Favorite Thoughts

How Women and Men Behave Differently

2012-07-09T18:21:00.000-07:00

A couple of weeks ago, I attended a seminar hosted by Rothstein Kass titled: What Are The Critical Success Factors For Women In This Industry? The industry refers to the investment management and venture capitalist industries. Rothstein Kass as a firm has a great focus on promoting women in career, leadership, and other life initiatives, which makes them a great host for this kind of event.

There were 3 panelists, all female, naturally, and 1 keynote speaker. Many great points were discussed, but to me the most interesting was the discussion by the keynote speaker about how men and women behave differently, which are as follows:

Men ask for forgiveness; women ask for permission.
Men know that they cannot make everyone happy.
Men ask for what they want.
Men tell people about their promotion; women want others to tell.
Men don't take things personally.
Men are promoted by their potential; women are promoted on their performances.
Men help each other out.

The last two points particularly left an impression on me. Women are not natural risk-takers. They want to be confident that they can do a job before asking or going for it. However, men are more risk-embracing; they go for something they even have no experiences in, and can sell themselves pretty well into it.

As to the last point that men tend to help each other out more than women, one logical explanation is that there are just fewer women in senior positions, so these women naturally want to protect their positions, and may not be willing to really help other women out to gain a better position, for fear of losing their places.

One women entrepreneur friend also shared with me her experiences. When she started out her business, her male business associates referred more businesses to her than female counterparts. Her male friends may not know her or her skills that well, yet they are willing to recommend and help her. Why not female? Is it because female worry too much about their own reputations, or female do not want to help other female out as much? I can see that women-focused industry associations still have a lot of work to do in promoting "women helping women".

Some other great advice:

Work with unparalleled work ethics.
Focus, focus.
Be an expert in something.
Never stop experimenting and learning.
Seek out the best possible teachers.
Work with/for smart people.
Never give up.
Always give back.
Have an impact, stake your claim.
Help other women.
If you want something, ask; if you are turned down, ask again!

(Source: quinn.anya/Montreal Museum of Fine Arts Construction Fund Raiser)

The Power of No

2012-06-02T19:06:00.003-07:00

I took a look at my internet bill today and noticed that my rate was bumped up $20 per month starting in June. Then I remember the promotional rate I was given must have ended. Given everything is negotiable in this country, I would give it a try. I called my internet company and talked to 3 different people. The first one said they can upgrade me to a faster service with twice the speed with their affiliated company but I have to pay $10 more per month than what I am paying now. Not bad, but I would rather pay the same price for the same internet speed.

I was passed to another department to see if there is a better promotion. The next one told me there was nothing she could do for me. She said I was not even qualified for the faster service's promotional rate because I was not a new customer. So I asked her to transfer me to the cancellation department as there were other options out there for me. So I talked to a third person who completely understood my situation and researched if there were new promotions available. Then he told me I would be qualified for the new service at their affiliated company, twice the speed at only $5 more per month for the next 12 months. I thought that was terrific. Remember the first lady offered me the same service at $10 more per month.

But then a problem came when he wanted to get my information to open a new account. He told me the computer could not take one letter for the last name; indeed my last name has only one letter. I said surely the parent company had no problem before and he should be able to use my existing information. He said no and asked me if I had another surname. At this point, I was getting late for my train, so I told him no thank you for the new service, I would have to call him back. He immediately found a way to override the system and miraculously opened the new account for me so that I can have the new service in 4 days. In addition, he even knocked my current bill down by $20. My lesson learned today is: say No positively and people would respond in a positive way.

How Much Fruits and Veggie Should You Eat?

2012-05-04T12:13:00.001-07:00

I was scratching my head a bit as to the the right amount of fruits and veggie that I should eat per day. The American MyPlate advocates one should fill half of each of your dinner plate with fruits and vegetables. Still I want to know how much is a cup of fruit or 1/2 cup of veggie.

Here is the chart from: http://www.fruitsandveggiesmorematters.org/how-much-do-i-need. According to the Centre for Disease Control and Prevention, for a moderately active woman aged 19-51, one should eat 2 cups of fruits and 3 cups of vegetables. For a moderately active man, one should eat 2 cups of fruits and 3 1/2 cups of vegetables. For people who need to control their blood sugar better, I would recommend cutting up their fruit and eat them regularly during the day.

Great Outdoors of Hong Kong - the Hong Kong Museum of Coastal Defense

2012-04-14T00:15:00.001-07:00

When I was growing up in Hong Kong, I learned that the British who governed Hong Kong for over 150 years built up fortifications to defend their tiny colony from external threats. Never did I once visit any of the forts, counting at least 10, in Hong Kong until my last visit back to Hong Kong in March this year.

I was pleasantly surprised to discover such a historical and beautiful museum called the Hong Kong Museum of Coastal Defense previously called the Lei Yue Mun Fort, built in 1887. The Redoubt was the core structure of the Lei Yeu Mun Fort, and contained barracks, batteries and a large open area for soldiers assembly in the old days. The Museum is situated at the north-easterly tip of the Hong Kong Island in Shau Kei Wan. The Lei Yue Mun Fort was the most formidable fortification built by the British Royal Engineers against attacks by the French, Russian, and most importantly the Japanese during the Battle of Hong Kong in 1941.

The Museum has a superb view of the Victoria Harbour obviously because of its strategic and high position. The Redoubt is now 2 floors of galleries with the first floor containing 11 permanent exhibitions titled "600 Years of Coastal Defense in Hong Kong" and other special exhibitions, and the second floor containing thematic exhibitions, a small theatre and a children's corner for computer games and drawings. The second floor balcony opens to the views of the beautiful Victoria Harbour and many military structures including the famous Brennan Torpedo station which was believed to be the most powerful underwater weapon at that time.

I took some pictures of the exbihitions: the Chinese junk battleships (hard to believe they would be able to fight the iron ships of the West), the Redoubt gallery, a tank, and last but not least, my 6-year-old nephew's impression of a war plane after he urged me to visit this Museum and then drew me this gift during the visit.

Click to enlarge picture

Investment is about Human Behaviour

2012-02-18T23:22:00.000-08:00

Great investors are often articulate writers who openly share their investment views and philosophy in open newsletters or annual reports. My own favorite reads from great investors in no particular order are: (1) Warren Buffett's Berkshire Hathaway's annual shareholder letters (2) GMO's co-founder and chief investment strategist Jeremy Grantham's quarterly newsletters and (3) Oaktree Capital Management's chairman Howard Marks' Memos.

Today I also had the pleasure of listening to Howard Marks' webcast at the CFA Institute about his latest book "The Most Important Thing: Uncommon Sense for the Thoughtful Investor" and how investment theories and practices diverge.

I not only share his philosophy of investment is first and foremost about protecting your downside, but also enjoy many of his favorite quotes about the human side of investing which is a great reminder for all investors:

"What the wise man does in the beginning, the fool does in the end" (also one of Warren Buffett's favorite quotes, essentially saying people generally rush in as prices are elevated and sell when prices have slumped).

"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so" - Mark Twain. (It is better to know what you don't know).

"Never forget the six-foot-tall man who drowned crossing the stream that was five feet deep on average" (surviving the outlying events is what counts for funds).

"It is better to fail conventionally than to succeed unconventionally" - John Maynard Keynes (describing typical institutional investors' risk averse attitude for their career sake).

"Randomness alone can produce just about any outcome in the short run" (Howard Marks' interpretation of ideas in Fooled by Randomness by Nassim Nicholas Taleb - a favorite book of Howard's).

Howard Marks' conclusion particularly resonates with me as we both believe in "margin of safety" in investing and the abundance of "inefficiencies": "Smart investing doesn't consist of buying good things, but rather of buying things well. Price is what matters most for investment success. Only disciplined, objective, unemotional, expert investors can know the right price."

To supplement this conclusion, I also want to refer to something Malcolm Gladwell said in his profile on Nassim Nicholas Taleb on his website: "There is more courage and heroism in defying the human impulse, in taking the purposeful and painful steps to prepare for the unimaginable."

It was a very well-spent 45 minutes. Lots of things to contemplate about the human side of investing.

How to Cook Better

2012-02-15T23:46:00.000-08:00

10 years ago, I would not even think of buying a cookbook, let alone reading one as if it were a book. How things have changed. My favorite pastime includes reading cookbooks (especially ones that tell great stories such as "The Seventh Daughter" or "Gluten-free Girl and the Chef") and food blogs. One of the reasons is that I realize I have to invest more time to eat better and to cook better - things which are in my control to maintain good health.

A couple of weeks ago, I attended a 1-hour Nutrition 101 talk by food blogger and health writer, Darya Pino, whose website: summer tomato becomes an instant favorite of mine. Just in 1 hour I learned how to cook better, several ideas for breakfast and lunch, what staples you should shop, how to eat (mindfully), how to snack and how to eat healthy when eating out, etc.

I especially like her 4 essential tips for cooking which she repeated in her blog here:

(1) Start with great and fresh ingredients;
(2) Do not overcook food especially veggies, meat and eggs (this is a big tip for me, yet the idea is so simple);
(3) Use more salt! This may sound controversial. Apparently 75% of sodium comes from the processed food we eat. So if we do more home cooking, we will dramatically cut down on sodium anyway so a bit more salt in our food will not only make our food taste better but also will not do that much harm to our body.
(4) When in doubt, add some acid such as vinegar and lemon which will also brighten the food.

While Darya's food blog is filled with tips, colours, articles reviews and recipes, the stonesoup food blog in contrast is a minimalist blog which is extremely refreshing to look at, and has wonderfully simple recipes. The blogger Jules Clancy also produces a video for each blog which is very easy to follow. To round up my favorite blogs, here is an Asian-inspired food blog which is inspiring too. When I run out of ideas to cook, I type in an ingredient and viola! several dishes come out. Then if you like Japanese food and bento-making, this colourful blog is just a delight to look at (Japanese is the Master of making everything looks so good).

I am just thankful for the invention of web and blogs.

21 Days of Inspiration and Daily Challenge

2012-01-17T09:25:00.000-08:00

It is still not too late to register for the Chopra Centre's 21 Days of Inspiration online program at http://www.chopra.com/. Program has already begun on January 15 while registration ends on January 21, 2012 (I believe, U.S. Eastern Standard Time). It is all free.

I have already been inspired by the subject of transformation, gratitude and purification. Each day I will read a bit about the "Seven Spiritual Laws of Success" and ponder on the daily inspiration and explore a new activity.

To quote from today's Daily Inspiration:

As Ayurveda teaches, when we quiet our minds and listen to the wisdom of the body, it will tell us what we need to know. Tune into your innate knowing today and let it guide you.

This, the Daily Challenge (http://www.chopra.com/ ) from the Chopra Centre as well as this inspiring book called Beyond Wealth are giving me lots of new ideas to improve my overall well-being for the New Year, the Year of the Dragon.

Also here is the link for the registration for the 21 Day Meditation Challenge for Winter 2012 which will begin on February 20, 2012.

The Year of Distressed Sovereigns

2012-01-05T18:46:00.000-08:00

In our investment process for emerging markets, we'd like to describe typical phases of market development of a country going from distressed, stabilizing, reforming to converging. An emerging market can move backwards from its current phase too. Therefore an emerging market may have emerged/converged, but due to bad economic policy or political leadership, the country submerges and goes back to the distressed phase e.g. several of the investment grade-rated Asian countries during the Asian Crisis in 1997-1998 or several of the Baltic countries during the 2008 global financial crisis.

We normally would not apply these dynamic phases of market development to developed markets including the US, Japan and Europe. But there you have it. This may look like the year of many developed markets going into the distressed phase.

A recent Bloomberg article calculates that the world leading economies have more than $7.6 trillion of debt maturing in 2012 ($8.8 trillion if interest burden is included) and face rising borrowing costs.

Here are the redemptions schedule of the G7 + BRIC countries for 2012 (source: Bloomberg):

These are large numbers. According to the Boston Consulting Group (BCG), the numbers are more alarming if the costs of providing for the elderly are included in the government's liabilities:

The above takes into account the government liabilities only. OECD tabulated that the 18 core OECD countries total debt to GDP (counting government, non-financial corporations and household debt) rose from 160% in 1980 to 321% in 2010. BCG estimates that should we need to stabilize total debt at 180% of GDP then the debt overhang would be €6 trillion for the Euro zone and $11 trillion for the U.S.; should the debt ratio be stabilized at 220% of GDP, the debt overhang would be €2.6 trillion for the Euro zone and $4 trillion for the U.S. That is the amount of debt that needs to be reduced.

The European Banking Authority has just announced that European banks need to recapitalize a further €115 billion which could imply that the banks need to retrench their balance sheet by €2 trillion.

Essentially to reduce debt, a country can save more, grow more, default on its debt or inflate the debt burden away. With fiscal austerity program in place simultaneously for many developed countries, growth, unemployment and therefore consumption would bound to suffer. To ask the countries to save more is to require them to run higher trade surplus. However global imbalances mean that the surplus countries cannot simultaneously increase their consumptions fast enough to save the trade deficit developed countries. That leaves debt default/restructuring and inflation, which seem to be the roads inevitably being taken.

When the Fed started raised interest rate abruptly in 1982, several of the spendthrift developing countries simultaneously defaulted. Unless the Fed and European Central Bank engage in large-scale quantitative easing to "underwrite" the sovereign obligations, voices of debt repudiation are ringing louder and louder that several of the sovereigns could simultaneously default (this time is the developed countries).

6 habits of happiness

2011-12-29T18:55:00.000-08:00

The Berkeley Greater Good Science Centre reminds us the 6 habits of happiness: the one I like the best but is easily forgotten is gratitude. Gratitude helps to bring you back to the present moment, appreciate what you have and not overly focus on what you don't have or your misfortunes. This is especially important among couples who may easily complain what the better half is not doing right but forget to give thanks or praise to what the other is doing great. It is good to quickly think about 3 things (whatever comes to your mind) on a daily basis you are thankful for, and try to tell your better half as often as possible: I appreciate it when you ......

Eating Mindfully

2011-12-26T00:26:00.000-08:00

Merry Christmas and happy holidays to all!

I hope to write about eating, one of the favorite activities during the holiday season. Like many people, I am concerned about what I eat, to make sure what I eat makes me healthier and stronger and on occasions brings me great pleasure and memories. But then I realized I spent little time to think about how I eat. I don't mean using forks or chopsticks to eat, but in what state of mind do I eat.

In October, when I was visiting my parents in Hong Kong, while we were having dinner at home, they commented that I ate too fast, did not seem to chew my food and even made slurping sound as if I were eating Ramen noodle! Then I started to observe some other Chinese people eat say in a professional conference luncheon setting. To my surprise, men and women alike usually do not eat that fast; they pause in between bites. I was surprised because I thought Hong Kong is such a fast-paced city that every one is pretty much stressed and focused on efficiency and wants to finish her meal quickly. Now I found out I was the one who is stressed out!

Then more recently I have been reading this wonderful book called "Beyond Wealth" by a financial adviser called Alexander Green who talked about "How to Eat like a Zen Master" in one of the chapters. His book is really about how to live and to focus more on spirituality, meaning, new discoveries and ideas. In this chapter, he talked about his experience with sandwich thieves - you know the sandwich thieves appeared when you thought you made a meal for yourself, but you were so consumed with what you were doing (apart from eating), thinking, planning that you did not know what you had been eating, and worse still, you ate so fast that you did not chew or even know you have finished eating everything without tasting a thing in your mouth of what you just ate. How many times have we experienced that? I realized that I experienced that quite often.

So it is really wonderful when I came across Alexander Green's chapter on practicing eating like a Zen Master with Thich Nhat Hanh, my favorite Zen Master whose books I first came across when I studied at Berkeley (my favorite of his is called "Peace is Every Step"). To quote Alexander and Master Thich Nhat Hanh, there are seven practices of a mindful eater:

1. Honour the food.
2. Engage all your senses.
3. Serve modest portions.
4. Savor small bites.
5. Eat slowly (very important to me - I have to remind myself to chew many times and set my fork or chopsticks down between bites).
6. Eat regular meals (this one I always do).
7. Eat a plant-based diet (I am also eating more vegetarian dishes).

These serve as very good reminders. Eating mindfully would allow you to appreciate your food better, make a better connection with the present moment which can help your digestion.

Thank you Alexander and Master Thich Nhat Hanh!

Beautiful tribute to Steve Jobs from a fellow countryman

2011-10-07T20:05:00.000-07:00

On the day of Steve Job's passing away, I am in Hong Kong. By lunchtime on Thursday, people were handing out free newspaper on the street making tributes of this genius. Even my 6-year-old nephew asked me with a serious concern, "would we have any more iPhones?"

Steve Jobs' passing away aroused so much emotion and beautiful words about him that I could not but marvel at this man's influence on our daily lives. I am particularly proud of this beautiful logo created by Jonathan Mak, a 19-year old student from Hong Kong, as a tribute to Steve Job. Jonathan created this in August to honour Steve Jobs' departure from Apple. With Jonathan's reposting of this logo on his blog upon Steve Jobs' death, he received 180,000 notes in one day and several job offers later because of his beautiful and thoughtful design. He said that any funds raised because of this logo would be donated for cancer research. Like him, I am a late adopter of Apples' products, but the impact on my life has been tremendous.

Gold stocks and gold updated

2011-08-19T17:21:00.000-07:00

Another year of sovereign debt uncertainty in Europe/US and dollar debasement has led to gold price soaring by 33% year-to-date to today, and the gold ETF (GLD) tonnage increasing to 1290.76 tonnes or about 41.5 million ounces (equivalent to 48% of gold produced in 2010). While gold price is surging, gold stock index (ETF: GDX) is sorely lacking behind. While GLD (orange line) has doubled since July 2, 2009, GDX (green line) has gone up by "only" 61%, as these gold stocks are inherently more correlated with general stock market performance and are also impacted by rising operating costs and country risk. If gold price stays at this kind of higher level, and the broader market stabilizes, gold stocks should do very well.

(Click to enlarge, source: Bloomberg)

I have updated my previous gold stock evaluation piece. Here I rank the gold stocks by Enterprise value/gold reserves from the highest (most expensive) to the lowest (least expensive).

Among the larger gold miners, my own value screen likes Gold Fields, Anglogold Ashanti, Barrick, Newmont (representing one-third of the GDX ETF). The emerging market gold miners (especially those in Russia and Central Asia) continue to trade very cheap e.g. Centerra Gold, High River Gold and Petropavlovsk. Execution ability of management is a prized object.

Emerging markets versus developed markets

2011-07-22T14:16:00.000-07:00

I recently updated the world market capitalizations by looking at the equities, local bonds, international bonds in the developed and emerging/frontier markets, as well as the market capitalizations as a % of regional (nominal) GDP. This gives us a big picture view of the investable universe of securities (commodities and currencies are excluded for now).

My observations:

• Developed countries have 88% of total marketable debt in the world but have only 63% share of world GDP, in contrast to emerging/frontier countries which have 12% of marketable debt but 33% of world GDP. Developed countries on the other hand represent 72% of world equity markets, while Emerging Markets, 28%.
• Developed market total marketable debt/GDP is 193% vs. emerging/frontier markets of 52%.
• Both Emerging Market EMEA (Emerging Europe, Middle East and Africa) and EM Latin equities as % of total and debt as % of total are smaller than their world GDP share; which means the potential for both equities and debt for these regions to do well. EM Asia's equities as % of total is the same as its world GDP share though its debt as % of total is only at 7% compared to 17% of GDP share.

(please double-click to enlarge)

So where would you rather invest for the long-run?

Organizational structure of 6 big high-tech companies in cartoon

2011-07-08T19:02:00.000-07:00

This is simply my favorite chart of the year which has been re-tweeted by many in the past week. Manu Cornet, the engineer behind the Gmail themes drew these organizational charts of the Big 6 high-tech companies in the U.S. in the Bonkers World blog. Many comments on the charts came from people who are working and have worked in those companies. The charts are so funny because they depict pretty well the true picture. A few persons commented the legal department of Oracle is not large enough; at Google, essentially no one knows who is doing what and most of what they are doing is a company secret anyway. A question comes, what if the red dot (read "Steve Jobs", "God") is gone? And there is still one sane company around: Amazon. What if the author draws a picture of the structure of the U.S. Government, that would be fun to see.

Restaurants - markups and bargains

2011-06-24T21:54:00.000-07:00

A few weeks ago, I read an article from a local newspaper deconstructing the markups at restaurants. One can easily guess that drinks and booze are by far the largest profit makers (per $) for the restaurants. In general, the restaurant does not want the cost of the spirit per each dollar it sells to be more than 22 cents. The markup is eye-popping:

wine by the glass: up to 5 times
tea: up to 10 times
fountain soda: up to 20 times

Some food also commands outsized markups:

eggs: 5 times
pizza: up to 8 times
some pastas: 6 to 10 times

However what is interesting is that restaurants actually break even or lose money on some items:

organic vegetarian pasta: break even
rib-eye steak: break even or lose
dungeness crab: lose
oysters: (each 1$ oysters, restaurant loses 50 cents)

(Source: SF Chronicle)

Surely, the markups have to pay for the labour and energy costs, as well as liquor license, insurance, etc. Though I rarely eat steaks/red meat, but if I do, I will definitely eat it at a restaurant - my guilt is lessened as my purse is better taken care of.

iPad 2 craze and corruption

2011-06-05T13:27:00.000-07:00

As my siblings and I are contemplating to buy an iPad 2 for our Dad in Hong Kong for Father's Day, my brother in Hong Kong told us that iPad 2s were still out of stock there. There is no official Apple store in HK, so resellers, typically large electronic chain-stores such as Fortress allows customers to buy 2 iPad 2 per day (with a catch that the "preferred" customer is expected to buy a second product from the store of at least HKD2,000 or USD256). Even before the day of legal sale (April 29) of iPad 2 in HK, iPad 2s had already travelled from the U.S. (which started selling on April 3) via students, buyers, etc. and had fetched prices in the grey market almost doubled that in the U.S. There are often long queues in front of the HK stores for iPad 2, not just because they are popular in HK, but because there are Hong Kong people who are "hired" by buyers from mainland China where iPad 2 is still not available for sale. Allegedly a person who brought an iPad 2 into China can get a rebate of about USD60 per iPad.

The story gets more interesting as reported by Apple Daily (a Hong Kong newspaper) and an Apple Daily video translated into English by M.I.C. Gadget. Apparently, a man in a black T-shirt bought 40 iPad 2s in one day at a Fortress store in HK. He brought a crowd of 19 people with him who stood aside while he was purchasing, but the man was not seen to have purchased any secondary products at the store. The man took the 40 iPad 2s and exchanged the iPad 2s with a buyer at a phone shop at a Mongkok shopping mall for a stack of cash. The Apple Daily reporters calculated that all profit (stack of cash minus all the expenses paid to helpers, store employeers as rebate, etc.) earned by the man in black with the 40 iPad 2s (wifi+3G, 64GB) amounted to USD2,290. Why could the man buy all the 40 iPad 2s while others in the queue not? It is because apparently store employee can give out the news when the iPad 2s will be in stock and earn a rebate of up to USD13 per iPad. The anti-corruption agency, ICAC, Hong Kong got wind of the problem and investigated people at the Fortress store and the shop at Mongkok and others and seized 500 iPad 2s.

Then I read another story about a 17-year-old boy in China selling his kidney for iPad 2, an iPhone and some bonus...

I think my siblings and I had better wait after the iPad 2 craze has died down, and if we are lucky, we maybe able to get an iPad 1 for our Dad.

[Update:: No more scrambling - the official Apple Store was launched in Hong Kong in September 2011].

Learning from hedge fund legends and other leaders

2011-05-22T20:05:00.000-07:00

Last week I had the great opportunity to attend a huge conference in sunny Las Vegas for the alternatives investment industry. Organized by Skybridge, the conference attracted between 1500 to 1800 attendees including speakers, managers, service providers, and investors which include family offices, fund of funds, corporate treasurers, universities, pension plans, endowments, foundations and other institutional investors. The conference has the reputation of a Davos for hedge funds, and the planning, speakers lined-up and execution were excellent.

There were many interesting speeches and a few ideas stuck with me:

Macro themes:

Views by economists on the 2H and 2012 growth prospect of the U.S. economy and the outlook for the S&P index were as contrasting as day and night though there is no doubt that corporate credit/cashflow/profitability (40% of the latter is coming from overseas) is very strong, which is a catalyst for more capital expenditure and stronger aggregate demand.
Macro factors have been driving performances in most investment strategies, and have overwhelmed equity fundamental long/short portfolio; however more managers are expecting lower correlation of asset classes going forward, with increasing dispersion of performance within sectors, and a better environment for bottom-up or event-driven strategies, and therefore alpha-seeking.
A Harvard economic historian is warning last 500 years of Western dominance is ending with key decisions going to be taken in Asia (China/India) and not the West in the next 20 years. A similar warning is made by Milken Institute that while U.S. consumers are spending almost 50% on housing and transportation but 2% on education, Asia is focusing more much on education, about 15%; and the 21st century is about development of human capital.

Hedge fund operation and business:

Hedge funds need to acquire institutional quality in the areas of back office, capital raising, independent fund administration, internal control and audit environment. About 70% of the capital flow for hedge funds come from institutional investors which demand robust system and information that is repeatable, reliable, inventoried, audit-able and consistent. The latter means hedge funds need to move away from Excel spreadsheets for tracking performance and risk but build a repeatable and control process that can be shared.
For best practices of hedge funds, Merlin Securities in their white paper on "The Business of Running a Hedge Fund" suggests that those hedge funds that operate within the "Green Zone" of revenue/expense versus assets under management (AUM), which means funds which keep their fixed expenses lower than their management fees rather than rely on an out-sized performance fee, have a better chance of weathering downturn and surviving for the long term.
On top of data transparency, investors are insisting on "social transparency" - the culture and type of characters of managers investors are dealing with are very important.
Be very good friends with capital introduction group.
Think about the behaviour of your investors especially in a downturn.

From hedge funds legends and leaders:

- On building culture and an institutionalized business:

Important to understand what your values are and make sure all employees understand these values. Alignment of firm with leader is key to success of firms.
Keep a team P&L and emphasize team effort, collegiate culture, common sense, pollination of ideas and employee self-improvement.
Put process before outcome - investing, recruiting, and training all need to be consistent.
Use crisis to build up talents, infrastructure and trading systems. The head of Skybridge who was the chief organizer of the conference told how Skybridge in 2009 was almost "a blown-up Bridge" as the fund of funds business was deeply declining. Yet, he made a "marketing offensive" and took the cue from President Obama who suggested citizens should invest in the stock market in 2009, and launched the first Skybridge conference in Las Vegas to stimulate jobs there and to tell everyone out there that Skybridge is still alive. Skybridge is now running $8bn in AUM and the number of conference attendees jumped from 400 in 2009 to almost 1800 this year.

From the World Leaders:

The highlight of the conference was CNBC Melissa Lee's interviewing President George W. Bush, who was promoting his recent book "Decision Points." It was heart-warming to hear how President Bush made decisions during the 2008 financial crisis. President Bush, who did not know anything about the "TED spread" praised and gave his complete trust to his Treasury Secretary, Paulson as well as the Central Bank. He also made the point the way to combat global terrorism is to promote democracy and freedom. "The long-term solution is to promote a better ideology, which is freedom. Freedom is universal." The presidential comment won a big round of applause.
It was fascinating to hear former U.K. Prime Minister Gordon Brown cheering for the U.S., praising U.S. outright as the most innovative and dynamic country in the world, and urging U.S. to keep up with the optimism to recover and dig out from the fiscal mess. PM Brown also did not believe that the Euro would break up as the European Union was a political decision from day one.

From Freakonomics' authors:

One should take time to think, to develop insights and ideas which is particularly important for hedge fund managers who should go find something to distinguish himself or herself, often the less desirable the better.
Discussed declared preferences vs. revealed preferences - ideas come from data, but in understanding data, you need to know what really happens in real life versus what other people want you to know.

Graduation speeches

2011-05-18T18:01:00.000-07:00

Reading the recent commencement address to UC Berkeley Haas School of Business MBA Class of 2011 by Barbara Desoer, I flashed back to my own graduation ceremony from the Haas School umpteen years ago. At that time the commencement speech was given by one of the most powerful men in Silicon Valley, Andy Grove, then Intel's CEO. I do not remember much of his speech but I remember very well how I felt after the speech - intimidated - that I have to be prepared for a dog-eat-dog world, and I had better understand how "only the paranoid survive." Ms. Desoer speech was much less of a warning of the competitive reality but more of a sharing of her values which are very enlightening.

In particular, while I am a bit shocked to hear her advocate "single-tasking" in this world where everyone champions the need of multi-tasking, I am secretly agreeing whole-heartedly what she is saying. What follows is part of her beautiful speech, and I think the most important to me:

QUOTE
Which brings me to my last word of advice - value. There is a horrible modern phenomenon that I am going to beg all of you not to fall prey to – multi-tasking. It may seem like you’re being more productive, excelling at time management, and impressively dexterous - texting, tweeting, listening to a commencement speech – all at the same time.

But, I’m convinced as a society we’re more anxious and stressed because we’re trying to do too much at once – and in doing so end up doing none of it as well as we could. So, I’m going to champion single-tasking.

Focusing your mind, time and energy – to bring the full value of what you have to offer to the task at hand, to your passions, your family, and your community. To be fully present in all your endeavors. To make courageous choices – deciding in the face of competing demands where you will get and give the most value.

Strive to bring value to those around you, to make a difference for those in need, to give back out of the abundance each of you has been given and in so doing earning rewards more enduring than career accolades.

Because, what really matters in life is connection – not connectivity. Relationships – not quantity of Facebook friends. Investing in people and communities – not investments.

A quote that has always had meaning for me and I keep above my desk is this one by Maya Angelou: “I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel.” A great example of value in your relationships.

UNQUOTE

Confusion on inflation

2011-05-09T22:40:00.000-07:00

Several days ago, I attended a meeting with the Chief Strategist of BCA Research, an independent research house, to discuss key issues in the economic and financial outlook. The biggest debate between the audience and the speaker was about inflation.

Based on BCA, there are three mechanisms that drive inflation: (1) monetarism - too much money chasing too few goods, (2) cost-push - rising input prices force companies to raise prices and (3) demand-pull - an economy growing strongly will give companies more pricing power and workers more wage bargaining power. But BCA does not think the U.S. has an inflation problem (at least for near-term), and pointed out the evidence of subdue broad money (M2) growth and bank lending growth, small impact of rising food and commodity prices on final output prices, and the slack and high unemployment rate in the economy is preventing wages from rising, which means with rising food and commodity prices, workers are cutting back on other spending items as workers cannot demand higher wages.

The U.S. Federal Reserve (Fed) focuses on core inflation (consumer price index stripping away the more volatile components of food and energy) as a better predictor of future headline inflation. Core inflation averages about 1.5% in Q1 2011, lower than the 2% target of the Fed. This has invited lots of criticisms as if the Fed presidents do not eat or do not drive as rising food and commodity prices are clearly eating deeper into consumer's income and headline inflation is rising towards 3%.

The Atlanta Fed president, Dennis Lockhart, did make an important point about inflation confusion in his February speech:

"Let's review what inflation is and is not. Inflation affects all prices. Inflation is not the rise of individual prices or the rise of categories of prices.
"I want to contrast inflation to the cost of living. In casual language, we often interpret a rise in the cost of living as inflation. They are not the same thing. Cost-of-living increases are a result of increases in individual prices relative to other prices and especially relative to income. These relative price movements reflect supply and demand conditions and idiosyncratic influences in the various markets for goods and services. If some component of a household's cost-of-living basket goes up in price, the higher cost of living is not ipso facto inflation."

Since the Fed cannot control cost of living or the movement of individual prices, "so monetary policy is not about preventing relative price adjustments dictated by market forces. It is about controlling the broad direction and pace of change of all prices across the economy."

Given the U.S. Fed is targeting both stable prices and high employment, and they believe commodity and food inflation are temporary, and that the economic growth is not bringing up job growth, US Fed Funds rate will remain low in the foreseeable future, at least this year, even with QE2 ending. Clearly inflation pressure (caused by monetary, cost-push and demand-pull factors) in the emerging countries of China, Brazil etc. are much more serious. With fundamentals continuing to be favorable for commodities, it is not surprising to see the policy maker starting to be more serious in using currency to fight inflation e.g. faster rising Chinese Renminbi.

An MBA or a MBA

2011-04-19T16:01:00.000-07:00

I have always struggled a bit whenever I have to say I have an MBA degree, or I have a MBA degree. I always ended up saying I have an MBA degree, because it sounds more correct, but I never understand why. Today I came across a useful and delightful style guide from the UK newspaper Guardian which explains that abbreviations should be guided by sound (of a vowel). So in the case of MBA, it sounds like "em-bee-ay" so we should put 'an' in front of the abbreviation, but 'a' in front of Master of Business Administration degree. (I should have known that, because I do know that I have to put 'an' in front of a silent H.)

Then I scrolled down the page and realized I have not been using my capitalization correctly. When I scrolled to 'no doubt that' and 'no question that', I have thought the two meant the same. What a mistake! To quote: "No doubt that, no question that are opposites. 'There was no doubt that he was lying' means he was lying; 'There was no question that he was lying' means he wasn't, although the two are routinely confused." (I was careful with my usage of single or double quotation marks here.)

I think we can all learn some from the guide or be reminded of some.

Meditation on joy

2011-04-15T19:52:00.000-07:00

I had Sister Wendy's Book of Meditations for years and today I rediscovered the book when I was cleaning up my place. Sister Wendy Beckett is a South African-born British art expert and Britain's most famous hermit nun, who came to fame in the 1990's when BBC filmed three celebrated series - Sister Wendy's Grand Tour, Odyssey and Story of Painting. Her tremendous insights into and knowledge of the paintings, coupled with her outspoken and character of steel, gained her instant favour as an art critic among British and also American households.

When my eyes landed on the page which contained the following painting, Baby in Red Chair c.1810-30, I smiled from my heart. The unknown American artist painted this baby whom he saw in Pennsylvania. The baby looked completely contented and showed pure joy, basked in the love of her family with absolute confidence.

Though life offers its many challenges, we should not forget the feelings when we are protected and loved, and more importantly, we should not forget to love ourselves.

The Virtual Choir by Eric Whitacre

2011-04-13T19:58:00.000-07:00

It is simply heaven when beautiful music is combined with technology. As Eric said, people will go at length to connect with each other.

The Virtual Choir Presentation by Eric Whitacre

How did they do it?

Related articles

How many shopping baskets do 100 Euros cost around the world?

2011-04-13T17:27:00.000-07:00

Every four months, the global team at ING look at the relative prices of a basket of goods all around the globe - their measure of Purchasing Power Parity (PPP). The shopping basket consists of 25 products or services including food, non-food consumables, energy and services. Looking at how many shopping baskets 100 Euros can buy will give us a sense of which local currencies are cheap or expensive.

Using this measure, emerging market (EM) currencies such as Mexican Peso, Indian Rupee, Chinese Renminbi and Polish Zloty look cheap while Brazilian Real and Turkish Lira look expensive. In addition, Chinese Renminbi is subject to appreciation pressure because of its positive current account plus foreign direct investment balance while Turkish Lira looks even more vulnerable with a negative current account and foreign direct investment balance.

ING also calculated that while in early 2004, the 100 Euros would buy on average 40% more shopping baskets in EM countries than in the U.S.; currently that difference has shrunk to 20%, indicating the strengthening economies and currencies of EM countries versus the depreciating dollar during this time.

Going forward I still like holding a basket of emerging market currencies versus the USD, especially countries with positive current account fundamentals with rising interest rate trend.

Which coupon sites?

2011-04-12T14:38:00.000-07:00

Image via CrunchBase

The group buying sites seem to have all sprung up in the last couple of years, and their popularity no doubt has increased as many people are watching their budgets like a hawk as many economies are still fighting back (or just barely surviving) from the global financial crises. Everyone probably enjoys a good deal or two in general.

I have enjoyed using Groupon quite a lot due to their different products or services (and the relevancy and usefulness), city and now country coverage. However, some people do complain that they prepay all these services and products upfront but end up not using them, thus wasting a lot of money. Recently I came across this Scoutmob site which has a completely different model. You can email the deal to your PC or phone or if you have a smart phone, download the app and then view the deals on your smartphone. When you are at the location, then you open the email or the app to view the deal, and then show it to the restaurant so that the deal can be applied to your final tab. It is that simple - no prepayment or waste of money. The deal lasts for about 3 to 4 months. This I think is a brilliant model that would attract a lot of new converts, especially when they expand their cities and their types of services beyond food and drinks.

Companies such as Walmart is combining the Facebook "Like" button idea with group buying.

Impressions from Hong Kong trip

2011-03-31T14:22:00.000-07:00

After a hiatus from the blog, I am happy to write about my recent 3 1/2 weeks to Hong Kong. It was a pleasant and fruitful trip - I not only met many family members and old friends, but also caught up with personal friends and old friends from the broker and investment community.

Hong Kong is as usual full of energy, convenience, variety and opportunities. No one would disagree that much of its dynamism is because of its close relationship with and dependence on China. There are many reasons for China-related fund flows into Hong Kong.

About 2 1/2 million mainland Chinese tourists visit Hong Kong per month (HK has a population of 7 million); and this number is expected to increase about 15%-20% this year. Hong Kong is the favorite place for the mainlanders to shop for LV bags, watches, apartments and even milk powder. Mainland Chinese buyers are particularly hot on Hong Kong apartments apparently because many apartments have harbour view (a luxury item in China), the amenities in Hong Kong are better than those of mainland, Hong Kong is still a China city and so is close to home, and many apartments can be found close to the airport (for example West Kowloon).

The other reason why Hong Kong attracts a lot of "hot money" is that Chinese Reminbi (RMB) liberalization is speeding up. At the beginning of every recent new 5-year plan, RMB liberalization has been hailed as a priority for the government. At the start of the 12th 5-year plan, officials expect the capital account to be convertible by 2020. RMB internationalization has taken a huge step, e.g. mainland companies to finance their overseas direct investment in RMB, cross boarder RMB trade settlement for exporters, etc. RMB deposit has risen to over RMB300 bn in Hong Kong (one of the 4 RMB offshore centres), that is about 0.3% of onshore deposit base and about 4 to 5% of HK’s total deposit base or broad money (M2), compared to only RMB50bn bonds issued in Hong Kong. Investment analysts/economists expect RMB deposits to rise to 15% of M2 by end of 2011 and eventually one-third to one-half of HK's M2. One could envisage 50-50 RMB and HKD currency floating in HK eventually. Currently, limit on individual currency conversion and the lack of RMB product diversity is constraining the pace of RMB internationalization.
More implications for Hong Kong:
• With the fast rising amount of money going to RMB deposits in HK, but only limited absorption of this liquidity in terms of bond issue (RMB-denominated shares available later this year), the excess liquidity is going to HK loans/stock/property market (with HK property market a more worrying bubble than that of China.)
• RMB business will drive the HK stock exchange, banking, insurance and asset management sectors; mainland Chinese banks are increasingly targeting Hong Kong bank for mergers and acquisitions.
• Promoting Chinese financial companies and global investments through Hong Kong. Note the big global hedge funds prefer to set up offices in Hong Kong than anywhere else in Asia.
• More Chinese State-owned enterprises (SOE) flocking to issue RMB bonds or borrow in Hong Kong as funding costs are about 2% lower now in HK than mainland.

With its dependence on China which is booming, a rising tide lifts all ships in Hong Kong. But does it really? The biggest looming worry is the younger generation of Hong Kong. The young job seekers not only face rising land and housing prices, but also have to compete with the brethens and sisters from the North and students returning from overseas for job opportunities which require more and more special skills and higher education training. The picture, courtesy of Alex Hofford, speaks to worsening Gini-coefficient. The government needs to focus on this younger segment of the population to create a more balanced growth of the economy.