Sunday, February 26, 2012

How much is market risk?

Industry assumption: 20%.
But VIS shows from time to time it's a lot higher.
Risk appetite paradigm shifts back and forth. That is what history tells us.

How to beat the market

Smart money magazine reported an obscure money manager who dropped out of college to become a stock picker. He turn $100K into $500K (400% return) in 7.5 years (90 months). Here are his secrets:

1. Ignore the economy. Where is the economy going next quarter? Where is the S&P headed? Mecham says he ignores those issues; instead he looks for stable, defensive business that can thrive whenever bad times come.

2. Don't diversity. Most mutual funds own dozens or even hundreds of stocks. But to outperform with a big portfolio, a manager has to outsmart the market simultaneously on a raft of securities. Smaller funds and private investment can only rely on just six or eight stocks.

3. Don't sweat the spreadsheets. Many Wall Street analysts build elaborate financial analyses to calculate a company's earnings growth and other patterns. But for small portfolio it is more productive to use that time trying to understand a company and its industry - the management, the competition, the customers, and so on.

4. Think decades, not quarters. Shareholders and managers tend to focus on companies' announcements of quarterly or annual earnings, and whether they beat or miss analysts' estimates. But Warren Buffett say it's more useful to try to figure out where a company will be in a decade.

5. Don't just do something; Stand there. One of the toughest things for investors to do is to sit still and do nothing - especially when nervous clients demand that they respond to short term fluctuations in the market. But most of the time, says Buffett, inactivity is the right longer term move. Mecham: "It's about keeping emotions from corroding the decision process."

Health Care in the US

Who should pay?
Who should receive care?

The biggest challenge in the US is 15% of the population earn very little and the top 20% earn a lot. So naturally the bottom are not insured. Public policy was also intentionally kept that way - one who can not afford to buy insurance are left to medicaid or no coverage.

In the US, if you are not a productive member of the society, and you are not rich by inheritance or saving, you deserve to die when sick. Rationing healthcare means medical attention are shifting from the rich to the sick. This is the real reason why there are so many argument against health care reform.

Read WSJ opinion and the message is: If you are poor you deserve to die. Don't expect any help from us.

Work is more than just a pay check

In management's mind employees are here only because we need a pay check. They will terminate us when revenue is down. They will cut our benefits when profit is down. This is called "at will" employment and is the norm in the US.

But from employee's perspective, especially those who's always dutiful and give their best, work is more than just a pay check. It is the only way we know to earn a living, to support our family, and to contribute to the society's well being. It's about life, not just money.

But the management will always focus only on the top line and bottom line. They are not doing their job if they deviate from that principle. They worry about their own job when that happens.

Socially Useless (financial engineering)

I wrote the paragraph on my note book around early 2010 when Goldman was investigated by Senate. A colleague think Senate investigation into Goldman's dealing right before the financial crisis is witch hunt. I disagreed with him.

My argument is as follows:
What is the purpose of synthetic CDO?
Why do you need to restructure sub-prime mortgage, making it looks safe, before selling it to banks and pension funds?
Isn't it because investors would not buy the sub-prime outright?
Why is it that four of the five major investment banks have a new boss after the financial crisis, but not Goldman?

Wall Street firms are proud of their "intellectual capital" that created CDO. But most of that financial engineering are socially worthless, because the bottom tranche was sold to investors who will take flight when the market get into trouble. They are not "stable insurer" of the credit risk. In the end, complex structure only serves to mask the risk, make it hard to discern. And when risk is hard to comprehend you have a credit expansion that is global in scale.

Thursday, February 23, 2012

reading digest Feb 24

Once someone has made a positive or negative judgement about a potential job candidate, that judgement colors subsequent performance appraisals. What this means is job performance matters less for your evaluation than your supervisor's commitment to and relationship with you.

Many studies have documented the influence of numerous factors, ranging from educational credentials to race and gender, on careers, with performance often having a statistically significant but substantially smaller effect on advancement.

Emotions and behaviors become self-reinforcing: if you smile and then others smile, you are more likely to feel happy and smile. This reflexive quality in human interaction means that a mood or feeling, once generated, is likely to be quite stable. Grove might have to act confident and knowledgeable at first, but as others caught that feeling, it would be reflected back, making Grove himself more confident.

Part of it is self-discipline and part of it is deception. Deception in the sense that you pump yourself up and put a better face on things than you start off feeling. But after a while, if you act confident, you become more confident. So the deception becomes a reality.

Churchill: "Words are the only thing that last forever". Language that influences can create powerful images and emotions that overwhelm reason.

Don't hide in the legal technicalities. Confront common sense understanding of what's right and wrong.

If you make people laugh, you can tell them anything.

It is better to widely disperse your network building efforts and build many weak ties. Don't get hung up on making a favorable impression in any single place, but instead find an environment in which you can build a great reputation and keep trying different environment until this effort is successful.

Many people want to demonstrate how wonderful they are by working diligently to change others' mind and repair their image. But such efforts are seldom successful.

Wednesday, February 22, 2012

There are doubts whether higher trading volume of financial instruments created any value for the economy and society. Deregulation was the dominant ideology during Greenspan era. Now people are thinking most of the transaction that happened in a split of a second are socially useless.

Grit is good.

Sunday, February 19, 2012

Is housing getting better?

Housing market stats

教廷解密風暴 梵蒂岡陷洩密醜聞

Liberty times reports


when you make others around you look good, they will love you forever

Is fiscal tightening pro-growth?

The theory goes like this:

Fiscal tightening means a smaller public sector. Smaller public sector means lower tax. Lower tax will induce more private investment and create more jobs. In the end the economy will grow.

But in the experience of Greece and Portugal the fiscal tightening caused loss of job and reduced pay in public sector. Because the public sector was large this means consumers have much less money to spend. The contraction in demand pushes business to withhold investment and reduce inventory, causing a further drop in investment. Economic output drops, and new investment is not in sight because the confidence are so weak.

The conservatives think if you brave the pain, overtime the confidence will return. You should not relapse on the policy tightening and business will eventually believe the new regime is for the long term. But how much longer can people bear with the recession and despair?

Saturday, February 18, 2012


Taiwan's sovereignty issue:
A historical special case.
1. Can not become an independent country because of China and the US opposition.
2. But has the potential of permanently independent from China's rule, if its people continue to be willing to decide its own fate.



Tuesday, February 14, 2012

LNG is the future

Earth quake concern in Japan has prompted Japan to import a lot more LNG.

Natural Gas Price
has fallen since the adoption of fracking.

Natural Gas emits about half of the CO2 compare to oil. But there are caveats.

Monday, February 13, 2012

Criteria to Test Product Suitability

Net worth
Liquid net worth
Tax status
Investment objective
Rish tolerance
Investment experience
Liquidity need
Investment time horizon