Friday, August 23, 2013

The Greed of Man - Part III

Strange but true - reminds me a lot about investing lessons by re-watching this drama.

(1) Make investing decision as if a failed decision will make you go bankrupt.

It was certainly comical watching Ar-Bok running between his 4 small businesses and a brokerage firm. He will close his shops whenever he made enough and ran to the brokerage firm trying to multiply his wealth by betting in the stock market.

Unfortunately, he came out from the shop with disappointed face because he lost his each of his bet.

One fine day he found a great inspiration. Sold off all his assets and businesses and put everything into stock market. By burning all his bridges, failure was not an option. He figured he kept losing money because he kept thinking no big deal that he lost it because he can always make it up in his next bet. Just like most of us were advised to cut loss - live to fight another day. The trouble with many of us also thinking since it is money that we can afford to "throw away", we place our bets very carefree and carelessly too.

He tortured himself and Ar-Mei by not doing anything and not eating anything. He must and will succeed or else they will end up living on the streets penniless. Though it was an over-exaggeration that he became a millionaire within 48 hours, the message was powerful - you must hit the bull eye or else ........

(2) Can "blind fists killed a grand master?". It was really funny how a person like Ting Hai who does not know anything about stock or future killed Tou Tou(TT). TT was a cocky trader who crowned himself Zhu Ge Liang the famous strategist of ancient time. He thought cooking the 5 crabs(Hai's) to revenge them for killing Teng Teng,  a sister of Ar-Bok, who he fell in love. He was taking advantage of Ah Hau, the eldest son of Ting Hai which took the company to public. TT was playing long and short to disoriented him left him with huge losses.

The initial win was very thrilling but TT was too obsessed of revenge but forgetting that the market is getting very overbought. Ar Bok figured that out saying the heavy buying volume supported by retail investors will soon ran out of oxygen and a market crash was imminent. Ar Bok look like a dummy but when he cited the volume similar prior to 1973 stock market crash, I was totally impressed. He stayed out on the day but TT planned to execute his plan to acquired their company.

The idiot Ting Hai who knew nothing should seek advice from stock market guru. He begged Man Yi who just came out from prison for help. Man Yi was saying there is no need any skill. All he needs was luck and go against the crowd. He did precisely that shorted the future contracts which failed to break through 4000 points. The stock market did collapsed and he made 4 billion dollars.

Ting Hai was impressed that Man Yi was really a genius. Man Yi who advised Ting Hai himself lost 90 million dollar. See, that was a perfect example of adviser did not walk the talk. Actually there are tonnes of financial planners and insurance consultants who could not manage their own finances will keep advising people.

During the 4 days market closed, Ting Hai seek Man Yi advice again what should he do? Man Yi advised him to burnt his enemy to eternal death. TT was highly emotional trying to defend $ 1 support but broke through due to heavy selling by Ting Hai. TT did not cut loss and trying to cover up he has deep pocket and taking every sell orders. Ting Hai was so mad that keep selling and sent the stock price down to 10 cents. TT effectively went bankrupt because he was buying all the way from $ 3.

These plots have many great lessons

  • Obsess with a company without taking into consideration of overall market is extremely dangerous. When market is dominated by narrow stocks to send indexes higher and higher, there are plenty of stocks can be attractively valued. There are plenty of stocks with single digit PE but when the big storm comes, it can also kena whack.
  • You really don't need IQ of 180 to be in stock market. Buy when there is blood on the street and sell when a shoe shine boy gives you stock tips. Pure and simple.
  • Dollar averaging down on leverage? Stupid idea. Dollar averaging can only work over a long period of time but never in a short time.
  • Beware of many crabs trying to teach us about financial planning while they can't walk straight.
  • Do you need luck yes. Plenty of them. Definition of LUCK = PREPARATION + OPPORTUNITIES.

Tuesday, August 13, 2013

The Greed of Man - Part II

I used to advise smart guys with MBA go and watch a movie or pick up a novel and read. They can teach us more things about human and investing. One of the reasons that I started to write a little more than usual because I see the old pattern of mature bull run is manifesting itself again. Just two weeks ago, I said I have turned very cautious because the time is near - 3 months, 6 months, 1 year or could be even 2 years before a major correction or a bear market set in. I praised the retail investors that they could be a lot smarter this time but looks like it is almost impossible for leopard to change its spots. They are back. Yes, the retail investors are back again. Daily participation is getting higher of 20% and if it inches higher around 35-40%, a shoe shine boy will give you stock tips. 

You will hear very frequent of people making 30% return in a week. You will hear people tell you the greater the risk, the greater the reward. 

That was the first phrase opening of a show down between Fong Chun Sang and Chen Man Yi. Fong Chun Sang who is a righteous man hated corrupted people had a great plan to bring down the corrupts - mafia, policeman and regulators. He planned to prick the stock market bubble. He knew Man Yi very well who is very fond of naked short selling. Chun Sang quietly amassed a lot stocks to execute his perfect short squeeze on Chen Man Yi. Though it was novel in nature but it does happened in real life hat reminds me of how Porsche created big short squeeze in 2008. Porsche has quietly building its position to acquire Volkswagen through cash-settled options. Then in the late 2008, they went out to the market announced that they secretly amassed of a lot of Volkswagen shares through cash-settle options with various banks. That created the mother of all short squeeze sending the share shot up to Euro 1005 in one day. In that year, Porshe made a gain of Euro 6.3 billion.

Back to the drama, Chun Sang was a genius with mixed lucks. The Chun Sang - Man Yi pair was a classic hedge fund manager though this job did not exist in the 70s. Man Yi was betting the stock price of a company would fall, convinced an impending legal announcement that the company needed to compensate million of dollars to British government.

Chun Sang took a contrarian stance. He bought every single shares that Man Yi was short-selling and sending the share price on an upward trend prior to the announcement. He was real lucky, while the whole world think it was unlikely the court would rule in favor of the company, but it did!. The good news strapped the stock to a rocket going to moon. The ruling was the catalyst but short squeezed was the real reason the stock price defied the gravity. Chun Sang would have been easily the richest man with that victory.

Unfortunately, Chun Sang met Ting Hai who mis-understood that he had stolen his sweetheart Ar-Ling. Chun Sang was beaten to coma state when Ting Hai saw a ring thinking Chun Sang must be proposing to Ar-Ling. (True on both counts but ...................)

He was unable to react to when the overheated market finally collapsed in 73-74 bear market. He could not take profit or cut losses  and repaid his borrowings. He was declared bankrupt and that was the beginning of a tragedy that brought a series of curses to his whole family.

It was really a heartache to watch how a family risen to the top of the world and then to the dust.

The 1973/74 bear market also had a huge impact on another person, Yip Tin, the right hand man of Chun Sang and Chin Bok's sifu.  He was dreaming to be a God of Wall Street and probably the best description that I ever seen how they describe a chartist of modern day. He would withdrew himself surrounded by cemetery cutting off the world just to focus on one that matters - price. I was really puzzled how a first rate person like that got wiped out in the stock market.

The greater the risk, the greater the reward. 

But remember too - 

Man plans, God laughs. 

Monday, August 12, 2013

The Greed of Man - Part I

I recalled the best business in a small town that I grown up was TVB VHS video rental business. I remembered how the crazed TVB drama addicts would knocked at a wooded door of video rental shop on Sunday just to find out whether the rented out tapes had been returned, so that they can rent it. Everyone would have a big McDonald smile on their face whenever someone returned with hunted tapes successfully. We would crammed on the floor of half-brick half-wooden house in full of suspense looking at a tape swallowed into the belly of VHS video player decoding the mysteries.

In those days, we would skipped meals and glued onto a small CRT TV screen dying to find out what happened next. We would held back pee and would not moved even an inch for a toilet break. The smell of the sweats and joss sticks  incense were so powerful reminding me of those good old days as I strapped myself onto a seat, traveled "back to the future" when I re-watching the Greed of Man again. It was just like yesterday but I can't believe that this drama has been re-classed as a modern classic.

Those can relate with the scenes that I described certainly will declare they are young at heart. When they laugh, the lines will show up at the corner of their eyes that presumably those are hard earned wisdom lines. Unfortunately, not so.

Man. Why am I writing something like this in the age of Facebook or Instagram. The short answer -its ageless. It's a modern classic. I would find deeper connection each time I "rewind" the tape(metaphorically) on the spinning  "read and write" discs. Perhaps I can understand more of the tale of stock markets with a little bit better as I grow older.

This a well rounded drama that combines melo-drama, tragedy, comedy, romance and thriller. It's a drama that make me feel so much - angry, irritated, sad, triumphant as the script writer did a  good job of evolving the story spanning over 70s, 80s and early 90s. I love the drama so much partly because of the theme was evolving around stock markets.

Looking back, it was really dangerous to learn share market investing from this drama. Like mimicking Fast and Furious 0X car chase stunts in a controlled environment, most people will be intoxicated with some wrong ideas or myth that can hurt themselves. Here are some of the concepts from the drama I will expound more in the next few postings
"the higher the risk, the higher the return"
"there are gods of stock market that can dictate the demand and supply, hence stock price"
"play show hand, going all in"
"borrow money or leverage"
 "playing the stock market is about luck"
 "stock market provides the highest return on investment, and fast"
"financial market is a place that people can do money laundering"
 "borrow concepts from Romance of Three Kingdom to invest"
"play future market is like rolling dices - just bet big or small"