Sour Grapes

Yea, we know the story goes like this:

A fox sees some big, round, juicy grapes hanging high on the vine but it just can't reach the grapes to eat it. After die trying to eat the grapes and fails, the fox concludes that these grapes must be sour.

This is a great illustration of the method used by jealous assholes to reduce cognitive dissonance. Cognitive dissonance is a discomfort of having two or more conflict ideas. In this story, the fox knows that the grapes looks juicy and probably are sweet too. At the same time, the fox also knows that he can never eat the grapes. Thus, he suffers cognitive dissonance. And to reduce this discomfort, he criticizes these grapes are sour.

Few days ago, I read an article which goes with a title like this: Steve Jobs wasn't great; he wasn't even close

Okay, dear Mr Neeraj Takhur, you are the greatest, okay? You deserve the fucking right to fucking judge who fucking deserves to be mourned by the fucking dumb million, okay?

Some people think - 

What so great about him? All he did invent were some crappy laptops which do not use Microsoft and some crappy mobile devices which act more like Gameboy. And he doesn't even fucking invent this. His company, which is full of talented designers and engineers invented these craps. And most importantly, I don't even fucking use crappy Apple products. Steve, you suck!!!! You're way too overrated!!!

And some people think - 

Oh my god, are you fucking serious? Millions of people dying every fucking day but no one cares. And millions are crying for a overrated celebrity CEO? Are you guys dumb or what? 

And I think -

fuck you!!

Steve Jobs invented not only a product, but also a life changing technology and a mind blowing business philosophy (that can never be understood by nerds). So let us explore what he has done:

1. Introduction of iTune that changes music industry

iTune changes the music industry and the way we live. Remember Napster - a peer-to-peer music sharing program that was sued by all music producers? Before the introduction of Napster, we have to pay for RM30 for a cassette (remember this, anyone?) or RM50 for a CD or RM10 for a pirated CD. Since the introduction of Napster, we can access music for free. However, due to massive copyrights violations, the court ordered a shutdown to the company in July 2001. And so long to free online music but Napster has pioneered the online music market. Many music producers wanted to sell music through online but failed miserably. Steve Jobs saw this through and introduced iTune in April 2003, with more than 200,000 songs. iTune proves to be successful - by Dec 2003, iTune increased to 25 millions songs and by 2010, iTune songs has been downloaded MORE THAN TEN BILLIONS TIMES!!!! 10 billions songs = 1,000,000,000 songs = 10^9 songs = $0.99 per songs = $999,999,999 profits. iTune has changed the music industry so fundamentally that CDs will soon meet the fate like cassettes. And hey, not forget that iTune introduced its online movie in 2008. It is not easy to replace cinemas for the facilities cinemas provide - but at some point, iTune has replaced many DVDs and CDs. We are able to access to music and movies so conveniently that we refuse to use pirated stuff. Hence, creating more business for music and movies producers and ensuring more better quality music and movies are produced.

2. Introduction of iPod accelerates the rise of digital age

iPod changes the way we listen music - from analog to digital. Do you still remember Sony Walkman or Discman? And how the introduction of digital music destroyed these products? iPod is not the first digital music player but it is the most successful digital music player since its introduction. None of the digital music players are as successful as iPod and as influential as iPod. The rise of digital music is inevitable but iPod acts as a catalyst that accelerates such changes.

3. Introduction of iPhone that creates billions of businesses

Here comes the iPhone - our lovely iPhone that changes the mobile phone industry so fundamentally that we have to use smart phones to cope with the world. iPhone is not the first smart phone in the world - but its introduction of touchscreen on the smart phone has led the market by far - 125 millions sold worldwide or 1.7% of the world population is using iPhones. The most interesting part of iPhone is not the phone itself but the apps itself. More mindblowing statistic - 15 billions apps downloaded from February 2011 to July 2011 since the introduction of App subscription. According to this website, on average an App costs $2.04. The App market is worth $30 billion!!!! Not to forget the butterfly effect of these Apps for other market potential - like Angry Birds soft toys. Imagine many businesses are involved in iPhone itself - manufacturing of iPhone, manufacturing of machines to manufacture iPhone, programmers to design the Apps, designers for games and iPhone, manufacturing of iPhone accessories like screen protector and skins, manufacturing of side products as result of Apps (like Angry Bird) etc... Billions and billions of money are generated from iPhone itself and billions of lives are living because of the income made due to this money generated from iPhone effect.

4. Introduce of iPad to replace netbook

iPad is a hybrid of iPhone and Macbook. Although it is still at its early age, iPad is a very successful product. It has the same butterfly effect as iPhone but just not as huge impact due to lower volume sold. But because it is a hybrid of iPhone and Macbook, it accelerates and magnifies the butterfly effect of iPhone.

5. Re-introduce the concept of marketing

Steve Jobs is great not because of the products mentioned above. He is great because he re-introduce the concept of marketing. All the concepts taught in school like 4Ps 7Ps are old school. The most important thing about marketing is to sell your products - and Steve Jobs sells his products through the following concepts (a few of his concepts):

i. Repackaging - A video camera on a Nokia phone is still a video camera. A video camera on a iPhone is FACETIME. Repackage your competitors' necessity products into a value add-on products - is the way of Steve's marketing.

ii. Create Anticipations and meeting the expectation - "I'm going to introduce something new in April 2012 - and here is a peak." Steve creates a WOW before his products are sold to market. After creating all the hypes, he manages to meet all the expectations of the users, and sometimes surpassing the expectation.

iii. Sell Prototypes - If you are selling a perfect product, you're selling it too late. Steve never sells a perfect product - that's why many people call his product crappy. But hey, nothing is perfect - and this leaves a lot of room of improvement and value add-on in the future.

iv. Mass market friendly - Position yourself as mass market, instead of niche market. Blackberry aims for only business persons. iPhone aims for mass market - which also includes business persons. Make something so simple that even a fool knows how to use it. That's the one button concept of iPhone, iTouch and iPad.

v. Users generated content - You can't create everything that suits everybody. Let the users creates something for other users. The users probably knows better than you what they want.

vi. Avoid competitions - Nokia introduces full keyboard phone, Blackberry introduces full keyboard phone, iPhone introduces one button phone. Avoid competitions and always look for the blue ocean - this is easier said than done. But always be innovative and avoid competitions.

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Now, you know why one dies a million cry, a million die no one cries? Everyone dies somehow and millions of people dying everyday and millions of people born everyday too. But how many people have you touched before dying? A beggar dies on the street - yea it's sad but it's part of the life. Your dad dies on the street - you feel much worse although it is part of the life because he fucking raised you up!! Who cares about the millions who die everyday? We just care about people who affect our lives.

So dear Mr Neeraj Takhur, maybe you're right - Steve Jobs is not great. But the way he changed our life and created business for so many livings are undeniable. Maybe you're so fucking great that you think he does not deserve millions of tears. But probably the money your father is making to raise you up is part of butterfly effect of Steve Jobs. So, go fuck yourself, stop being jealous and live in your stone age. Thank you.

Mistakes We Make in Our Investment

Emotion is a great thing! It is a monitor to your inner feeling. Being emotional, either happy or sad, is a way to express yourself. It is essential for a human to have emotion because emotion makes us human. However, emotion is our worst enemy in financial market. We should always remain emotionless when dealing with financial market.

Why?

When we pick the stock right, we feel proud of our stock picking skills.
When we pick the stock wrong, we regret it and look for excuse to make us feel better.
We regret for missing the "right" time to buy/sell the stock.
We celebrate for not buying (selling) a losing (winning) stock.


With all these mixed feelings, we tend to make more errors (mistakes) and judge less rationally. Typically errors we made are:

1. Framing Error
Framing error is the result of getting the wrong understanding/direction at the starting point.

Example: You get stock information from a research house, which you think it is unique. In fact, you know nothing more than anybody else.

2. Representativeness Error
Representativeness error is the result of interpreting a small number of samples as the truth, which in fact, it does not represent the truth.

Example: You buy a fund because the manager of the fund has beaten the market six years consecutively. Beating the market six years consecutively is a small number of samples. The "law of large numbers" says that if given the sample is huge enough, the average result should be the expected value. In another word, if you toss the coin for 1000 times, you should be getting 50% of head, 50% of tail. But if you toss the coin for 6 times, you could get 6 heads 0 tail, although the chances are 1/64. So back to the fund manager, he can, by luck, beat the market 6 years and lose all your money the next year.

3. Availability Error
Availability error is the result of interpreting only the information that is already in your mind, and ignoring what is not.

Example: You see only all the winning funds through advertisements, without realizing all other losing funds. This makes you believe that winning funds are available all the time. Same goes to casino strategy: Slot machines make noise only when you win and they give frequent small wins to the players, making the illusion that you can win all the time and you are so close in winning if you lose.

4. Confirmation Error
Confirmation error is the result of searching for information to confirm your hypothesis, ignoring the evidence that contracts the hypothesis.

Example: You follow your own strategy and buy a stock because you expect to the price will increase. And it does. Then you confirm yourself that your strategy is correct. But if the price fells. You look for information to blame or neglect it as disconfirming evidence.

5. Hindsight Error
Hindsight error is is the inclination to see events that have already occurred as being more predictable than they were before they took place. In another word, because you can see the past clearly, you think you have a similar ability to tell the future.

Example: You think you expect the market will crash in 2008. But in reality, you suspect that the market is possible to crash and at the same time, it is possible to zoom. But since the market crashed in 2008, you think you are correct and tend to apply the same strategy in the future to avoid another market crash.

6. Extrapolation Error
Extrapolation error is the result of extrapolating past data to interpret what is going to happen in the future.

Example: Because the prices of house have always been increasing, you think that buying house is the best investment as the house price will always increase. In 2007, it proves you wrong!

7. Unrealistic Optimism/Overconfidence
Unrealistic Optimism/Overconfidence is the result of not understanding the risk enough or overestimate your ability.

Example: You think you knows more than others. In fact, you are just overestimating yourself.


8. Illusion of Control
Illusion of control is the result of believing that you have the ability to control the market.

Example: You think you can control your spending and saving each month when you receive your monthly wage. But are you really able to control your spending?

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In conclusion, being emotional is the reason why we make mistakes. We can only avoid these errors when we realize we are making these mistakes and understand why we are making these mistakes. So stop being emo!!

p/s: The plot summary draft of Project Z is completed. And I am working on my script of Project Z. Stay tuned!

Earthquakes in Japan shakes Not only Japan

Yea we all know the news of the earthquake in Japan. I remember when I was a high school kid, my physic teacher taught the Newton three laws of motion and one of the three laws was "For every action, there is an equal and opposite reaction". This is true when it applies to motion but this is NEVER true when it applies to E-motion. Emotion is not a motion of the Internet like such of email, e-study etc, but rather a psychophysical response of individual. Although I'm not as smart as Isaac Newton, I can present you and guarantee you the laws of emotion - "For every action, it will generate many many varieties of reactions". And we shall see how the earthquake in Japan (the action) generates various reaction:

Praying hard for Japan in Facebook
Ya, the Facebook-mania goes again! I've seen people praying in temples, churches, mosques, synagogues and even at home but this is the first time I see people praying in facebook!! Many pages/events are created to "pray for Japan". I wonder which God I am praying to if I join the event/page. If a Taoist and a Christian join this event/page, are they praying to the same God? Jade Emperor (玉皇大帝) = Jesus? Ahhh their name both share the alphabet J - sounds good to somebody? =D Maybe in the near future, we may see a new religion called Facebookism, followed by the Facebookists.


Showing concerns to porn stars in Japan
I guess I am not the only one who shows concern to porn stars in Japan. It is amazing to see the high popularity of Maria Ozawa among Indonesians but my concern goes to Kaede Matsushima and Julia. But the most concern of the AVers went to Yui Hatano (AV 林志玲) as her name appeared in the death list of Tsunami, according to Yahoo news. But according to Worldnewsco, there is no official confirmation of her death yet. Although her death is still a myth, one thing is certain that the earthquake will impede the porn production in Japan and we shall start collecting Japanese porn as we will see a short of production in near future. Recommended website for porn: JavJunkies

"Huh?? Earthquake in China too??"
Moment before the earthquake in Japan, a 5.8 magnitude earthquake hit Yingjiang County in southwest China's Yunnan Province too. The earthquake has affected the production and life of about 344,600 residents in the five counties. Also, the earthquake destroyed 18,445 houses and apartments and left 55,345 others seriously damaged, according to the ministry's figures. However, medias did not stress much on this news and focused mainly on the earthquake in Japan. This incident shows that the media and most of the people are in favor of Japan over China (the ratio "Pray for Japan" to "Pray for China" is 100 to 1 in Facebook?) And some even do not know the earthquake in China!! This favorism is not racism because Japanese and Chinese are both yellow. The reasons could be:

1. Size-wise, China is too big to feel the pain, while Japan is smaller, the scar is larger relatively.
   
2. Some people just prefer Japanese over Chinese as the result of watching too much Japanese manga and porns
   
3. Some people just hate communist and ignore any news from a communist country because it could be a fake news!

Predicting the coming of 2012
Many people see the earthquake in Japan as a sign of the coming of the end of the world. New terms like Twentytwelvology are created to describe the coming of this 2012 apocalypse. Many theories are developed to support this 2012 apocalypse make-believe. However, I am not a believer of the end of the world. If tomorrow is the REAL end of the world, what should I do now? Just live my day happily as always. So even if somehow the end did not come, I gain one day of happiness!!! The end is coming or not, just always live happily then I'll, for certain, always win!! Fuck you to those 2012-worriers/believers. Of course 2012 will come, so does 2013, 2014, 2015.....

Speculating the stock market
Whenever natural disaster or man-made disaster happens, speculators always take their chances to bet on the market. Nikkei lost 6.18% on Monday as the result of sell-off by investors and short-selling by speculators. It is unbelievable that Japanese government did not plan to shut its trading after the earthquake. This is a bad news for investors as earthquake destroyed many businesses. But think of the bright side, earthquake creates equal opportunity for construction companies and machinery companies to rebuild the country after the disaster. Kajima Corporation, the largest construction companies, stock gained 22.17% on Monday with 8-fold increase in volume. Friendly reminder again: Speculating is not the way to make money in stock market for long term - READ MY POST! And FYI, Warren Buffet just bought Lubrizol for $9 Billion despite the stocks fall and recent concern of Japanese economy.


These are just a few examples how different reactions can be generated as the result of the same action. Isn't a human emotion amazing? Earthquake in Japan shakes not only Japan but the heart of everyone.

p/s: If it happens to be true that Yui Hatano is dead, may your spirit, your smile, your voice and your beauty live forever in my heart by watching your master piece over and over again.........

Be An Intelligent Investor in 15 minutes (..... well depends on your IQ)

Preface:
After spending months reading, exploring and researching the so-called stock market Bible, I've decided to summarize the Bible to make everyone a little more intelligent at investing in stock market.

This Bible is none other than the book written by the investment Guru, Benjamin Graham (click for more info). For those who are not familiar with his name, in brief, he is Warren Buffet's mentor. Enough being said!!!! And for those who are not familiar with Warren Buffet's name, just STOP reading this post, I won't blame you......

I. Investments vs Speculations
Always, investing in stock market is seen as a zero-sum game. For those who think that stock market is zero-sum game, for certain, remain in a negative-sum game (after tax and brokerage) in the long run because they do not understand the gist of investing.

The reason stock market is seen as a zero-sum game is because these people make their money in stock market by assuming that other "fools" will pay higher price to acquire their stocks. However, this is not investing, this is speculation. Like thieves and robbers, these speculators take risks and make money out others' pocket.

On the other hand, investing is an art - like planting a seed (money) into the ground (stock market) and wait for the return (fruits). In a perfect world where the world population remains constant, yes, then stock market will be a zero-sum game. But we are not living in a perfect world. Therefore, investing is a positive-sum game. A business makes profit because

1. Increase in demand (growing world population, outperforming competitors)
2. Inflation (Increase in profit but not in real profit)
3. Decrease in supply (laws and regulation, war, environment, less natural resources etc.)
   

And hence, through investing our money in a business, we can make profits with the growth of the business, but not out of others' pocket.

Investing, by Graham's definition, is an investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. This means that investors need to do the following in order to invest in a business

1. Analyze the company BEFORE we buy the stocks.
   
2. Protect ourselves from any losses and risks.
3. Expect a moderate and satisfactory returns.

When putting your money in an investment, timing does not matter at all. Timing only matters to speculators but not investors. The only thing matter to an investor is the price, and how to determine if the stock price is cheap is through analysis.

Why timing does not matter? Because if you plan to keep the stock for a long period of time (let's say 5 years), would it matter to you if you buy the stock at 1% cheaper? The difference would be diluted by the long period of time. And investors always plan to keep the stock for long period of time unless the company is no longer performing or the stock is way too expensive now.

In short:
Speculation - buying on the hope that a stock's price will keep going up.
Investment - buying on the basis of what the underlying business is worth.

II. Inflation
As mentioned, inflation can increase profit but it does not increase wealth as the living cost is higher due to inflation too. Inflation is a very important element in investing as it

1. Eliminates our profit without our knowing
2. Is out of our control
3. Is the main reason why we invest - to secure our wealth from inflation
   

Because inflation can hurt us in many ways without being noticed, Benjamin Graham put extra emphasis on inflation. Therefore, as an investor, we should always safeguard our capitals and profits with bonds and money market to guard ourselves from inflation.

III. Margin of Safety
We invest in the present, but we invest for the future. And unfortunately the future is always uncertain - wars, recessions, natural disasters, terrorist attacks, natural resources shortage, inflation, interest rate etc. Therefore, investing on the basis of projection and forecasts does not make sense. However, the current price reflects not only the past and present performance of the company and the important facts about the company, but also reflects the expectation of the public on the company's future. And this is where we can exploit the inefficiency of the market.

What is certain is the past and the present. Benjamin Graham suggests that we should use past and present information to generate an estimate of how much the business is worth (the value of the business). Then, compare the "value" with the current price of acquiring the business:

• Value > Price - the larger difference between value and price, the larger "margin of safety", the better buy it is. Benjamin Graham suggests at least 30% margin of safety.
  
• Value <>
• Value = Price - there is no margin of safety too. Thus, it is bad buy.
  

Remember, margin of safety does not prevent a loss because losing some money is an inevitable part of investing. Nevertheless, investing with a "margin of safety" prevents us from taking unnecessary risk and from overpaying. We must be extremely risk adverse in order to survive and to be successful in stock market because we cannot afford to lose in stock market. Let me illustrate as follow:

Stock A grows 10% annually while the market average grows 5% annually. However, Mr. X pays too high the price for the stock A, stock A loses 50% of its value in the first year and generates 10% annually as it supposed to. It would take Mr. X's stock A to grow 10% for 16 years to reach the market average gain.

The morals of the story are:

1. Never overpay
2. Always keep some chips in your hand, rather than losing most of them in the beginning to the market.

And by using "margin of safety", we prevent overpaying for one stock and reduce the risk of losing. The most important reasoning behind "margin of safety" is gain more by taking less risk. This might seem confusing because "the teachers in school say high risk high return" and it contradicts to most of our understanding of stock market. Well, this leads us to the next topic "Risk".

IV. Risk
We are told: High risk, high return. Low risk, low return.
The fact: High risk, less return. Low risk, high return.

This is why:
Let's say I'm selling you a bottle of Guinness for $2. You think it's cheap because you know a bottle of Guinness is worth $5. (You have a margin of safety of 60% for buying this bottle of Guinness). Would you buy the bottle of Guinness from me?

A good answer is NO because you should examine that particular bottle of Guinness first. Maybe it's expired, maybe it's fake etc.

After examining, you are certain that the bottle of Guinness is genuine and I'm selling it to you under goodwill. Would you buy from me? This should be a yes answer because you are paying less price for its value. You could easily make a profit from reselling the bottle of Guinness at $5 to the market. Also, you have little risk of reselling it because you can sell below market price and still profit from it.

What if now I'm selling you another bottle of genuine Guinness at $4.75 (5% margin of safety), would you still buy from me? It should be a yes answer too because it's 5% cheaper than the market price but you might consider other factors too. Do you plan to resell it? Do you plan to drink it? If you plan to resell it, probably you won't buy it from me because the profit margin is less and the risk of not getting it sold is higher.

Put the story in stock market:
1. Someone is selling a stock at a very low price (low PE ratio)
2. You analyze it (like you examine the bottle of Guinness)
3. You make decision to buy or not, based on the resales value of the stock in the future (like you're reselling the bottle of Guinness to make profit).

And how would paying less for the bottle of Guinness is more risky than paying more? It does not make sense because paying less is obviously less risky and is generating more profit as we have a higher profit margin. On the other hand, paying more is more risky and is also generating less profit. Therefore, we should forget what know about risk/return before and embrace Benjamin Graham's philosophy of "less risk, high return".

V. Defensive Investors vs Enterprising Investors
Defensive Investors create a permanent portfolio that runs on autopilot and requires no further effort. On the other hand, Enterprising Investors continually research, select and monitor a portfolio. Both types of investors are intelligent investors. And to be which type of investors, it all depends on your:

• Personality
• Effort you wanna put into your portfolio
• Current financial status and employment etc.
  
• Current marital status, family size etc.
  
• Long term goal and short term goal

But please remember this, it NEVER depends on your age. I agree age changes your mentality but age is NOT a factor. Never too old to learn, never too young to learn, and if you are willingly to learn, wealth is what you'll earn.

VI. Guideline for Defensive Investor
In his portfolio, a defensive investors should never have less than 25% or more than 75% of his fund in stocks, and vice versa in bonds. By doing this, we can

1. Secure our funds from inflation (by holding bonds)
2. Outperform the inflation (by investing stock market)
3. Survive bear market (by holding bonds)

For the bonds component, an investor can choose either one or a mixture of the following:

1. Taxable or Tax Free Bonds
2. Short term or Long term Bonds
3. Bonds or Bond Funds
4. Treasury securities (in USA, T-bill; in Malaysia, MGS)
5. Saving bonds/Fixed Deposit

For the stock component, an investor can choose either one or a mixture of the following:

1. Mortgage securities
2. Annuities (Insurance-like investment)
   
3. Preferred Stock
4. Common Stock
5. Mutual Funds
   
6. REIT
7. TIPS (Treasury Inflation-Protected Securities)

Mortgage Securities are considered safe investment during Graham's days but the financial crisis in 2008 showed us that most of the mortgage securities are just junk. You must examine these securities with EXTRA care if you choose to buy as some of these securities are way underpriced after the crisis. Yet, if you buy wrongly, it's just a piece of worthless paper.

Some rules to follow for a defensive investor:

1. Adequate diversification but NOT excessively diversify the portfolio. Over-diversify can almost ensure you NEVER be able to outperform the market.
2. Investor should impose limit, in terms of PE ratio, on the price he will pay for the stock
3. Avoiding growth stock as they are almost overpriced and financially unstable.
4. Avoid changing your portfolio too often unless you have a very good reason to change it or a very bad reason to keep it (losing money is not a valid reason to change).
5. Practice Dollar-Cost Averaging: Invest a constant amount of money in your portfolio every month, regardless how's the stock market is performing.

Before going into the company's financial structure, an investor must understand:

1. The company's general long term prospects
2. The quality of the management

Then, examine if the company purchased possess the following quality:

1. Adequate size
2. In a sufficiently strong financial condition
3. Earning stability for at least past 10 years
4. Uninterrupted dividend payment for past 20 years
5. Earning growth
6. Moderate PE Ratio (~15x average earnings of past 3 years)
   
7. Moderate Ratio of Price to Assets (not more than 1.5 times of book value)

VII. Guideline for Enterprising Investor
Also, in his portfolio, an enterprising investors should never have less than 25% or more than 75% of his fund in stocks, and vice versa in bonds.

What to Avoid in Portfolio:

1. Junk Bonds (high default rate)
   
2. Preferred Stocks (constant coupon yet taxable and less protected than bonds)
   
3. Foreign Bonds (high default rate)
   
4. New Issues of Bonds (uncertain return)
   
5. Initial Public Offering (overpriced)
   
6. Day Trading (<-- avoid at all cost because highly speculated with high trading expenses
7. Hot Stocks (probably way overpriced)
   

Foreign bonds are considered junk bonds in Graham's days because of the post-war financial situation in the world, USA became the financially strongest country and there was no reason to invest in other risky countries (China was considered risky country for the cold war reason). However, in our time, investing in third world country bonds are as safe as buying T-bills. Also, third world country bonds, that do not sync with US market can provide us a comfort zone when the US market is not performing (as we have seen during the financial crisis in 2008).

What to Include in Portfolio:

1. T-bills, Saving Bonds (riskless)
   
2. Rated A Municipal Bonds (tax free)
3. Rated A Corporation Bonds
   
4. Common Stocks of Unpopular Large Company (usually cheap)
   
5. Common Stocks of Secondary Company at Bargain Level (undervalued stocks)
6. Mutual Funds

Also look for:

1. Arbitrages
2. Liquidations
3. Related Hedges
4. Net-Current-Asset Issues
   

Some rules to follow:

1. Be consistent with your investing strategy and refuse to change even when it is unfashionable.
2. Less diversify and take very specific high risk (i.e. do put all eggs in one basket)
3. Pay little attention to what the market is doing (i.e. switch off the Blomberg news).

Before going into the company's financial structure, an investor must understand:

1. The company's general long term prospects
2. The quality of the management

Then, examine if the company purchased possess the following quality:

1. In an acceptable financial condition
   i. Current Ratio >1.5
   ii. Debt <>
2. Earning stability for at least past 5 years (no deficit for 5 years)
   
3. Some dividend payments
   
4. Earning growth
5. Price: Less than 120% Net Tangible Assets

VIII. Management
Notice that how important the company's long term prospect and the quality of management are when making decision to buy a stock. The company's long term prospect and the quality of management always come before the capital structure of the company. The manager manages the company and determine the future prospect of the company.

One extreme example can be that Company A has a very strong capital structure, grown 20% annually in the past, beat the competitors by miles and yet you are able to acquire it at very a fair price. Let's say despite his ability to make the company so profitable, the manager is a hermit-crab-like person and plans to leave Company A for its competitor Company B in very near future. Company A's future prospect can be in danger because of the attitude of the manager and as a shareholder (investor) should avoid such situation.

In theory, investors are shareholders and they have absolute power over the managers as the cash, the business property and the employees belong to the investors. However, in practice, because many of the investors who buy stocks in the intention of selling them to make profit, do not plan to own the stocks, they give little attention to the managers.

As an intelligent investor, you should know your rights as a shareholder of the company by reading the proxy materials. Understanding and voting your proxy is very important to you as an investor. If the manager do not work at the best interest of the shareholder (such as unfavorable dividend policy without justification), you have the rights to get someone else to work at the best interest of you.

IX. Other Important Financial Knowledge

PE Ratio - To determine how expensive/cheap of the given company. The lower PE Ratio, the cheaper the company is.

Return on Invested Capital (ROIC) - To show how efficiently the company has used the shareholder's money to generate return. Generally, 10% is attractive and 6-7% is tempting if the company has good brand names, focused management, or is under a temporary cloud.

Current Ratio - To determine the company's ability to meet its short term obligation. Usually >1 indicate the company is financially okay to meet its short term debts However, companies like Coca-Cola and HP which have very high earning power usually have current ratio lower than 1. The reasoning behind this is that such companies keep very low cash for other investments and keep very low inventory for more efficient manufacturing operation.

X. Conclusion
The problem we face today is not that many financial analysts/investors are idiots, but rather that so many of them are so damn freaking smart (thanks to the teaching of Graham for more than 60 years).

Under Efficient Market Hypothesis, millions of financial analysts and investors scouring the market every day, it is unlikely that severe mispricings can persist for long. As more and more smart people search the market for bargains, the chances of getting bargains are getting rarer. The market's valuation of a given stock is the result of a vast, continuous, real-time operation of collective intelligence. Most of the time, for most stocks, that collective intelligences gets the valuation approximately correct.

Nevertheless, investment still enables us to beat the inflation and secure our wealth from inflation. To some, it provides excitement. To some, it provides wealth. And unfortunately, to some, it destroys wealth. To prevent the third situation from happening, we shall follow three core principal of investing:

1. Know your business - Do not try to make "business profit" out of securities but out of the business you own through securities (read more under investment vs speculation).
   
2. Do not let anyone run your business, unless you can supervise him or you have confidence in his ability and integrity (read more under management).
   
3. Do not enter upon an operation unless it has a fair chance to yield reasonable profit (read more under margin of safety and risk).

Remember that we cannot control uncertainty but we can control:

1. Our own behavior - do not panic to sell if your portfolio loses some money and do not panic to buy if some other stocks are performing so well.
2. Brokerage Cost - trade rarely, patiently and cheaply
   
3. Ownership Cost - do not buy mutual funds with excessive annual expenses
   
4. Expectations - use realism to forecast returns
   
5. Tax Bills - hold stocks for long term to lower the capital-gains liability
   

And lastly, I hope this summary of Benjamin Graham's "The Intelligent Investor" will help you to understand more about investing in capital market. Remember, this is just one brief summary of one of his great books and I strongly recommend you to read more of his books. And start investing as early as you can because you'd rather learn how to invest now than later.


p/s: The order of the contents in the book is different from mine because I reorganized them according to its importance (in my opinion).
p/p/s: Good luck to those who think they are ready to get into the securities market after reading this post. This is not being sarcastic =)

Loyalty is for Dogs

What is loyalty (忠)? Loyalty is faithfulness or a devotion to a person, country, group, or cause. (Source: Wikipedia) Loyalty used to be a virtue, but now it's just plain foolishness - oh wait, has loyalty ever been a virtue? I guess it only happens in the perfect world under Confucius' teaching. Or loyalty is taught as virtue for the politicians to control over us?

In the world we living now, is loyalty a highly praised virtue? Or it just shows plain foolishness? We suppose that life with virtues will lead us to happiness and happiness is what we, every human, ultimately pursue for. However, loyalty, often times, is not rewarding although it is highly praised by the "saints". Let me illustrate a few example:

Kevin Garnett was a loyal basketball player to the Timberwolves franchise in NBA. He spent his prime time in that lousy franchise, which happened to be located in a a cold and deserted lousy place, achieving nothing and ended traded to Boston Celtic due to his age. So what loyalty rewards him? 7 years of losing. He didn't demand for the trade to Celtic but he was traded because he was too old for the franchise. Luckily, Celtic is a better place for him as a player, as he won his first championship on the year he got traded to Celtic.

On the other hand, Lebron James, the most hated NBA player on earth, saw Kevin Garnett's past and decided not to waste his prime in Cleveland (yet another lousy place, cold and deserted). After the Decision, he went to Miami (one of the best cities!!) to join his friends. And here the story of anti-LBJ goes.

Lebron James shows no loyalty at all. The Cleveland Cavaliers did everything they could to retain him but ended up setting records of losing 26 straight games. But he did show reasoning and intellect while making the Decision, making the best choice for himself.

Yet to see how loyalty mistreats players like Dirk Notwizki and Steve Nash. Yes they are white but when the time for decision making comes, they are more emotional and less reasoning than the black (Carmelo Anthony and Lebron James).

Enough for the NBA stories. How about some examples that are happening in our life? Such as brand loyalty? I will show how loyalty plays tricks in our mind and often misguides us from enjoying a better life.

We understand how companies spend tons of resources every year to build up brand loyalty in their customers. For example, Toyota, the leader in automobile industry, builds its brand loyalty through constant marketing, products upgrading and improvement on services. Through such efforts, Toyota successfully make its customers feel that driving a Toyota is driving the best car ever (for the given price of course!) and I was one of the millions brand loyalty victims. When competitors like Honda and Ford improves their products and services even better than Toyotas, Toyota customers, blinded by brand loyalty, refuse to accept or try the products manufactured by the competitors. As the result? These customers (including me) pay more for poorer product and service.

So does loyalty serve us good? Being loyal to Toyota is a good thing for Toyota's profits. And bear in mind, it is ONLY good for Toyota but NOT you. When competitors offer better products with lower price, we refuse to being reasonable and intellectual and make our decision based on emotion and past-ol-good-experience. As the result - we are paying more for less, and forfeit the "could have"/ "would have" enjoyment brought by the new competitors.

Also, loyalty is very often exploited by the politicians. What makes you vote for Party A instead of Party B? Some vote for party A because they like a particular politician figure in Party A. Some vote for party A because they feel that they belong to Party A.. Some vote for party A just because they hate Party B. But very few vote for Party A because they think Party A's policy serve them better in long term or short term.

So what is the purpose of having democracy when loyalty plays a more important role in deciding the country's leader/policy? Why don't we just have our monarchy system where the King and Queen live happily together in their pretty castle and we will be loyal for the emperor forever (as long as he doesn't abuse us)?

So back answering the question: Is loyalty a virtue? My answer is HELL NO because of the following arguments:

1. A virtue is a moral excellence in a person.
2. We practice a moral excellence because by practicing it, we believe we will achieve happiness.
3. Loyalty benefits only the loyalty-receiver, but not the loyalty-offeror.
4. Loyalty does not bring happiness to someone who practice it (the loyalty-offeror).
5. Hence, loyalty is not a virtue!!

Examples and arguments are presented to show how loyalty obstructs our reasoning and intellect to make decision which is best for us, hence hindering us from happiness.

So what makes us loyal? The rewards (often time in monetary form) given by the loyalty-receiver. Thus, loyalty can be bought with a price! You may ask what's the price for a loyalty. Remember the loyalty card given by Starbuck? A free coffee for every 10 coffee bought is what Starbuck paying to get a loyal customer!


We are just human. If you want loyalty, get a dog........ and feed it!

Why We Can NEVER Be the Next Warren Buffet

Yes, there are tons of books selling in the market, teaching you how to be the next Buffet. Ask yourself, have you seen a book written by Warren Buffet? If those authors really know how to be the next Buffet, do they need to spend their time writing such books instead of researching the next big business?

I think that such books are useful in some ways because they provide different perspective of investing theories. However, we are all human and we have our own opinion. We'll hardly find anyone who share the same views even on the same thing. For example, some people think Justin Bieber is cute, some people think Justin Bieber is gay. We are looking at the same Justin Bieber here but we all have different views. And that's the beauty of differences that creates the stock market.

Warren Buffet seems to have the most successful stock picking skills/knowledge. But do his skills/knowledge fit us? The answer is NO. Even if Warren Buffet himself will not able to create such wealth if he is born 50 years later. I will tell you why.

The global population in 1960 was just merely 3 billion. In 40 years, it doubled to 6 billion in 1999 and now according UN, we have 7 billion population on earth. For the given another 40 years, do we expect the population would double again to 14 billion? Highly unlikely as the expected global population by 2045 is 9 billion by the UN.

During the age of Warren Buffet

1. Laws and regulations in the stock market is not as strict.
   
2. Not many people practiced fundamental stock valuation.
3. Relatively low level of education in the world.
4. The sudden boom of population growth.

Just imagine he make $1 for every increase of population. He would make $3 billion in 40 years. But if he make $1 for every new baby born, he would make $300 billion in 40 years (without subtracting off the death rate). How about let's say he make $10 for every new baby born, he would make $3 trillion in 40 years!!!!

One would argue that in another 35 years, the world population is expected to grow for another 2 billion. We could have made $10 for every new baby born too. But here's the trick, to be the smartest in a group of 3 billion is super super super super super tough. And to be the smartest in a group of 7 billion, not to mention that higher education rate among these 7 billion people? x100 toughness......

Furthermore, good companies with good constant earnings can be only bought with a very high price. Let's say now we buy stocks of Warren Buffet's favorite companies such as the consumable giants Coca Cola and HP, they do not generate the same return Warren is enjoying right now because they are just too damn expensive!

So here's the suggestion: Let's look for new companies that share the similar characteristic as Coca Cola and buy them while they are cheap. But the problem is: You're not the only smart guy here. Price war will drive up the stocks without increasing the value. Thus, it generates less return.

So let's face the fact, we'll never be the next Warren Buffet.

However, if we do something different, we are able to create a name for ourselves. The catch here? Following Buffetology will not create the same wealth because we live in the different era. Man, that dude is 84 year old..... We have generation gap!!

嬢王3

嬢王3 is finally on TV shows. 嬢王 is a TV series about the politics and fighting among the nightclub girls (some say prostitutes). Here is the link for the commercial. Do you notice that the girls in the show look familiar? Yes, they are Japanese AV stars and one of my favorite AV stars Kirara Asuka is playing the antagonist!

Don't get me wrong - this is a TV series based on a Japanese manga and it's 100% porn free. They have a very good storyline too. More importantly, this TV series tells us a few things:

1. AV actresses do not make as much money from DVD as they used to - thanks to torrents and porn streaming websites.
2. AV actresses sometimes are better actresses than normal actresses because they usually play more difficult and demanding roles.
3. Japanese (or the world) are accepting these porn industry more and more as they do not view these AV actresses as mere porn stars.
4. Lastly, in order to make money in any business, we need to be very creative and innovative with our available resources (for this case - AV actresses) to produce not only better products but also more variety of products! (for example, TFK posters and TV series)
   

p/s: Kirara Asuka is first girl from the right of the man standing at the middle.

p/p/s: This is the show I'm currently watching on pps!!! And yes, they are not making any money from me.

Has the hibernating bear awaken?

とてもかわいいのBEAR!!!!! I always love bears. They are like dogs. They are furry, lazy, fat and can be very bitchy (sowy for the bears <-- fyi sow is the female bear) when they are pissed. If you do not know what a bear will do when they are pissed, please click into THIS LINK!

Today KLCI fell by 14.31 (0.94%) to 1513.70. Wow, that is certainly a huge drop for such a short period. In my previous post two days ago just mentioned that we are in a bull run right now. So are we at the peak now and the bear has awake to hit us?

For me, bears are always とてもかわいい a.k.a. cute. They do not attack us unless we do something very stupid to them such as kicking them in the ass or stealing their honey or wake them up in their sleep.

Always before a bear attacks, we can tell it. We kick him in the ass, it will open one eye and look at us then fall back to sleep again. Then we kick him again. It will scratch its ass. Then we kick it again!! BOOM!! We'll get a nice warm bear hug. So learn to look for the sign of a bear attack.

I do not believe that this 0.94% drop is a bearish signal. This drop is mainly caused by PPB (-4.7%) due to its Wilmar 60% drop in net profit in the current financial year. However, the market volume and turnover are still high. More advancing stocks than declining stocks in the market. More importantly, the rest of the world is enjoying the bullish market. Unless Malaysia's stock exchange is so fucked up, we won't see a bear waking up any soon.

By the way, Warren Buffet loves bear, Goldman Sachs loves bear, and I love bear too!!!

Umm, are we............ in Pamplona?

Did I get a hangover or what? How did I come to Pamplona? Oh wait, I did not. I am still here living in Kuala Lumpur. But why the fuck I see the bull run? For your information, Pamplona, Spain is famous for its nine-day festival of Sanfermines where a bunch of bulls are let loose and run as if they suffer mad cow disease at the streets of Pamplona.

Kuala Lumpur is celebrating its own version of Sanfermines too. Kuala Lumpir Composite Index (KLCI) closed at 1526.53 today. We can observe that this cowboy has slowly climbed the mountain of Bursa Malaysia since the financial crisis where the stock market fell to as low as 833.44. Who can deny the fact that this is a bull run when the market is able to close 1526.53 in a mere 2 years time?

I did not expect the bull is coming few months ago because Malaysia stocks are valued higher than the world's average. But hey, who can expect that the rest of the world pick up the pace and follow this Malaysian bull? And I'm so proud to be the pioneer of the bull market =) just kidding....

Now the question is - are we at the peak? I don't know because if I would know, I would short sell KLCI futures and make myself the richest kid in the bear market. But one thing is certain right now, people are gaining more confidence in the stock market. Volume has increased, price has increased and I'm telling you - it's a big fat bull running in Kuala Lumpur right now! Just like a broker told me once, "Pick up any stock in a bull market, you would make yourself handsome money!"

But have you heard news in Pamplona? It's certainly a party at Pamplona during the bull run fest. People get drunk and celebrate. But remember this - always, someone got injured, and worse got killed by the bulls. We must be very careful when we are partying with the bulls. Also, don't get too heated with the bulls too.

I was very lucky to meet with a very respectful and successful investor in Malaysia, Mr O (for his privacy, I would refer him as Mr O here). Mr O is a very discipline and patient investor. He taught me a very good lesson - to be successful, I must be very patient to wait for the right time to strike. It can be two months later, it can be five years later. The market is always there. We do not need to rush in to a bull market to make ourselves handsome money. Always wait and wait and wait for the .... BEAR ATTACKS!!!!!

Sorry I don't speak perfect English but sorry, you can't speak Mandarin!

As a Malaysian, we tend to end our sentence with our Malaysian (not Singaporean, okay?) signature word "lar". Sometimes, we like to add our own ethnicity flavor. For example, a typical Kuala Lumpurian would say "Why you so stupid one?" or "Where got??" (the classic one). This does not make sense in English grammar because there is no verb in that sentence. And what is the function that "one" at the end of the sentence? I have to admit that my English sounds like a typical Malaysian Ah Beng English but hey, at least I have no problem communicating with anyone with English!

But here is one thing that what most of the Americans, British, Australians, Canadians, Europeans and the "bananas" in Malaysia and Singapore CANNOT do - speak Mandarin!

I know there are lots of Chinese haters out there. For examples:

1. Europeans hate Chinese because they are defeated by the Chinese in so many ways - just have a look at Dota scene and you will see lots of Chinese haters in European platform.
   
2. Australians and Canadians hate the Chinese for being richer than them (sounds so familiar!!!!).
   
3. The "bananas" hate the Chinese simply because they think they are better than the Chinese although they share the same color.

But hey, go fuck yourself in your own little world please. Last week China just replaced Japan as 2nd economy power in the world and USA will be pawned very soon too. Oh yea, just for your information, McDonlad just issued the first ever Yuan denominated bond. Yes I am not kidding - Yuan has slowly become a hard currency! This is the first Yuan denominated bond in the history and this will not be the last. Capital market is seeking capital from China as the rest of the world is still suffering economy downturn and is not able to provide the capital the investors need.

Hey Chinese haters, it's not too late to learn how to speak Mandarin now. I believe in the very near future, we'll be all seeking capital from China instead from USA.

Malaysia Boleh!

When the rest of the world is suffering from economy downturn (average lose of 2%), Malaysia Kuala Lumpur Composite Index (KLCI) can hit all time high of 1395.03 on the week closing. This is a very funny country that we are living in and we need super genius economist (such as me) to explain why this is not supposed to happen and why this is happening in Malaysia.

Why KLCI is not supposed to be this high:

1. Malaysia lost 80% of its foreign direct investment (FDI) while our neighbor countries are prospering. This means that foreign investors are moving their investment from Malaysia to neighbor countries such as Singapore, Indonesia, Thailand, Philippines and Vietnam.
2. Malaysians are expensive workers because we are so educated that we refuse to work hard and leave most of our jobs that required skills to foreign labors. Don't you realize that your Chao Kuey Teow is being fried by a Vietnamese lately? Therefore, this is a major loss to our GDP.
   
3. Ringgit Malaysia (RM) is being so strong right now without strong financial foundation to support its strength. This further decreases our FDI as investment in Malaysia becomes relatively more expensive with the strengthen RM.
   
4. There is no major technology breakthrough in Malaysia that is profitable. I read the news that our Ministry of Health is trying to remove the DNA that causes Denggi from the mosquitoes. Good luck on breaking through that technology! Wish you all the best!!
5. Our economy focus has been switched from agriculture to construction since we moved from Pak Lah era to Najib era. If we would have focused on agriculture right now, we could prosper better since we have natural resources and environment to export raw materials to emerging countries. However, we could not benefit from more constructions in Malaysia since we have very limited population. Yet, I don't understand why we don't get cheaper housing from the surplus of houses. Perhaps Malaysians are too rich and love to own several houses??

Why KLCI can be so high in Malaysia:

Aiya, one reason only lar!!!