Chairman's Memo

Below are some exceprts from Oaktree Capital Management L.P. Chairman, Howard Marks regarding the current market. The memo dated 15th October 2008. Click here to view full memo..... You need to download pdf file read to view it. Click here to download pdf reader.

"But in dealing with the future, we must think about two things: (a) what might happen and (b) the probability it will happen. During the crisis, lots of bad things seemed possible, but that didn’t mean they were going to happen. In times of crisis, people fail to make that distinction."

"In general, following the beliefs of the herd – and swinging with the pendulum – will give you average performance in the long run and can get you killed at the extremes."

"The message of The Black Swan is how important it is to realize that the things everyone rules out can still come to pass. That might be generalized into an understanding of the importance of skepticism. I’d define skepticism as not believing what you’re told or what “everyone” considers
true. In my opinion, it’s one of the most important requirements for successful investing. If you believe the story everyone else believes, you’ll do what they do. Usually you’ll buy at high prices and sell at lows. You’ll fall for tales of the “silver bullet” capable of delivering high returns without risk. You’ll buy what’s been doing well and sell what’s been doing poorly. And you’ll suffer losses in crashes and miss out when things recover from bottoms. In other words, you’ll be a conformist, not a maverick (an overused word these days); a follower, not a contrarian."

"Skepticism is what it takes to look behind a balance sheet, the latest miracle of financial engineering or the can’t-miss story. The idea being marketed by an investment banker or
broker has been prettied up for presentation. And usually it’s been doing well, making the tale more credible. Only a skeptic can separate the things that sound good and are from the things that sound good and aren’t. The best investors I know exemplify this trait. It’s an absolute necessity."

"Skepticism and pessimism aren’t synonymous. Skepticism calls for pessimism when optimism is excessive. But it also calls for optimism when pessimism is excessive. I’ll write some more on the subject, but it’s really as simple as that."

"I found very few who were optimistic; most were pessimistic to some degree. Some became genuinely depressed – even a few great investors I know. Increasingly negative tales of the coming meltdown were exchanged via email. No one applied skepticism, or said “that horror story’s unlikely to be true.” Pessimism fed on itself. People’s only concern was bullet-proofing their portfolios to get through the coming collapse, or raising enough cash to meet redemptions. The one thing they weren’t doing last week was making aggressive bids for securities. So prices fell and fell – the old expression is “gapped down” – several points at a time. The key – as usual – was to become skeptical of what “everyone” was saying and doing. One might have said, “Sure, the negative story may turn out to be true, but certainly it’s priced into the market. So there’s little to be gained from betting on it. On the other hand, if it turns out not to be true, the appreciation from today’s depressed levels will be enormous. I buy!” The negative story may have looked compelling, but it’s the positive story – which few believed – that held, and still holds, the greater potential for profit."

"Most people don’t repeat their mistakes; they make new ones."

"That’s the main reason why we shouldn’t expect there to be any limit on the resources thrown at the problem. All it will take is running the printing presses long enough to rebuild financial institutions’ capital accounts, make good guarantees and enable borrowers to roll over their outstanding debt, all of which is reckoned in nominal terms. The philosophical bridge of unlimited aid to private institutions appears to have been crossed, and printing the necessary money is unlikely to be an issue."

"In the longer term, we have to wonder about the effect on the world of a glut of newly printed dollars, sterling and euros. The reason owning printing presses makes repayment easy is that it lets a nation cheapen its currency. But one would think that more units of currency per unit of GDP means a debasement of the currency, and thus reduced purchasing power (read: higher inflation).
Walking along Hyde Park on Sunday, I saw a street vendor selling old stock certificates.
Do you have any banknotes, I asked? Anything from the Weimar Republic? For the last
few weeks, I’ve wanted to get some of those.
In Weimar Germany, the government enabled itself to pay World War I reparations by
cheapening its currency . . . literally. So the 1,000 mark note I bought was simply overstamped
One Million Marks in red. Voila! Now we’re all rich.

The mark fell from 60 to the U.S. dollar in early 1921 to 320 to the dollar in early 1922
and 8,000 to the dollar by the end of 1922. It’s hard to believe, but according to
Wikipedia (user-maintained and perhaps not always the most authoritative):
In December 1923 the exchange rate was 4,200,000,000,000 Marks to 1
U.S. dollar. In 1923, the rate of inflation hit 3.25 x 106 percent per month
(prices double every two days).
One of the firms printing these [new 100 trillion Mark] notes submitted an
invoice for 32,776,899,763,734,490,417.05 (3.28 x 1019, or 33 quintillion)
Marks. [That’s not a misprint.]
Lord Keynes judged the situation this way:
The inflationism of the currency systems of Europe has proceeded to
extraordinary lengths. The various belligerent governments, unable, or too
timid or too short-sighted to secure from loans or taxes the resources they
required, have printed notes for the balance.
But it’s not that easy. People with things to sell aren’t that stupid. So instead of 1,000
marks, a goat now costs one million marks. That piece of paper used to be a thousand
mark note – and now it’s a million mark note – but it still buys the same goat.
The benefit to the government is that it’s able to pay off its old nominal debts in currency
of which it suddenly has a lot more . . . but which no longer has much purchasing power.
So when repaid in the cheapened currency in 1923, the person to whom the government
owed 1,000 marks can only buy one-thousandth of a goat – not a whole goat as in 1920.

My late friend Henry Reichmann was a boy then, working as a busboy in a restaurant in
Berlin. He told me he used to be paid at lunchtime and immediately ran out to spend his
salary, since it would buy less if he waited until after work to shop.
That’s hyperinflation. Just as the Great Depression became a model during the credit
crisis, Weimar Germany gives us something to think about regarding our new future.
I’m not smart enough to know what’s coming, but I’m also not dumb enough to
think a few government actions on Monday were enough to solve all our problems.
At best, we usually substitute one problem for another – usually one later on in lieu of
today’s.
I don’t know what to do about this risk, whether it’ll come home to roost, or to what
extent. And I certainly don’t think hyperinflation can be assigned a high enough
probability to make it worth doing much about. But it may cause one to rethink holdings
of low-yielding, flight-to-quality-elevated, long-term Treasurys."

"I’ve believed for many years that just as success carries within itself the seeds of failure (see 2003-08), so does failure carry the seeds of success."

"a forest fire: a year after, bright green shoots grow from the ashes; in fact, I think they’re fertilized by the ashes."

"a quote from Warren Buffett, and often it’s the same one:
The less prudence with which others conduct their affairs, the greater the
prudence with which we should conduct our own affairs."

"When others conduct their affairs with excessive negativism, it’s worth being positive."

"That doesn’t mean it can’t decline further, or that a bull market’s about to start. But it does mean the negatives are on the table, optimism is thoroughly lacking, and the greater long-term risk probably lies in not investing."

Note: Oaktree Capital Management L.P. is a fund manager that HQ based in US and manages USD 54.5 Billion assets.

Face Off Again?

9月29日,沃伦?巴菲特宣布以每股港币8元的价格认购2.25亿股比亚迪公司的股份,约占比亚迪总股本的10%。受此影响,比亚迪股价大涨,港股及国内A股相关概念炒作不断。

显然,关注比亚迪的并非只有巴菲特一人。理财周报独家获悉,就在此前两天,国内曾有多家基金公司前往比亚迪进行了考察。当然,他们并不晓得巴菲特认购之事。

有趣的是,这些很多事后追捧巴菲特价值投资的国内投资人士,在当时恰恰做出了与巴菲特完全相反的判断。他们认为比亚迪估值偏高,需谨慎买入。

考察完比亚迪,十几位基金公司人士的总体感觉是,比亚迪虽然基本面尚好,但人员流失严重,原材料成本上升。上半年虽然收入增加,但因成本上升缘故, 利润也在下降。因此,感觉比亚迪与其他同类企业一样,基本上没有摆脱本年度整体经济下行的大环境。而且估值也不低。因此,基金公司的判断是“买入有风险, 需谨慎。”

在基金公司作出判断几个小时后,就有消息传出巴菲特将要出手。很多分析师的态度一下子又有了180度大转弯。

2007年9月以来,受与富士康诉讼案的影响,比亚迪的股价步入下滑通道,从77港元的最高点一路下跌到8.4港元。

股价的下跌强化了市场上的质疑,2008年9月初,BNP百富勤发布的研报称,比亚迪的汽车业务扩张速度令该行担忧其盈利能力;另一方面,其子公司比亚迪电子(0285.HK)的手机业务贡献,虽然正进一步扩张,但不及预期强劲,该行给予比亚迪“减持”的评级。

9月29日,以18亿港元购入10%在港上市的中国内地最大充电电池制造商比亚迪的股份,短短三个交易日,比亚迪股价飙升89%。

“华尔街多少年?中国资本市场才几年?”上述投资总监说道,“国内证券从业人员毕竟经历的太少,在大牛大熊的转换间还是缺少经验。很多公司的分析师年纪都很小,甚至是80后。没有经历过经济周期的人,你让他们如何能够作出正确的判断?”

“另外,国内的很多投资者会受到制度上的制约。特别是基金经理要受到短期排名和基准业绩比较的羁绊。公司不会给你很多的时间,让你去做长期投资。”该投资总监称。“从这个角度上看,中国和外国的基金公司都差不多。共同基金受到赎回的压力,对冲基金受到投资人的压力。"

read more, click here.....

变脸？Face Off?

高盛、瑞银、汇丰等声名显赫的国际大行对SOHO中国成功上市功不可没，高盛、汇丰为其联席保荐人，瑞银担任联席牵头经办人。

　　去年10月，在上述大行鼎力包装推销下，潘及其掌控的SOHO中国，以最具影响力的商业领袖和行业领袖的形象，闪亮登陆香港股市，并创下中国内地房地产公司赴港上市融资130亿港元财富神话。

　　按去年10月8日的上市首日收盘价9.55元计算，潘及其夫人合计持股市值高达317亿港元，并以此荣登中国富豪排行榜前列。

　　然而，成也萧何败也萧何，仅在SOHO中国香港上市后两个月后，高盛、汇丰、瑞银便与潘石屹结束了短暂的蜜月期。

今年1月，汇丰发表研究报告认为，尽管SOHO中国在北京拥有最好地块，属同行盈利水平最高，但土地储备面积非常小，包括前门项目在内共有132万平方米，首次给予中性评级。

　　3月，瑞银发表研究报告，虽然维持SOHO中国的买入评级，但把目标价由11港元下调22%至9港元，理由为SOHO管理层推迟注入天安门南项目，以致利润贡献将推迟入账，因此把2009年的纯利预测，由人民币42亿元下调至36亿元。

　　5月，高盛证券发表研究报告称，将整体内地房地产股今明两年的净利预测，分别下调42%和50%，同时将内地房地产股票目标价较资产净值折让的幅度，由20%扩大至30%。

　　而高盛从确信买进名单剔除的3只内地股票中，就有SOHO中国，其目标价亦由9.19港元降到5.27港元。

　　而去年11-12月，瑞银给予SOHO中国的评级为买入，目标价13.00港元其理由为SOHO中国具有独一无二的业务模式：向投资者或用户出售商用物业，而不是建造并出售住宅单位给用户。

　　同时，高盛发表报告，将SOHO中国纳入研究股份并将其加入买入名单，目标价12港元。

　　当时高盛看多SOHO中国的理由令人难忘：虽然市场对集团获准兴建北京天安门“南门”项目存有较低期望，及市场对集团的其它潜在收购寄望亦不大，不过，按目前公司股价而言，回报有上升空间，因收购整体天安门项目会刺激明年底资产净值上升82％，由现时6.51港元，升至11.84港元，目前股价只反映有关项目只值1.2港元，属过低，SOHO中国目前股价，已低于现有土储的资产价值。

　　颇具讽刺意味的是，这些国际大行信誓旦旦看多SOHO中国的观点言犹在耳，不到两个月，就发生前述翻天覆地的变化。

　　受上述看空言论影响，潘石屹夫妇持股市值一路暴跌，从上市初期的317亿港元锐减至今的157.89亿港元，市值缩水近160亿港元。

Read more from here。。。。。

Fear & Greed

Should we fear for the credit crunch that overshadow the global equity market that started since July 2007? The article by Ken Fisher might answer you the question....
Read more about the article here....

"We should fear when others greed and we should greed when others fear."

The Rise & Fall of Bear Stearns

Is it a bull, is it a bear? No, it's Bear Stearns!! (Bear Stearns is 5th largest Investment Bank in US while Lehmann Brothers ranked No. 4).

From USD 2.84 (1985) to USD 159.36 before the sharp fall due to subprime crisis, with the offer from JP Morgan of USD 2 per share about a week ago to revised USD 10 yesterday. If you the one of the shareholder, how you feel? Bear in mind that Bear Stearns Book Value (BV) is about USD 84 per share.

"You also have to consider the massive writeoffs that the Street has taken. Thus far, Citigroup has taken $32 billion in writedowns related to the subprime crisis. Merrill Lynch's writedowns have totaled $22 billion. So were Citi's 2006 profits really the reported $21.2 billion, and were Merrill's the reported $7.5 billion? Or was some percentage of that an illusion? If Bear can be sold for $2 or $10 a share, then how solid was Bear Stearns' $84 per share in reported book value?

Thought about more broadly, if commentators are right that mortgage losses alone will total $300 billion to $500 billion, then, as Inker writes, "profits that look like they have been 2.25% of GDP in the past several years have actually been more like 1.75%, if we smooth the losses over the last 3 years and into next year as rough justice." And of course, mortgage losses are only a subset of the total losses.

Think back to what Ken Lewis, the CEO of Bank of America (BAC, Fortune 500), said last fall when his company announced its first round of writedowns: "Making money for several years, only to give most of it back in one year, is not a brilliant business model."

Inker says that the data doesn't point to any firm conclusions about what the level of financial profits should be. His best guess, though, is that a "normal" level of profits would be about half the amount that the financial sector reported in 2006.

Then, you also have to think about the multiple of those earnings that investors should be willing to pay. In a paper published in the fall of 2005, risk management gurus Leslie Rahl and Barbara Lucas of Capital Markets Risk Advisors, noted that in the past decade, a lot of things have happened that aren't supposed to happen, from the interest rate hikes of 1994 to the 1998 collapse of LTCM to the 2001 terrorist attacks. Or as the authors put it, "once-in-a-lifetime events seem to occur every few years."

If that's the case and if such events now mean that Bear Stearns (BSC, Fortune 500) can go from seemingly viable to threatening to bring down the entire financial system in the space of a week - then what sort of multiple should investors pay for Bear, or for any financial firm? Maybe investors shouldn't pay 12 times earnings, and maybe they should pay a discount to, rather than a multiple of, reported book value.

Of course, trying to guess how this will play out is just that - guessing. But if you say, for instance, that Merrill's normalized profits would be half the 2006 level, you get to about $4 billion. If you think that we should be willing to pay a smaller multiple for those earnings than we did in the past - let's be generous and say 10 times - then you get to a total market value for Merrill Lynch of $40 billion. That's still a 10% discount from today's valuation."

Read more from here....



What about if you bought the shares based on rumour that Warren Buffett might take minority stake of Bear Stearns in September 2007 when the price is about USD 123 per share?

Read more from here....

Tofu? Kung Fu?

Tofu = Weak, soft
Kung Fu = Macho, strong

What about if Tofu= Macho, strong while Kung Fu= Weak, soft?

While we think the market is strong, does it really strong or the reverse?
While we think the market is weak, does it really weak or the reverse?

Sometimes, what it appears to us is not what it really is. Thus, there is Chinese phrase:

危机 (danger moment) could be a turning point for opportunity to prosper.

Enjoy the MV here....

Malaysia Airlines System (MAS) Turnaround Master

“We need to set targets that seem like they are impossible to achieve. We got to go for Olympic-level targets. The key thing when you start a journey like this is that you have to conquer the fear of failure. And I was absolutely ready to fail. I needed a prerequisite. To do the impossible, the prerequisite must be that you must conquer the fear of failure,”

"Strategy is cheap. Anybody can do that. The trick is in getting the people to do it. If you have the critical mass that believes in what you want to do, they will run and deliver it. And once results are delivered, even the critics will join in.”

“The last thing we need to do is to declare victory. When people ask me whether are we out of the woods, I say yes we are out from one wood, but we are entering another. And we haven't even conquered the mountain.”

"We are making ourselves wholly transparent. You tell everybody this is your target. By publishing our document, we put tremendous pressure on ourselves and the troops. But we promise the whole world, including the financial community that is the target we are going for. And if we don't do it, we have a problem, because we have already declared it. The first thing that happens in the mind of the organization is that: “We've now put out our targets in the open, lets not make a fool of ourselves, lets go and do it.”

Read more from here....

Investor / Trader Lessons from The Kirk Report

• Think more. Trade less
• Keep it simple and listen to the market
• What should happen does not always happen
• Even the smartest guys in the room make mistakes (negative hedge fund returns, credit markets, etc.)
• There is no rule that the market must act rationally
• The market doesn't necessary reflect true economic conditions otherwise the best traders would be economists
• Program trading is changing the market in significant ways
• If you can't articulate what your edge is, then you don't have one!
• Pick your spots. Avoid overtrading
• Plan for the worst so you know what to do when it happens
• The market is always right
• Don't try to predict the markets. Look at the current situation the markets are in and base your decision on that situation
• Most of the problems I have had are when I broke my own trading rules. (I said the same thing last year!)
• I must be comfortable with my own system or strategy. It must fit my life, my own strengths, and my time available. Copying someone else's approach just because it works for them probably won't work for me
• You must read the markets for what they are and not force what you think they should be doing
• I learned that if you work hard enough, one could improve his/her sense of market sentiment and can more effectively time the market
• Everyone has an opinion, but the only one that matters is yours
• The market will do its best to confound the majority
• If there is a perceived bubble, it is probably real and eventually there will be a correction
• Our leaders (central banks) have no control over the financial markets
• No one knows what is going to happen next.
• You get out of the market exactly what you put into it. The harder I work, the luckier I get
• I have so much more to learn
• Trading well doesn't require always being "right" about the market
• Don't expect what worked before to always work in the future
• The markets are becoming more complex and dangerous due to vastly increased use of sophisticated derivative products and due to powerful computer-based trading methods used by large institutions and hedge funds
• No matter how hard you may try, you will never have 100% information on any stock
• It's OK to be wrong
• I have learned the importance of waiting for the fat pitch to deploy lots of capital (and using stop losses) rather then trying to grind out lots of trades by swinging at "non fat" pitches
• That the market is all about timing and managing your mistakes
• Learning how not to fight the tape is a harder lesson to learn than it seems
• In spite of all of the hype, you can lose a lot of money in options
• Here is what I've learned - I repeat the same mistakes every year
• Execution is everything. Just because you know what you should do doesn't mean you will do it
• Now I stick to the highest probability trades. For instance, a up-trending market leader, with an oversold RSI, at the 50-day, in a leading sector, is ripe for a bounce. So, with careful position sizing, I make those trades. I keep detailed spreadsheets, and notes, to keep track of my progress
• I have to survive if I ever hope to thrive

Securities Analysis The Classic 1951 Edition

Part I
Survey and Approach

Chapter 1
Introduction. The Array of Securities. Economic Background

"He must be able to resist human nature itself sufficiently to mistrust his own feelings when they are part of mass psychology. He must have courage commensurate with his competence."

First Snow MV by SG Wannabe

click here to view: MV version
Live version
very sad......

Global top 20 countries International reserve assets - top 11 by country
Rank Country Current Reserves(USD$ bn) Percent of World
World Total $5,962.64 100%
1 China $1,433.61 24.04%
2 Japan $930.26 15.60%
3 Russia $407.11 6.83%
4 Taiwan $265.92 4.46%
5 India $262.90 4.41%
6 South Korea $260.14 4.36%
7 Eurozone $200.71 3.37%
9 Singapore $158.17 2.65%
8 Brazil $154.49 2.59%
10 Hong Kong $142.20 2.38%
11 Malaysia $97.78 1.64%

Source: Merrill Lynch Market Analysis, Bloomberg


Out of Top 11, 8 are from Asia, 2 from Europe and 1 from South America. We all know that Asian posses a high save rate, so it is not surprise to see that majority of them are from Asia. The hike of petroleum price boosts up Russia and Brazil's reserve, how about countries from Middle East like Saudi Arabia, Iran, Iraq, Kuwait, UAE....etc? They are not even in the list of Top 20, where's the petrol monies go?

Jason Zweig talk on Neuroeconomics

Jason Zweig is a senior writer for the Money magazine and has been a guest columnist for Time and cnn.com. He is also the editor of the revised edition of Benjamin Graham’s ‘The Intelligent Investor’. In an interview to Vivek Kaul, Zweig speaks on Neuroeconomics and his philosophy of investing.

I find it striking that in a society with cultural traditions of great patience and acute analytical ability, so many people trade as if their knickers were afire, scoffing at the long term and analysing nothing but the craziness of the crowd.

Dopamine makes us pursue whatever we think will be rewarding. When we earn more than we expected, that generates a “positive prediction error” - a flood of dopamine that signals to our bodies that something good has happened.
After only a few repetitions, the dopamine is released in our brains, not when we earn the actual gain, but when we believe we know that the gain is coming.
It is not the reward but the prediction of it that generates pleasure in the brain. I call this the “prediction addiction.”
You become addicted to your own belief that you are about to make money. Like any addict, when the reward does not come, you will go into a painful withdrawal.

If you do not put policies and procedures in place, in advance, to control your emotions, you will never be able to resist the siren song of the markets when the markets go mad. Common sense and good judgment are vastly more valuable than intelligence.

What makes investors book profits fast, but hold on to their losses?
We do not merely buy stocks and sell them. What we really are buying is pride and prowess, and what we really are selling is pain and shame.
Once a stock earns a large gain, you want to lock in the reason for your pride and the proof of your prowess; if you hang on too long, the profit may disappear.
But, once a stock produces a big loss, you want to hide the source of your pain and shame.
If you sell at the bottom, you will have to admit your error, and that admission will only compound your shame. Whenever humans are ashamed of anything, we cover it up. So we cover our financial losses by pretending they are not there.

The life of a rising professional is busy enough without having to spend precious time and emotion following every momentary rise and fall of every stock you own. If your money cannot buy you peace of mind, why invest at all?

达赖喇嘛的人生智慧：转念

“四依”的佛教信条刚好可以应用在聪慧的修行方法上。这些信条如下：
依循教导的讯息，而不是教师本人； 依循意义，而不是言词； 依循确切的意义，不是暂时的意义； 依循你的智慧之心， 而非常识之心。

"We should follow the teaching, not because of the grand name of the master;
We should follow the meaning of the words, not the words itself;
We should follow the real meaning, not the temporary one;
We should rely on our own experience and enlightenment, not the worldly meaning."

A Tale of Two Cities

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only." -- “A Tale of Two Cities” Charles Dickens, English novelist (1812 - 1870)

At last, Virgin lands on Malaysia......

Some excerpts from Sir Richard Branson interview in Malaysia....click here to view.

“I think the incumbent airlines or so call flag carriers will fight very hard to avoid competition. But the Government should have none of that. The government represents the people and the people's interest is competition. The people's interest is not protecting the flag carrier. Tony's company is just as much Malaysian, representing the people as the flag carrier. So, the Government should have no part with the argument that competition is bad for consumers.

“Competition is always extremely good for the consumers. The Government should create competition and that's what their job should be. Of course, Tony should be able to fly between Malaysia and Singapore. The more people who are willing to fly, the better.

“If the flag carriers do a good job, they will survive and the competitor will survive as well. If they don’t reduce their fares and offer consumer good value for money, then like any old dead tree, the old tree will die and new saplings will take their place.”

Turtles in Omaha

Excerpts from Turtles in Omaha by Michael J. Mauboussin, Chief Investment Strategist, Legg Mason Capital Management. Click here to view more.

The Mindset of Great Investors
The difference in [investment] return had nothing to do with knowledge and everything
to do with emotional and psychological factors. We had all been taught the same thing,
but my return . . . was three times that of the others. Over the years, I kept finding
evidence that emotional and psychological strength are the most important ingredients
in successful trading.
-- Curtis M. Faith, "Way of the Turtle"

Nassim Taleb’s latest book, The Black Swan, is a treatise on the improbable events Buffett has in mind. 5 The term black swan comes from philosopher Karl Popper’s criticism of induction: We get closer to truth if we focus on falsification instead of verification. Seeing lots of white swans
(verification) does not allow for the statement “all swans are white,” but seeing one black swan
(falsification) does disprove the statement. This is relevant in investing because investment
strategies based on the reoccurrence of white swans can be toppled by one black swan event.
Taleb suggests all black swans have three attributes: they are outliers, they have an extreme
impact, and people seek to explain them after the fact.

Three High Hurdles
Here are three psychologically-difficult barriers great traders and investors must overcome: loss aversion, frequency versus magnitude, and the role of randomness. How individuals cope with these barriers provides good insight into their investing temperament.
Loss aversion. In what is now a well-documented and well-known phenomenon, humans suffer roughly twice as much from losses as they receive pleasure from comparable gains. An important consequence is investors will turn down positive expected-value financial propositions, especially when their recent results have been poor.
Faith provides a powerful example of this point. Following the expiration of the confidentiality
agreement he signed, Faith explained the turtle system to a friend. Noting that cocoa presented a great trading opportunity in 1998 through early 1999, he inquired how his friend was doing in
cocoa. The friend replied he stopped trading cocoa because he had lost money and thought the
trade was “too risky.”
Then Faith explains the circumstances. Following the system would have generated 28 total
trades (average size $10,000 – $15,000) from April 1998 through February 1999, producing a
total profit of nearly $56,000. But of the 28 trades, 24 were unprofitable (average loss of about
$930) while 4 were profitable (average gain of roughly $20,000). Even more difficult, the first 17 trades in a row lost money.
Given this profit pattern, it is not difficult to see why a trader would abandon the commodity and perceive it as overly risky. But Faith’s point is crucial: Recency bias and loss aversion often cause you to give up right before the trade becomes profitable. Sticking with positive expectation financial propositions is essential to maximizing profits over time.
Frequency versus magnitude. This concept is really an extension of loss aversion. Most of us frame the success or failure of a financial proposition in terms of the price. For instance, if you buy a stock at $30, any price above that level is mentally successful; any price below it is
mentally unsuccessful.
What investors often fail to consider is that change in wealth is not a function of how often you’re right, it’s a function of how much money you make when you’re right versus how much you lose when you’re wrong. You need to consider both frequency and magnitude to understand investment results.
Faith illustrates this point by sharing 20 years of results for a trading system. Over that time span, the system generated about 5,600 trades, or around 250 a year. Of those trades, a shade over two-thirds lost money, making the success ratio less than one-third. But the winning trades
earned 2.2 times the losing trades on average, netting a substantial overall profit.
As with loss aversion, operating according to the frequency-and-magnitude maxim is easier said
than done. Faith notes, “Some of the Turtles had a hard time with this concept; they felt the need to be right and to predict markets.”
The expected-value mindset has served many well-known investors well. One example is George Soros. Former colleague Scott Bessent said in a recent interview, “George has a terrible batting
average—it’s below 50 percent and possibly even below 30 percent—but when he wins it’s a
grand slam. He’s like Babe Ruth in that respect.”

Role of randomness. Most people agree stock prices move more dramatically than business
values move. In the stock market, like most probabilistic systems, there is a great deal of noise in the system. However, most investors fail to recognize the degree to which randomness affects
short-term results. And, as bad, many investors have emotional reactions to short-term
randomness that undermine the quality of their decision making.
This is Faith’s comment; the idea applies to nearly everyone involved with markets: 16
Most traders do not understand the degree to which completely random chance can
affect their trading results. The typical investor understands this even less than the typical
trader does. Even very experienced investors such as those who operate and make
decisions for pension funds and hedge funds generally do not understand the extent of
this effect.
Here’s the point: A trader, or investor, can put on a positive expectation bet (correct process) and still have poor results (outcome) for some period of time due solely to randomness. But many investors attribute bad outcomes to bad processes, which leads to substantial error. As insidious is attributing good outcomes to a good process. A thoughtful investor must carefully consider process and recognize long-term outcomes will follow.
Here are some data to substantiate the point. The first is a study by The Brandes Institute called “Death, Taxes, and Short-Term Underperformance.” 18 The researchers screened for largecapitalization, actively-managed funds that had a 10-year track record through 2006. This yielded 591 funds. They then ranked the funds by decile based on annualized gains.
The top-decile group had returns in excess of 10.9 percent, and all of them delivered better
returns than the S&P 500 index. The researchers posed two questions: Did these funds have
periods of relative underperformance? If so, by how much?
The answer to the first question is a resounding yes. In fact, all 59 of the funds in the top decile
underperformed for at least one year. In its worst one-year period, the average top-decile fund
underperformed the index by 1,950 basis points, with a range of negative 650 to 4,410 basis
points.
Over a three-year period, the average underperformance was still 810 basis points, with a range
of positive 250 to negative 2,240 basis points. The one- and three-year numbers of these good long-term funds clearly show the limitations of relying on short-term results to decipher the
ultimate outcomes.
Unfortunately, the randomness in short-term results exerts a cost. Most institutional investors,
including pension funds, endowments, and foundations, rely on short-term investment results to
judge the managers they hire. Despite this, they would be better off with a robust way to assess
process. The focus on outcomes, combined with the limited appreciation for randomness, leads
to bad decisions.
In a recent academic paper, researchers tracked the decisions of 3,500 plan sponsors over a
decade. 19 What they found is not surprising. Plan sponsors hire managers after they have
enjoyed three years of excess returns. After they are hired, the managers generate excess
returns “indistinguishable from zero.”
Further, plan sponsors often fire managers after a period of underperformance, but the managers often go on to generate excess returns after they’ve been fired. Said differently, plan sponsors would have been better off on average keeping the manager they fired. And this analysis leaves aside costs.
While very understandable, this performance chasing shows many plan sponsors are fooled by
randomness. Evidence is voluminous that individual investors, too, chase performance to the
detriment of their long-term results.
Faith adamantly argues for a focus on process:
Good investors invest in people, not historical performance. They know how to identify
traits that will lead to excellent performance in the future, and they know the traits that are
indicative of average trading ability. This is the best way to overcome random effects.
This mindset fits comfortably with Buffett’s point about assessing chief investment officer
candidates based on “how they swing at the ball.”

段永平：照巴菲特说的做

"因为投资有一个最大的特点就是你不能够给自己定目标，说我今年一定要赚百分之多少。因为价格是市场给的，但是价值是它内在的东西，所以你最重要的是了解它的价值，然后等待市场最后给它一个公平的价格。一般来讲，这个时间也不会很长，以我个人的经验看，大概最多也就3年。你只要有个两三年的耐心，找到好公司，拿在手里怎么着都是能挣钱的。但倒过来讲，你拿错了股票，拿的时间越久可能就越糟。"

"比方说像网易，我大概是0.8-1美元买的，留到八、九十美元都没有卖。这个过程中，其实每天都是可以卖的，但如果你了解这个企业，认为它有这个价值，可能就不着急卖，否则你每天都会受价格的影响。"

"最重要的是首先要做对的事情，然后把事情做对。"

To view more, click here....

Brave investors rise up

A good example of the investors to stand out when the directors of the company could not perform. Will it set a benchmark for the coming similar situations? Let's see......The article is from "The Edge Daily"

18-06-2007: The 'small man' acts
By M Shanmugam
Email us your feedback at fd@bizedge.com

In what is probably an unprecedented move in local corporate history, the minority shareholders of a Mesdaq Market-listed company are seeking to wind up the company and recover some RM10.94 million, being the balance of its listing proceeds, instead of seeing the money put to use to sustain the company.

Three shareholders of Litespeed Education Technologies Bhd, who had collectively subscribed to 14.7 million shares in a private placement exercise when the company was listed in November 2005, filed a suit last week to wind up the company.

The suit was filed by Wan Hamimie Ariff, Dr Syed Ibrahim Mohd Ismail and Mokhtar Ahmad at the Kuala Lumpur High Court through legal firm Tommy Thomas and Associates.

It is normal for creditors to file winding-up petitions against listed companies in their bid to recover amounts owing. But rarely do shareholders file to wind up a listed company to recover what's left, as this would mean them cutting their losses on their investments.

For instance, the three shareholders had collectively invested RM6.8 million for 14.7 million shares at 46 sen a share. Last Friday, the counter closed at 13.5 sen. The petitioners claimed that in its prospectus issued in October 2005, Litespeed had forecast a profit after tax of RM7.51 million on a turnover of RM19.89 million for the FY ended April 30, 2006, but posted a loss of RM9.7 million.

The petitioners claimed that Litespeed was making losses in 2005 but the directors did not disclose this information in the prospectus, thereby misleading the regulators, investing public and them (the petitioners).

The petitioners claimed that out of the RM20.55 million that was raised from the listing, the unutilised balance stood at RM10.94 million, and that the directors had proposed that this amount be used as working capital.

The petitioners claimed the amount was supposed to be utilised for setting up regional offices (RM7.55 million) and for research and development (RM3.39 million).

The petitioners claimed that in seeking the revision in the utilisation of the listing proceeds, the directors were abandoning their objectives that were outlined in the prospectus and which were re-stated in a research report announced by the company last December.

The petitioners further claimed that:

* an analysis of the company's financial performance since its listing showed that it was consistently making losses and the situation was aggravated each quarter, except for the quarter in which it entered into a licensing agreement with Prestariang Trading and Simulation Sdn Bhd (PTS), which was announced on June 29, 2006;
* the company's revenue was insufficient to finance its cost of sale. They claimed that, on average, the monthly expenditure and other costs incurred were about RM500,000. They claimed this meant that if the company was allowed to use the remaining RM10.94 million from the listing proceeds, the entire amount would be wiped out within the next one or two years without any reasonable prospect of profit or any reasonable plans towards making a profit for the company;
* under the licensing agreement with PTS, the company was to receive a lump sum payment of RM4 million or three equal instalments of RM1.6 million. In return, PTS will have the exclusive rights to use, re-sell or modify certain key educational products, namely the Dr Series, in Malaysia on an exclusive basis for five years with the extension of two years;
* in the prospectus, the Dr Series was represented as being capable of earning RM2.5 million per year in sales revenue in Malaysia due to its intellectual property rights. The petitioners claimed that considering the revenue as listed in the prospectus, the logical licensing price should be RM12.5 million. They claimed the fact that the directors chose to sell the product at RM4 million amounts to mismanagement;
* last November, the petitioners together with other minorities of the company requested for a board representative but there was no appointment. Subsequently the petitioners, via their solicitors, sent a formal request for two nominees to be on the board, but it was rejected by the directors in a letter dated April 18.

The petitioners believed it was not in the best interest of the company and its shareholders to allow the directors to carry on the business and use what was remaining of the listing proceeds.

They felt it was in the best interest of the company and its shareholders to have Litespeed wound up to preserve the unutilised balance of RM10.94 million which they said could be distributed to shareholders after creditors are paid.

Among the directors at the time of Litespeed's listing were Pok Vic Tor, its executive chairman and group CEO, Pok Vic Sent (executive director), Fock Mun Hong and Wong Kai Choon.

Unlike other exchanges, the listing requirements of Mesdaq companies are less stringent and it essentially is a "buyer beware" exchange.

What this means is that although the authorities approve the listing despite them not being profitable, investors have to bear the risk and scrutinise the forecast carefully.

感激人生（人生啊谢谢）OST

柳好贞，金有锡
Click here to listen to OST.....

潘石屹 London Trip Blogs

Some excertps from PangShiYi London Trip blogs, click here to view more....

"在诺丁山的街道上，最引起我注意的事情是，几乎每家咖啡厅和餐馆的门口都贴着一张黄色纸张，上面说明室内提供免费无线上网服务。无线宽带上网的确把我们从 空间和时间的约束中解放了出来，这可能就是近十年来最大的变化。几年前，我们还在争论办公空间和居住空间能不能融合在一起，而今天我们的办公空间已经发展 到可以是室内，也可以是室外，可以是任意的地方，随时随地，在这样的工作环境中，形式主义的打卡，按时上班都成为过去式。在今天，评价一个人的工作业绩主 要看你工作的结果，工作的质量，有没有效率，有没有创造力，至于你在什么地方工作，你在什么地点工作已经变得不重要，地点不再成为工作的约束。"
"这篇博客是我在五台山去往佛光寺的路上在笔记本电脑上写的。"



"在短时期之内北京的CBD取得如此大的成功的原因是什么？只有一条，那就是：市场的选择。市场需要什么，开发商就建什么，多家房地产开发公司共同开发，才 形成了今天多样化的建筑生态环境。对于城市建筑的规划来说，最可怕的事情就是单一，如果十年前北京CBD建设规划之初出现了一位伟大的人物，这位伟大的人 物要么是有足够大的权力，要么是有足够多的金钱，而他头脑中又有一个坚定不移的幻想，按照他的意志想当然地去规划和建设一个北京的CBD，今天可能就不是 这样的情况了，很可能会将CBD建成他心目中好看的，但一定是不好用的城市区域和建筑，而这种好看不好用的城市区域和建筑最终也是丑陋的，是这个社会和城 市的负担。"

"安静地思考的环境和精神状态，对做任何事情都很重要，我想，无论在何种状况下，我们都要保持这种做事情的状态：聚精会神地，一心一意地，这样才能把干扰减少，把事情做好。"



"在伦敦交易一所房子只需要三天的时间，三天之内所有法律手续、过户手续都会办好，而且没有任何限制。当我们问到伦敦的房价为什么这样高，比巴黎高出将近一 倍时。他说，在撒切尔时代，政府就决定不允许在城区内再建新房子，就这样房价一路不断在上升，带来的好处是城市的交通得到了很好的解决。其实就在前几年， 因为伦敦城市车辆的增加，交通也出现了问题，他们就在城市最核心的区域画了一个控制范围，白天车辆一驶入就要交8英镑，相当于100多元人民币，就这样城 区的交通问题得到了缓解。"