Have always liked reading since when I was a kid. Always wanted a study room with rows and rows of books and that is exactly what I have now! Only thing to go is a large bean-bag to sit and read comfortably.
Just finished The Age of Turbulence by Alan Greenspan and what a wonderful book! There is no shortage of economic prognostication from academics or research analysts but I have never come across one from a central banker. In the first half, he talks about his early careers and how to wind up in government service. The second half, at least to me, is more interesting. It starts with an explanation of past macroeconomic events, a diagnosis of current issues and some predictions for the future. His explanation of past events is fascinating especially on the current account and fiscal deficit of the US, the changing demographics and the lowering of inflation expectations over the last few years. If anyone just want the prediction, you can jump straight into chapter 25. While Greenspan talks about how the US has successfully weathered many crisis in the past, he does believe inflation will rise and that long term growth is likely around 3%. As aging demographics exacerbates the burden of social welfare programs, think social security and medicare in the US, governments will have no option but to print fiat money to finance their deficits and risks inflation.
Showing posts with label Investment. Show all posts
Showing posts with label Investment. Show all posts
Sunday, October 7, 2007
Investment tracking
Since I am about to be jobless in the not too distant future, investments will be my primary source of income. Over the last few years, my track record has been decent with steady returns around 10% and minimal MoM losses. This is also with no leverage and anywhere between 25 to 60% of assets in cash. Not Warren Buffet type of returns but enough to continue to grow my nest egg. Now that I have to rely on investments to feed my family, I have to take it more seriously. Blogging will help me keep myself honest and I will start putting my ideas and analysis here just so that I can refer back to it.
Let me start off with a situation overview:
- my family will always have a roof over our head since my apartment is debt free
- current portfolio: 23% HK real estate, 3% equities, 10% LT investments, 58% cash
- there will be some income for next 15 mths which will more than cover living expenses
- i am starting my own companies. Capital need is still unclear.
My objectives will be:
- no capital losses
- annual returns of 15%
- minimal leverage
To get there, there are a few rules to observe (in no particular order):
1) Observe where the market wants to go instead of where you want it to go or where it ought to go.
2) Take good risks
3) Believe in your analysis
4) Buy quality companies at reasonable price
5) Understand both the relative and the absolute
Will add to these rules once I am up and running.
Let me start off with a situation overview:
- my family will always have a roof over our head since my apartment is debt free
- current portfolio: 23% HK real estate, 3% equities, 10% LT investments, 58% cash
- there will be some income for next 15 mths which will more than cover living expenses
- i am starting my own companies. Capital need is still unclear.
My objectives will be:
- no capital losses
- annual returns of 15%
- minimal leverage
To get there, there are a few rules to observe (in no particular order):
1) Observe where the market wants to go instead of where you want it to go or where it ought to go.
2) Take good risks
3) Believe in your analysis
4) Buy quality companies at reasonable price
5) Understand both the relative and the absolute
Will add to these rules once I am up and running.
Sunday, September 23, 2007
Asia Financial Forum
Attended the Asia Financial Forum organized by the HK SAR Government this past Friday. A high level group of speakers from HK and China but the ones from other parts of the region are at best middle level. Overall, the Government should get an A- for effort and C+ for results. Despite the many prominent speakers, the conference failed as it doesn't have a coherent theme. Without a theme, speakers only spoke in general terms and there were close to no debates on the panels. It was clear to see that people were losing interest and the attendance in the afternoon has declined substantially.
PS Some of the mainland Chinese attendees are the most impolite bunch I have seen for some time. They have the audacity to carry on a mobile phone conversation while speakers are on stage speaking for 5 minutes. If you don't know how to respect the speaker, at least know how to respect yourself. Too bad HK doesn't have caning.
PS Some of the mainland Chinese attendees are the most impolite bunch I have seen for some time. They have the audacity to carry on a mobile phone conversation while speakers are on stage speaking for 5 minutes. If you don't know how to respect the speaker, at least know how to respect yourself. Too bad HK doesn't have caning.
Tuesday, September 4, 2007
Kicking Away the Ladder
Just read Cambridge professor Ha-Joon Chang's paper, "Kicking Away the Ladder", that basically describes how the UK and the US were protectionist countries in the early days of their economic development. Once their industries have gained strength, they then turn to "free trade" and posit it as a "one size fit all" strategy for all nations. Nowadays, it is certainly the popular view that "free trade" is good for everyone and a view that is imposed on all governments. Thomas Friedman and many other economists subscribe to this view. But is this right? I do not believe the behavior of the UK and the US in the early days necessarily mean the policy is right or wrong or even appropriate for a country in its early economic days. What I do agree with is that "free trade" is not a panacea and more importantly, every nation should act for their own good irregardless of their economical or other ideology.
If you don't watch out for yourself, who is going to do that for you?
If you don't watch out for yourself, who is going to do that for you?
Monday, September 3, 2007
Don't Blame Rating Agencies
Vickie Tillman of S&P wrote a long letter to editor in the Asia Wall Street Journal explaining why S&P has done nothing wrong in the recent subprime debacle despite her CEO being replaced at the same time. Wait, if nothing has gone wrong, why is your CEO being replaced? We all know people don't really leave their job for "personal reasons" and that it is an euphemism for being fired. For those who want to be in the corporate PR business, this is a piece of article to learn from. Two rows long filled with explanations which added up to nothing. Aside from some lame arguments on how S&P has done its job, it smells like a lot of bullshit. Yup, I guess someone has to do it. You can't really let your reputation be dragged through mud and someone has to defend their "reputation" and cover their corporate "behind". As Vickie Tillman correctly points out, reputation is the greatest asset of the rating agencies and her article is clearly an attempt to salvage it. Next time, how about being accurate in your analysis instead of firing your CEO and then "repairing" your reputation?
On the big picture, I do see serious issues with the business model of credit rating agencies. Everyone will tell you that they care about their reputation. And that is the case until rubber hits the road and you are tempted by the possibility of more revenue like the possibility of rating large numbers of CDO structure. I doubt there are many businesses who can withstand these temptations purely on the basis of maintaining their reputation. Only way that companies will do their job here is if their feet is being held to the fire. Why would the credit rating agencies need to do a good job when they can be in the wrong and simply write a lame puff piece in the Journal?
On the big picture, I do see serious issues with the business model of credit rating agencies. Everyone will tell you that they care about their reputation. And that is the case until rubber hits the road and you are tempted by the possibility of more revenue like the possibility of rating large numbers of CDO structure. I doubt there are many businesses who can withstand these temptations purely on the basis of maintaining their reputation. Only way that companies will do their job here is if their feet is being held to the fire. Why would the credit rating agencies need to do a good job when they can be in the wrong and simply write a lame puff piece in the Journal?
Monday, August 20, 2007
Letter from your highly paid Hedge Fund manager
For those who are "fortunate" enough to invest in hedge funds, here is one for the memories (since there probably aren't much coming back in the form of returns!):
Bloomberg
Hedge-Fund Guy Atones for His Subprime Bond Sins: Mark Gilbert
By Mark Gilbert
Aug. 16 (Bloomberg) -- Dear investor, we'd like to take this opportunity to update you on the recent performance of our hedge fund, Short-Term Capital Mismanagement LLP.
As you know, market selection for the entire fund is guided by a proprietary investing tool we like to call ``a dartboard.'' Once the asset classes are decided, individual security selections are generated by digitizing our unique hexagonal cuboid models.
Unfortunately, it transpires that our hexagonal cuboids are not as unique as we thought. Hundreds of other hedge funds possess identical dice. The technical term for this is a ``crowded trade.'' You may also see it referred to as ``climbing on a bandwagon already headed for the wall.''
As our alpha generation collapses, our beta has turned negative, our delta hedging has gone toxic and, trust me, you do not want to hear about our gamma. We can't even find our epsilons in the dark with both hands.
You will appreciate that accurate pricing is essential for evaluating our investment strategies. This has proven to be extremely challenging in recent days. Previously, we have relied on Bob, the sales guy at Hokey-Cokey Bank. Bob assured us the securities were still worth 100 percent of face value, so everything was cool. Bob sold the collateralized debt obligations to us in the first place, so he knows what he's talking about.
Bob, however, appears to have had a nervous breakdown, judging by the maniacal laughter that greeted our requests for price verification this week. Our efforts to implement an in- house CDO valuation framework, using a technique the ancients knew as ``making things up,'' proved unsatisfactory.
Where's the Bid?
Currently, all of the portfolios we manage are undergoing a rigorous screening known as ``crossing our fingers and praying that we don't have to try and find a bid in the market.'' This is supplemented by a cross-market statistical analysis originally developed by the U.S. military called ``don't ask, don't tell.'' This ``unmarking-to-unmarket'' procedure has been the benchmark for the hedge-fund industry for the past, ooh, 72 hours.
We have, of course, been in touch with the rating companies to update our default-probability scenarios, particularly on the AAA rated investments we own. They recommended a forecasting method using stochastics to regress the drift-to-downgrade timescales for the past 100 years and throw them forward for the next five minutes. The technical term for this is ``induction,'' though those of you of a less quantitative bent may know it as ``guessing.''
AAA or Toast?
We are pleased to report that, contrary to what current market prices might suggest, all of our top-rated securities remain absolutely AAA. Provided, that is, the future performance of the underlying collateral is identical to its history. Otherwise, the rating companies say our investments are likely to be reclassified as ``toast.''
We have also been checking our back-up credit lines with our friends in the investment-banking world. As soon as they return our calls, we'll be able to update you on our emergency liquidity position. We are sure they are fine.
Some of you have written to us asking for your money back, citing clauses in the fund documentation called redemption rights. Frankly, we never expected you to actually read that prospectus, which came prepackaged when we bought the Microsoft Hedge-Fund Guy software. We certainly have no idea what all those long words mean.
We have filed your letters in a special drawer in the filing cabinet marked ``trash'' for now. Do you have any idea how much trouble you all would be in if we actually sold this stuff in the market today? At these crazy prices? Fuhgeddaboudit. You'll thank us later.
Not a Rescue
Speaking of crazy prices, we know you'll be thrilled to learn that we've invited a bunch of our rich pals into the fund to participate in this once-in-a-lifetime opportunity. But this is not a rescue. Do not even think the word rescue. This is an opportunity. Not a rescue. An opportunity.
In fact, we think this is such a fantastic opportunity, we've agreed to forgo our usual management fee, and we'll only take half our usual slice of the profits. Provided there are any profits to slice. You, of course, are absolutely invited to participate in this offer by sending us yet more of your money on exactly the same revised terms as our rich pals.
Finally, a word for all of you who have been kind enough to inquire about my personal financial situation. I am relieved to report that my directors and officers insurance is fully paid up. Furthermore, my Bentley Continental was paid out of the 2 percent fee we levied when you wrote your first check to us, so I will still be able to trundle into the parking lot each morning in an open-necked shirt to ignore your telephone calls and e-mails. Yours, Hedge-Fund Guy.
Bloomberg
Hedge-Fund Guy Atones for His Subprime Bond Sins: Mark Gilbert
By Mark Gilbert
Aug. 16 (Bloomberg) -- Dear investor, we'd like to take this opportunity to update you on the recent performance of our hedge fund, Short-Term Capital Mismanagement LLP.
As you know, market selection for the entire fund is guided by a proprietary investing tool we like to call ``a dartboard.'' Once the asset classes are decided, individual security selections are generated by digitizing our unique hexagonal cuboid models.
Unfortunately, it transpires that our hexagonal cuboids are not as unique as we thought. Hundreds of other hedge funds possess identical dice. The technical term for this is a ``crowded trade.'' You may also see it referred to as ``climbing on a bandwagon already headed for the wall.''
As our alpha generation collapses, our beta has turned negative, our delta hedging has gone toxic and, trust me, you do not want to hear about our gamma. We can't even find our epsilons in the dark with both hands.
You will appreciate that accurate pricing is essential for evaluating our investment strategies. This has proven to be extremely challenging in recent days. Previously, we have relied on Bob, the sales guy at Hokey-Cokey Bank. Bob assured us the securities were still worth 100 percent of face value, so everything was cool. Bob sold the collateralized debt obligations to us in the first place, so he knows what he's talking about.
Bob, however, appears to have had a nervous breakdown, judging by the maniacal laughter that greeted our requests for price verification this week. Our efforts to implement an in- house CDO valuation framework, using a technique the ancients knew as ``making things up,'' proved unsatisfactory.
Where's the Bid?
Currently, all of the portfolios we manage are undergoing a rigorous screening known as ``crossing our fingers and praying that we don't have to try and find a bid in the market.'' This is supplemented by a cross-market statistical analysis originally developed by the U.S. military called ``don't ask, don't tell.'' This ``unmarking-to-unmarket'' procedure has been the benchmark for the hedge-fund industry for the past, ooh, 72 hours.
We have, of course, been in touch with the rating companies to update our default-probability scenarios, particularly on the AAA rated investments we own. They recommended a forecasting method using stochastics to regress the drift-to-downgrade timescales for the past 100 years and throw them forward for the next five minutes. The technical term for this is ``induction,'' though those of you of a less quantitative bent may know it as ``guessing.''
AAA or Toast?
We are pleased to report that, contrary to what current market prices might suggest, all of our top-rated securities remain absolutely AAA. Provided, that is, the future performance of the underlying collateral is identical to its history. Otherwise, the rating companies say our investments are likely to be reclassified as ``toast.''
We have also been checking our back-up credit lines with our friends in the investment-banking world. As soon as they return our calls, we'll be able to update you on our emergency liquidity position. We are sure they are fine.
Some of you have written to us asking for your money back, citing clauses in the fund documentation called redemption rights. Frankly, we never expected you to actually read that prospectus, which came prepackaged when we bought the Microsoft Hedge-Fund Guy software. We certainly have no idea what all those long words mean.
We have filed your letters in a special drawer in the filing cabinet marked ``trash'' for now. Do you have any idea how much trouble you all would be in if we actually sold this stuff in the market today? At these crazy prices? Fuhgeddaboudit. You'll thank us later.
Not a Rescue
Speaking of crazy prices, we know you'll be thrilled to learn that we've invited a bunch of our rich pals into the fund to participate in this once-in-a-lifetime opportunity. But this is not a rescue. Do not even think the word rescue. This is an opportunity. Not a rescue. An opportunity.
In fact, we think this is such a fantastic opportunity, we've agreed to forgo our usual management fee, and we'll only take half our usual slice of the profits. Provided there are any profits to slice. You, of course, are absolutely invited to participate in this offer by sending us yet more of your money on exactly the same revised terms as our rich pals.
Finally, a word for all of you who have been kind enough to inquire about my personal financial situation. I am relieved to report that my directors and officers insurance is fully paid up. Furthermore, my Bentley Continental was paid out of the 2 percent fee we levied when you wrote your first check to us, so I will still be able to trundle into the parking lot each morning in an open-necked shirt to ignore your telephone calls and e-mails. Yours, Hedge-Fund Guy.
Sunday, August 19, 2007
Buying opportunity of a life-time
The Hang Seng Index was down 1,200 points mid-afternoon on Fri and was a buying opportunity of a life-time. Cannot believe I didn't pick up the phone and do something! I wasn't even scared about the decline, just didn't feel the urge when such a good opportunity stands in front of me.
Monday, August 13, 2007
HK + SZ
The Bauhinia Foundation Research Centre (智經研究中心), a thinktank close to the HK Government, has recently released a research report recommending the closer integration of Hong Kong and Shenzhen to create a new "HK-SZ metropolitan". While the idea has received mixed review from newspapers' editorials, I am very supportive of the idea. There is no question in my mind that the integration of the two cities has started some years back and the proces is already underway. One only need to spend an hour at the various border crossing to realize this fact. Everyday, more than 400,000 people cross the border by land with Shenzhen. There are businessmen with factories in southern China, professionals with clients in China, housewives looking for a good bargain and even school children going to school in HK while living in SZ. There is just as vibrant a trade in goods and like it or not, this is the future of HK and SZ as the two are intricately tied together.
For HK, its economy is too small and structurally, it has no choice but to be external facing. Historically, this has mean serving Western clients but the trend has reversed and increasingly, the clients are in China. This is the only way that HK can continue to grow, remain vibrant and maintain its current standard of living.
For SZ, it is growing rapidly but it has a tough time competing with other Chinese cities. Taking financial services as an example, SZ does not have a large pool of experienced managers and it is facing a difficult time attracting talents away from Shanghai and Beijing. I have experienced first hand that good managers would rather stay in Shanghai despite promotion and a more attractive compensation package. HK can help as it has a larger pool of managerial talent and also present a more attractive place to live when combined with SZ.
Like it or not, I believe it is inevitable that HK and SZ will co-operate and integrate more closely over time since it is in their respective best interests. My key takeaway here is that HK+SZ has a bright future ahead. With a larger economic base, HK will continue to draw the more affluent segments of the population and expatriates. This will bode well for high-end property prices and I don't see a decline in that market over the long term. For mid-end properties, they will like retain a premium over SZ properties but I suspect it will be range bound as the movement of people become easier.
Here is the link to the report: http://www.bauhinia.org/publications/BFRC-HKSZ-ES-ENG.pdf
For HK, its economy is too small and structurally, it has no choice but to be external facing. Historically, this has mean serving Western clients but the trend has reversed and increasingly, the clients are in China. This is the only way that HK can continue to grow, remain vibrant and maintain its current standard of living.
For SZ, it is growing rapidly but it has a tough time competing with other Chinese cities. Taking financial services as an example, SZ does not have a large pool of experienced managers and it is facing a difficult time attracting talents away from Shanghai and Beijing. I have experienced first hand that good managers would rather stay in Shanghai despite promotion and a more attractive compensation package. HK can help as it has a larger pool of managerial talent and also present a more attractive place to live when combined with SZ.
Like it or not, I believe it is inevitable that HK and SZ will co-operate and integrate more closely over time since it is in their respective best interests. My key takeaway here is that HK+SZ has a bright future ahead. With a larger economic base, HK will continue to draw the more affluent segments of the population and expatriates. This will bode well for high-end property prices and I don't see a decline in that market over the long term. For mid-end properties, they will like retain a premium over SZ properties but I suspect it will be range bound as the movement of people become easier.
Here is the link to the report: http://www.bauhinia.org/publications/BFRC-HKSZ-ES-ENG.pdf
Thursday, August 9, 2007
Australia's interest rate
There is no question that the Australian market is expensive. Almost every single company trade at high-teen earnings multiple and the valuation has been often justified on the back on continuos demand for equity investments from super-annuation fund flows. What's next?
Inflation looks relatively in check but interest is going up and is now at 11-year high of 6.5%. If interest rate continues to go up, I am not optimistic on the macro. Australia has been in a multi-year boom supported by rising real estate prices. With many mortgages based on variable rate and a mindset accustomed to rising real estate prices, rising interest rate will affect both and probably combines to produce a double whammy. Once the market is more expensive, would be a good time to short some of the more expensive and lower quality stocks.
Inflation looks relatively in check but interest is going up and is now at 11-year high of 6.5%. If interest rate continues to go up, I am not optimistic on the macro. Australia has been in a multi-year boom supported by rising real estate prices. With many mortgages based on variable rate and a mindset accustomed to rising real estate prices, rising interest rate will affect both and probably combines to produce a double whammy. Once the market is more expensive, would be a good time to short some of the more expensive and lower quality stocks.
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