Boom Bust of Markets

Saving is a good habit. Why we save when actually we can consume it immediately? Why we so stupid to save $50 when we earn $100 and at the same time other who earns same amount consumes all $100 he earns? The worst case is the one who earns $100 but consumes $1000! It seems ridiculous but in reality, it happens in real estate market.

When we buy a house, we are allowed to take out a small portion, such as 10% or even less to buy the house. While it is good for housing developer and all related parties such as broker, financial institution...etc, it is pity for us as a consumer of this real estate business. People may argue that buying house is for "investment" purpose because "price of real estate is always going up" and at the same time could generate a positive cash flow. This is true when a mortgage loan rate is at the all-time low in the history, cash is piling up after a Tech Bubble in 1999/2000 because everyone with money seeking a haven to park their money, easy credit could be obtained by a consumer in term to boost up a consumer market, a housing bubble is created because of these factors. What people forget is "A boom is just capitalism's way of setting up the next bust."

People need to remember that markets do not punish the greedy nor do they necessarily reward the virtuous and frugal saver. Markets are amoral. The outcome is determined by "Good decisions" and "Bad decisions". While timing is important -- when you get in and when you get out, finding a good business and what the price you are paying for determines your outcome.

Less is more

"A compact organization lets all of us spend our time managing the business rather than managing each other."

While there is more and more companies seeking for "Size does matter" for its organization, our hero, Warren Buffett still maintain his mini organization structure with only 17 staffs in his HQ in Omaha, shouldn't we learn some from him? How about the concept of "Less is more" by Philippe Starck who applies his concept in his design? If a fund seeking for "Size does matter" in its investment philosophy, the ultimate beneficiaries are not its fund holders, but its fund managers and its related parties such as brokerage house, investment banker...etc.

Ask the right question

A stranger in a small town. The fellow wanted to get acquainted with folks, so he went over to the village square and saw an old-timer with "kind of a mean-looking German shepherd. He looked at the dog a little tentatively and he said, "Does your dog bite?" The old-timer said, "Nope." So the stranger reached down to pet him and the dog lunged at him and practically took off his arm, and the starnger as he was repairing his shredded coat turned to the old-timer and said, "I thought you said your dog doesn't bite." The guy said, "Ain't my dog."

The moral of the story: It's important to ask the right question.

A Remarkable Horse

"A horse that can count to ten is a remarkable horse -- not a remarkable mathematician."

While selecting our fund manager, we should be take extra care not to choose a "remarkable horse" as our fund manager. Although they might be a "remarkable horse" among a circle of horses because they can count until ten which is very unlikely in a circle of horses, but what we need is a mathematician who knows everything in mathematics and can practise well.

When we look at mountain as a symbol of ever lasting, should we look at Mont Everest or a tiny sand castle which can be destroyed by the tide?

The Death of Equities

As it appeared in Business Week in August 1979:"The Death of Equities". At that time, people would rather invest their money in money markets, fast-food franchises or rare stamps. Stocks, apparently, were history.

Will this becomes reality in the future? Very likely, when an inflation rate becomes higher and higher, prices of commodities such as oil, gold, copper, rubber, sugar reaching their peak again and again, Great Depression which we all thought is already a memoir of history re-appear, employees suffering their pay cut in order to maintain their job, everywhere we can see there are abundance of unemployed people seeking help. And that's the time of "collecting" our bargain hunting of equities which when we buy it, people surrounding you will laugh at you and doubt whether you are stupid or insane.

"The future is never clear. Uncertainty actually is the friend of the buyer of long-term values."

Do you think it can still go up?

While it is time to invest in Real Estate Investment Trust (REIT) during 1999/2000, do you think it is still the time to invest after it appreciates 200% for a duration of 5 years? Let's see what's history will tell us.

Education in School, College/University

One could be successful in business if they have desire and passion. Any IQ over 125 is wasted in business/investments. At Wal-Mart (World's No. 1 retailer), ordinary people without any college education are doing extraordinary things that make it great. Mrs. B (who is a founder of Nebraska Furniture Mart, one of the successful furniture mart in the US) was a Russian emigrant who not even know how to speak English when she first arrived in the US but later learnt from her 5 year-old daugther. She even successfully defended herself in the court when a competitor sued her for charging prices that were TOO LOW. She told the judge that she paid $ 2 per sq. yd. for a carpet, and sold it for $ 3.98 per sq. yd. while her competitor sold at $ 5.98. She told the judge that if she raised prices she would be robbing her customers. "How much should i rob my customer?" The judge dismissed the case and rushed to her mart thousand miles away to buy from her. While at the same time, we can see so many highly educated people manipulate accounting to create an accounting called "Creative Accounting" just for the sake of their BIG, FAT remuneration, there is a reason for a revamp of our education system. The problem we are facing now is a quality of teachers for our next generation. While is the past, we have quite of number of teachers who is high quality, presently, we lack of such high quality teachers. This is no surprise since women in the past have less choices for their carrer but into education; nowadays, they have plenty of choices in their carrer path. We should think of ways of how to attract those high quality teachers into education for a better future of our next generation.

Peter Drucker -- One of the Greatest Management Guru

Article written by Roger Lowenstein about Peter Drucker, click here.

Note: Roger Lowenstein is a well known Wall Street Journal reporter who also wrote books related to financial/investing titles, some of the best-selling books include: "Buffett: The Making Of An American Capitalist" and "When Genius Failed: The Rise And Fall Of Long-Term Capital Management". I wounder how many people are still remember the crisis caused by LTCM and learn from it.

Why we failed in investing?

"Authority, scarcity, consensus, social proof--these are relatively primitive decision-making strategies we deploy," says Robert B. Cialdini, a professor of psychology at Arizona State University. In other words, we are all susceptible to suggestions by influential people; we gravitate to something if it seems to be unavailable to everyone else, and we trust stangers who appear to like us.

How well do these "weapons of influence" works? One of Cialdini's students ran an experiment in which customers of a meat wholesaler were exposed to 3 different stories:
1) standard sales pitch about high-quality meat
2) the beef prices were rising because of a drought in Australia
3) the wholesaler heard from a confidential source within Australian weather service that a drought was expected and that could drive up beef prices

Think what's the difference of sales between 1st group and 3rd group? Sales result of 3rd group is 6 times more than 1st group!!

The perception that somebody has the inside track "creates this irrational desire to jump at what's scarce or rare," says Cialdini. One of the most effective--and potentially dangerous--shortcuts is relying on someone's family background and pedigree as proxies of reliability.

Often, we are just too naive and ignorant to believe that there is a free lunch in this world. Whenever we invest, we often look out for the "The Biggest Fund", the fund carrying a label of operated by a Nobel Economics Prize winner, "the value of properties is always up"...etc. We want short cut yet there is no short cut for the success of investment. Do your homework, be a critical and independence thinker, with firmness characters and let's time growing your nest eggs are the only way for your investment success.

Professional?

The world is loaded with a bunch of professionals yet there is so few commonist (Note: is COMMONIST, NOT COMMUNIST). Everything in this universe is all interconnected and yet we separate it piece by piece for the sake of professionalism. Take an example, a role of surgeon for cancer patient is to remove a tumour from an affected part, he never think of consequences of the patient after the part being removed. If our professional is more commonist, he should be able to intergrate all known knowledge in this world to provide more humane and yet effective solution to his patient but not just thinking how to remove the tumour only. No wonder someone says, whenever you have a hammer with you, everything seems like a nail.

Glossary:
- Commonist: a person who is able to intergrate all known knowledge in this world to provide better solution.

Note: I do not know whether this word "Commonist" been used before. If not, it seems like i create a new word.

Relied on Pension Fund for your retirement?

If you are rest asure that you could get pension fund (where your employer and yourself contribute during your working life) when you retire, think twice..

International Investment Scam

This is a boring yet open eyes article for those who interested. If you are not interested for this topic, please skip it, otherwise, click here.

97/98 Financial Crisis II

When mice captured by a cat, a leader of the mice crying for the evil act of the cat who destroy an entire community of the mice. It sound ridiculous, isn't it? While crying for other's evil act, why not make yourself become a tiger and see if a cat dare to capture a tiger or not?

Mozart -- Amadeus "Loved by God"

250th birthday of this brilliant gifted musician falls in 27th January 2006. Let us have a feel of his superb music.

Made In Hong Kong

From a mere small fishing port under colonial ruling to one of the influential far east economic power, what's the secret behind of it success? Click here to find out more.

HDTV -- In Choosing LCD or Plasma TV?

Before you choose either one, have a look first: here

A horse is a horse

Sometimes, it is hard to resist others views. After all, we are all social animals, only when we follow others, we will feel more secure and not tagged as stubborn. Somehow, we need to have own indepedence thinking -- with the fact that a horse is still a horse, it would not change just because everyone tells you it is a deer.

Diversification

Scenario:
You are a champion swimmer in your class. One day, your classmate challenge you to take a competition of 2 choices:
1) a swimming competition. if you win, you could walk away $100.
2) 50 different games competition, ranging from tennis, gymnastics, marathon..etc. For every competition, if you win, you could walk away $2 for each winning.

The end result would be same: $100 bet if you could win. The only different is in Choice No.1, you could win $100 in 1 shot while in Choice No.2, you must win all 50 games in order to get $100. What will you choose?

Investing

Quote from Benjamin Graham, Father of Value Investing:
Investing, did not require a genuis. What it needs is, first, reasonably good intelligence, second, sound pricinples of operation; third, and most important, firmness of character.

Without firmness of character, the previous two would only bring disastrous result to our investment. Be prepare your investment could be shrink to 50% of its original price that you pay for it. If you could not resist of this change, investment is not within your circle of competence. What i am talking about is choosing a sound and good business, not a bad business for investment. When you choose a bad business, worse can be only worsen.

Gain or loss is determined when you buy it

For every investment, people tend to think that whether he will profit or loss is determined when he sold it. But the fact is reverse. Whenever you make up your mind to buy, that's the time determines whether you will profit or not. One investment philosophy should always in our mind: Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.

Speculation

Quote from Graham and Dodd "Security Analysis" :
For stock speculation is largely a matter of A trying to decide what B, C and D are likely to think-with B, C and D trying to do the same.

I do not understand why there is still a lot of people being victimised by the so called "analyst" -- recommendation that he previously made could be reverse within a short time frame. Put an example, he initials a "Buy" calling a month ago for a particular stock but immediately reverse his "Buy" to "Sell" only after a month? Accepting him as my analyst means either i am insane or stupid. Either character should put me far aside from investment if i want to preserve my capital, not talking about to appreciate my capital.

97/98 Financial Crisis Timeline

97/98 Financial Crisis Timeline
Have you learn?

Intellectual Framework

Everyone should establish his own Intellectual Framework. This is essential in this new era where lots of rubbish information getting around us. By establishing a solid Intellectual Framework could prevent us from victimised by these information. A tip to establish your own intellectual framework: choose authors of the book or article who you trust, read the book or article not because tempted by "hot" topic but because of the authors that you trust most.

Madness of crowds

Quote from Charles MacKay, "Extraordinary Popular Delusions & the Madness of Crowds, 1852" :
Each age has its peculiar folly, some scheme, project or phantasy into which it is plunged, spurred on either by the love of gain, the necessity of excitement, or the mere force of imitation...Money has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers and risked almost their existence upon the turn of a piece of paper...Men, it has been well said think in herds; it will be seen that they go mad in herds. while they only recover their senses slowly and one by one.

Men who is rational when he is alone tend to be irrational when making a decision. Rather than making a sound and rational decision, the decision he makes is based on popularity -- follow the decision chosen by majority. After all, when something bad occurs, he could not be blamed because the decision made is based on majority decision -- being he is a country leader, fund manager...etc. How many people have a courage to go to reverse direction of the herd? With the risk of being tag as "strange", "not friendly"...etc?

Information is not knowledge

A bunch of data is not information, so do information is not knowledge. Knowing how to be a good investor? There is no secret at all: LEARN FROM THE MARKET -- MAKE A LOT OF MISTAKES-- Preferably others mistakes.

"Buying a stock no more makes you an 'investor' than wearing a bra makes you a 'woman'"

Whenever making any investment, the most important part is SUBSTANCE OVER FORM. This means we invest not because it looks nice, glamour superficially but we invest because it really an good investment that appreciate our capital over time. A company leader or an investor who always invest on "The Biggest", "The Longest", "Breaking Record Purchase Price"....etc no doubt would put its CEO into the Hall of Fame but with a sacrifice of his shareholders' money.

Choose Your Hero

"We can be great because we are standing on the shoulder of our hero"

Everyone should have his/her own "Hero" (Role Model). "Hero" gives us an idea what we need to learn from him/her and motivates us to go further to achieve our goals. A man without a "hero" is like a travelling ship in the middle of the ocean without a compass -- no where he goes until current brings him to some where else.

Man's Ego

Often, choas and conflicts in this world happen because a man could not stay at home calmly. A successful and macho man should be defined as a man who knows how to be stay in his home: being it taking care for his children, cooking for his lover, reading an opening mind book or just simply do nothing.

Life is all about change

All things in this world change from time to time, being it last for 1 hour, 1 month or even 1000 years. No matter how we preserve it, when it's time, it still comes to the end. There is none which do not change with only 2 exceptions: death and tax. Sooner or later, we must say good bye to this world, it can be next moment, a year later, or even after 100 years. Thus, do things with your full effort, love someone with your full heart. When we can do these, we would not have any regret when the day is arrived.

Emptiness

"FULL IS WHEN IT'S EMPTY, EMPTY IS WHEN IT'S FULL"

When a glass is empty, we could pour a full glass of water; when a glass is full with water, we no longer could pour more water into it. This concept should be put embedded into our mind. No matter how we busy, for works, for family....etc, we should place ourself an empty moment -- for us to rejevunate.

Of Permanent Value

"PRICE IS WHAT YOU PAY, VALUE IS WHAT YOU GET"

When buying something, usually there would be a price tag. Ever thinking of the value that we will get from it? Or we should say more precisely: is the price we pay match with the value that we get?