Singapore Man of Leisure

Traders and Investors – Ebony and Ivory

2012-03-04T20:52:00.000+08:00

Traders

When I think of traders, I am reminded of this mental image of the Arabian traders from the 101 Arabian Nights.

Their final destination may be Cathay (China), to source for silk, porcelain, tea, etc.; but the journey is at least a year or more away. To sustain their livelihood along this arduous trek, traders have to set aside a portion of their merchandise for trading with the next village, town, and fortress.

To know what to buy and to secure a good price for their merchandise, traders have to anticipate what the people of the next destination would buy and pay for.

Everything is for sale! There is no emotional attachment to their merchandise.

If a mistake is made, traders know the first mark-down is the least painful. The longer they hesitate, the bigger the mark-downs they will have to endure. It’s pointless to drag along merchandise that nobody wants through the whole journey. Talk about dead weights!

The focus is not what the traders themselves liked; but what others would like.

Investors

When I think of investors, the image of parents raising their child comes to mind.

Like all proud parents, they would direct their hopes and aspirations (or failed dreams) to their child.

Some parents dream of their child growing up into a bright, successful, and respected adult. Whatever the child needs: ballet, violin, or overseas education, these parents will “invest” in the child’s call for more funds. No expense is too much.

Some parents can’t wait. They prefer to adopt grown-up “children” who from the get go can return their “love” with immediate monthly parental allowance.

If the relationship sours – the child not living up to the parent’s expectation – one group of parents would disown the child and move forward, while the other group would cling on to the failed relationship and play “victim”.

And if the child exceeds or performs to expectation, now why would any parents “let go” of this child?

The focus in what the investor want out of this investment.

How to tell which is which?

A good example is when you bought your place of abode. Do you visualize how you can renovate and decorate this place into your personal sanctuary, or do you spend more time checking out the features and selling points that might appeal to the next buyer?

Younger readers may want to infer from your purchase habits – like buying the latest smart phone, branded handbag, or car - which comes to mind more? Is it your personal enjoyment or the 2^nd hand resale value?

OK now look at how you “trade” or “invest”.

Ebony and Ivory

Does it matter what we call ourselves?

Not really; but to some individuals – everything!

A trader who constantly gets married to his positions and projects his hopes and dreams to his trades…

An investor who can’t seem to sit tight through the volatility and refuses to recognize the reasons for investing in the first place are no longer there…

And then there are musicians who can make great music from Ebony and Ivory:

The right question is perhaps not whether it’s better to be a trader or investor? A better question could be:

a) Are a good or bad trader?

b) Or are you a good or bad investor?

Solution to your dandruff problem!

2012-03-03T18:32:00.001+08:00

At 27, I remembered looking into the bathroom mirror of a hotel in Kuala Lumpur, and noticing my thinning hair at the top under the glare of the strong lights.

There and then, I've made a decision to shave my head clean if it got serious.

No self-denial "comb-overs" for me! Who am I kidding?

So at 35, I went "kojak".

Tell you what, I turned more heads now than when I had "hair. But then, I could be biased... LOL!

Sorry. I digress.

I used to have a dandruff problem before 35. But this affliction "miraculously" disappeared after I shaved my head!?

So there!

If you want a permanent cure for your dandruff problem, you may want to try shaving your head bald.

Do tell me if it works for you too. Perhaps we can partner and patent this dandruff solution together? Ka-ching!

VIX - how useful is it as an indicator and hedge?

2012-03-01T21:22:00.001+08:00

Who knew my previous post (or non-post) on index investing turned out to be one of those "throw brick; attract jade" kind of catalyst where the comments got veered towards hedging at the very end...

In my search for alternative hedging strategies, I focused on the VIX.

I found the below article quite interesting. For those interested to explore using the VIX as an indicator or hedge, you may want to take a peek at it.

What's really driving volatility

Do you practice low cost passive index investing?

2012-02-28T12:28:00.000+08:00

I don't.

That's normal as I am used to arguing with the stop sign.

It's quite common to come across "investors" who will pooh-pooh the use of actively managed mutual funds. They will usually mention these 2 strong and convincing arguments:

1) Low cost or no-load funds outperform funds with high management fees

Especially when compounded over the long term - like in 30 years. I can't argue with that!

But doesn't it look a lot like the Discounted Cash Flow (DCF) valuation method? There are "assumptions" and my favourite line - "all things being equal". If you have been investing for several years, when was the last time you encountered "all things being equal"?

By the way, if you are currently vested in passive index funds or ETFs, may I ask how long is your average holding period? How many "trades" have you done in a year? Especially if you are using the ETF vehicle.

Ahem, you may want to add the transaction costs into your calculations and maybe re-read the writings of John Bogle (father of index funds) from the Vanguard Group.

Quoting John Bogle and doing the opposite of what he advised is not exactly passive index investing...

2) 75% of active fund managers underperform the index

Can't argue with statistics (especially those not manipulated by yourself)!

To those strong advocates of passive index investing, again I ask you this question - do you stock-pick individual stocks on your own as in DIY?

I will pause here so you can listen to yourself better.

PAUSE (shhhh)

Can I assume you do so because your individual stock-picking track record has outperformed the index?

Or you fancy yourself to be amongst the 25% of fund managers that can and do outperform the index?

The reasons why I prefer actively managed funds

I stress this is for me and me alone. This post is merely to call out the Emperor's clothes. Not an attack on passive index investing; which definitely works for individuals with the right matching mindset and discipline.

I am not hyper-active, but for me to sit around, do nothing, and patiently wait 30 years is not exactly my definition of "fun". I'm in it for the money; but some fun along the way couldn't hurt right! Or?

a) Cognitive dissonance

In the words of the Godfather III - our ships must sail in the same directions. I do like the intellectual process (I made this up) of DIY investing. Of course this applies to the thrill of finding a fund manager (notice I never say fund) that can outperform his/her peers!

It will mess with my mind if my right hand says passive index investing good, while my left hand says DIY is the way to go! I'll go bananas!

Since I do a bit of swing trading on the side, the odds of finding these 25% top fund managers are a lot better than what they say of me making money by trading - only 10% of traders make money consistently.

Does that mean if I set aside some funds for outsourcing to fund managers, my odds of making money versus me trading on my own will improve by 2.5 to 1? How's that for statistical manipulation? LOL!

b) I don't mind paying for performance

Honestly, what's the difference between 0.3% versus 2% annual management fees if the fund manager can outperform the index by 5% and more?

Wait. Let me check my calculator... Yup! I still come out ahead!

The longest period I've held to a mutual fund is 5 years, and the average holding period is probably around 3 years.

I don't mind paying for performance, but I practice switching horses as and when needed. Once you don't perform, you're out! No wonder I am still single... I am such a cad!

I am more fearful good fund managers will not want my money - I am either too small in their eyes, or they have more than enough clients on their hands and close their funds on me :(

Mixed-up to conviction

In the end, what we say, what we do, and what we believe should ideally be aligned. At the very least, when we stumble and fall, we will know the reasons why. And can take the corrective actions.

For fellow veterans, I think we've all been through our early low conviction days. This month say long term investing is the way to go, only to switch to contra trading the next month, then join IPO staging, then switch to dividend investing, punting small caps to S-chips, and now singing Blue-chips are the best! Why? Business times say so what!

I am always laughing at myself ;)

Now I listen to myself more.

You can’t out run the bear!

2012-02-25T21:14:00.000+08:00

2 Greek friends were having beer one evening in the local taverna.

“How about coming with me to the rekcus forest this weekend? I know a spot where there are lots of wild Saffron flowers!” Dimitris asked Yiannis excitedly.

Now Saffron is one of the most expensive spice in the world… Why would Dimitris share this good fortune with me? Yiannis thinks to himself… And then he smiled.

Yiannis looked at Dimitris in the eye and asked accusingly, “I thought we were friends? You do this to me? I know about the man-eating brown bear that lives in rekcus forest.”

Dimitris’ eyes open wide in mock protest, but he couldn’t press down his thunderous laughter that followed, “So you admit I am a better runner than you! Ha ha ha!”

Now Yiannis is very much interested in the Saffron mind you. But he knew going with Dimitris would put him in harm’s way should they stumble on the brown bear.

Just then, the local school teacher walked into the taverna.

Yiannis took his bottle of ouzo and glass and walked towards the school teacher. In between drinks of ouzo and nodding of the heads , Yiannis returned to Dimitris with a wide grin.

“I’ve invited our learned friend along for our little walk in the woods,” said Yiannis.

“But he has little knowledge of nature and what’s it like in the forest. All he knows are his books and theories. Wouldn’t he slow us down?” queried Dimitris.

“Precisely!” said Yiannis beaming with confidence.

“Oh you are so nasty!” exclaimed Dimitris, patting his heavy hand on Yiannis’ shoulder.

The 2 friends were full of song and laughter that evening.

1) Do you know anyone or groups of people who remind you of:

a) Dimitris

b) Yiannis

c) The school teacher?

2) What's the moral of the story from your perspective?

100 stocks in SGX = Diversified?

2012-02-23T22:11:00.000+08:00

Of course it's an extreme figure!

Some investors will not let one stock exceed 5% allocation in their portfolio. This is to prevent 1 stock blow-up from damaging their entire portfolio.

This I can understand. But I curious.

Whether its 1 big water-melon, or a few apples, or a bunch of grapes - aren't they all in the same single basket?

So if it's Sept 11, SARS 2003, or other external shocks, when the basket's bottom fell out, won't all the fruits be smashed?

What if we spread our equities holdings over several markets? But aren't all stock markets more or less correlated? Did any stock exchanges in the world held-up during the 2008/9 financial crisis? There must be some. If they are; we probably don't have access due to currency controls, liquidity, or restriction issues ...

I do own some silver, RMB, bond fund (indirectly through pension fund), EURO and of course SGD. (A glaring gap is investment property)

Do you practice asset allocation to diversify against risks? Or do you stick with "quantity diversification" in the same asset class as your main form of diversification?

How is your experience? Which works better? Or do you practice both?

My time in Shanghai – the harsh realities there

2012-02-22T07:06:00.000+08:00

Of all the 3 postings between Shekou, Shanghai, and Athens, I loved Shanghai the best!

Whenever I travel to a new place, I would savour the local food, water (I don’t drink), and “flower”:

Shanghai food – It suits me perfectly. I like sweet stuffs and Shanghai cuisine is sweet! I especially love this giant meat ball dish called “Lion’s head” (狮子头).

Shanghai tea – Oh you have to try this Dragon well’s tea (龙井茶)! This green tea is an interesting departure from the oolong Iron Guan Yin (铁观音) tea that I was brought up with in Singapore. Especially for those of you who are into healthy living; this Dragon well’s green tea has lots of anti-oxidant properties!

Shanghai girl – Let’s put it this way, they must have some special quality that makes the Shanghainese men willing to do the marketing, cooking, washing-up, and housekeeping after marriage! But beware, like sports cars, they’re not exactly low maintenance!

Behind all the glitter, prosperity, growth, and vitality in Shanghai, I soon learned the harsh realities there.

It’s better to hunt in pairs or in a pack

I was pleasantly surprised with the “liberal” lifestyle in Shanghai. Many of my mainland colleagues were co-habiting with their boyfriends or girlfriends? And singles were bunching up together 5 or 6 of them in a tiny apartment.

It’s more about economics than anything else. If you are away from the prying eyes of your family and relatives, “sexual liberation” becomes a bargaining chip to help oneself better survive the high cost of living in Shanghai.

By sharing rent and food expenses, or get someone to pay on your behalf, life in Shanghai would be less arduous – especially if you are not local Shanghai born and bred.

There is this Hukou system (户口) that discriminates against non-city dwellers. Where you are born has a big impact on your life in China…

Less 10 years of striving

There’s a saying amongst the Shanghai girls there if you marry “well”, you would save 10 extra years of striving in Shanghai. This attitude is also prevalent amongst the well-educated graduates and career women.

There are 4 categories of good catches starting from the most desirable:

1) Westerners (hmm, this sounds familiar)

2) Overseas Chinese (Hong Kongers, Taiwanese, Singaporeans, etc)

3) Mainland Chinese men who have worked or studied overseas

4) Local mainland professionals and businessmen

I can empathize as the wealth and poor gap is much greater in Shanghai than in Singapore. Nobody wants to fall behind. Who am I to judge?

Can you imagine being a Shanghai man? As if affording an apartment is not stressful enough, he now has to compete with the #$%&%(^! @* “foreign” men!

It’s English Premier League every year

We have a Shanghainese company driver and he was always very glad when the Shanghai property prices went up and up – despite the numerous central government “clamp-downs” (the most recent one seemed to have finally worked)?

He explained most Shanghai families would have at least 2 apartments. One bought very cheaply from their employers or state in the early 1990s when Shanghai finally joined the economic reforms in 1991. Another private apartment bought prior to 2000 before prices went ballistic!

This way, if they had a son, they would have a ready apartment for his marriage. In Shanghai - no apartment; no marriage.

So if the Shanghai property prices continue to go up, it would make it tougher for non-Shanghainese men to afford an apartment there. Making it harder for these non-Shanghai “talent” to remain in Shanghai to compete with their children – be it schooling, employment, or marriage!?

At the railway station, I often see two groups of faces.

One group beams with smiles and wide-eyed enthusiasm; the other with dejected and sullen faces. No prizes on who is leaving, who is arriving.

Promotion and relegation. Dream seekers and realists.

I guess this ritual is the same in all cosmopolitan cities – be it New York or London. And in Singapore.

How Winning Traders Think

2012-02-19T22:28:00.000+08:00

I won't spoil this interesting video that I found with my commentary. It's better you watch it yourself and reflect on your own.

We are all different ;)

Warning: The below video takes about 21 minutes. And may be more suitable for traders with some real money trading experience.

It's better to wait when you are not pressed for time and in a receptive mood before watching it:

How Winning Traders Think

For investors, if you can put down your pride and prejudice for a moment, you may discover some takeaways that are transferable to the realm of longer time frame investing.

Especially if you don't think in "compartments" ;)

It would be great if you are willing to share your reflections. I need someone to bounce my own reflections with!

Monty Python - Always Look On The Bright Side Of Life

2012-02-18T21:57:00.000+08:00

What a gem!

If only I could whistle...

A tale of 2 M&As - Nera Telecoms and C&O Pharma

2012-02-17T11:45:00.002+08:00

First of all, I’ve to say my thanks and appreciation to a young blogger at this blog called KT Wealth – aka “Cookieguy”.

C&O Pharma

I came to know about this S-chip called C&O Pharma from his blog early 2011.

This stock looks promising for an M&A play as Sumitomo had just bought into the company. I don’t copy and buy. I “borrow with pride”. I placed this S-chip under my stay tuned watch-list.

When C&O started to climb from 35 cents to 40 cents in high volume last July 2011, I piggy-backed on board at 42 cents (market moved faster than me) and continue to buy on the way up to 49.5 cents – when news finally broke that Japanese Pharma Shionogi was taking C&O private at 50 cents.

At 49.5 cents, the arbitrage profit is “only” a few hundreds; but hey! Money is money!

All in all, I made around $11,000 for this swing trade – not bad for 3 months of “non-work”.

I took $3,000 of the profit and went for a 2 week vacation around Greece and Santorini Island.

I happy like bird.

Nera Telecoms

This “investment” was a trade gone wrong. And I’ve been holding it for 8 years… But the good news is that at the take-over price of 45 cents, I would make about 25% in capital gains plus a 2 bagger from the dividends collected over the years.

Nera Telecoms is one of my 3 main core holdings making up my 50% equities position vested in the market. So the potential dollar amount gains are much higher than last year’s C&O Pharma M&A trade!

Yet, I am not exactly thrilled…

Context is everything!

Why one M&A I happy, the other M&A I not so thrilled?

Let me illustrate by sharing this property en-bloc story that happened in Queenstown during 2009 - HUDC Gillman Heights.

Despite the challenge of the minority dissenters (went all the way to High Court), the majority of the residents got what they wanted – en-bloc windfall!

Or so they thought. You sell high; but you have to buy high too. Remember the ballistic rise in property prices from 2009 to 2011?

All of sudden, this “windfall” can only afford smaller condos at locations further away than Queenstown from the city centre… Talk about inflation!

For C&O Pharma, the M&A happened just before the October 2011 “correction”. Wonderful!

But for Nera Telecoms, this ##@!#^$*% M&A happens now in mini-bull market. Buttocks!

Even if I got my “windfall”, what can I buy that’s value for money in SGX now?

Bull market rally or bear market rally?

If I believe it’s a bull market rally, I would close my eyes and buy high, and hope too sell higher.

But since I believe this is a bear market rally (and it will probably go higher and higher), I rather be patient and fearful when others are greedy.

OK, I’ll take the cash from Nera Telecoms and probably rotate it into another asset class that’s less co-related to equities (if I can’t find another equity horse to ride).

Start planning for 2013 after the 2012 US Presidential elections?

China is not the only country that “massages” their statistics ;)

P.S. In case you forget, my trading time frame is 6-18 months.

掌声响起- 凤飞飞

2012-02-15T14:32:00.000+08:00

Besides 江蕙-美麗的交換, this song by by Feng Fei Fei plays in my mind whenever I receive accolades or compliments on my occasional sparks of "brilliance".

Behind each "success", there lie numerous setbacks, stumbles, and bruising come-backs...

At age 60, when most dream seekers are planning their next retirement phase of life, Feng Fei Fei has left us.

And the grace and dignity she handled her "moving-on" is something I find very inspiring.

I guess the moment of truth will be our first thoughts when we are told we have X more months to live...

Would I be more consumed with the bitterness and self-denial of "why me?". Or would I have the peace of mind and composure to focus on preparing my "good-bye" so that it leaves the least impact to the persons I love?

If I have lived a good life, what's there to fear or regret?

But if I have many regrets of should have, may have, what might have been, etc... I'll probably hurt those close to me by saying words like: "If not for you, I would have..."

Live for today.

Yesterday is gone, and tomorrow... Well, what if tomorrow never comes?

My infinity returns via dividends in Nera Telecoms (well, almost!)

2012-02-13T23:00:00.000+08:00

I started building my stake in Nera Telecoms during 2003.

After 8 years of patient holding and receiving average 10% plus dividend yield annually, I’ve finally got my investment back in full last year.

It wasn’t one of my more successful “investments”. It was a “trade” gone wrong as the stock price has never done anything remotely ballistic for the past bloody 8 years… The reason I’ve kept this “mistake” for so long is because of this fun concept: infinity returns.

And I was so looking forward to receiving the dividends this year so I can gleefully declare I’ve earned my first infinity returns via the dividends route!

My cost of capital in Nera Telecoms was returned backed to me via 8 yearly instalments of dividends. Therefore, technically speaking, my existing stake in Nera Telecoms is “free”.

Future dividends / zero cost of capital = infinity returns!

And just when I can smell success, my candy is snatched right from my nose... ST Engineering is looking to take Nera Telecoms private for a song!

It’s not a done deal yet; but I won’t waste time whining or sulking, especially on things I can’t control.

I rather focus on what I can control: find another horse to ride.

As for what I can influence, I’m doing it. LOL!

Nera Telecoms minority investors, you may want to read this persuasive post from our fellow vested comrade Hyom.

Why is Nera Telecoms not one of my better “investments”?

Simple. Do you prefer to get your capital back in 8 years or in 2-3 years?

And how do we get our capital back in 2-3 years? Growth! Or to be precise, a doubling of the stock price after we have bought it.

Once that happens, I can sell half my stake and put the cash back into my opportunity fund; while the remaining 50% invested will be my “free” stake to ride any further upside.

Market goes up; I happy! Market goes down; I got dry powder!

I much prefer infinity returns via the growth route over the dividends route. Thank you very much!

And you thought I am plugging for the dividends play! Hee hee.

I am a Growth and Income speculator. Growth comes first. I consider dividends a consolation prize. No fish; prawn also good!

Now you understand why I’m not so upset with my potential “loss” of Nera Telecoms. I’m an equities man-whore. There will be other fishes in the ocean!

My 5 month working stint in Shekou (蛇口), Shenzhen, China

2012-02-11T23:03:00.002+08:00

True to my preference of feeling the stones as I cross the river, when I got my maiden offer to work overseas in China, I negotiated a short 6 months contract to Shekou, China.

What if I don’t like China? What if I can’t function without the support network of Singapore? What if I don’t like the food? What if they laugh at my Cheena and England? What if, what if… Imagine being chained to a 2 to 3 years contract when all I want is to fly home and suck my thumb?

Like what we do in the supermarkets, I grabbed a bite of the free sample before making a purchase ;)

Little did I know then it would be the beginning of a 7 years journey away from home.

A bit about Shekou

It’s just an hour’s ferry ride away from Hong Kong airport. So getting to and fro is easy and so very convenient.

Tip: If your company (ah kong) is paying for it, avoid using Shenzhen airport. If you use Hong Kong airport, you can use Cathay and SQ mah!

Being so close to Hong Kong is a big draw since I can take day trips to Hong Kong during the weekends.

Shekou used to be an industrial zone, but it has since been transformed to be an expat’s hub for foreign companies in Shenzhen.

It’s quiet, have no army of bicycles (which was a pleasant surprise to me!), and has a laid back tranquil calm to it. It’s a bit like our Holland Village in Singapore or Stanley Market in Hong Kong.

I stayed at the Nanhai hotel which has 2 floors of service apartments. Imagine getting 5 months of free hotel breakfast? After my second week, I started going outside for the dim sums. I prefer cheap but delicious local fare over hotel meals any day!

A city of immigrants

I was expecting everyone to speak Cantonese; but was a bit puzzled why people here speak so much Mandarin?

My lady companion (hey, a single guy got to do what a single guy got to do) explained to me that Shenzhen is a man-made city. It was only a sleepy fishing village before late 1979 when it later became the first and one of the most successful Special Economic Zones (SEZ) in China.

Therefore, 99% of the inhabitants of Shenzhen today all came from other parts of China. Hence the wide use of Mandarin or what they call Putonghua. No one can claim they are more “local” than the other. Everyone is a 过江龙 (immigrant)!

It’s a marked departure from the other first tier cities of Beijing and Shanghai, where the “locals” there treat their Chinese counterparts from other parts of China, very much like how we in Singapore treat our foreign talents/workers.

Which is a shame as Singapore 100 to 200 years ago was not so different from Shekou today.

Shekou more liberal than Singapore?

I am not a fan of those touristy artificial theme parks in Shenzhen. What Window of the World, Splendid China, or Shenzhen Happy Valley? I’ve never visited them.

When we were not in Hong Kong during the weekends, my lady companion will bring me to the “interesting” places of Shenzhen.

Mistress town

It’s a neighbourhood where it is common knowledge the inhabitants of the apartments are either kept mistresses, or ladies of the night.

We would walk around the neighbourhood in the evenings and watch the fashion show. Must say some of the ladies got fight with the Hong Kong starlets. Money can’t buy happiness; but it surely can buy beauty and youth!

I’m glad our Singaporean women can earn their own keep and don’t have to depend on men. There is at least a freedom of choice.

Gay park

I forgot the name, but there’s a park in Shenzhen where the gay men congregate in the weekend mornings. I’ve never seen such an open display of gay pride! If that were to happen in Singapore, I think some more conservative Singaporeans will have a fit!

There were picnics, groups playing badminton, volleyball of sorts, singing and general “wholesome” fun. There were no “illegal” or “distasteful” acts between the men.

OK, I’ve never stuck around till the evenings. Better not, some of the men are taller and bigger than me. You should see how tight I held the hands of my lady companion as we walked through the park. LOL!

That was seven years ago. Not sure whether this “openness” is still being practiced today.

Of all the places in the world, I would never have expected to find such a liberal enclave in China!

I wonder. Would Singapore evolve to become more like the liberal State of California, or would we remain like the conservative Southern States of US. Hmm…

My next step Shanghai!

After 5 months, my company recalled me back to Singapore and made me an offer. Continue in Shekou or go to Shanghai with a longer term 2+1 year contract.

Since I have an idealized image of 上海滩 (Shangahi Bund) from the Hong Kong TV series of the same name; off I went for my next adventure in Shanghai!

Especially now I know from my first-hand experience I can survive, enjoy, and thrive in a foreign environment!

Multiple sources of income versus the 80/20 rule

2012-02-09T22:59:00.000+08:00

Multiple sources of income

Nowadays, you see everywhere people selling or talking about the concept of multiple sources of income. Interesting.

I’ve never heard of this phrase 15 years ago. I guess it’s one of those flavour of the decade kind of thingy.

This phrase - multiple sources of income - is a great sales hook to pull in customers and converts (sheep to the slaughter).

I first heard this phrase during the Multi-Level Marketing (MLM) craze in Singapore. Remember it?

Next were Options, Forex, Property, Land banking, and what have you. Even in cyberspace, “experts” were selling programs how you can earn extra sources of income through affiliated marketing, blogging, etc.

Mind you, I have nothing against a side income or two. I myself have done it. But multiple sources of income?

Pareto’s principle or 80/20 rule

In our work life, especially those of us in sales know and practice this rule. We know how to prioritise and allocate our limited resources to those activities that give us the biggest payback.

If you are not familiar with this 80/20 rule, you may want to read up on it. Practising this rule is one of the biggest contributors to me getting my overseas posting.

Some KPIs you can miss; some KPIs you die die must hit! Clueless people try to hit all KPIs. Crazy! (Of course unbuttoning my shirt’s top buttons and wearing musk cologne helps with female bosses. Hey! I’m joking only!)

Isn’t it strange? We do one thing in our professional capacities, but we do another in our private lives. And I thought I was the only one with split personalities!

Experiment: Take one pin and a bundle of the same pins. Now poke your hand with each of them. Which is more painful?

Walk the talk

Regular readers may point that I dabble in currencies, precious metals, equities, futures, CFDs, and so on. Aren’t all these multiple sources of income?

Before returning to Singapore, I have two sources of income: my salary from IKEA, and my profits /dividends from speculation.

Can you see what I try to show? Equities, futures, currencies, etc. are merely vehicles or tools that I use – what I do part-time is speculation or betting. Nothing more; nothing less.

I don’t care whether I should call it trading or investing. And I don’t split hairs between dividends and capital gains – money is money; just as long it’s legal!

Now after coming back to Singapore to enjoy my “sabbatical from work”, I have one single source of income – speculation.

Others try to increase their multiple sources of income, I’ve reduced mine.

Selling or buying your way to financial freedom?

Now apply my logic to those evangelists of multiple sources of income. They may be engaging in lots of different activities, but there’s one common thread – selling.

That’s how they got rich! (Selling books; selling seminars; selling services; selling products; selling ideas; selling dreams, etc.)

Ask yourself: If you only buy from them, how are you going to be financially free?

I’m not saying don’t buy from them (we all have to make a living); but you got to join them after buying. Start selling too!

But I make money by buying equities and properties you may protest.

Au contraire! You make money by selling equities and properties at a profit!

Think about it for a moment.

(Tip: You earn your salary by selling your time plus labour and/or brain power. No country gets rich only with imports.)

Confessions of an ex-salesman

Protecting my recent paper profits - Hedging

2012-02-07T23:33:00.000+08:00

First of all, no one is more surprised than me on the STI's recent rise from this January 2012!

Being 50% vested, I am not complaining! A red-packet from the market for Chinese New Year!

Of course I can take some money off the table (like some of my fellow bloggers in my blog list); if and when the STI rediscover gravity, I can always buy back at the lower prices - now that's more easily said than done!

Unfortunately (or fortunately!) most of my core holdings will be declaring or paying their dividends to me in the next coming weeks.

Furthermore, selling now will take my vested share to below 50%... Since I am still totally clueless to which direction the STI will go (hands up for those who saw this Jan 2012 rally coming during Dec 11), I better continue in neutral gear. This way, I am always 50% right!

LOL! How's that for positive thinking!?

This morning at 10:15 am, I shorted the SIMSCI (STI index futures).

It's not a short! It's a hedge ;)

I better "hedge" myself knowing how some people have mistaken notions about shortists... (It's not funny - I know! Throw me a bone here lah)

It's not a perfect hedge, but it's close enough.

If STI plunges tomorrow, some of my paper profits will be "rescued" by my "hedged" position in the SIMSCI.

The price I am paying will be the "capped" paper profits if STI were to continue defying gravity.

From now onwards, I won't be participating in the STI's rise fully anymore as each rise will be offset by my "loss" in the SIMSCI.

What I've done is to effectively "locked up" my paper profits up till this morning. I've taken my money off the table in another way. "Enough" is good enough for me!

I can also do it with CFD (contract for difference) index. It's just that I am leaving my CFD powder dry for shorting some stocks I've recently put on my short watch list. Just in case Israel strikes...

OK, derivatives and OTC (over-the-counter) products are not suitable for everyone (nor should they be).

To continue my Goldilocks and the three bears analogy, if we don't try ourselves, how do you know what's "just right" for us?

Some are more suited to be specialists; while I am more suited to be a jack-of-all-trades ;)

And are you a specialist because you know yourself well, or are you one by default because you just never ventured beyond equities?

Goldilocks and the Three Bears

2012-02-05T23:28:00.001+08:00

For those of you unfamiliar with this fairy tale, you may want to read it here first ;)

This story is too classic and beautiful; I've no heart to butcher it with my own interpretation. So let's jump straight to the moral of the story!

By the way, have you ever wondered what's the moral of this story? What's your first impression when you first read/heard this story as a child?

Eat, sit, sleep, then run away! What the...???

As a child, I've always thought the moral was: If it's not our things, don't play or touch!?

Now that I've grown much younger-at-heart over the years, my life experiences show another possible viewpoint.

How do you find out if something is too hot too cold; too big too small; too hard too soft for you?

Yes! You've got it!

Now look back how you made your previous investment decision? No, not that one 10 years ago. It's the one you made a few days/weeks/months ago. The latest one ;)

How?

Got your "ah ha!" moment?

And just to mind fxxx with you, the recent personal misconduct case of the 2 top civil servants - who both did an experiential "comparison" on someone else's wife - jolted me back to my original thinking as a child.

You can't beat the innocence of a child: Not your things; don't play or touch!

What talking me?

In my working career as a former purchaser, I've seen quite a few cases of 24 hours "resignations for personal reasons". And you may have read about lawyer using client's fund; doctor overcharging; hedge fund manager insider trading, etc.

What's this got to do with Financial Freedom?

It's your life, you got to do the walking yourself. I'm just the rustling of the leaves in the wind.

Blogger threaded comments now works with Internet Explorer and Chrome

2012-02-05T00:02:00.000+08:00

This is to follow up on my previous post on the bug with Blogger's new threaded comments.

I've just checked with Internet Explorer 9 and it now works fine.

Hence, I've changed my comment settings to "embedded" to activate this new feature.

Now we can reply directly to each other's comments:)

Let the lovefest and blood letting begin!

Fundamental versus Technical analysis – Final part 3 of 3

2012-02-03T17:04:00.000+08:00

The Moon

Let me us a Buddhist analogy to illustrate why some people are better at using Fundamental analysis to make profitable investments.

Published accounting statements, brokerage reports, company’s spin (opps, I meant presentations), media commentaries, and so on are akin to the finger pointing to the Moon.

The finger is not the Moon. It merely helps the viewer to locate the Moon.

If we want to study the Moon, we need to observe at the Moon directly. But some students of Fundamental analysis never looked beyond the finger of the person to whom they have asked, “Where is the Moon tonight?”

And we wonder why we fall into value and high dividend yield traps… Cheap and junk are not the same thing!

The Reflection of the Moon on the water

Using another Buddhist analogy, Technical analysis is like looking at the reflection of the Moon on the water.

Many rabid Moon-chasers have dived and drowned in their attempt to “fish” the Moon out of the water; mistaking the reflection for the real thing...

Fishermen who lived by the water calmly dry their net during the day and patiently wait for the right weather conditions before going out to sea.

Using wisdom handed-down through the generations, they look at the cloud patterns; feel the wind’s strength and direction; observe the rising ebbs and flows of the tides; and recollect the previous night’s night sky before boldly venturing out to sea.

There is bounty in the sea; but you want to make it back alive too!

That’s where Moon-chasers and fishermen differ.

Moon-chasers can’t let go of their obsession of the Moon – their “why” questions betray their Fundamental roots…

Fishermen don’t know or care for the “whys”. They just “know”. When the right weather conditions appear, they go fishing!

Those fishermen who are interested in the “whys” would have gone for their Phd in Meteorology – and they are called weather forecasters.

Weather forecasters don’t fish; they make a living selling their predictions.

Everyone loves a winner!

It’s not important how we make our buy/sell decisions. What’s important is that we make MONEY!

If we don’t make money, both the Fundamental and Technical schools will probably distance themselves from us. What an embarrassment we are to them!

If we make money, even if we never studied at their schools, they will probably trip over themselves to offer us their “honourary Phds”!

Well, once upon a time, people believed there’s such a thing as Phd in Options Trading. Finger watchers…

Nothing is free. We probably have to agree to have our photos taken and used in their next promotional materials. Spin!

Fundamental versus Technical Analysis – Part 2 of 3

2012-02-01T21:44:00.000+08:00

OK, let’s skip the pleasantries (or foreplay) and jump right into it!

Technical Analysis

Traders who practice this analytical approach believe in the 3 holy grails of:

a) Price

b) Volume

c) Time

Using different permutations of the above 2 or 3 holy grails, a whole plethora of indicators are invented. Some more “voodoo” than others!

And new indicators keep getting “invented” all the time – usually by “trainers” so they are market them as “proprietary systems”. Since its “voodoo”, you can put old wine in new bottles and call it whatever you like!

This is something Fundamental “trainers” watch with envy as Fundamental analysis is based on something that is taught in accounting and finance schools. If you can’t “patent” new “proprietary Fundamental systems”, how can you charge more than lecturers in the polytechnics and universities?

And you never wondered why Technical analysis trainings cost more than Fundamental Analysis trainings? LOL!

There are also 2 major sub-groups of this school:

1) The dog that wags the tail

2) The tail that wags the dog

The dog that wags the tail

Exponents of this school believe the price actions and volume transactions are shadows that give clues to the below 2 “perceived realities”:

a) Object has moved (Market fundamentals have changed).

b) Light source has moved (Market sentiments have changed).

Just like a sun-dial, by looking at the movement of the shadow of the pin, traders try to determine the location and predict the movement of the Sun.

Not voodoo; but employing elements of science and psychology. Brains required!

The tail that wags the dog

Less competent exponents of Technical analysis tend to belong to this school.

These traders get excited and make their buy/sell decisions just because 1 line crosses another line, mumbling something like golden or death… Or when they spot something like a hammer or a star… Or when the price breaks through some self-drawn resistance or support lines…

Voodoo… Brains not needed.

The untold truth about Technical analysis

The spider weaves his web and patiently waits for his prey to get ensnared in his web.

The spider knows an insect is caught by feeling for the vibrations of his web – just like a Technical Trader will patiently wait for his indicators to signal the moment to strike.

Now there is one interesting species of jumping spiders called the Portia.

Despite the small size of their brain, these jumping spiders outwit other spiders with hunting techniques that include trial and error.

And they employ predatory tactics that are unusually complex and flexible for a creature with a pinhead-sized brain.

For instance, they might stalk a spider on its own web and employ clever mimicry, vibrating the web in ways that resemble a small insect getting ensnared. When the resident spider comes to investigate, the Portia attacks and kills it. Ouch!

Several other tricks that these jumping spiders use, including moving across a web when the wind moves it, which makes it difficult for the resident spider to notice the movement of the attacker.

These spiders even deceive and attack members of their own species. Most surprising, they fine-tune their predatory behaviour to individual encounters.

Well, I leave it to you to figure out which sub-group of Technical analysts this jumping spider Portia belongs to ;)

Now you know what it means: “Collect school fees and teach them what to do; then you go trade against them since you can predict what they will do!”

Fundamental versus Technical Analysis – Part 1 of 3

2012-01-30T22:02:00.003+08:00

No, I am not going to explain via numbers and ratios. That’s so left-brained! Let me try with a right-brained approach.

Fundamental Analysis

Investors who favour this analytical approach like to comb through the published financial reports of companies with glee as they try to fish out useful nuggets of information for their buy/sell decisions.

There are 2 major sub-groups of this school:

1) Numbers R’ Us

2) Lazy bums

Numbers R’ Us

This group loves to dive into the balance sheet, Profit & Loss, and Cash Flow statements. Not only that, they will read and decipher every word/number in the appendixes! Numbers R’ Us are hard-core number crunchers! They would create their own spread-sheets and track the ratios of their beloved companies quarterly and annually.

I am puzzled as the only numbers I am interested in are: 36, 24, 36.

However, I treat these people with respect as they are frequently the early ones who can “smell” something is “fishy” just by looking at the numbers – especially when they don’t add up!

When in doubt, they vote with their feet and stay out.

Another interesting trait is they trust their own financial detective skills – they take responsibility for their own investment decisions. Hence you won’t find them suing the banks or blaming the authorities if they have bought Lehman mini-bonds.

For eg, if they invest in an S-chip (China companies listed in SGX), they do so with eyes opened.

Lazy bums

This group of “fundamental analysts” are outright lazy or don’t know what to look for in the numbers…

So they rely heavily on 3^rd parties to do the summaries for them. So they download brokerage reports and read what financial bloggers have to say. Listen and watch CNBC or Bloomberg commentaries – what is said in the media must be true! No?

One obvious trait is they like to quote who said what or who wrote what. They are quick to follow advice; but when things go awry, they are equally quick to “outsource” responsibility!

Eh… Are they using Fundamental Analysis? Well, they can quote the P/E ratios, net asset values, P/B, dividend yields as good as their Numbers R’ Us brethren. Just don’t ask them how these numbers were derived!

For eg, if they invest in an S-chip, they go in following the “backside” of others.

The truth about Fundamental Analysis

When you look at the Sun, you are not looking at the “real” Sun. What you are watching is the image of the sun 8 minutes ago. That’s how long the light from the Sun takes to reach Earth!

It’s the same when you look into the mirror. You are looking what you were 2 nano seconds ago. 1 nano second for the light from you to reach the mirror; 1 nano second from the mirror back to your eyes.

There lies the truth about Fundamental Analysis! Unless you are an insider, everything in the market is old news to someone else!

All published statements or reports have a time lag. The question you have to ask is how high or low in the information food chain do you belong to?

In the middle ages, buy looking at the Sun, it was the obvious “truth” that the Sun revolves round the Earth. It was Nicolaus Copernicus that pointed out that it’s in fact Earth that’s revolving round the Sun!

So next time you are doing your own fundamental analysis or reading a brokerage analyst’s report, you may want to pause and reflect:

Are you listening to the “obvious” truth (the spin others are giving you), or can you see beyond the numbers just like Copernicus?

Next post I will talk about Technical Analysis.

ABBA : Eagle

2012-01-28T20:42:00.001+08:00

Boney M and Bee Gees are 2 of my favourite Top 3 bands while growing up in the late 70s and early 80s.

But ABBA will always have a special place in my heart.

Simple lyrics and candy pop melodies, much derided by detractors, became the hallmark of ABBA's songs. What these detractors did not realize: Simple is hard!

So popular was ABBA that for several years, they were only second to Volvo as Sweden's biggest export earner!

My favourite ABBA song is Eagle.

Looking at my blog's template and my profile, you would understand why ;)

This song was also my inspiration for this poetry and prose post: If I have one wish.

What 5 balls? There's no balls - only you!

2012-01-26T21:25:00.001+08:00

I know it meant well and putting things in simplistic terms is easier to comprehend.

However, this is a classic western cut-and-slice "squeaky wheel gets the grease" way of problem solving. Place things in neat cookie-cutters and trouble-shoot!

I prefer the oriental holistic way of looking at things. There are no balls. Only you.

Instead of focusing on not dropping the balls (symptoms or manifestations); we accept that we will drop the balls - we are mere mortals.

It's how we react when we dropped our balls that really matters.

It's more about what kind of material you are made of:

1) If you are made of rubber, you can bounce back from any setbacks.

2) If you are made of steel, you can withstand the scratches from life's shocks and surprises.

3) If you are made of glass, well, you know what happened to Humpty Dumpty...

Can we change the material we are made of? That may depend on whether you belong to the Nature or Nurture school of thought!

Life goals - be as vague and broad as possible

2012-01-24T23:22:00.005+08:00

To complement my previous post on perhaps avoiding MBO and SMART goal settings for our life goals, I would like to offer some concrete examples.

Vision or mission statement by Corporate

Ideally, a company should have a vision statement by the founder. If don't have, 2nd best is a mission statement.

Take a look. Are they broad and vague? Completely different from the 1 year and 5 year goals? Why? (Hey, I asked you first!)

If your company does not have a vision or mission statement, congratulations! It's likely to be lead by a first generation business owner - the vision is still in the owner's mind. Watch and learn!

A company becomes "ordinary" when they start to copy and implement management flavour of the month/year concepts... (usually the business owner's 2nd generation or newly recruited professional managers from outside)

Anyone from my generation still remember "In Search of Excellence" by Tom Peters and Robert H. Waterman, Jr. during the 80s? How many of these "excellent" companies are still around or "excellent"? Yes, Kodak was featured in the book.

Then and Now

When we were a young man/woman and fantasizing about what we want in our other half, what were our "goals"?

He ideally would be tall and cute like Beckham. Ambitious, career minded, have stable income, owns a car, can afford a nice apartment, blah, blah, blah.

She ideally can go from 0 to 100 km/h in less than 10 seconds, has a V12 engine, and comes in red, black, or yellow... LOL!

If you are married, roll-over and take a look at your other half. Anything closed to what you have "planned". Stop laughing. It doesn't matter right? Once the right one comes along, you knew it instantly!

If still unmarried and wishing you were, you may want to reflect whether your "goals" are hindering or limiting your search...

Not recognizing what we really want in Life

When I looked backed at my 44 years, did I planned all these? OK, you may challenge I had my 12 months to financial freedom goal.

Ah! Don't get me wrong. MBO and SMART goals are great for specific targeted things we want to achieve - that's the power single-minded focus!

But if success is measured by what we have to give up to achieve it, have you ever wondered what if some of those things you have "sacrificed" are those you would like to achieve your life goal?

During my posting to Shanghai, I've seen 3 expat divorces - two European couples, and I Singaporean couple.

Woman, if you prefer to stay in Singapore to further your career and let your hubby go to China without you, the chances of your marriage surviving is less than 50%.

Brother, if you go to China without your wife, your life goal is definitely not about having a complete and loving family...

My Life Goal

What about me? Talk so much. Show us the money you say?

My life goal is simple: I want to be happy.

I am not an evangelist. You have to fill in the blanks yourselves.

Morning walk at Portsdown Road

2012-01-22T13:53:00.001+08:00

I took a walk around a part of Queenstown that I’ve never ventured in for the longest time.

After walking along Commonwealth Avenue, I turned into North Buona Vista Road, passed the Ministry of Education, and right opposite ACJC, I turned into Portsdown Road.

Finally I can see the gleaming buildings of Biopolis and Fusionpolis up close.

But I’m not here for the new and the future.

I’m here to take my morning walk and visit the black and white bungalows of yesteryears. It was 10 am on a Sunday morning. No cars, no people. Everything was still and quiet.

It reminded me of Sweden where I can take long walks in the forest without ever meeting another soul.

Great for meditation and reflections.

Have I found a quiet sanctuary in crowded Singapore? Hope the quiet and solitude is not because today is also CNY’s eve…

A chance discovery! One North Park. They have a park here? Must check it out next time. Explore cutting through the park instead of taking Portsdown Road next time?

Shower in Gold

A gust of wind bellows against the trees. The yellowed leaves left their anchors on the branches and gently flicker down toward the road.

Against the dark of the shadowed trees in the background, these fallen leaves caught the rays of sun behind me, sparkles and glitters in golden sunlit ecstasy as they sashayed passed me. Totally oblivious to my presence.

I stood rooted to the ground, watching this impromptu performance. A feeling of joy ever so brief erupted from my heart. So beautiful, so transient.

Hustle and Bustle

When I have recovered from my stupor, I continued pass the Tanglin Trust School. At Woking Road, I found a dirt trail amongst the black and white bungalows at the Wessex Estate along Woking Road.

Followed the trail, crossed the former railway track, and through the trees, I ended up at the Tanglin Halt Market and Food Centre! Long snaking queues at the few hawker stalls that were open. Lots of uncles and aunties making their last minute buys at the market stalls.

Back to reality. Back to my HDB heartland.Full of sound and colour!

My barrier – A railway track?

I couldn’t help reflecting the contrast between the two sides of the railway track. And why a simple railway track has prevented me from “crossing-over” all these years…

Was it the physical presence of the track acting as a natural demarcation, on was it more a social and psychological barrier of mine – between a bungalow area and a HDB area?

I wonder.

Are there more railway tracks that prevent me from exploring the other side?

Do Management by Objectives (MBO) and SMART goals work for our personal lives?

2012-01-20T11:38:00.008+08:00

I am getting philosophical recently… OK, it’s probably I have too much time on my hands? But what else can a Man of Leisure do besides play and mind fish with himself?

MBO

In corporate life, this is one of the most helpful management tool popularized by Peter Drucker – the father of modern management.

It provides a measurable yardstick to measure the performance of workers and managers, and in Singapore, our Ministers too!

Now it’s more fashionable to call them KPIs (Key performance indicators). A rose by any other name is still a rose.

SMART goals

Specific, measurable, attainable, realistic, timely. Yup, these are the kind of goals we give ourselves or were thrust upon us in corporate life to make us jump through hoops!

Skill in goal setting

This puts a tremendous onus to ensure the goals we are pursuing “makes sense”.

Let’s take the recent Ministers pay revision. In the past, it was single-mindedness focus on GDP growth. Now we are “twicking” it to make it more palatable to the masses.

So was the focus on GDP “wrong”?

Sometimes I wonder why we complicate things and love to re-invent the wheel. Let’s look at our Singapore’s pledge:

We, the citizens of Singapore,

pledge ourselves as one united people,

regardless of race, language or religion,

to build a democratic society

based on justice and equality

so as to achieve happiness, prosperity and

progress for our nation.

Focus on GDP is prosperity and progress – ticked off. We just need to add a happiness index? Of course to be happy, we need united, democracy, justice, and equality as the building blocks first?

I wonder do we have all the former qualities and only lacking progress and prosperity; or do we only have progress and prosperity and nothing else?

Single-mindedness focus good – but with blinkers on

MBO, KPI, SMART goals are used by hired hands to judge and measure other hired hands.

It’s great to move the whole organisation in the same direction towards a common goal.

However, that would mean any initiatives or opportunities that do not “fit” into our 5 year business plans or our KPIs will be tossed aside. Be honest. Would you waste your time on a task that does not help you in achieving your year-end bonus KPIs?

Kodak’s recent bankruptcy is a good case for reflection. It’s a “blue-chip” company too! As a shareholder, how would you measure the companies you have investments in? What KPIs would you set for the management?

And if you are a business owner, you probably must be lying awake thinking how many money making opportunities your professional managers are throwing away all because it’s not part of their KPIs…

Perhaps that’ why entrepreneur CEOs like Charles Branson of Virgin and Li Ka Shing of Hutchison Whampoa behave differently from professional CEOs.

When they see a business opportunity, they dive right in! Never mind it’s a totally different industry! If it makes money, they invest more. If it lose money, they pull out.

I wonder how many of Charles Branson and Li Ka Shing’s management team will dare tell them that they should stick within their core-competencies and not spread themselves too thin?

If we ask Charles Branson and Li Ka Shing did they “plan” their achievements, they would probably have laughed.

I am so glad to have worked in IKEA. To me, IKEA is one of the most successful companies in adopting Management by Stumbling Along (I think the management will disagree with me). Without it, I would not have this insight.

Life goals

With the realisation of the limitations of KPIs, MBO, and SMART goals, now why would I “limit” my life with such goals? I already had enough of them in my former corporate life. Bring work home? You must be kidding!

No New Year resolutions; no life goals. I am just happy to flow with the wind.

And maybe one day as I walked towards the Western Paradise and passes by the Gates of St Peter, St Paul would invite me in for tea? I guess he would not mind me being a heathen.

Flow with the wind is perhaps euphemism for in God we trust.