Blue Chips or Potato Chips?

Often, when we invest in equities, people told to invest in Blue Chips for the sake of stability. The Blue Chips normally stand for the companies who are the market leader in their industry. For example, General Motor (GM) in car industry, Dell in computer, Microsoft in software industry, Wal-Mart in retailing and so forth. Are the Blue Chips really a good investment? Why not we examine some to get some ideas?

Google, the world top leading search engine as per 23rd March 2006 has market capitalization of $101.04 billion ($341.89/share). Its Price Earnings (PE) stands at 68.09 with Earnings Per Share (EPS) at $5.02. No dividend paid out so far.

What does it mean? With PE of 68.09, it means when you invest in Google at the current price, you need to wait for 68.09 years to get back all the dollars you invested. The inflationary factor not calculated on this matter. Say, you invest a share of Google with $341.89 in 2006, you need to wait until 2074 to get back $341.89. Please note the value of $341.89 in 2074 is TOTALLY DIFFERENCE with the value in 2006. Of course your invest return period could be shorten if there are some positive progress. For example, for the coming years, Google earns spectacular earnings years after years which mean its EPS more than $5.02. It might be $10, $30, $75 or even $300! Who knows? One things for sure is high growth normally will not long last. It could grew at the rate of 20%, 40%, 80% or even 200% per year. But, to continue such high growth rate for 10 years, 20 years or 50 years, there is only one route: OUT OF THE PLANET EARTH.

Baidu, Chinese top search engine saw its price drop since its 1st day closing price at $122.54. As per 23rd March 2006, its price stands at $50.60. Is it a bargain since its price drops more than half of its peak? To answer the question, let’s look at its fundamentals. Its PE is 273.51 with EPS $0.19. No Dividend paid out before. Even tough its price drops more than half from its peak, its PE seems at the sky rocket end with only tiny earnings. Is it a good investment choice? Ask to the RIGHT candidate – RATIONALITY.

VA Linux, once a darling star of the dot com mania who is tagged as “Next Microsoft” peaked at $320. The price quoted in 23rd March 2006? $3.65. The lost of almost 99% of its value. Enhancing shareholders value? Yes, it is but with reverse direction. At 3.65, its PE stands at 32.88 and EPS of $0.11. No dividend ever paid out.

Wal-Mart Stores listed in New York Stock Exchange (NYSE) since 1970 is the world top retailer. It outpaces its rival such as French Carrefour, UK based Tesco and German Metro. Its price on 23rd March 2006 was $48.54. Its PE stands at 18.10 and EPS at $2.68. Its dividend paid out translates to 1.40% yield.

How about a legendary “Oracle of Omaha”, Warren Buffett’s holding company, Berkshire Hathaway Inc.? Its price as in 23rd March 2006 was $90,000. Yes, $90,000 per share! Its fundamental? PE at 16.25 and EPS of $5,538.47! There is no dividend paid out since its listing. (Note: the price quoted here is Class A share. There are 2 classes of Berkshire’s share: Class A and Class B where the price of latter is 1/30 of the former.)
Though the examples, I believe RATIONAL investment judgment could be made. After all, what we need for our investment portfolio is the REAL blue chips which are always there but not the potato chips which its destiny to be eaten up.

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Feng Shui (风水)

Feng Shui (风水) is the ancient Chinese practice of placement and arrangement in attempt to achieve harmony with the environment. As its Chinese characters stated “Wind and Water”, it believes that wind and water surrounding could affect one’s fortune. While the placement and arrangement of one place or stuffs could affect one’s feeling and consequently his fortune, there is a logical and scientific reasoning behind it. Take an example, if your house is facing directly to the main road, residents of the house would not stay calmly. This is because they feel unsecured and worried whether the car might accidentally crash into their house. The result, their mental would not in the peace and calm state and this could lead to the unwanted “luck” to them.

Feng Shui is the knowledge passed by the intelligent people generations by generations and its value could not be undermined. The problem in this era is, there are too many people under coat of Feng Shui and proclaim themselves as a Feng Shui practitioner to help people. But in reality, they act more like sales people. When the problem could be solve simply by placing something inexpensive, they would suggest their client to buy from them, the stuffs that could solve their problem. The suggested stuffs normally would not cost cheap. At the same time, the more technical terms they are using, they seem more professional. Why? This is because for the ordinary people, the more you talk that they do not understand, the more respect you will gain from them. And again, the consulting fee is not inexpensive as well. The most successful Feng Shui Master is no longer the master stay in the deeper part of the mountain nowadays but they will appear in your television screen. Their show is more like a talk show. They act more like an actress rather than a practitioner of Feng Shui. They become celebrities of the mass media. The most dazzling part as the Feng Shui practitioners is, no matter what they say to their client, be it right or wrong, they would not be sued by their client. Such phenomenon is similar in the Securities industry. As a securities analyst, the recommendation you make to your client, whether it is “Buy”, “Hold” or “Sell”, the loss incurred by your client is none of your responsibility. Such system does not create a responsibility among analyst who makes recommendation and they do not have any incentive to protect their client interest. Thus, the most popular recommendation they make is “Buy and Hold” and seldom “Sell”. The reason is simple, if they do not recommend “Buy and Hold”, where are their interested parties, such as investment bankers, fund managers’ management fee, trustee fee, consulting fee…etc come from? The picture is very clear here: the interest of the people who entrusted their hard-earned money to the funds is not their interest. Their interest lies on those fees. There is no wonder why Amazon could be valued at $400 per share during the dot com mania while at the same time the company still struggling to make profit from the new start-up.