turns out that for some stocks, what was cheap turned to be cheaper. And for other stocks, what was cheap turned to be very expensive, as their earnings also trend downwards. I have fallen into the trap of anchoring to the valuation seen during the stock market boom.
Trap #2: Over-confidence Similarly, while I felt uncertain about the market in late 2007, I was confident that I would not suffer large losses if the stock market tanked. Needless to say, I was proven wrong. I have fallen into the trap of over-confidence. I find myself still susceptible to over-confidence every now and then.
Trap #3: Over-enthusiastic Every now and then, I would find myself over-ent…

Portfolio as at end Mar 2010

This is a post on my portfolio holdings as at end Dec 2009.

My portfolio, as at end Dec 2009, contains the following stocks:
Best World
BroadwayChina Zaino
Fujian Zhenyun (FZ) Plastics Heeton
UOA Viz Branz

Sold: Fabchem, Tuan Sing, Guocoleisure,
Fabchem is sold due to its results not meeting my expectations. Tuan Sing and Guocoleisure were sold not only for cash raising purpose but also due to my impatience with their stock movements. I wonder whether their share price will prove my impatience wrong a few years later.
Partial Sold: Metro and Fujian Zhenyun.
They were also partially sold not only for cash raising purpose but also due to my impatience with their stock movements.
Bought and Sold: Saizen
Bought Saizen on the premise that it is very undervalued. However, after further reading, I find that the under-valuation may not be much. I presume that it will start giving an annualised yield of 9-10% starting July and a 9-10% yield does not provide me with sufficient margin to safety…

Do not blindly follow Winners' Common Traits

Recently I've been reading the book "Hard Facts, Dangerous Half-Truths & Total Nonsense". The book has pointed out an very useful but easily overlooked idea.
That is, we tend to look for common traits in Winners and think that we can be winners if we follow these common traits too. But sadly, focusing on the common Winners' traits is insufficient.
One also has to compare these Winners' traits against the Average (group). If a trait can be found in the both Average and Winner, then this trait may not be differentiating factor between Winner and Average.
In addition, even if a trait is only present in the Winners, we have only observed a correlation. For people who know statistics, correlation does not imply causation. Similarly, a trait that is only found in Winners does not necessarily mean that such a trait is important in being a Winner.
How can we apply this idea? In my previous book review on "The Greatest Trade Ever", I have noted a lot of intere…

Book Review: The Greatest Trade Ever

The Greatest Trade Ever, by Gregory Zuckerman, is a very good and captivating read. In fact, I will recommend this book to any aspiring investor or trader.

Interesting points that I have learnt from the book:

1) Search for a sound idea. A good start may be 'Which market can I find mispricing?'

2) Look at the odds and probabilities. Little Downside, Huge Upside, and High Probability of occurence.
Structure your bets so that the downside is small.

3) Test and re-test your investment idea. Think contrary and see if your idea is correct.

4) Reverse track when you found that you are wrong

5) Be steadfast to your convictions, even if most peaple disagree.

6) It is extremmely difficult to get people to invest in your idea, when you are against the concensus. Most people will agree that betting against the concensus is a great profit-making method, but few will be able to put the method into practice.

7) Know when to strike (i.e. buy/short) is important. Sometimes, you may be hurt if you are t…

Difference between Investor and Journalist/Blogger

Ultimi Barbarorum has a great post on differentiating between investor and journalist/blogger:
It's a topic that I would not have thought about, and yet it is one that I should have thought about, especially since I am a avid reader of blogs and news.
And, I can't find myself re-reading and agreeing with this paragraph found in the post:
Much more than philosophy, investing should be a solitary activity. A group of people or colleagues you can check your ideas with is a good thing, but you must take responsibility for your investments yourself. You will receive conflicting advice, all of which will sound plausible but most of which is wrong. Consider that 98% of the people you encounter who claim to know what they are talking about simply don’t, and have as much chance of being right about these things as you do. You will find out about things you need to know much much later than the professionals. Y…

Book Review: How The Wise Decide

How the Wise Decide is authored by Byrn Z and Aaron S.
It is an interesting book as it profiles the good CEOs on how decision are made. Nevertheless, the book commit a common scientific error: the lack of control group.
Interesting points:
1) Go to the source. Check with the source of the raw information before making the decision. - Make this approach routine. - Cultivate long-lasting contacts with the sources - Know which source is more important, and which source is less important
2) Meet people who tend to disagree or tend to state their independent stand. - Get all people to say their viewpoint at least once. - People may quarrel over their viewpoints. Do not allow people to carry any bad feelings beyond the meeting. - Seek differing opinions. Different opinions help to light up the blind spots. - Ask for formal commitment to the decision, if you think that the person is likely to disagree with the decision silently.
3) Do not be afraid of the risk behind the decision. - Check thoroughly…

Book Review : How We Decide

How We Decide is written by Jonah Lehrer, an editor/writer.
It is a good book, especially for people who wish to learn how to make better decisions.
I will attempt to list some interesting points that I read from the book. Read the book if you wish to make better decisions.
Some interesting points: 1) We have two parallel brains: the emotional brain and the rational brain.
2) The emotional brain makes decisions very fast but its accuracy depends on experience. Situations that require fast decisions would need the emotional brain. Emotional brain is better than rational brain for repetitive situations, as emotional brain recognizes patterns faster than the rational brain.
3) The rational brain is useful in new situations or situations where time is not a factor.
4) Also, always run a rational check on emotional decisions if time permits. This will help to reduce errors.
5) To make the decisions more accurate, one has to spend time to evaluate the decisions, aka spot mistakes in previous dec…

Secret to Investing Success!?

It's interesting to see a thread on secrets to investing success in Next Insight. And in that thread, you'll see people advocating value investing, quoting Buffet, asking for high dividend stocks etc.
It's interesting because I disagree.
I disagree because I feel that there is no one secret to investing success.
I think that each starting investor has to find their own path, and that path will be their own secret to investment success.
First, the investor should find the suitable investment philosophy i.e. whether technical or fundamentals, short-term or long-term, diversified or concentrated etc. A suitable investment philosophy should fit his own psychological traits.
Next, the investor has to consistently refine or expand his strategy. For a value investor, it may be starting with low P/E stocks and then moving to low P/B stocks. Or starting with quantitative ratios and moving on to qualitative measures.
In between, the investor also has to learn his own psychological trait…

Ex-post answers

Here, I shall provide answers to two issues I have raised two years ago.

First, in my Dec 2007 book review, I have asked given the similarity of subprime crisis to the 1907 bank crisis, would the subprime crisis lead to liquidity crisis?

The answer, as we all know, is yes. And to add, I do not know the answer at Dec 2007, and I did not expect that the subprime crisis will lead to a global economic contraction.

I suppose that the lesson here is that one should not be fully invested if one is suspecting an incoming crisis.

Next, in my Mar 2008 post, I have mentioned about investing the first 20K of CPFOA in 3 possible stocks: Orchard Parade, Singapore Land and Hotel Grand Central

And, I have done what I have written at that time. I have bought Orchard Parade at around $1.05 using CPFOA funds. Well, if you look at the price Orchard Parade on Friday, you can derive my returns (around 13%).

This return is higher than CPFOA two years' return. However, on hindsight, I have invested at the wors…

Portfolio as at end Dec 2009

This is a post on my portfolio holdings as at end Dec 2009.

My portfolio, as at end Dec 2009, contains the following stocks:

Fujian Zhenyun (FZ) Plastics
Tuan Sing

Sold: China Eratat, Valutronics, UOA (sell a little proportion of my total holdings)

China Eratat is sold to realise the declining profit, as price is falling from a mini-peak. In addition, China Eratat is bought as a short-term play in the first place.

Valutronics and UOA are sold to raise cash so as to buy other stocks.

Bought and sold: Hongfok

Bought Hong Fok. After some evaluation, I sold Hong Fok to raise cash for other stock (i.e. Tuan Sing and Broadway)

Bought: Tuan Sing, Broadway, Guocoleisure, Techcomp, Metro

Tuan Sing is bought at a P/NTA of around 0.5, with the additional consideration that its debt will be significantly reduced after its Katong mall sale.

Broadway is bought at slightly lower price when I sold it earlier. Broadway is cheap at 4.x PER and it is in a near-oligopoly i…