The Greed of Man - Final part

Do we sometimes wish that we have supernatural power when comes to speculating or investing. Do we wish we can fly? 

Do we wish we can see the closing price printed in tomorrow's newspaper? Above all, do we wish we can be god? Can we make things happen by having strong self belief. In the final battle between Ar-Bok and Ting Hai, he was very confident that that stock market will go up despite of all the evidences pointed to American will hit Iraq, hence down is the path of the least resistance. He said if you have strong enough convictions, you can make things happen. If you keep thinking of getting an Ace, you will get an Ace. That is the power of self fulfillment prophecy. This what a NLP program will teach you. If you keep thinking of something and repeat the same thoughts over and over again million of times, thoughts will transform into actions ultimately making dreams come true.

Relying on self belief, astrology or seeing magicians  are not uncommon especially among Asian investors or speculators. A research house like CLSA, suppose to be an intellectual powerhouse, has been publishing a slideruler to guide many of its customer especially in Hong Kong who believe very strongly in Feng Shui to make many money decisions. The below chart was published around Chinese New Year. How accurate is this call?

At one glance, it is seems to be very accurate. If we feel the market is pretty shitty now thus our minds and eyes are easy to be deceived. When we compare the actual results, it is seems to be completely opposite. CSLA said Hang Seng Index supposed to rally all the way to July and enter correction phase until end of September. The opposite seems to be happening. The market rally fizzled out in January and has been sliding and bottomed out in June and now is going up.

So do you still believe in market wizards? Many do, after all, Warren Buffet will not be called as god of stocks.

The story continues, Ar-Bok defeated Ting Hai simply not because he has strong self belief. No doubt he believed his wife could brought him luck and inspirations. No doubt he believed he has some six sense but above all, he understood the power of liquidity. In his term, he called it "borrowing lucks".

Prior to market collapsed, Fong Chun Sang helped some very righteous businessmen who refused to bribe to get their company listed. One of them believe to be "Li Ka Shing" who had a concrete plan of what to do with his business. He had done tremendous home works to acquire companies on cheap if these companies collapsed when the bubble pricked. He had visions of how a port can turned into luxury properties in the future.

Many years later Ar-Bok's father after passed away, he thought these businessmen can help him as a favor of Ar-Bok's father had done. He presented three halves HKD 500 that represent a gentleman agreement for favor repayment.

Ar Bok requested these three richest men in Hong Kong to help him to buy stock when stock market opened on Monday. The powerful liquidity would surely flushed out short sellers.

The promised was fulfilled. Hang Seng index broke above 10,000 for the first time. In reality, 1992 actual Hang Seng index was at around 4300. The script writer over exaggerated the number by doubling it yet we took 11,210 as absolute truth because it is so familiar to us.

The drama ended with bitter sweet when Ar Mui died in the arm of Ar Bok's arms peacefully. She seems to be perfectly happy as she thought all her dreams had been fulfilled. How a person feel with not so happy ending tells a lot about a person. It tells a lot whether a person can accept imperfection is just part of this world. We can't have everything going our way, it's just unrealistic. Though we may feel a little sober for a few hours thinking of the satisfying ending(not perfect ending) but we just got to move on.................

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.

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. 

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"

Saving for children education

Just want to start off with two paragraphs of some vital statistics

Of the 41,573 public university enrolments this year, only 7,913 were Chinese Malaysians. Last year Chinese students made up 8,985 of a total enrolment of 38,549 and in 2011 around 9,457 of a total enrolment of 41,267, according to the Malaysian Chinese Association, or MCA, which is part of the Barisan coalition. 

http://www.universityworldnews.com/article.php?story=20130717110401762

Datuk Dr. Mohd Nor Dalimin, Malaysian Examinations Council chairman announced that a total 46,712 or 92.19 per cent had full passes for at least one subject in the Sijil Tinggi Persekolahan (STPM) 2011 compared to 46,795 (92.5 per cent) in 2010, 0.31 per cent drop. 12 candidates received the excellent A grade in five subjects taken compared to eight candidates in 2010. A total of 50,669 candidates had sat for the STPM last year.

http://www.yusufmustanir.com/2012/03/stpm-road-to-university.html

If you are a Chinese Malaysian, you should know that the chance of your child or children getting into public university is less than 20%. You should also know that you should get ready at least about RM 120 k per child down the road if you wish them to be able to study in a reputable local private college.

Tuition fees will cost you around RM 70 k for a 3 years course. The cost of living includes lodging, food, transportation, telecommunication, etc will easily cost you another RM 50 k/3 years.

For those of you who are young, let's say you have 19 years to prepare the RM 120 k How much do you need to put aside if you can generate 5% return per year? I use lower % return partly just to offset the inflation. To get 5% inflation adjusted return in a new normal investing environment, I must say you must be above average investors as well. But never mind, let's move on to the calculation.

If you start with RM 1 k in year 1, CAGR return of 5%, to save RM 120 k - you will need to set aside RM 3.58 k per year or roughly about RM 320/month per child.

For Chinese Malaysian parents, you should know that 80% chance of not able to secure a place in public university is not a good odd. Procrastinating will make matter worse unless you want to burden your child/children with loans hanging on their neck before they can earn. Basing on Malaysia per capita income of USD 10 k or roughly RM 31 k, you will need to set aside about 13% of income for future a child education.

Putting uncontrollable factors such as unfairness or free education for every child debates aside, let's get realistic and pragmatic -- control your destiny or someone will. It is this kind of spirit that makes the minority ethnic of this country to seek economic independence. It forces them to be far sighted and working a lot harder.

This is also precisely why the society disparity is getting wider - willingness to prepare financially will ensure their child/children get better education quality or better still if they are bright - Singapore and many other foreign countries will take them as their citizens.

Contrarian warnings

Thought you might want to take notice that iCapital assessment has been more and more cautious. iCapital is now holding almost 50% cash compared to one year earlier which was 34%. All I can say is they have been very cautious. 

It has been sometime we have not heard people quoting Marc Faber. This is what he said recently.

The only game in town in the last 12 to 18 months has been the US. So you have most markets in the world going down and the US going up. It is very likely that the US market has already peaked out at 1687 on May 22nd on the S&P and if the market makes a new high it would be only with a few stocks making new highs. The majority of stocks will not make new highs.

The similar trend is also can be observed in KLSE. Only a few stocks dominate the gains such as Tenaga and Maybank............In the small cap space, it is also seems to be dominated by a few narrow sectors like oil and gas.

I have been doing some tactical play in the recent months(earning some handsome returns) but now is really turning very cautious. In the past, before the market roll over, retail investors will usually jump in with both feet. But I am just not sure this time assuming they are a lot more wiser now.  And I don't really care because the risk of correction is very high.

 

Why so quiet?

The last time I visited my own blog was probably about 1.5 months ago. Don't worry, it's not the time for this blog to be folded yet. I made a promise and I will keep it. Worst case scenario I may go into coma and make a last entry on the day I promise to end it. Let me assure you again that it's not the time to be folded. I was extremely busy with my job. A big change for me actually doing a couple of things that are new to me.

Market commentary? Real quick.

The trend following of U.S. 10 Year Treasury Note suggest the momentum will keep going. Money got out from the money market will have to go somewhere........equity is the most probably place.

Recession? I have been on and off taking at a look at the crude oil chart. It is now breaking USD 100, going any higher than USD 130 will put the real pressure the economy.

What am I saying? Take a look at plantation stocks and cyclical sector. I suspect it has more legs to run.

Take care.