Monday, December 29, 2008

Negotiate with your telco!

For those who are young, do take note that the faster you shed the world of your idealism, the better you'll be. I took 30 yrs or so to realise that the world is built on relationships. It's that simple. I give you a very recent example of how not to follow the rules.

My gf wanted to get a new phone from a telco. Having convinced myself that life is truly negotiable, I told her to call them up and asked them to entice her to recontract under them again. After a truly annoying automated voice behind their helpline, she finally got to talk to a real person. Alas, the person is not in charge of retention, hence she's forwarded to an officer in their retention department after another several minutes of listening to their annoying advertisments.

After telling the officer that another competitor telco is offering this price for this particular handset, the officer immediately offered a handphone voucher of $60. Not satisfied with this, she pressed on further to ask for more discounts (specifically, gf wanted at least $100 voucher to match the competitor's offer), after which the officer mentioned that she will have to check with her higher ups. Another waiting time for 2-3 mins. In between this break, I told my gf that she should negotiate until the other party reached breaking point.

So after consulting with the superiors, the officer said ok to the $100 handphone voucher. I whispered to her for an extension of the caller ID (it's free for 3 months, gf is asking for free 1 yr). Another consultation with the officer's superiors, another 2-3 mins of listening to advertisments. This time, she met with a no. Well, that's not bad right? Getting a $100 handphone voucher by just calling up them and asking for it. If someone just sign up with them as advertised in the brochures or adverts, they would have to pay an extra $100!

So don't this incident teach us an important lesson? Advertised rates are for those who didn't know better. Look for under table, behind table, closed door, behind doors deal by negotating. Oh, don't settle for what is offered. Life is negotiable, remember it!

Wednesday, December 24, 2008

Details of brunch on Boxing day

Happy Christmas and a Merry new year!

For those whose names are listed in the here, do take note of the following:

1. Venue of the dim sum lunch is at Suntec city, Pearl River Palace. Pearl river palace is located at Suntec convention and exhibition centre, on level 3. If you take the escalator, you need to turn to the right and walk straight into this chinese restaurant.

For those who have problems, do contact me at nine-four-three-five-eight-nine-three-zero.

2. The time of the event is at 1130am, 26th Dec 2008, a Friday. The last order is at 1400, with the restaurant closing for the lunch period at around 1500. You can leave anytime if you have other programs coming up, not a problem for me. A soft copy of the menu is here, if you wish to have a look.

3. Frankly, I'm quite surprised at the turnout of the event. Last time we held it at Vivocity, there are only 10 odd people. This time, there are almost 20 people. At this rate of growth, we'll hit 5,120 people on our 10th outing, 163, 840 people on our 15th outing and a mega turnout of 5,242,880 people on our 20th outing. Basically, we will have people from other countries joining in because Singapore's population is only 4.6 million at last count!

Due to this mega turnout, we'll have no choice but to separate the crowd into 2 tables. The restaurant staff will put us near the windows so as not to disturb the other lunch crowd, as I would expect dream to make a lot of noises with people queuing up to rub his million dollar belly and vying for createwealth8888's autograph.

The table 1 will have 9 seats and table 2 will have 10 seats. After taking into account each others' age and my understanding of your interest, I've decided to split the crowd into the 2 tables:

Table 1:

1. Createwealth8888
2. Elaine
3. Elaine's boy 1
4. Elaine's boy 2
5. Dream
6. Sharon
7. Lumiere (hohoho!)
8. KK
9. V
10. Jas (not sure if coming)

Table 2:

1. LP
2. Jade
3. Neophyte
4. Patrick Ho
5. Cheng
6. Derek
7. Gohsip
8. Akatsuki
9. San
10. R

Please feel free to change your seats as you want it, you do not necessary have to sit the way I proposed. I, for one, will be moving from one table to another just to chat with more people :)

4. Dream will bring a few bottles to share with us. Everyone should trust his taste buds on it and should try if you can :)

5. There are 18 adults and 2 kids (lastest edition is R), try not to pass me the payment there as it can be quite unsightly, hoho! Money is a bit vulgar especially when we're meeting on such joyous occasion. I'll foot the bill first, if you think it's worthwhile paying me, just foot the amount you think is good to my posb savings account 543-60484-4.

Have a great Christmas and we'll meet up soon :)

Tuesday, December 23, 2008

The Joseph cycle - Simon Sim (2004 edition)

I happened to come across a copy of the famous book by Simon Sim - The Joseph Cycle (2004 edition) while browsing through the Singapore section of the national library. Much to my surprise, there are a lot of gems and treasures hidden among the singapore section, which I had always avoided till yesterday. There are old copies of company annual reports, industry and market analysis, accounting standards in singapore, local tax guide, local real estate reports and even those very old stock investment and company info for singapore context. You should go and take a look one day.

Anyway, Joseph cycle is actually a cycle that Simon Sim discovered. It bares resemblance to the biblical character Joseph, who being a slave, was made to oversee the entire Egpyt planning because he interpreted a dream by the ruling Pharoah satisfactorily. The interpretation is that for 7 years, there will be abundance, followed by another 7 years of scarcity. Simon Sim discovered that the market works pretty much on the same basis too.

Starting on 1959 where Singapore achieved independence, he counted in cycles of 14 years, with 7 years of bull and 7 years of bear runs. 1959 is regarded as the bottom by him. Here's a quick run through the years:

1959 - Cycle's bottom
1966 - Cycle's top
1973 - bottom
1980 - top
1987 - bottom
1994 - top
2001 - bottom
2008 - top
2015 - bottom
2022 - top

Here's the graphical representation overlaid on the STI chart that I did on excel. I would say that he is more and less correct on the mega trend of STI based on his 7 years of lean and 7 years of fat years.

I found a website where it was mentioned that he invested $400,000 into the market when last mentioned at 2004, which he will sell in 2007/2008. He would have made a handsome profit if he really invested in STI around 1300 in 2001 and ride the bull trend around 2007/2008 at the peak STI level of 3900 thereabouts. That's roughly 300% increment or about 16-17% compounded annually. This means that his $400,000 could become $1,200,000 - no mean feat.

Now if he is right about the Joseph cycle, then 2015 will be the bottom of the cycle. There should be some unexpected news that will change the bear phase back into the bull phase. He mentioned that the first 1 to 2 years of the bull phase (i.e. from 2015 to 2022), it will be a very quiet though the best time to buy.

A few thoughts comes immediately to mind:

1. If Simon Sim is right, then there will be more shakes in the market for another 7 years or so. This will really shake any bulls left, leaving the strongest behind. Will I be shaken out of it? People say that they are long term investors, but until the true test comes, it's all just empty talk and brave promises. Am I willing to hold for 14 years or so to ride the full potential of my investments?

2. I wonder what happened to the $400,000 investments that Simon Sim put into the market back in 2001-2004. Did he really managed to make a 300% returns by believing in his mega trend timing?

It's good to bare it all and answer the first question honestly.

Monday, December 22, 2008

DBS rights issue

DBS halt trading early this morning and rumors are flying about as to what is the actual reasons for the trading halt. I thought that DBS will be settling the troubled bonds issue today, as the relevant authorities mentioned that an answer would be made at the end of this month. But that was not the reason for the trading halt. The real reason caught me a little by surprise.

DBS announced that it is going to raise capital to the tune of SGD 4 bil by issuing rights shares to existing shareholders. Rights exercise is basically an attempt to raise capital from exisiting shareholders by granting them an entitlement to buy additional shares at a discounted price. There are a few things that are important in a rights issue, and I take this chance to share with you what I know about it.

These are the few things you need to know:

1. Rights ratio

DBS are offering rights shares at a one-for-two ratio, which means that for every two pre-rights shares that you have before ex-rights (XR), you will be entitlted to apply for one more rights issue at the rights issue price of $5.42, a discount to the last close of $9.37 today. This means that for every 2 lots of DBS shares you own before XR, you'll need to pay $5,420 to get your entitlement of 1 lot of DBS rights shares.

2. Nil paid rights

The rights shares will commence trading as 'nil-paid' rights on 6th Jan 2009. As the name 'nil-paid' suggests, it means that you haven't paid for the rights yet. The rights will trade in the open market with its own quotation and symbol. Basically this system caters for 3 types of people:

a. Those who are already shareholders at XR and do not want to pay for the rights. The thing goes like this, whether you want it or not, you'll be given the nil paid rights. If you want to subscribe to it, you can do so by accepting it and paying for it before 20th Jan 2009 (last date for acceptance). You can even subscribe to excess rights beyond what is entitled to you too, but it might not be successful. For those who do not want the nil-paid rights (i.e. do not want to accept the rights shares and pay for it), you can sell it in the open market. The last date of trading for the nil paid rights is 14th Jan, 2009. Which brings us to the next category...

b. For those shareholders who want to make sure they can get excess rights shares without bidding for it (and thus subjecting to chance), they can also buy the nil paid rights direct from the open market. Of course, if you subscribe to excess rights and bid for a chance to get it, you'll only pay $5.42 for each right. But if you buy from the open market, you have to pay the market price of the right PLUS a fixed $5.42. Might not be so cheap.

c. Those who are not DBS shareholders at XR but want to buy the nil paid rights at open market. Basically these arbitrageurs will look for opportunities to buy the rights cheaply, waiting for the nil-paid rights to become ordinary shares on 2nd Feb 2009, then profit (or lose) the difference.

However, do not be mistaken that the nil paid rights will be trading at the rights issue price of $5.42. If we take the post-rights price of DBS to be $8.37 (as mentioned in the announcement), then the nil paid rights should be trading at around $2.95 range (8.37 - 5.42 = 2.95). DO NOT assume that it's cheap - it might not be!

For example, if we buy the nil paid rights off the market at $2.90 per share (this varies according to market forces), then pay another $5.42 per share (this is fixed) to convert it to ordinary shares, our cost of each new share of DBS will be $8.32. There's no brokerage involved so that is truly our cost. If after the new shares commence trading on 2nd Feb 2009 at a price of $8.37, we basically earn $0.05 per share (8.37 - 8.32 = 0.05) excluding brokerage involved in selling. To succeed in this arbritrage opportunity, we have to guesstimate the price of DBS on 2nd Feb, then minus off 5.42. Any price lower than that is a good bargain, pre brokerage charge.

3. The theoretical post-rights price of DBS on 2nd Feb 2009

If you've been in the market for long, you'll realise that 'by right', the price can be this and that, but 'by left', all is not right. Oh well, in theory, because DBS is offering 1 new shares for every 2 existing shares, they are going to dilute their earnings and dividends by a factor of 2/3, which is quite substantial for those who are shareholders but chose not to subscribe for the rights. This means that if the earnings is say $3 per share pre-rights, the new earnings will be $2 per share post-rights. Dividends yield too, if their dividend yield per annum is say 6%, the new dividend yield will be 4%. Ouch.

Anyway, here's how to calculate the new share price of DBS when the rights shares commence trading on 2nd Feb. Today, DBS closed at $9.37, so let's use this price. The formula is:

New share price of DBS = (2 x 9.37 + 5.42) / 3

If we take DBS's closing price to be 9.85, then using the calculation, we end up with the post rights share price of DBS at 8.37 per share. However, do take note that the actual price will be swayed by more than just mathematical calculations, hence it might not be what is calculated. Be aware of the risk of arbitraging!

There's a whole lot more details that I missed out, so for those who wished to find out more, do visit my newbie's FAQ. Alternatively, you can visit the same version in this blog over here.

Now I worry about HSBC's possible capital injection through rights too. Will I be able to subscribe to it because I'm a foreign investor?

Sunday, December 21, 2008

Thanking my lucky stars

Before we know it, we've flipped near to the end of the calender. As the end of this year ushers in the new year, I begin to reflect on all that had happened for this year. In summary, I would say that this is a very exceptional year for me, in terms of my career, investment philosophy and my personal growth.

Here's a few things to be thankful of:

1. I've survived my 2nd year in the stock market, with a few spots of 1st degree burns and a few amputated limbs. But hey, I'm still standing!

I dare not claim that I'm a better investor, but I did finish what I had intended to start off, which is to be acquainted with investing and stop my trading. I spent a lot of my free time reading up books to immerse myself in the jargons and mentality of being an investor. I finished up the year reading more than 52 books this year - roughly 1 book per week.

I started late last year trying to find out more about investing and trying to quit trading. It's not that trading is all bad and all, but rather, I find that my time is more precious than to dedicate my hours watching the market. It's too stressful for me and it affects my mood and my job. For a normal job, I'll say it's very hard to juggle both career and trading well at the same time. The key word here is 'well'.

2. A very bountiful year in my career.

I've not worked so hard in my life before, and consequently, I've not earned so much in my life before. In my line of work, it's hard to forecast my salary because I've got to restart my salary again every year. I've always feared that my salary last year reached the peak and it will slide down from there on, but thankfully, I've broken my salary's resistance and reached new high this year. Still, it falls short of my target which I've set for myself.

More importantly, I've come to realise that I need to bring my career to the next level. I've only have 24 hours a day and no matter how long I'm willing to work and how high I'm willing to charge, I cannot afford to push it beyond a certain limit. I've come to realise that without changing the gear of my career, I'll be running on a treadmill but never really moving forward. This had got to stop.

I'm going to spent more time and effort to bring a new level to my career for next year, and lesser on equities investment activities.

3. Good health and an almost vegetarian diet.

Almost? I heard you ask. I'm on a seafood vegetarian diet (I proudly claim to be the first person to have coined this philosophy) out of a long term desire to eat less animals. I've been starting since January and have pushed to this end. To confess, I'm slacking a bit now but with the new year coming, I'll kickstart it with more vigor than before. This had got to be one of the most important decision that I've made this year - which is to switch to a mainly vegetarian diet. It made me more alert and aligned me with my philosophical viewpoint of all lifeforms.

My periodic bout of diarrhoea is gone now. I feel that I can sleep on less and still work the same intensity. I recovered any flu-like symptoms in 1 day, had no high fever, no wisdom tooth pain and absolutely no reccurence of my skin allergy this year. Sometimes I feel a little palpitation i my heart but that's about it. Life is good to me because my body is good to me. I'm thankful that I've lived this good.

4. Met plenty of new faces.

One of the smartest thing I've done to myself is to put up a blog, set up a cbox and paid for a premium edition of it. The amount of experience that I gained from such a simple act is akin to rolling a snowball down a slope - it starts small and becomes bigger exponentially. Here's a list of people whom I've met before:

Charlesming, jeng, skyalps, casanova, dream and sharon, lumiere, KK, mw, cookieguy, san, 'pepper', cheng, stupidbear, kay, createwealth8888, kurt... (if I forgot to put in your name, please remind me!)

My gf is even surprised that I managed to meet up this interesting bunch of people just from this tiny community from the cbox. Meeting this diverse bunch of people broadened my perspective tremendously, and it changed my frog-in-the-well mentality in ways unimaginable. I've lived so long, but it's only this year that I realised that my time is wasted in not meeting more people! Alas, I'll do my best to change that shy introverted nature of mine. I'll have none of this in the future!

I'll be thanking my lucky stars if life is this great every year.

Thursday, December 11, 2008

A strange dream

Yesterday night, I had a very strange dream. I dreamt that a golden buddha was sitting under a banyan tree in one of Ho Bee's development - Dakota residences. A booming voice echoed around me and strange as it may seem, the voice sounds very familiar.

I nearly pee-ed in my pants when the golden buddha opened his palms, as if to squeeze me like those shortists who had the impunity to short noble. The golden buddha smiled, the first time since I met him, then said to me (again, in a booming voice that sounds very familiar),

"Sieow eh, relax lah. Go read this, you sure huat one"

The tension in me eases off. What could this golden buddha, whose voice is so familiar to me, possibly ask me to do? Perhaps it could be 4 numbers to win $120 from beh pio like noob? Or maybe it is a soccer tip by cookieguy? My mind is almost delirious with joy - ah, must be a hot investment tip from musicwhiz!

I'm was wiping the saliva that was drooling from my wide open mouth when the golden one pushes his palm nearer to my face so that I can see what is written on it:

That was when I was jolted out of bed.

Ah ha! A divine intervention, a heavenly mandate! I quickly scribbled what I saw on the golden one's palm on a piece of paper and proceeded to type out this blog article. I'm quite sure that those who attend this dim sum brunch will huat in 2009 and laugh like him all the way to the bank, so please do attend. You can either send me a email or just post a comment down this post to confirm your attendance.

Alamak! I struck my forehead in realisation - the voice that is so familiar is that of dream, how could I not realise that earlier?!

So far those confirmed:

1. LP
2. Jade (my gf)
3. Elaine (+ 2 boys)
4. Createwealth8888
5. V
6. Dream
7. Patrick Ho
8. Cheng
9. Akatsuki
10. Lumiere
11. San
12. Neophyte
13. Derek
14. Sharon (dream's wife)
15. KK
16. Gohsip
17. R
18. Jas

Total: 18 adults + 2 kids

Invitation is closed at 2359 on 23rd December 2008. If you're name is not inside, do contact me, I'll see what I can do about it.

Sunday, December 07, 2008

About this blog

La papillion is french for butterfly. This blog chronicles my journey from an amateur in the stock market to where I am today. Have I turned into a beautiful butterfly? I don't know, but I think my metamorphosis is still on-going now :)

Well, the intention to start a blog so that years down the road, I can look back and see what I've learned along the journey. But in life, things seldom go accordingly to plans - and that's a good thing! Along the way, the chatbox - a central feature of this blog - grew into a nice community of like-minded people whom I call my superfriends. Do we have superpowers? Nope, we're ordinary people in life, some struggling with work, some with school, but we choose to spend our limited life here, talking about life's inconveniences and of course, the stock market. In that sense, we're extraordinary people in our own rights.

After some years reading up on the market, I realised that life's lessons can be distilled from the seemingly random prices going on in my watchlist. Thus, it's a natural extension to incorporate what I've learnt about the market onto life in general.

Come, join me in our little community :)

The financial crisis and the shift from west to east

This is a speech by Stephen Green, group chairman of HSBC holdings, at the FT/DIFC World Financial Centres summit, dated 20th Oct, 2008. He makes a lot of sense all the time, so I think it's worthwhile listening to what he had to say about the world in general. It's a bit drawn out, but I assure you, there are lots of gems in it.

Here's the actual link of this speech which I've cut and pasted here:

Good morning ladies and gentlemen. I’d like to thank the FT and Dubai International Financial Centre for inviting me to speak at today’s conference.

Our industry is going through a crisis the like of which none of us has experienced before. Many people are asking if this is the worst financial crisis since 1929. It probably is. If it is the most complex financial crisis the world has seen? Certainly, it is. If it will usher in a recession? I’m afraid this seems inevitable. Indeed, although the economic data lags the facts on the ground, it seems likely that the UK and a number of other economies are already contracting. This risks creating a further phase in which conventional credit impairments rise as a result of recession. As the crisis has intensified, so has the analysis of the causes behind it, which are complex.

Many factors have contributed to the financial crisis. Some of the most significant … but this is by no means an exhaustive list… include: The explosive growth of sub-prime lending, notably in the US. Eighteen months ago, sub-prime was the main villain; today it has been subsumed by the wider crisis, and appears half-forgotten. Yet it was the downturn in the US housing market, and the pressure that put on less well-off homeowners that triggered the start of this crisis.

Sub-prime is, however, far from the only villain in town. The complexity and opacity of certain financial instruments reached a point where even senior and experienced bankers had trouble understanding them, let alone investors. This meant that people were selling and buying assets whose risks they had not properly assessed.

On top of that, these assets were created on the back of ever higher leverage, both direct and indirect. And when the securitisation market began to collapse, banks found themselves with assets that they could neither sell nor fund, so creating large losses on the asset side and a funding stretch on the liability side for which they were entirely unprepared.

In several markets there was an overdependence on wholesale funding, based on the assumption that funding would never dry up – an assumption that has proved fatal to some once distinguished names in banking.

Finally, weakening economies and declining asset values, particularly housing, risk feeding back into lower asset quality more generally, giving rise to further impairment charges.

Each of these factors has undoubtedly contributed to the breadth and depth of this financial crisis.

However, something even more fundamental is underway in the world economy, of which this crisis is a manifestation and on which we need to focus if we are to understand its real significance. And to understand this, we need to take a step back and consider the global macro-economic context.

The principal feature of the global economy in recent years is that it has become something of a perpetuum mobile. In the post-war period there has been an increasing interdependence between national economies, on the back of falling trade barriers and freer capital flows.

The post-war recovery of Germany and the rise of Japan foreshadowed the rise of dynamic Asian economies such as Hong Kong, Korea and Taiwan, the so-called newly industrialised countries. And of course, in the last 20 years, the economic renaissance of the world’s two largest nations – China and India – has changed the landscape still further.

We have also seen the rapid rise of resource-rich nations, primarily energy-producers, thanks to the growing demand for oil and other minerals.

Meanwhile, in mature economies the consumer has become king. Consumption in western markets has been the main driver of economic growth over the last few years, funded by exceptionally cheap borrowing, made possible by savings surpluses built up in the developing world.

These changes to the economic landscape have effectively created an economic triangle. On one side, those economies that are the workshops of the world, most of which are relatively resource-poor. On another side are the resource suppliers, notably the Middle East, which produces almost a third of the world’s oil and will produce an increasingly significant proportion of the world’s gas as well. And on the third side, you have consuming nations with low savings ratios – particularly, of course, the US, which has become what you might call the “spender of last resort”. This triangle has sustained high rates of world economic growth, but it has also helped create huge, and growing, financial imbalances. The newly industrialised countries – the workshops of the world – with their high savings rates and low exchange rates have built up massive currency reserves.

So have the resource-rich exporters, where – in many cases – a combination of small populations, and until recently strong global demand for oil and high energy prices, has created surplus liquidity which is available for investment in international markets in one form or another.

Meanwhile, counterbalancing these surpluses have been the consumers of the developed world, where debt has grown exponentially among consumers. In the UK, for example, the ratio of debt to income reached 173 per cent this year, up from 129 per cent five years ago, and higher than any other G7 economy.

These factors have been accompanied by increased financial market leverage. Why? Again, there are multiple reasons.

Primary among them, the search for yield among investors. The equity collapse at the beginning of the decade prompted institutional investors to move out of equities and into fixed income investments. But the bond markets were drawing in surplus liquidity from emerging markets – over 50 per cent of US treasury debt is now owned by foreign investors – significantly reducing bond yields. Mortgage backed securities seemed to fit the bill of higher yields with limited risk that was sought by investors. This in turn stimulated huge growth in these securities, and also changed the funding model for banks. In 1990, just 10 per cent of mortgages in the United States were securitised, compared with 70 per cent in 2007.

And in general, the liquidity build-up served to artificially compress risk spreads, fuelling asset price inflation, especially in real estate, that eventually became a bubble. Even at zero growth rates, the imbalances in the real economy would have led to an increase in assets and liabilities. And at high growth rates, the after-burners were well and truly on. The combination of a tidal wave of liquidity and the search for yield produced rising risk/reward ratios, with investors moving up the scale, even as the scale itself was rising.

So the effect of this macro-economic triangle was to make the financial markets intrinsically and increasingly unstable. And on top of this, global monetary conditions contributed further to instability.

The period of loose monetary policy between 2002 and 2004 offset the corporate deleveraging that had followed the dot com bust and 9/11 by encouraging increased consumer leverage. The tendency for emerging markets to run monetary policies explicitly or implicitly tied to US policy, because of their foreign exchange policies, created the scope for loose monetary conditions to spread globally. This reduced the cost and the risk of investing surplus liquidity in the US dollar – thus feeding what would become a spiral of cheap credit, rising asset prices and high consumer borrowing.

The blow-up was inevitable and has been very painful.

And as in previous crises, the specific trigger for today’s crisis – sub-prime – has become relatively less important as the crisis unfolds. Now the principal concerns are about the massive breakdown in confidence and trust that has led to market failure, manifested by the system-wide “wholesale bank-run” which has clogged the interbank markets and turned the bursting of an asset price bubble into a full-blown liquidity crisis. And so we arrive at today’s situation where governments have been forced to guarantee term lending, to inject huge volumes of liquidity into the system, and to recapitalise many financial institutions, becoming potential or actual “owners of last resort”.

“This too shall pass,” as the saying goes. But there will be no return to the status quo ante. There are many lessons for banks, regulators, investors, monetary authorities, accountants and consumers to learn from this crisis. The high-leverage model of finance is bankrupt. But securitisation will survive. You cannot bring the whole of the world’s capital markets back on to banks’ balance sheets.

But some new lessons need to be learnt – or perhaps they are old ones! Financial strength is making a welcome comeback. Benchmarks of acceptable leverage and capital ratios are being revised. And regulators will need to address the pro-cyclicality of capital requirements caused by the interaction of fair value accounting and Basel 2 capital adequacy rules. There will be a renewed focus on liquidity. This crisis has shown that it is liquidity that kills banks, not just a shortage of capital. Regulators and banks themselves need to understand their liquidity vulnerabilities more clearly. And the market and industry will need to consider whether badly-aligned incentives have contributed to the crisis: both the market incentives which, until recently, encouraged banks to grow fast and gear up, persuading them to take on higher risk than was sustainable; and compensation structures in the industry, which have so often encouraged too much opacity and excessive risk taking.

But underlying all of this is a fundamental trend in the world economy which, in my view, will not be de-railed even by today’s crisis and which we need to recognise for what it is. And that is the rebalancing of the global economy towards Asia, home to over half the world’s population, and its implications for the Middle East. In the long-term, it is this shift that will affect financial markets most profoundly. Asia and the Middle East will continue to outgrow mature markets. Even in the current economic climate, our short-term projections are for slowing but still quite resilient growth: an expected 6.4 per cent this year slowing to 5.7 per cent next. Given that the emerging markets economies are collectively as large as the US economy, continued growth should help exporters from the G7 countries. But crucially this growth will also stimulate regional and domestic demand for capital.

As Asian and Middle Eastern economies grow larger, we will see the continued development of regional and domestic capital markets. In the light of this financial crisis it would be hardly surprising if caution and scepticism about the Western model of capital markets were to increase amongst emerging markets.

Nevertheless, I believe the direction is clear –regional capital markets will develop and more of the capital generated in the fast growing emerging markets will stay closer to home in the future.
What are the implications of these profound shifts for mature economies over the longer-term? I am not a doomsayer. It is important to remember that economic growth is not a zero-sum game. Therefore the rapid growth of emerging markets does not signal an absolute decline in the economies of mature nations.

The pie will grow. But it does entail a loss of share – the developed world will have a smaller share of a larger pie. Indeed, this has been the experience of the US since the 1950s.
Capital markets in the developed world will likewise suffer a loss of share. And in the near-term, at least, an absolute decline is also likely as the deleveraging of the financial system works its way through.

And what are the implications of all this for the fast growing regions of Asia and the Middle East?

First, that creating financial systems which are both more sophisticated and more stable will be a major challenge – but it is not one that can be avoided. As economies become larger and more sophisticated, they need fully functioning capital markets to ensure the efficient allocation of capital. For all that the western markets are in crisis, neither the world at large nor Asia in particular can turn the clock back to a simpler era in which capital markets played only a marginal role in economic development.

The main challenge lies in the dichotomy that financial markets – as this crisis has demonstrated – are increasingly global, while the policymakers and regulation that governs them remain predominantly national. Greater international cooperation will be required to place the financial system on a more stable footing. And given that financial crises are a recurrent feature in our lives, we will need more global regulatory coordination to deal with them when they do arise.
At the same time, as Asian and Middle Eastern economies grow and become more important as investors in the world economy, their responsibilities will also become more complex. And their voices will need to be heard in the dialogue about world trade and investment policy that must surely continue.

For there is a clear threat that the financial crisis may rekindle protectionist tendencies. In this new, and more fragile world order, preserving the free-trade and open investment orientation that has helped humanity to become more prosperous than ever before in the last 50 years will be a major challenge, especially if the world faces a major slow-down.

Globalisation is not a new phenomenon; it allowed the world to prosper in the late 19th century when, despite high tariffs, rapidly falling transport costs prompted an explosion in world trade. This earlier wave of globalisation was brought to a halt by the first world war, and then regressed through the 1930s, as a result of protectionist and competitive devaluation with eventually unspeakable consequences. Since the 1950s, there has been steady progress in liberalising trade and investment, led by a strong power – the US – that has created prosperity the like of which had never been seen before.

Free markets are in the dock today, as the full extent and pain of this crisis is revealed. But as we look beyond the turmoil, and as policymakers consider how to prevent future crises, we must strive at all costs to avoid repeating the protectionist errors of the 1930s. Instead, we must remind ourselves constantly of the immense wealth and prosperity that free markets have helped create for humankind.

This crisis is severe; it is without doubt the most serious for many generations, and it is hard to look beyond the sea of red on trading screens to the future. Nevertheless, the crisis will pass; trust and confidence must and will be rebuilt. More importantly though, it is important to understand this crisis for what it is – and what it isn’t. It is not just about a housing bubble in the US, nor just about a consumer debt explosion in the developed world. It is part of a much more fundamental shift in the world economy, from one dominated by a single nation, to one in which wealth is created and shared much more widely – a world which is more complex and in which international cooperation to ensure stable, efficient, open capital markets becomes more and more important for us all.

Saturday, December 06, 2008

Managing the Schrodinger's cat

I think there's a fundamental shift in my research techniques. After immersing myself in investing and all the literature on investments, I came to the realisation that numbers and ratios are not everything. What is? Management!

Imagine out of your classmates in secondary school, you're supposed to pick one whom you think will have the greatest potential to be the most successful. Who do you pick? Do you pick the ones that perennially top the cohort? Do you select those who always play truant and disrupt the class? Do you pick the most talkative ones, or the most quiet ones? The ones with the most activities outside of school work?

I'll pick the ones with the character that I admire. Honesty, integrity, steadfastness, leadership, charisma are some of the characteristics one may look out for. They might not necessary be the smartest in exams nor the least playful. You literally have to bet for the ones that have the most qualities that you admire.

Now, how different is that from an investing point of view?

Investing is not just analysing the statements, the business and the economics. It's not just calculating the PE, liquidity ratios, free cash flow. It's not just forecasting and projecting the earnings forward. You're literally betting on the management to bring the company through in good times and bad times, to trust them to place your monies in worthy projects that gives adequate and safe returns, and to believe in them when they do not distribute dividends not out of their lack of a sense of security but because they can use the retained earnings to give you a better return. You're betting on the management to make decisions for you to run the company you've entrusted them in the best of their abilities, to be honest when they made mistakes and to have the foresight and leadership to propel the company forward. There's no numbers or ratios to determine that. There are no stock screens to determine that.

There's only the intangible human assets (or liabilities) that cannot be put in the balance sheet of the company. If you can't trust the management, you can't trust the statements, you can't trust the business.

It's not easy to see something that cannot be seen. It's both frustrating and futile to think that after analysing the companies quantitatively and it passes your criteria and viola! you have your company to invest in. In every investment, we are betting on the future, not in the past. How to determine the future? Project a straight line from the past records and extrapolate to the future (CAGR)? Using a linear model to predict a non-linear world is an exercise in futility. Rely on earnings model? We can't even predict tomorrow's weather accurately using the most sophisticated models, why talk about complex adaptive reflexive system in a particular company's earnings. future lies in how the management handles the company in every road bumps that lie ahead. The future of any company is shaped by unknown decisions made by the management. They are the ones who come out with new products. They come up with plans to counteract competition and to consolidate their grounds. Management is everything.

In the face of such insurmountable and unknown uncertainties, what is an investor to do? We'll do a Pascal's wager on each company that we're going to do an investment in. We're going to focus on what we know and hope for the best. How about this as an action plan?

1. Value each company to the best of your abilities, in the most conservative manner and apply an adequate margin of safety in case your 'conservative' turns out to be not too conservative. How about a margin of safety for the margin of safety?

2. Think not of the growth, nor the earnings, but rather the downside. Think what happens if you're wrong. Think about what can make the company fail in the next 10 years, not what can make the company become the next triple-bagger in the next 10 weeks.

3. Can you trust the management to handle the company you're going to invest in? Are they shady? Do they have a sense of idea how to handle the company in crisis, and how to avoid joining the herd in bullish times? Do they blame others when they made a mistake? Do they think about the employees and cut them off like weeds when times are bad?

I cannot overemphasize this: Do your due diligence and hope for the best. In an uncertain world, we cannot hope to know everything. So the best plan is to make sure you're not overexposed to the downside. Being an investor would necessary mean that you have to handle uncertainty as naturally as breathing - to invest when you do not have all the information and to invest when times are uncertain.

Take care of the downside, the upside will take care of itself :P

Friday, December 05, 2008

New template!

After a number of complains on my blog regarding the old red/white/black template, I decided to overhaul the old one and usher in the new template. This will be the 2nd template change that I had for the year, even though it's damn tough changing it. Imagine changing the codes and keying in the widgets in again!

The usual complaints for the old templates are:

1. The contrast of the background and the words are not sharp enough. Hard for those with poorer eyesight and not-so-good and older monitors to read.

2. The template size somehow was not set to auto. This means that if I change the size of the browser, the template do not scale up or down accordingly. This caused some problems for people who use different screen resolution from mine. I used a widescreen 1680 format, so there's only a minority of people using that. This means only a few users can share what I see on my screen. Not too popular.

3. Those using IE have big problems seeing my site. I use firefox, hence what I see is very different from those who use IE. That's my biggest reason to effect a change in the new template.

I realised that within a span of less than one year, I changed a few ideas on my site. First of all, I realised that trying to get a passive income from the website shouldn't be my main focus. It helps to get some advert money to sponsor the premium cbox which I'm now using though, no doubts on that. I realised that I seriously do not need 3 columns with 2 sidebars. Just 2 columns with 1 sidebar is more than sufficient for me, since I do not use any others ads except for nuffnang.

Oh, and no worries on the ads above the cbox. Those are just part of the template. I didn't want to put it there purposely, but removing it looks aesthetically unpleasing.

I love the new colours on the cbox now. Hope you liked it too! Makes it more cheerful and happy :) To quote PanzierGrenadier's favourite quote: Be well and prosper!

Wednesday, December 03, 2008

Life is negotiable

It takes a few years to temper a youth's idealism, especially about the world at large. When I'm young and green, I thought that the world follows rules and that these rules are un-bendable and unyielding. How wrong was I! As I get more experience dealing with people and thinking how certain people gets certain favors without going through the usual route, I came to realisation that in life, most things are negotiable. You just have to dare ask for it.

A few examples I can cite here:

1. When I wanted to switch a new telco plan under M1, I was very displeased with their service. I called them up and wanted to 'share' with them how I was feeling. The officer in charge calmed me by offering to waive off some fee. This is not stated in the brochures nor the website, but I believed is something that those officers manning the phones can do to entice or please customers.

2. There are hidden rates not disclosed when one decides to put your money in the fixed deposit in banks. Those rates are an invitation to offer, not the offer itself, hence one should take the responsibility to haggle for a better rate. I've no experience in fixed deposit (I don't think it's worth the 'risk' of holding money in fixed d), but I've read and heard stories of people throwing a fuss and getting better rates because of that. Truly, dare to dream and ask, you just might get what you desire.

3. Me and gf kept going to a particular restaurant where they sell our favourite vegetable hand-made la mian. Most of the waitress there knows us and they even know what we will order and such. Without asking for it, they gave us 10% discount for being regular customers. I'm trying to point out that even though certain rules are not stated explicitly, it usually takes a well-connected person with the right interpersonal skills to draw it out. Another example of life being negotiable.

For all those young 'masters-of-the-universe' who think that the world is full of ideals, think again. All relationship boils down to interaction between two persons. Thus interpersonal skills rules. All the time. Always. Instead of spending time watching tv, how about challenging yourself and make a new friend, or read some books on body language, negotiation, public speaking? It'll work wonders on anyone on any career :)

Tuesday, November 25, 2008

Why I'm less inclined to do book reviews

If you've been around my blog for some time, you'll have realised that I am giving less reviews of the books that I've read. To date, I've finished (my definition is to read from cover to cover) 44 books and is in the process of reading 2 more books. I'm aiming for 52 books by the end of this year and I think I should be able to hit them pretty comfortably.

The reason why I didn't review books now is because after reading so many financial books, there is scarcely any one left that gives me more fresh insights. I've been wowed by morningstar series, fisher's books, accounting books...but after a whole year of immersing in them, they get pretty stale. That is good, I believe, because it's only after you had been seeing the same time again and again that you will begin to practise what you read. I've heard of marketing strategies that makes an important statement or idea repeated at least 7-8 times so that the message sinks in. I guess it's the same for ideas too.

It's not that I didn't get fresh insights - it's just that the insights are too few and in -between and it just didn't fit into a proper length for a blog article, much less a book review. Somehow, when I reviewed the books, it just didn't feel right when I read it. I sort of felt like I'm diluting the ideas of the books when I reviewed it - it's a feeling I didn't relish.

Another reason why I didn't review them is because time is getting tighter as I get older. There are only so much time left in each of us to do certain things. I think there are better things to do than to write some reviews that nobody really bothers to read anyway. Not that it really matters if people are reading them, because I started this blog without any commercial or monetary aim, and I've decided that in the foreseeable future, it won't veer too far away from this path too. The blog is really for me to pen down my thoughts so that I have an archive that I can read in the future.

Next year, I will be reading quantitatively lesser but qualitatively more. I should be re-reading some of the books that matter to me. Oh yes, and that Security Analysis book by Benjamin Graham, which still seats on my desk mocking my inability to stomach it cover to cover. I'm a very different person than one year ago when I first bought the book. I think for certain books, reading it at different times of your life phase will enlighten you in different ways - and that's exactly the books I'm going to re-read next year.

That PLUS reading more annual reports. I think it's time for me to really immerse myself in analysing companies - to really make use of what I've learnt by reading one book per week for one year.

Thursday, November 20, 2008

Silly stubborness and Cannular conviction

What's the difference between stubbornness and conviction? I was linked to this thread in Wallstraits by musicwhiz, but it was during one of those walks, with the pettering and pattering of the rain hitting my umbrella that I thought a little more deeply about this.

Let's give a scenario to this. I researched in company X and after months of research, I finally bought into company X at a price that I deemed attractive. The price of company X subsequently dropped to 50% of my buy price. If you've been in the stock market for some time, you'll realise that people always have opinions about the stock you're holding. It's good, it's dangerous, there's better buys, sell now, hold first, reaching support, touching resistance...those sort of opinions. Now what if some dear friend of mine told me to sell company X and I refused?

Am I stubborn or am I fully convinced of my investing prowess?

If there's a short answer, I'll say it depends. It depends on the timeframe that one is talking about and the outcome. In the short run, I might have lost 50% of my capital when the price sank 50% from my buying price, but who dares to say that the stock will never become a double or triple bagger in the future? Conversely, who dares to say that the stock will never go belly up and I'll lose 100% of my capital?

I think if the outcome of my investment goes in my favour, I'm not stubborn, I'm a person with strong views and conviction and not easily swayed by noises. But if the outcome goes against me, I'm just a stubborn fool and I could have cut losses when I could. Just think about Warren Buffett when he missed the whole bandwagon of and internet stocks. Nay-sayers are talking about him losing his 'midas' touch and is too conservative for his own good. Did you notice they said that when internet stocks went rocketing upwards while his berkshire hathaway went downwards? When the ensuing bubble burst, people started talking about Buffett as a person who knows what he is doing, and investing within his circle of competence. Blah blah.

If I learnt anything important in my 2 yrs of being in the market, it is this:

1. Don't be too quick to judge. Be careful when you say 'never', because never is a long time.

2. Don't try to rationalise too much. It's like seeing dark clouds in the sky and saying that it will rain. When it didn't, you say that the humidity isn't high enough to precipitate the water vapour, so it didn't rain. When it did rain, you say you're right because you saw the dark clouds and it always precedes rain. There are million reasons why something happens, so why choose a few to explain?

Sunday, November 16, 2008

Hongguo 3Q results

Hongguo released its 3Q08 results last Fri. It wasn't doing exceptionally well, but given the current state of matter, I think it's quite alright. Let's just do a quick one here.

Here's my thoughts on the statements:

1. Looking at the 3Q to 3Q results, revenue increased which is followed by an increase in both gross profit and net profit in absolute terms. However, gross and net margins fell slightly.

The increase in revenues comes from the increase in more stores (150 in total) selling both the main C.Banner brand and E.Blan. However, JUC outlets decreased by 10 in the 3Q. The Naturalizer brand also starting contributing a little to the revenue. Cost increases as there are more outlets opened, bringing down the net profits. It's good to know that the management decided to limit the expansion of more outlets in the midst of this financial crisis. It's a more prudent way of doing business.

2. A little worried about their net margins, which is declining for a few quarters. I believe their 2nd and 4th quarter is their better quarters in terms of revenue and profit. Take a look at their quarter to quarter figures.

One thing for sure is that their net margins are sliding down. SDA/revenue is getting higher too, which the management always attribute to the expansion in new outlets. So far, their expansion do not require taking any long term debts, which is safe in this kind of credit crisis. At least I know they are less likely to blow up!

3. Here's their current ratio, total debt/equity, ROE and EPS figures.

Current ratio is still alright, but there is an increase in the total debt/equity ratio. The increase in debt is due solely to an increase in short term liabilities. Two figures stand out strongly from the current liabilities section of the balance sheet : Short term loan of 40.9 mil RMB and increase in trade payables from 64 mil RMB to 104 mil RMB. Seems like they are squeezing their creditors more tightly by paying them slower. There are not increase in trade receivables though.

4. As for cash flow, there is a few things to take note of. There was around 20 mil RMB that others need to repay Hongguo. This is partly offset by the 30 mil RMB that Hongguo owed others. Overall, cash generation from operations is +ve, but after taking into account tax, it went to -ve but is generally in a better state than 3Q07. There is an increase in short term loans of 40.9 mil RMB which is mentioned earlier in the balance sheet - but there are no mention of what the loan is used for. It made up 16.7% of the total debt (they have no long term debts), so it's not a major problem. Cash flow should improve more as they plan to limit the expansion of their core retail outlets (I take it that they mean C.Banner and E.blan brands) to 150 by end of FY08. The management mentioned that they would be the productivity and the profitability of their outlets - which I think is a good move. Fight, consolidate THEN advance, that's the way of the infantry.

5. Breakdown of revenue:

C.Banner --- 56.4%
E.Blan ---- 9.6%
Contract manufacturing --- 26.2%
JUC --- 6.1%
Naturalizer footwear --- 1.7%

There is more closure of JUC to the tune of 10 more outlets. I think they are slowly divesting out from that. Another point to take note is the huge increase in the contract manufacturing segment. Compare this to 2Q revenue breakdown:

C.Banner --- 62.2%
E.Blan ---- 9.2%
Contract manufacturing --- 17.0%
JUC --- 6.9%
Naturalizer footwear --- 1.7%

Contract manufacturing is of lower margins than their in-house shoe brand, so I would expect the net margins to drop further. No more plans to expand their production capacity for their contract manufacturing. Management had stated that they wanted a revenue mix of OEM : Retail of 80:20, so that's what we should be looking at.

Value to price comparison:

Annualised EPS for FY08 is SGD $0.0606. On last count, the EPS I calculated was $0.06252. Last close is SGD $0.180 per share. This represents a PE ratio of 3x. To hell with historical PE, haha! The lowest PE was around 5x, but I think it broke all record now.

Applying Graham's strict (current assets - total liabilties)/shares outstanding, we get SGD $0.223 per share. Using NAV [(total assets - total liabilites)/shares], we get SGD 0.307 per share. Based on FY07 dividend, divided yield is around 7.8%.

Thursday, November 13, 2008

Valuable Vicom

Long time ago, I mentioned about Vicom being a prime candidate for value at around $1.50, fully unaware that it will hit around $1.50 so soon this year. At the lowest, Vicom was trading at around $1.30 near end of Oct 2008. They just announced their 3Q results today.

Here are the main ratios for Vicom over the last 9 months:

Gross margins--------28.8%-----------29.3%
Net margins-----------23.0%-----------23.4%
ROE (annualized)-----25.6%-----------25.1%
Current ratio------------1.57-------------1.35
Total debt/equity-------34.5%----------30.4%

NAV for FY07 is $0.70, for 9M08 is $0.7532. This means that it’s trading at around 2x NAV at current price of $1.53 at last closing.

For the past 9 months in the FY08, Vicom earns a PATMI per share of 14.89 cts per share. In a non linear world, let’s just take a linear assumption that everything can be projected in a straight line to 4Q08 – that gives us a PATMI per share of 19.8 cts per share. Last closing price for Vicom is at $1.53 on 11th Nov, giving us a PE of 7.7x. Historical PE might not mean much in these extraordinary times, but I feel we have to put the 7.7x PE in perspective. Past PE of Vicom range from 6.8 times to 7.3 times from FY2004 to FY2007.

I did a valuation for Vicom before. It ranges from $2.2 to $2.8 over a period of 10 years. At 1.53, it gives us a paltry CAGR of 3.7% to 6.2%. But as I think the real attraction lies in the dividend. FY2007’s dividend is around 15.5 cts per share. Assuming no change in dividends over the next ten years, and without growth in dividends, we’ll get back $1.55 in ten years time, just based on dividends alone. This means a 0% growth in dividends over the next 10 years. Historical CAGR of dividends growth is 50%, with FY06 to FY07 increase in dividends per share (special dividends included) of 29 %.

You might want to check this out:

Per share data:

-----------Div without specials---------Div with specials
FY04----------4.6 cts-------------------------4.6 cts
FY05----------5.2 cts-------------------------6.8 cts
FY06-----------7.9 cts------------------------12.0 cts
FY07----------15.5 cts------------------------15.5 cts

15.5 cts per share at $1.53 means a dividend yield of 10.1% - a good rate anytime.

Business wise, their segmented breakdown of business as a % of revenue are as follows in 9M08:

Vehicle inspection business – 30.6%
Vehicle assessment business – 3.6%
Test / inspection services – 59.2%

This segmented breakdown of their business to their revenue is more or less the same as their FY07 results. Their main business is still the test / inspection service which makes up nearly 60% of their total revenue, which shows an increasing trend over the years. Vehicle assessment business will continue to drop as their monopoly status on this business is removed by regulation. Test/inspection services in SETSCO will thus continue to be their growth engine, followed by their vehicle inspection business.


Seems like quite a nice combination of factors that make Vicom attractive to me again. I like the high dividend yield of 10% - even if it cuts the dividend to FY06 level, it’ll be around 7-8%, which is pretty decent to me. What is more attractive to me is that this company got pretty good cash flow, decent margins, low debts and boring business – quite a cash cow in my opinion. If they only hold on to FY07’s dividend and continue paying at the same rate without any growth over the next ten years, I would have gotten the cost of the share for free – I thought that the downside is pretty much covered. And we haven’t talk about the likely capital gains. Or the likely growth in dividends given. If the wind is behind the sails of Vicom, we might be even getting back our cost of the shares much earlier than 10 years.

There might be some issues at buying or selling the shares. As the float is quite low, there is always a wide spread in the bid/sell queue. I think this is like singpost kind of company.

Is this the best use of my cash?

Monday, November 10, 2008

Bank Bubble Burst

This is a chart that shows the market cap before and after the sub prime crisis about a year ago. I think in a snapshot, we can see plainly who's the survivor and who's not.

Save enough and not much more

You might have noticed that these days I've been sharing more on my private life. Some recent events made me re-think the way I look at things, which is important for me to write it out so that I can think through it clearly.

I am a self-professed champion fighter of expenses. I do have trouble spending my money and have the soldier discipline to put aside my income to save. But recently, I've been thinking very hard about why I would want to accumulate so much. I realised that I save up mainly because of a lack of security. Somehow my growing bank account and mmf account makes me feel safer, and as such, I've been deferring my spending so that I can invest/accumulate.

I used to have this idea of deferring enjoyment for as long as you can so that you can reap whatever opportunities in the meantime for greater enjoyment in the future. Well, I think for now on, I'll take some enjoyment along the way and stop treating myself so badly. It's hard to balance between being a saver and a spender, because on default I'm a saver. I'm trying my best not to have this accumulation mindset and to stop thinking that my growing bank account means security.

You know, sometimes, life is too short to defer enjoyment. You must really know what you are accumulating for. Enough is enough, no point keep earning and earning and deferring the enjoyment. You have only one life and you should make the best use of it.

Thursday, November 06, 2008

Trust me

Recently I'm not in a good mood.

I was reflecting on the past mistakes that I had made in life. Not those little ones but the major ones - especially those that involve a considerable monetary loss. I realised that they all share some commonalities. I wanted to share this even though it's a little bordering on my private life, but I think the lessons are important enough so that those who read it will learn not to repeat it. I've been doing quite a bit of reflection as my work start to dwindle down and I am preparing to rest and strategise for the coming year 2009.

The two traits of my major mistakes are:

1. I had been too trusting on others. That is always my weak spot. I am a man of honesty, integrity and fairness (I wanted to add in exceptional in front of honesty - but I thought that I had done some dishonorable things in my life too) and the problem lies when I think that others are the same too. Therein lies the crux of the problem.

2. There are times I didn't do my due diligence and entrusting my responsibilities to others. I believe that it's linked to the first weakness of being too trusting. I mean if you trust someone, wouldn't you believe what that person is saying and that the person is acting in ways that are beneficial to you? I must have had a very romanticized view of the world.

There are countless examples where I had been duped by my own weaknesses. Here's a few scars that I received:

1. When I started investing back in 2006, I believed that brokerage reports are true and accurate. I kept thinking that these analysts are the pros, if they say this and that target price, who am I to dispute that? It is this trust in professionals that I ended up losing a chunk of my capital since I bought solely on brokerage report.

Lesson learnt: Professionals might not know any better than you. Differentiate between opinions and facts. Distill the facts but form the opinions yourself. The moment you find that you are actually transferring your responsibilities to others (i.e. govt, pros, experts, old-bird, experienced etc), stop and take over.

2. I was actually cheated during my uni days. This really scarred me for a very long time. It happened when 2 china folks told me they had lost their luggage and needed to call their families or something. I lent them my phone, after which they told me more sob stories. To cut the story short, I exchanged their phone with mine (because their hp battery is flat), and I even went to draw out some cash for them. To think that my savings account only have $500 and I gave them $150 out of it.

You know, I wouldn't be cheated out of greed. Usually I will be cheated out of sympathy by confidence tricksters (I use 'usually' because there's more than one incident). It takes a lot of courage to face this again as I blogged it out. For quite a long period of time, I was scarred by this.

Lesson learnt: Well, what can I say? Don't be so trusting. But it's hard to make a balance - too trusting you can cheated, too skeptical and you'll be a cynic. Still trying to sort out this.

3. My first insurance agent created a hell lot of job for me, because I was trying to undo some of the stuff that I was sold earlier. I won't push all the blame to him, because seriously, at that time if you asked me what's the interest rate on savings accounts, or what is the difference between term and whole life plans, I wouldn't know. On the contrary, because of my obvious lack of knowledge in this area, I had went to open a brokerage account with a friend in order to find out more. Well, everything falls into place and soon I started a blog and got very interested in personal finance too.

Lessons learnt: This is one of the hard lessons that I do not mind spending. Without the hard jolt of feeling something is wrong with my policies, I wouldn't be forced to do something about this aspects of my life and a lot of things you're reading now wouldn't come into place. I guess the most important lessons here is not to wallow in sorrow. ALWAYS do something positive and learn from your mistakes.

Fool me once, it's your shame. Fool me twice, it's my shame.

Sunday, November 02, 2008

Post dinner thoughts

The dinner on Halloween's night at vivocity is such a success; I wondered why we didn't had it earlier! Since I'm such an introvert, it's quite difficult for me to put aside my shyness and meet so many strangers at one time. But seriously, I'm very thankful that I did and very happy to have met all who attended - Lumiere, KK, Cookieguy, Cheng, Pepper.

Special thanks to Dream and San for making things possible - and for the excellent wines and champagne!

I finished my work very early and reached there early at around 6 pm. I spent the next half an hour outside the vivocity shopping mall trying to thaw my freezing hands. The sun was setting and it cast a very beautiful warm glow to the scenery. I could not resist but to reach out to my handphone and snap this photo.

This is the only photo allowed for that evening. I was given strict instructions not to take any pictures while inside. Hoho, apparently it's not only a superfriends meeting, but a secret friends meeting too :) Nevertheless, photos can only dilute the real experience as the real deal are the company, the atmosphere and the great food there. Photos are only two dimensional; it serves to remind ourselves of the memories only.

I found that the group that I met is what I imagined them to be online. We had such a jolly good time that I think to those not in the know, they would have thought that we had been old friends :) Amazingly, we didn't talk much about investing at all. I gave them a good tip in the middle of the dinner when I was sabotaged by dream to give a impromptu speech - Buy low sell high! Hoho! On a serious note, I guess those present are not the type to have asked for quick picks too. We're more interested in each other's life experiences that the market.

Couldn't have spent a better dinner anywhere on a Friday night. Thks pple for the wonderful company!

Friday, October 31, 2008

Surviving through lean times - Part 2

Having talked about how to cope with possible recessionary fallout by trimming expenses and boosting income in order to boost savings, here I'm going to share about how to prepare myself psychologically for it. I believe the psychology part of preparing for the recession could be much more important than just the material aspects. This is because the mind will cause us to feel about the same thing differently at different times. You know what I mean, sometimes bad news feel like the end of the world, sometimes bad news feel like a mosquito bite.

I think it's important to feel upbeat about the whole thing. Easier said than done of course. I know some people who had invested in the stock market and are facing huge losses. This makes them worried and everything seems all gloom and doom. Having been through a bout of depression last year for losing 30k (most are realised, some paper losses) I think I can understand how it feels. You'll feel that Death is upon you because of all the suicidal thoughts that creep into your mind, especially at night when there are no routine work to occupy your mind anymore. I'll just look at the windows and think what it's like to fall down and end it all. Relationships got strained pretty badly too as it's apparent that I'm radiating negative energy and pessimism outwards. If you feel that way, please please do seek professional help. Depression is not a joke and it's not fun, neither is it incurable.

Time took care of a lot of things and I became better over a period of 1-2 months. I personally did not seek medical help because I'm confident I'll survive through it. I'm pro life and not someone to end my life prematurely. Again, do take note I'm just sharing my experiences. For those who are in depression, do seek the proper help.

I realised that life is more than just your investment, and it takes 1-2 months of depression to learn that! So what if you lose 30k? You can earn it back in 2 years. If not, 3 yrs or 4 years. I start to value the little things in life. What matters is that you do not overleverage yourself in the process. It's a different story altogether if I had borrowed 20k out of the 30k, lost all my 10k and still owe someone 20k! Or if I had lost 30k, and I had no buffer to pay for my tuition fee or housing loans and such. That will really sting! Thus the big idea here is: Do not overleverage yourself, because when the tide comes in, everything floats and rise, but when the tide goes out, you might be left with nothing but a mountain of debts.

Personally, I feel that keeping 3-5 months of expenses in savings account of banks is good enough for me. That's because of the nature of my job. I won't be suddenly called in and get retrenched, hence my buffer zone can be smaller. But I think this kind of buffer, you have to think about how long it'll take from the time you get retrenched to the time you eventually got a job - that's the amount of expenses in months you need to get in ultra safe places. These are the untouchables. I think by locking up this piece of my assets, I'll get piece of mind.

It's very important to find a support network too. I understand that like stocks, our moods go up and down in cycles too. If you have a group of your most loyal fans (start looking at your significant other, than to your friends and family), who will stay on with you through thick and thin, through prosperity and sickness, I think you'll never feel down. It's like when you're down, you'll cheer them up, and vice versa. Call it mutual backscratching, but it works!

If you can't find a network, about how my cbox? I'll cheer you up, but make sure when I'm feeling gloomy, cheer me up too :)

(Suggested background music for reading this post: Try Louis Armstrong's version of La Vie En Rose here)

Thursday, October 30, 2008

Surviving through lean times - Part 1

Possibly facing my first recession since I started work 5-6 yrs ago, I think it's a good time to figure out how to tide over this rough period. Fail to plan, plan to fail, they say. I think I need to think about 2 aspects of coping with the possible recession - How to save more and how to cope with it psychologically. But for this post, I'll just focus more on the savings part. Maybe more on the psychology part at a more opportune time.

How I'm going to save more

The golden rule applies : Savings = Income - Expenses

To raise savings, I need to increase my income and decrease my expenses. As I've not been through a recession since I've started working, I do not yet know if my job is recession proof. Well, I do hope it is! What I intend to do is to market myself to the upper middle to upper class segment, for I deem them to be able to ride it out better than the average Singaporeans. In fact, I even plan to increase my rates. The good thing about my job is that I do not have to rely on any company, hence during recessionary times, I do not have to worry about being retrenched or suffer a pay cut. I believe that's a big relief factor for me, especially if I intend to take on more debts in the near term for housing and such. I guess it's a different mentality for me because for my job, security is never taken for granted. In fact, it's never secure. I have to fight my way to reach my previous pay every year. Haha, in a way, I'm having a recession every Nov to Jan period where I have to experience pay cut and no work :)

To prevent credit crisis in my job (where people are unable to pay), I think my usual diversification strategy works. I take in around 30 streams of income, so if one fails, it will not hit me too hard. I work on a credit basis - meaning that I provide service and give credit for around a month before I get paid. I might need to adjust the collection period to increase my own liquidity. Perhaps I'll shorten my credit term to two weeks for some. That will have to depend on situation, depending on how bad it gets.

Another integral part of the savings equation is to decrease expenses. I already have cost savings measures in place, regardless of recession or good times, so it's not as if I'm going to tighten my belt or anything because it's already tightened. I'm a valueskate, not a cheapskate.

Recently, I reviewed my insurance policies and found that it's not up to standard. I mean I could get much more for the same buck. That will have to go. As mentioned in my 'valueskate' post, I don't mind paying more if it's going to give me more bang for my bucks. After learning the that price is not equal to value, I think my perspectives opened up. Cheap need not necessary be better. Nor is expensive stuff necessarily good. I'll try to source out valuables at cheaper price, not necessary cheapest price :)

I seldom frequent restaurants, so nothing to cut from there. One trick I learnt is not to buy drinks when having meals. Drinks usually cost 80 cts to 150 cts, which is easily 50% of what I paid for my meals. I simply cannot imagine why. As such, I bring own bottle of plain water and probably saved myself $2 a day, which adds up to $700 a year. I don't buy a lot of clothes, so nothing to cut there. But I do love my Springfield brand, so I'll get it only when they have super discounts from 30% to 50% :) yummy!

After trimming what we spend and shoring up what we can earn, the remainder will be savings. I do hope to maintain at least 50% savings to income ratio even when times are bad. Currently, I'm doing all that I can to save around 70 to 80% of my income, so this will provide me with a truckload of ammunition to fire sparingly at critical levels of the market. I'm happily sitting on a near 80% loss in portfolio - truly an extraordinary time for me :)

Try being an arctic fox. Eat more during good times and ride out the winter during bad times. Rule of nature yes? Do that to your savings now :)

Thursday, October 23, 2008

Pantene Chrysalis

San introduced me to this short movie:

It's really a short movie (4:03), and it's a million times better than most thai flicks i've seen, despite it's length. It's the blending of music and moving stills that creates such an emotive force within me that I get goose bumps every time I saw this. And I've watched it at least five times. There is really only one sound track in this short film, it's none other than Pachelbel's Canon in D. The movie blends in the touching parts of the film with the touching parts of the song, creating an emotive resonance that can only be amplified by the melancholic nature of the violin and piano. There is only around 4 lines of spoken dialogue, but like the classical piece without lyrics, the movie without dialogue makes one focus on the emotional aspects of the film. Climatic scenes are punctuated with short and sharp jabs of the violin. Violent scenes are accompanied by the jarbled and forceful piano song (i don't know which piece is that, can anyone trained in such music kindly enlighten?).

I really like the scene when the camera pans slowly to the broken violin, made to work one last time using scotch tape. The song slowly sinks into your emotions, which is then followed by the quick stabbing of the violin and ends abruptly. Amazing!

Do notice the butterfly towards the end. I think that's what san is showing me :)

The butterfly breaks out of the chrysalis, which is the cocoon like thing that a caterpillar wraps itself during the first stage of the metamorphosis. When it breaks out of this cocoon, the caterpillar changes structurally, to the extent that one cannot see any similarities between the former and present self. I suppose that that is why the short film puts a butterfly towards the end. It shows both the metamorphism undergone by the girl as she reaches new height in her music (she finally understand what it means by music being 'visible'), as well as the main purpose of the short film - to sell more bottles of pantene chrysalis.

Tuesday, October 21, 2008

Superfriends meeting on 31st Oct 2008

For those who are regulars in my cbox, you would probably have known that on Friday, 31st October 2008, the Superfriends of Bullythebear will be having a dinner and dance party at Wood restaurant bar, Vivocity. Erm, dance is optional of course, but maybe we can all ask dream the golden buddha to do a little jiggle for us after a few glasses of wine. It's going to be held in a private function room at Woods, timing will be advised when it's nearer the event next week.

I would like to confirm the attendees for the event. For those who had been invited, or wish to be invited, please confirm your attendance using the comments button right at the bottom of the post. Alternatively, you can choose to email me at duckula06 [at] yahoo [dot] com (it's zero six behind). If I did not reply your mail within 24 hours, u can safely assume that I didn't receive yahoo mail is a bit crazy at times. Text me at nine-four-three-five--eight-nine-three-zero, DO NOT call me as I may be in the middle of work, thks! Do tell me who you are in your email/sms too.

The budget is around $40-50 per person, depending on the items you ordered. The menu is given here at this site, so do check it out. With bro dream going to negotiate a better deal for us, and yours truly guaranteeing that it will not go above $50, do consider attending this rare event to meet all of the superfriends in person. If not for the company, go for the food. If not for the food, go for the wine. If not for the wine, just go there for dinner!

Here are the list of attendees:

Confirmed going:

Me, LP
My gf
Dream the golden buddha

Special guests (for drinks only - not 100% confirmation)


Please RSVP, best before Tues 28th Oct. Dream will need to confirm the attendees so that the restaurant staff can prepare the table.

Keep your style, fade your fashion

It's simply not fashionable to invest in debt-ridden companies now.

Investment are like clothes. There are investments themes that come and go with the vicissitudes of fashion wear. From my short history of market experience, I already can see the different main fashion themes which are hot at different periods.

In the bull market, there are many many themes. Sector rotation, I think that's what they call it. I used to pay attention to companies belonging to a certain sector, like construction plays, oil plays, property plays etc, and look out for companies in those sector that had not run up. I had the misfortune to take part in the construction play leading right to the end of year 2006/2007 and consequently became the last fool holding the unwanted babies. Despite the many themes, the underlying premise of buying is based on PE.

Let me explain. When the market conditions are bullish and prices of stocks are breaking their 52 week high, it's simply not fashionable to invest in P/B kind of stocks. PE values are all time high, so to entice investors to put their monies, low PE stocks are trumpeted as the next growth stock to run up. I've not personally seen another metric used in bullish times locally, which is Price to revenue P/R ratio, though I read that in the telecom/ era in 1990s, there are plenty of such analysts keen on this metric. It's not unexpected isn't it? When prices are so high, and earnings haven't begun to catch up on the prices, the best way to show value is to use some metrics that are independent of the earnings and/or profitability of the companies in question, but instead based on the rapid growth of the companies (never mind profitability, it'll catch up).

However, when the tide turns in a bearish market, fashion police of the investing realm dictate that P/B becomes the new yardstick of measurement. Book value defined as total assets - total liabilities, becomes the fashionable thing to valuate companies. We hear of analysts saying about the P/B of banks or properties counters or reits or whatever being at all time low, compared with SARS, Asian financial crisis, era or other similarly bearish times. I reasoned that this is the case because the market price of the company are supported by the assets owned after all the liabilities are paid to creditors. As such, P/B ratio becomes the valuation metric of choice when market conditions are bad.

The current aversion towards debt-ridden companies resulted in the relentless selling across the board of such companies regardless of business economics. Shipping stocks seem to be whacked hard for being in the wrong kind of business in the wrong time. S-shares, which are singapore listed china companies, are whacked down hard after the scare by Ferrochina and China painting & dyeing company. That means if you're a s-share and a shipping company, you're doubly screwed. YZJ and Cosco are two examples that spring to my mind.

I also noticed that dividends, ignored during bull market, are back in vogue when times are bearish. Analyst are always touting the high dividend yield of certain companies as being defensive. Reits, most showing double digits yield, are sold to investors as offering higher yields than the miserably low interest rates offered by savings account. The reason we don't talk about dividend yields during bullish times is two-fold - first being that the prices are marked up so high that the yields are nothing to boast about. Second, the capital gains from sheer price appreciation is much more tempting and lucrative than the steady and slower dividend gains.

Here's a summary of some of the metric mentioned and the times they are in vogue:

1. Price earnings ratio P/E = bull
2. Price revenue ratio P/R = bull
3. CAGR growth or CAGR revenue % = bull
4. Price to book P/B = bear
5. Cash per share = bear
6. Dividend yield % = bear
7. Liquidity ratios like current, quick, gearing = bear

One can take advantage of this whimsical swings in the investing realm in two ways. The first is to trade (long/short) the fashion trends by identifying possible candidates. For example, after ferrochina announced its death note, a few days in a row, s-shares was shorted furiously down to crisis levels, especially those debt ridden companies. Another way to take advantage of this is to always prepare one's portfolio for the bear. Chasing the price of companies so as to ride on its growth story is not exactly preparing for bearish times.

Fashion fade, but style is forever - Yves Saint Laurent

Have your own style, don't keep chasing after fashions. By the time the fashion magazines announced what is the hottest for this season, that season is over. Don't be caught wearing last season's wear.