"It's better to be lucky than smart." "You make your own luck in life."
"Some folks are just born lucky." In an environment marked by rising tensions and diminished expectations, most of us could use a little luck -- at our companies, in our careers, with our investments. Richard Wiseman thinks that he can help you find some.
Wiseman, 37, is head of a psychology research department at the University of Hertfordshire in England. For the past eight years, he and his colleagues at the university's Perrott-Warrick Research Unit have studied what makes some people lucky and others not. After conducting thousands of interviews and hundreds of experiments, Wiseman now claims that he's cracked the code. Luck isn't due to kismet, karma, or coincidence, he says. Instead, lucky folks -- without even knowing it -- think and behave in ways that create good fortune in their lives. In his new book, The Luck Factor: Changing Your Luck, Changing Your Life: The Four Essential Principles (Miramax, 2003), Wiseman reveals four approaches to life that turn certain people into luck magnets. (And, as luck would have it, he tells the rest of us how to improve our own odds.)
Wiseman's four principles turn out to be slightly more polished renditions of some of the self-help canon's greatest hits. One thing Wiseman discovered, for example, was that when things go awry, the lucky "turn bad luck into good" by seeing how they can squeeze some benefit from the misfortune. (Lemonade, anyone?) The lucky also "expect good fortune," which no doubt has Norman Vincent Peale, author of The Power of Positive Thinking, grinning in his grave.
But if these insights aren't exactly groundbreaking, neither are they wrongheaded. For instance, Wiseman found that lucky people are particularly open to possibility. Why do some people always seem to find fortune? It's not dumb luck. Unlike everyone else, they see it. "Most people are just not open to what's around them," Wiseman says. "That's the key to it."
Wiseman began his career as a teenage magician who joined London's prestigious Magic Circle society and journeyed to Hollywood to perform for thousands. "Magic is very good training for seeing the world from somebody else's perspective," he says. Wiseman's latest research makes several forays into areas where most scholars rarely tread: He has investigated the psychological underpinnings of magic, the dynamics of deception, and the psychology of the paranormal. In 2001, he achieved international notoriety conducting a yearlong search for the world's funniest joke, testing how some 350,000 participants reacted to 40,000 jokes.
Fast Company was lucky enough to catch up with the hip and affable professor at a café overlooking London's Hyde Park.
How did a serious academic like you become interested in a squishy subject like luck?
Round about 10 years ago, I was talking to people about why they'd ended up where they'd ended up in their lives -- the people they were with, the careers they were in, and so on. And the words that kept coming up were things like "luck" and "chance." People said, "I met my partner by chance." Or "I'm in this particular career because I just happened to go to this party." I knew from the psychology literature that psychologists avoided luck. They said you couldn't do science with it. So I decided to test that. I did some research that asked people, "Do you consider yourself unlucky, or lucky?"
Over time, we built up a database of about 400 people from all over the UK, all walks of life, who considered themselves especially lucky or unlucky. The people in both groups were saying, "I've no idea why this is the case; I'm just lucky" -- or unlucky. But I didn't believe that for a minute. I thought there was something else going on. So in the Luck Project, we've had them take part in experiments, interviewed them, had them keep diaries -- all sorts of things -- trying to piece together why you'd have one group of people for whom everything would work out well and another group for whom things would be completely disastrous.
Isn't there a distinction between chance and luck?
There's a big distinction. Chance events are like winning the lottery. They're events over which we have no control, other than buying a ticket. They don't consistently happen to the same person. They may be formative events in people's lives, but they're not frequent. When people say that they consistently experience good fortune, I think that, by definition, it has to be because of something they are doing.
In other words, they make their own luck.
That's right. What I'm arguing is that we have far more control over events than we thought previously. You might say, "Fifty percent of my life is due to chance events." No, it's not. Maybe 10% is. That other 40% that you think you're having no influence over at all is actually defined by the way you think.
What are some of the ways that lucky people think differently from unlucky people?
One way is to be open to new experiences. Unlucky people are stuck in routines. When they see something new, they want no part of it. Lucky people always want something new. They're prepared to take risks and relaxed enough to see the opportunities in the first place.
How did you uncover that in your lab?
We did an experiment. We asked subjects to flip through a news-paper that had photographs in it. All they had to do was count the number of photographs. That's it. Luck wasn't on their minds, just some silly task. They'd go through, and after about three pages, there'd be a massive half-page advert saying, STOP COUNTING. THERE ARE 43 PHOTOGRAPHS IN THIS NEWSPAPER. It was next to a photo, so we knew they were looking at that area. A few pages later, there was another massive advert -- I mean, we're talking big -- that said, STOP COUNTING. TELL THE EXPERIMENTER YOU'VE SEEN THIS AND WIN 150 POUNDS [about $235].
For the most part, the unlucky would just flip past these things. Lucky people would flip through and laugh and say, "There are 43 photos. That's what it says. Do you want me to bother counting?" We'd say, "Yeah, carry on." They'd flip some more and say, "Do I get my 150 pounds?" Most of the unlucky people didn't notice.
But the business culture typically worships drive -- setting a goal, single-mindedly pursuing it, and plowing past obstacles. Are you arguing that, to be more lucky, we need to be less focused?
This is one of the most counterintuitive ideas. We are traditionally taught to be really focused, to be really driven, to try really hard at tasks. But in the real world, you've got opportunities all around you. And if you're driven in one direction, you're not going to spot the others. It's about getting people to have various game plans running in their heads. Unlucky people, if they go to a party wanting to meet the love of their life, end up not meeting people who might become close friends or people who might help them in their careers. Being relaxed and open allows lucky people to see what's around them and to maximize what's around them.
Much of business is also about rational analysis: pulling up the spreadsheet, running the numbers, looking at the serious facts. Yet you found that lucky people rely heavily on their gut instincts.
Yes. You don't want to broadly say that whenever you get an intuitive feeling, it's right and you should go with it. But you could be missing out on a massive font of knowledge that you've built up over the years. We are amazingly good at detecting patterns. That's what our brains are set up to do.
What are some other ways you found that lucky people's minds operate differently?
They practice "counterfactual thinking." The degree to which you think that something is fortunate or not is the degree to which you generate alternatives that are better or worse.
Unlucky people say, "I can't believe I've been in another car accident." Lucky people go, "Wonderful. Yes, I had a car accident, but I wasn't killed. And I met the guy in the other car, and we got on really well, and there might be a relationship there." What's interesting is that both ways of thinking are unconscious and automatic. It would never occur to the unlucky people to see it a different way.
Isn't there something delusional about that approach -- sort of a modern version of Dr. Pangloss's "All for the best in the best of all possible worlds"? Suppose I said, "I just wrote this article, and the article stinks, and nobody read it. But hey, at least I have two arms."
What's so delusional about that? If it keeps you going in the face of adversity and softens the impact of the fact that no one read your article, and therefore you think, "Well, I can write another article, and I'm going to learn from the mistakes of the past one, and I'm going to keep on going," I think that's fine. It would be delusional if you took it to the extreme -- especially if you weren't learning from your mistakes.
But can we acknowledge that sometimes bad stuff -- car accidents, natural disasters -- just happens? Sometimes it's purely bad, and there's nothing good about it.
I've never heard that from a lucky person.
So if you buy that way of thinking, then there is no bad luck.
That's right. That's what was weird about conducting some of the interviews. Subjects would say, "I'm the luckiest person alive" -- and they'd come up with dreadful stories. They'd have the same life events as the unlucky person, but they'd look at them entirely differently.
Isn't that just a fancy version of the power of positive thinking?
There's more science to it -- as opposed to the classic "Just think positive, and you'll be successful." I think if you understand a little about where it's coming from, it's a bit easier to adapt into your life.
We had a subject named Carolyn. When she would come to the unit to be interviewed, it would be just this whole string of bad-luck stories: "I can't find anyone. I'm unlucky in love. When I did find someone, the guy fell off his motorbike. The next blind date broke his nose. We were supposed to get married, and the church burned down." But to every single interview, she'd bring along her two kids. They were 6 and 7 years old -- very healthy, very happy kids who'd sit there and play. And it was interesting, because most people would love to have two kids like that, but that wasn't part of her world, because she was unlucky in her mind.
How do you get people to begin thinking like lucky people?
We've created a Luck School that teaches people certain techniques. One thing that we do is have people keep a luck diary. At the end of each day, they spend a couple of moments writing down the positive and lucky things that happened. We ask them not to write down the unlucky stuff. Once that starts to build up, what they're doing is adding on, each day. So they look back, and it's five days' worth of positive events, and now it's day six. After doing that for a month, it's difficult not to be thinking about the good things that are happening.
What are the applications of your research to business?
We've just done our first Luck School with an entire company. We took all 35 employees through it. The CEO was very open to change. The ideas resonated with him because that's how he has lived his life. So when he heard them, he said, "I want everybody in my organization to think like this." If we did nothing but make his employees feel better about themselves, he'll be a happy man. If it has an impact on profits and productivity, he'll be a very happy man.
Do you think that lucky organizations really exist?
Yes. Whether it translates to just percentages of lucky people, or whether it translates to a particular mixture, where some score high on one principle and others score high on another, I don't know. In the sense of organizational culture and identity, I think that some organizations will be seen as lucky and successful and others will be seen as unlucky, in the same way that individuals are.
You spent a year trying to find the world's funniest joke. Could you tell us the joke that won?
Two New Jersey hunters go hunting. After a while, one of the hunters clutches his throat and falls to the ground, his eyes roll back, and he's lying there motionless. The other one picks up a cell phone, dials 911, and says, "I think my friend is dead! I don't know what to do!" And the operator says, "Just relax. Calm down. The first thing to do is to make certain your friend is dead." There's a pause -- then a gunshot. And the hunter gets back on the phone and says, "Okay. Now what?"
That's some bad luck for the friend.
Yes, unfortunately. But bad luck is funny.
Bad luck is funny?
Bad luck is funny -- provided it's not happening to you.
Wanna Get Lucky?
According to Richard Wiseman, these four principles can create good fortune in your life and career.
1. Maximize Chance Opportunities
Lucky people are skilled at creating, noticing, and acting upon chance opportunities. They do this in various ways, which include building and maintaining a strong network, adopting a relaxed attitude to life, and being open to new experiences.
2. Listen to Your Lucky Hunches
Lucky people make effective decisions by listening to their intuition and gut feelings. They also take steps to actively boost their intuitive abilities -- for example, by meditating and clearing their mind of other thoughts.
3. Expect Good Fortune
Lucky people are certain that the future will be bright. Over time, that expectation becomes a self-fulfilling prophecy because it helps lucky people persist in the face of failure and positively shapes their interactions with other people.
4. Turn Bad Luck Into Good
Lucky people employ various psychological techniques to cope with, and even thrive upon, the ill fortune that comes their way. For example, they spontaneously imagine how things could have been worse, they don't dwell on the ill fortune, and they take control of the situation.
Wednesday, April 30, 2008
NERA: Attractive dividends, flattish earnings
Nera Telecom (Hold - Downgrade from BUY)
Price Target : 12-Month S$ 0.48 (Prev S$ 0.55)
Story:
Net profit of S$2.65m is up 10% up y-o-y is lower than our expectation of S$3.0m mainly due to lower turnover. On the other hand, cash collection was very strong for the quarter.
Point:
We have adjusted NeraTel’s FY08 earnings estimates by 9% downwards in the light of current set of results and the possibility of slowdown in IT spending in the near future. Final FY07 dividend of 4 cents, goes ex-date on 30 Apr 08 and the stock price could adjust downwards in the absence of additional catalysts.
Lower turnover was the main culprit.
Lower than expected turnover of S$39.0m rose by only 7% y-o-y although gross margins over 23% compensated to some extent. The company attributed this to slippage in some contracts to 2Q08 due to logistic issues, and we expect the company to report net profit of over S$3.0m in 2Q08.
Significant increase in cash from reduction in receivables. NeraTel generated S$29m of cash from operating activities compared to S$0.6m cash deficit last year. This was due to solid recovery of S$27.8m in cash from its trade debtors during 1Q08. At this time, NeraTel has about S$50.6m in cash (~14 cents cash per share).
Relevance:
Based on 12x FY08 earnings, our one-year target price is S$0.48and we downgrade to HOLD. The stock has outperformed the market in the last four months but may not continue to do well due to the absence of catalysts. On the positive side, balance sheet is very strong with 14 cents cash per share.
Price Target : 12-Month S$ 0.48 (Prev S$ 0.55)
Story:
Net profit of S$2.65m is up 10% up y-o-y is lower than our expectation of S$3.0m mainly due to lower turnover. On the other hand, cash collection was very strong for the quarter.
Point:
We have adjusted NeraTel’s FY08 earnings estimates by 9% downwards in the light of current set of results and the possibility of slowdown in IT spending in the near future. Final FY07 dividend of 4 cents, goes ex-date on 30 Apr 08 and the stock price could adjust downwards in the absence of additional catalysts.
Lower turnover was the main culprit.
Lower than expected turnover of S$39.0m rose by only 7% y-o-y although gross margins over 23% compensated to some extent. The company attributed this to slippage in some contracts to 2Q08 due to logistic issues, and we expect the company to report net profit of over S$3.0m in 2Q08.
Significant increase in cash from reduction in receivables. NeraTel generated S$29m of cash from operating activities compared to S$0.6m cash deficit last year. This was due to solid recovery of S$27.8m in cash from its trade debtors during 1Q08. At this time, NeraTel has about S$50.6m in cash (~14 cents cash per share).
Relevance:
Based on 12x FY08 earnings, our one-year target price is S$0.48and we downgrade to HOLD. The stock has outperformed the market in the last four months but may not continue to do well due to the absence of catalysts. On the positive side, balance sheet is very strong with 14 cents cash per share.
Subprime Crisis’s Next Stop: Prime Mortgages
Even the best eggs in the mortgage basket are now beginning to turn rotten.
Delinquencies among the nation’s least risky mortgages, known as “prime”mortgages, are rising quickly.
Although large financial institutions have already racked up more than $215billion in losses stemming from high-risk subprime and “Alt-A” mortgages —the poster children of the mortgage crisis — the data that banks releasedthis week suggests that even borrowers with the safest credit profiles arequickly falling behind on their payments.
At JPMorgan Chase & Co., which reported its earnings Wednesday, nearly 3.5%of the bank’s prime mortgages now stand at least 30 days past due, up morethan 200% over a year ago. What’s more, the number of tardy prime mortgageborrowers at JPMorgan is up about 40% since just December.
At Wachovia Corp., which reported earnings on Monday, the number of souringloans within the bank’s “traditional mortgage” business — which emphasizesconservative underwriting guidelines — stands at 1.15% of the business’s$48.9 billion in mortgages, an increase of more than double in the lastthree months alone.
“It’s a sign of the times,” said Jeff Davis, an analyst at FTN MidwestSecurities Corp. “The unemployment rate is starting to drift up, so youwould expect to see rising delinquencies.” The nation’s unemployment ratewas 5.1% in March, up from 4.8% in February.
Analysts also said the nation’s declining housing market is behind the risein delinquencies among historically reliable mortgage borrowers, since manyowe more in mortgage debt than their homes are worth, leaving them withoutthe option of selling the property and repaying the mortgage.
As a result of lost jobs and evaporating home equity, many of thesepreviously low-risk borrowers are quitting their mortgages. Shouldborrowers of prime mortgages continue to fall behind in greater numbers,the trend will affect pools of mortgages that are much larger than thenow-infamous mountains of subrpime debt.
For example, a survey of lenders by the Mortgage Bankers Association, saidthe mortgage industry wrote $656 billion in home loans during the firsthalf of 2007, and 69% of those loans were prime loans. By contrast, only26% of those loans were subprime mortgages. The association said data is not yet available for the second half of 2007.
Delinquencies among the nation’s least risky mortgages, known as “prime”mortgages, are rising quickly.
Although large financial institutions have already racked up more than $215billion in losses stemming from high-risk subprime and “Alt-A” mortgages —the poster children of the mortgage crisis — the data that banks releasedthis week suggests that even borrowers with the safest credit profiles arequickly falling behind on their payments.
At JPMorgan Chase & Co., which reported its earnings Wednesday, nearly 3.5%of the bank’s prime mortgages now stand at least 30 days past due, up morethan 200% over a year ago. What’s more, the number of tardy prime mortgageborrowers at JPMorgan is up about 40% since just December.
At Wachovia Corp., which reported earnings on Monday, the number of souringloans within the bank’s “traditional mortgage” business — which emphasizesconservative underwriting guidelines — stands at 1.15% of the business’s$48.9 billion in mortgages, an increase of more than double in the lastthree months alone.
“It’s a sign of the times,” said Jeff Davis, an analyst at FTN MidwestSecurities Corp. “The unemployment rate is starting to drift up, so youwould expect to see rising delinquencies.” The nation’s unemployment ratewas 5.1% in March, up from 4.8% in February.
Analysts also said the nation’s declining housing market is behind the risein delinquencies among historically reliable mortgage borrowers, since manyowe more in mortgage debt than their homes are worth, leaving them withoutthe option of selling the property and repaying the mortgage.
As a result of lost jobs and evaporating home equity, many of thesepreviously low-risk borrowers are quitting their mortgages. Shouldborrowers of prime mortgages continue to fall behind in greater numbers,the trend will affect pools of mortgages that are much larger than thenow-infamous mountains of subrpime debt.
For example, a survey of lenders by the Mortgage Bankers Association, saidthe mortgage industry wrote $656 billion in home loans during the firsthalf of 2007, and 69% of those loans were prime loans. By contrast, only26% of those loans were subprime mortgages. The association said data is not yet available for the second half of 2007.
The Luck Factor
Lucky people meet their perfect partners, achieve their lifelong ambitions, find fulfilling careers, and live happy and meaningful lives.
Their success is not due to them working especially hard, being amazingly talented or exceptionally intelligent. Instead, they simply appear to have an uncanny ability to be in the right place at the right time and enjoy more than their fair share of lucky breaks.
The Luck Project scientifically explores why some people live such charmed lives, and aims to develop techniques that enable others to enhance their own good fortune. The main findings from the research have been published in Prof. Wiseman’s bestselling book The Luck Factor.
The Luck Project was originally conceived to scientifically explore psychological differences between people who considered themselves exceptionally lucky and unlucky. This initial work was funded by The Leverhulme Trust and undertaken by Prof. Wiseman in collaboration with Dr. Matthew Smith and Dr. Peter Harris.
Prof. Wiseman has since built upon this initial work by identifying the four basic principles used by lucky people to create good fortune in their lives, and developing techniques that enable individuals to enhance their own good luck. This research has involved working with hundreds of exceptionally lucky and unlucky people, and has employed various methods to better understand the psychology of luck.
The results of this work reveal that people are not born lucky.
Instead, lucky people are, without realising it, using four basic principles to create good fortune in their lives:
Principle One: Maximise Chance Opportunities
Lucky people are skilled at creating, noticing and acting upon chance opportunities. They do this in various ways, including networking, adopting a relaxed attitude to life and by being open to new experiences.
Principle Two: Listening to Lucky Hunches
Lucky people make effective decisions by listening to their intuition and gut feelings. In addition, they take steps to actively boost their intuitive abilities by, for example, meditating and clearing their mind of other thoughts.
Principle Three: Expect Good Fortune
Lucky people are certain that the future is going to be full of good fortune. These expectations become self-fulfilling prophecies by helping lucky people persist in the face of failure, and shape their interactions with others in a positive way.
Principle Four: Turn Bad Luck to Good
Lucky people employ various psychological techniques to cope with, and often even thrive upon, the ill fortune that comes their way. For example, they spontaneously imagine how things could have been worse, do not dwell on the ill fortune, and take control of the situation.
A key aspect of The Luck Project involves developing techniques that help people increase the good fortune they encounter in their life. These techniques help people think and behave like a lucky person. The efficacy of these techniques has been scientifically tested in a series of experiments referred to as ‘luck schools’. These studies involve identifying participants’ ‘luck profiles’ – a measure of the degree to which they incorporate the principles of luck into their lives and then asking them to carry out specially-designed exercises that target areas in need of enhancement.
Luck school has proved highly successful, with almost all participants reporting significant life changes, including increased levels of luck, self-esteem, confidence and success.
Their success is not due to them working especially hard, being amazingly talented or exceptionally intelligent. Instead, they simply appear to have an uncanny ability to be in the right place at the right time and enjoy more than their fair share of lucky breaks.
The Luck Project scientifically explores why some people live such charmed lives, and aims to develop techniques that enable others to enhance their own good fortune. The main findings from the research have been published in Prof. Wiseman’s bestselling book The Luck Factor.
The Luck Project was originally conceived to scientifically explore psychological differences between people who considered themselves exceptionally lucky and unlucky. This initial work was funded by The Leverhulme Trust and undertaken by Prof. Wiseman in collaboration with Dr. Matthew Smith and Dr. Peter Harris.
Prof. Wiseman has since built upon this initial work by identifying the four basic principles used by lucky people to create good fortune in their lives, and developing techniques that enable individuals to enhance their own good luck. This research has involved working with hundreds of exceptionally lucky and unlucky people, and has employed various methods to better understand the psychology of luck.
The results of this work reveal that people are not born lucky.
Instead, lucky people are, without realising it, using four basic principles to create good fortune in their lives:
Principle One: Maximise Chance Opportunities
Lucky people are skilled at creating, noticing and acting upon chance opportunities. They do this in various ways, including networking, adopting a relaxed attitude to life and by being open to new experiences.
Principle Two: Listening to Lucky Hunches
Lucky people make effective decisions by listening to their intuition and gut feelings. In addition, they take steps to actively boost their intuitive abilities by, for example, meditating and clearing their mind of other thoughts.
Principle Three: Expect Good Fortune
Lucky people are certain that the future is going to be full of good fortune. These expectations become self-fulfilling prophecies by helping lucky people persist in the face of failure, and shape their interactions with others in a positive way.
Principle Four: Turn Bad Luck to Good
Lucky people employ various psychological techniques to cope with, and often even thrive upon, the ill fortune that comes their way. For example, they spontaneously imagine how things could have been worse, do not dwell on the ill fortune, and take control of the situation.
A key aspect of The Luck Project involves developing techniques that help people increase the good fortune they encounter in their life. These techniques help people think and behave like a lucky person. The efficacy of these techniques has been scientifically tested in a series of experiments referred to as ‘luck schools’. These studies involve identifying participants’ ‘luck profiles’ – a measure of the degree to which they incorporate the principles of luck into their lives and then asking them to carry out specially-designed exercises that target areas in need of enhancement.
Luck school has proved highly successful, with almost all participants reporting significant life changes, including increased levels of luck, self-esteem, confidence and success.
SMRT: Get on board for dividends
SMRT: Get on board for dividends
Price Target : 12-month S$ 2.00 (Prev S$ 1.78)
Story:
Full year earnings came in slightly ahead of our expectations, up 11% yoy to S$150m as revenue grew by 8% yoy to S$800m, driven primarily by ridership growth on its MRT trains. EBIT grew 23% yoy, led by the MRTsegment (+25% yoy), rental and ads (+22% yoy) and a turnaround from a loss of S$5.1m for the taxi segment to a profit of $0.6m. A final net DPS of 6Scts was declared, bringing total DPS for FY08 to 7.75 Scts, above our 7.5 Scts forecast.
Point:
SMRT continues to impress with effective cost management and with strong ridership growth, the Group’s profitability has scaled well, with EBIT margin expanding from 15% five years ago to over 22% currently.
Looking ahead, we expect earnings growth to slow down as it comes from a higher base and as the group faces higher cost pressures, as well as likely start-up costs for the new circle line (Stage 3 is targeted to open in mid 2009). Nonetheless, we expect ridership growth and increasing rental incometo continue to underpin steady earnings growth.
Relevance:
With a formal policy of aiming to maintain or improve the absolute amount of dividends each year, and given SMRT’s generous trackrecord (c. 80% the last 3 years), we are optimistic that shareholders can look forward to growing dividends as the Group continues to grow. We raise our DPS forecast to 8.5 Scts and 9 Scts for FY09 and FY10 respectively. As such, we raise our TP to S$2 (target 4.5% net yield for FY10) and upgrade the stock to a BUY.
Furthermore, SMRT has highlighted the possibility of giving a special dividend, which we believe has a high likelihood as we project the Group to move into a net cash position this year. We estimate that SMRT can pay another 10-15 cents in special dividends with internal funds, without crossing the 0.5x Net Debt-to-Equity mark.
Price Target : 12-month S$ 2.00 (Prev S$ 1.78)
Story:
Full year earnings came in slightly ahead of our expectations, up 11% yoy to S$150m as revenue grew by 8% yoy to S$800m, driven primarily by ridership growth on its MRT trains. EBIT grew 23% yoy, led by the MRTsegment (+25% yoy), rental and ads (+22% yoy) and a turnaround from a loss of S$5.1m for the taxi segment to a profit of $0.6m. A final net DPS of 6Scts was declared, bringing total DPS for FY08 to 7.75 Scts, above our 7.5 Scts forecast.
Point:
SMRT continues to impress with effective cost management and with strong ridership growth, the Group’s profitability has scaled well, with EBIT margin expanding from 15% five years ago to over 22% currently.
Looking ahead, we expect earnings growth to slow down as it comes from a higher base and as the group faces higher cost pressures, as well as likely start-up costs for the new circle line (Stage 3 is targeted to open in mid 2009). Nonetheless, we expect ridership growth and increasing rental incometo continue to underpin steady earnings growth.
Relevance:
With a formal policy of aiming to maintain or improve the absolute amount of dividends each year, and given SMRT’s generous trackrecord (c. 80% the last 3 years), we are optimistic that shareholders can look forward to growing dividends as the Group continues to grow. We raise our DPS forecast to 8.5 Scts and 9 Scts for FY09 and FY10 respectively. As such, we raise our TP to S$2 (target 4.5% net yield for FY10) and upgrade the stock to a BUY.
Furthermore, SMRT has highlighted the possibility of giving a special dividend, which we believe has a high likelihood as we project the Group to move into a net cash position this year. We estimate that SMRT can pay another 10-15 cents in special dividends with internal funds, without crossing the 0.5x Net Debt-to-Equity mark.
If US was a company , it will be bankrupt long time ago.
How to Prosper During the Coming Bad Years In the 21st Century
While we are unable to express an opinion on the U.S. government's consolidated financial statements, the following key items deserve emphasis inorder to put the information contained in the financial statements and the Management's Discussion and Analysis section of the 2006 Financial Report of the United States Government into context.
Despite improvement in both the fiscal year 2006 reported net operating cost and the cash-based budget deficit, the U.S. government's total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow andnow totalapproximately $50 trillion, representing approximately four times the Nation's total output (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.
As this long-term fiscal imbalance continues to grow, the retirement of the"baby boom" generation is closer to becoming a reality with the first wave of boomers eligible for early retirement under Social Security in 2008.
While we are unable to express an opinion on the U.S. government's consolidated financial statements, the following key items deserve emphasis inorder to put the information contained in the financial statements and the Management's Discussion and Analysis section of the 2006 Financial Report of the United States Government into context.
Despite improvement in both the fiscal year 2006 reported net operating cost and the cash-based budget deficit, the U.S. government's total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow andnow totalapproximately $50 trillion, representing approximately four times the Nation's total output (GDP) in fiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.
As this long-term fiscal imbalance continues to grow, the retirement of the"baby boom" generation is closer to becoming a reality with the first wave of boomers eligible for early retirement under Social Security in 2008.
False optimism - Straits Times Index
- The STI has unfolded as per our predictions on 3 April. We had forecasted a mild pullback and a resumption of the rebound thereafter. Indeed, the index pulled back in early April and then rebounded to a high of 3,235.24 last week.
- A short-term uptrend line has been established at this stage of the rebound. The index is currently trading above this trend line, but we do not think this level will hold.
- We anticipate a pullback and this is reinforced by the stochastic indicator which is currently displaying a negative divergence. A pullback would take the index down to the 3,100 support level.
- Having broken above the 50 and 100-day moving averages, the index seems poised to take on our forecasted resistance at 3,300. However, it is unlikely to do so before a pullback unfolds in the near-term.
- We view 3,300 as a critical level as the 200-day moving average is also in proximity to this level. Hence we view the resistance as strong. The index could stage a substantial reversal as compared to the pullbacks we have witnessed since the commencement of the rebound in mid March.
- Hence we advise traders not to get swept up by false optimism at this juncture. We have yet to observe convincing signs of a market recovery to support a full scale resumption of the bull market rally. We feel the upside is limited at this stage.
- Should the index crack the 3,000 level, subsequent support is set at 2,745, which was the low formed in March.
- A short-term uptrend line has been established at this stage of the rebound. The index is currently trading above this trend line, but we do not think this level will hold.
- We anticipate a pullback and this is reinforced by the stochastic indicator which is currently displaying a negative divergence. A pullback would take the index down to the 3,100 support level.
- Having broken above the 50 and 100-day moving averages, the index seems poised to take on our forecasted resistance at 3,300. However, it is unlikely to do so before a pullback unfolds in the near-term.
- We view 3,300 as a critical level as the 200-day moving average is also in proximity to this level. Hence we view the resistance as strong. The index could stage a substantial reversal as compared to the pullbacks we have witnessed since the commencement of the rebound in mid March.
- Hence we advise traders not to get swept up by false optimism at this juncture. We have yet to observe convincing signs of a market recovery to support a full scale resumption of the bull market rally. We feel the upside is limited at this stage.
- Should the index crack the 3,000 level, subsequent support is set at 2,745, which was the low formed in March.
解剖赌博：赌局乾坤大 当心输裤子
想发横财吗？十七世纪两名法国知名数学家穷究赌博致富之道，结论是赌博中赢钱的或然率极低极低；因此，倒不如开家赌场，绝对保证赚尽世界各地赌徒的血汗赌本。
赌马、赌波、买六合彩……就等于用辛苦赚得的金钱，再一次引证数学上的或然率定律。或然率是预测胜败比率(当然不可能绝对准确)的定律，早于十六、十七世纪的欧洲，不少赌业富豪聘请数学专才，设计有利赌场、庄家胜数的方法。
数学专才设计赌局
或然率看似复杂，说穿了不过是计算数学而矣。举个例说，掷硬币两次，要两次都“公仔”朝上，方为赢，那么阁下的赢率就是四分之一，因为第一次掷出“公仔”的机会是二分之一，第二次也是二分之一，因而两次俱为公仔的或然率是1/2×1/2＝1/4。
在或然率预测胜败问题上，“零”代表绝对输，“一”代表绝对赢。上述掷硬币例子中，掷硬币两次的结果，有四个(公仔、公仔；公仔、字；字、公仔；字、字)，其中一个是胜果，占四分之一，也就是零点二五。
不少赌徒自作聪明，把上例的四分之一推算为只要玩四局，里面总有一局赢出。事实非焉。或然率中有一个非常重要的概念———独立性。以上述掷硬币四局为例，四局各不相干，互相独立，第一局掷出“公仔、字”结果后，不会排除掉第二局掷出“公仔、字”的机会。
所有博彩的方式方法和游戏规则，都是数学家为庄家精心设计的成果。赌场内不会掷硬币，只会掷骰子。硬币两个平面，骰子有六个平面(用“1”至“6”代表)，若掷骰两次，掷出两次“6”为赢，那么胜出的或然率就是1/6×1/6﹦1/36，输钱的机会是35/36。
由于赌徒的输面远远大于赢面，赌场于是用大赔率去吸引赌徒，让他们只看到一赔四、五十的“着数”，而忽视赢面极极小上的“吃亏”。
从理论上说，赌徒最有可能在赌场赢钱的唯一办法是：以掷骰两次为例，重复不断地玩上数万、数十万局，或许可以平均每三十六局赢一局，若一局赌本为十元，平均每三百六十元赌本可赢一百四十元(假设一赔五十)。不过，要留意“数万、数十万次”和“或许可以平均”这些关键词语，不少赌徒忘了，结果连裤子也输掉。
高赔率诱赌徒输钱
况且，现实情况是，专家永远会把赔率设计在胜率之下，哪怕赌徒有精力、有金钱玩上数万、数十万局，哪怕真的出现“或许可以平均”的条件，赌徒最终还是要输钱的(后面谈到的轮盘赌局是典型例子)。
六合彩是最普罗大众化的赌局，预测六合彩中彩结果，跟计算掷硬币一样。六合彩要求在四十九个数字中选出六个，那么，中第一个数字的或然率是四十九分之一，中第二个数字的或然率是四十八分之一(因为已搅出的第一个数字不能在往后数字中重复)，第三个的机率是四十七分之一，如此类推，六个号码全中的或然率是1/49×1/48×1/47×1/46×1/45×1/44﹦1/10068347520。
不过，由于六合彩搅珠的先后次序并不影响中彩机会，也就是说，如果买了“11、12、13、14、15、16”，不管它搅出的是“12、16、13、15、14、11”抑或“16、15、14、13、12、11”，阁下还是中奖，因而，实质中彩机率应该是上述答案除以6×5×4×3×2×1(重复次数)，即1/13983816。
假如阁下每周买两期六合彩，每年买上一百零四期，那么，买13,983,816期六合彩需时十三万五千年(相当于人类在地球上存活的岁月)，但也不保证中上一期啊！
当然，不中头奖可以中二奖、三奖，以数学或然率计算，中二奖的机会是1/2330636，中三奖是1/55491，一点不高，连要赢博彩当局二十元(减除赌本实质只赢十五元)的机率，亦只得1/57(中三个号码)。
任何六个数字组合的搅珠率都相若，事实上没有什么方法可以提高选中号码的机会。假如阁下一定要买六合彩，唯一可以做的，是在假如有幸中奖的大前提下，增加中彩的款额。
由于六合彩规则之一是中彩者平分奖金，一人独得时奖金自然更可观。因此选号码时不妨选些别人不太会选择的号码，提高独得奖金机会。例如每期有一万人选1、2、3、4、5、6，假如搅出这个组合，就会有一万人分钱，即使彩金有一千万元，每人不过分得一千块而矣，这个头奖中不中也罢了，省得中彩后激死！
赌博活动可追溯至古希腊神话中三位天神掷骰决定宇宙分治时，结果宙斯赢了，管天堂；波塞冬第二，做了海神，冥王输了，得到地府。在现实世界里，掷骰乃最古老赌博方式，有证据显示至少在公元前三千五百年已经出现。
香港的博彩活动都是沿袭英式的。英国最早全国性抽彩中奖活动于一五六六年举行，当时伊丽莎白一世以彩票形式筹款修建辛基港。抽彩活动亦载于圣经时期，据称先知摩西用抽彩方式把约旦河以西的多块土地分别奖给多人。
轮盘桌局绝无胜算
赌场(CASINO)是十七世纪产物。在意大利，CASINO是“小屋”的意思。十七世纪的意大利贵族爱聚于一些小屋中，谈生意、论政治，妓女投怀送抱之际，他们会下点赌注。
十八世纪时，赌场已扩及欧洲大部分地方，十九世纪时赌场甚至成为大银幕上常见的背景。一八六○年，摩纳哥公国财政紧绌，当时一名叫做弗朗西·布兰克的赌场老板，建议开豪华赌场增加国库收入，数年间，蒙地卡罗成为世界赌场之都。
今天的国际赌场大多提供四大种桌局———二十一点(一种作庄牌局，玩者力争二十一点总牌点，或者比庄家更接近二十一点，但不得超过二十一点)、双骰子赌博、轮盘赌局和扑克牌局；非桌局则以老虎机最为普遍。
这些赌博绝大多数是或然率游戏，由数学专才精心设计，既能吸引赌徒，又能百分百保障赌场老板利益。例如轮盘。一般轮盘局有三十七个槽，号码为○至三十七。○号槽是绿色的，其它号码则是红色和黑色相间，庄家以一个方向旋转轮盘，然后以相反方向往轮盘边甩出小球，小球从转动状态到慢慢停下时，会掉落轮盘中心其中一个槽内，以决定胜果。
这种游戏的吸引处在于多种投注方式和多种赔率、小球掉落槽内掀动刺激感，以及每晚都有不少人赢钱。不过，数学家已透过赔率的设定，把赌徒胜率设计至低至于总或然率，也就是说，整个晚上最终赢家还是赌场老板。
老虎机是赌场内最简便的赌博，那是美国人查尔斯·费伊一八九五年发明的，一九○七年正式投产，原先老虎机滚轮上的图画是些扑克牌，一九一○年改为水果，大概要减少赌徒战死赌场的血腥味吧。一般来说，三个滚轮都旋到车厘子图画，就叫“满堂红”，这时老虎机会吐出全部硬币归中奖者所有。六十年代老虎机开始电子化，部分老虎机的图画改为太空时代象征物。
老虎机吃人不吐骨
哪怕你是天才，也无法战胜老虎机。赌场会闢出老虎机室，内放很多很多(愈多愈好)老虎机，专家预设这组老虎机的“满堂红”吐钱机率，务求每隔一段不长时间就有一部机器吐钱，目的是营造中奖机会经常出现的错觉，硬币铿铿锵锵掉落金属兜时，往往是整个老虎机室全部玩家情绪最高涨的时刻，不独中奖者会继续甘心情愿把彩金输回去，非中奖者也会希望大增，继续向赌场老板进贡。
在滚盘赌戏中，老虎机最吃人不吐骨，也是赌场的最大滚盘式财神。相对之下，轮盘赌局则是赌场“薄利多销”游戏，例如，玩者连续玩足三百七十局(每局十元，赔率三十五)，局局都买“死”一个号码，从理论上说那号码的大约平均胜出率是三十七分一，即三百七十局中有十局胜出。玩者一局赢三百五十元，十局就赢了三千五百元；但别忘记他同时已输掉三百六十局，即输掉三千六百元，总计起来还是要输一百元。
总而言之，阁下若走入赌场，就不要抱着赢钱心态，赌博其实不叫博彩，因为其中绝无彩数(幸运)可言。一如六合彩，间中会制造些富翁出来，但“这个富翁不是你”的机率极大极大。
赌马、赌波、网上赌博的情况一样，精心策划的游戏方式，能勾起人性的欲念，甚至令人陷入迷恋、上瘾和不能自拔境地，而庄家永远是大赢家。
忘了赌神、赌圣这类超级虚拟人物吧，看看报章上多少人为赌博家破人亡。买六合彩可以当作捐款，别望中奖，其中奖率不足一千四百万分之一。金钱能买快乐吗？答案是“不一定”。一项面对二百四十九名曾中彩七十万元以上美国人士的调查结果显示，百分之四十五觉得中奖后不比以前快乐。
赌马、赌波、买六合彩……就等于用辛苦赚得的金钱，再一次引证数学上的或然率定律。或然率是预测胜败比率(当然不可能绝对准确)的定律，早于十六、十七世纪的欧洲，不少赌业富豪聘请数学专才，设计有利赌场、庄家胜数的方法。
数学专才设计赌局
或然率看似复杂，说穿了不过是计算数学而矣。举个例说，掷硬币两次，要两次都“公仔”朝上，方为赢，那么阁下的赢率就是四分之一，因为第一次掷出“公仔”的机会是二分之一，第二次也是二分之一，因而两次俱为公仔的或然率是1/2×1/2＝1/4。
在或然率预测胜败问题上，“零”代表绝对输，“一”代表绝对赢。上述掷硬币例子中，掷硬币两次的结果，有四个(公仔、公仔；公仔、字；字、公仔；字、字)，其中一个是胜果，占四分之一，也就是零点二五。
不少赌徒自作聪明，把上例的四分之一推算为只要玩四局，里面总有一局赢出。事实非焉。或然率中有一个非常重要的概念———独立性。以上述掷硬币四局为例，四局各不相干，互相独立，第一局掷出“公仔、字”结果后，不会排除掉第二局掷出“公仔、字”的机会。
所有博彩的方式方法和游戏规则，都是数学家为庄家精心设计的成果。赌场内不会掷硬币，只会掷骰子。硬币两个平面，骰子有六个平面(用“1”至“6”代表)，若掷骰两次，掷出两次“6”为赢，那么胜出的或然率就是1/6×1/6﹦1/36，输钱的机会是35/36。
由于赌徒的输面远远大于赢面，赌场于是用大赔率去吸引赌徒，让他们只看到一赔四、五十的“着数”，而忽视赢面极极小上的“吃亏”。
从理论上说，赌徒最有可能在赌场赢钱的唯一办法是：以掷骰两次为例，重复不断地玩上数万、数十万局，或许可以平均每三十六局赢一局，若一局赌本为十元，平均每三百六十元赌本可赢一百四十元(假设一赔五十)。不过，要留意“数万、数十万次”和“或许可以平均”这些关键词语，不少赌徒忘了，结果连裤子也输掉。
高赔率诱赌徒输钱
况且，现实情况是，专家永远会把赔率设计在胜率之下，哪怕赌徒有精力、有金钱玩上数万、数十万局，哪怕真的出现“或许可以平均”的条件，赌徒最终还是要输钱的(后面谈到的轮盘赌局是典型例子)。
六合彩是最普罗大众化的赌局，预测六合彩中彩结果，跟计算掷硬币一样。六合彩要求在四十九个数字中选出六个，那么，中第一个数字的或然率是四十九分之一，中第二个数字的或然率是四十八分之一(因为已搅出的第一个数字不能在往后数字中重复)，第三个的机率是四十七分之一，如此类推，六个号码全中的或然率是1/49×1/48×1/47×1/46×1/45×1/44﹦1/10068347520。
不过，由于六合彩搅珠的先后次序并不影响中彩机会，也就是说，如果买了“11、12、13、14、15、16”，不管它搅出的是“12、16、13、15、14、11”抑或“16、15、14、13、12、11”，阁下还是中奖，因而，实质中彩机率应该是上述答案除以6×5×4×3×2×1(重复次数)，即1/13983816。
假如阁下每周买两期六合彩，每年买上一百零四期，那么，买13,983,816期六合彩需时十三万五千年(相当于人类在地球上存活的岁月)，但也不保证中上一期啊！
当然，不中头奖可以中二奖、三奖，以数学或然率计算，中二奖的机会是1/2330636，中三奖是1/55491，一点不高，连要赢博彩当局二十元(减除赌本实质只赢十五元)的机率，亦只得1/57(中三个号码)。
任何六个数字组合的搅珠率都相若，事实上没有什么方法可以提高选中号码的机会。假如阁下一定要买六合彩，唯一可以做的，是在假如有幸中奖的大前提下，增加中彩的款额。
由于六合彩规则之一是中彩者平分奖金，一人独得时奖金自然更可观。因此选号码时不妨选些别人不太会选择的号码，提高独得奖金机会。例如每期有一万人选1、2、3、4、5、6，假如搅出这个组合，就会有一万人分钱，即使彩金有一千万元，每人不过分得一千块而矣，这个头奖中不中也罢了，省得中彩后激死！
赌博活动可追溯至古希腊神话中三位天神掷骰决定宇宙分治时，结果宙斯赢了，管天堂；波塞冬第二，做了海神，冥王输了，得到地府。在现实世界里，掷骰乃最古老赌博方式，有证据显示至少在公元前三千五百年已经出现。
香港的博彩活动都是沿袭英式的。英国最早全国性抽彩中奖活动于一五六六年举行，当时伊丽莎白一世以彩票形式筹款修建辛基港。抽彩活动亦载于圣经时期，据称先知摩西用抽彩方式把约旦河以西的多块土地分别奖给多人。
轮盘桌局绝无胜算
赌场(CASINO)是十七世纪产物。在意大利，CASINO是“小屋”的意思。十七世纪的意大利贵族爱聚于一些小屋中，谈生意、论政治，妓女投怀送抱之际，他们会下点赌注。
十八世纪时，赌场已扩及欧洲大部分地方，十九世纪时赌场甚至成为大银幕上常见的背景。一八六○年，摩纳哥公国财政紧绌，当时一名叫做弗朗西·布兰克的赌场老板，建议开豪华赌场增加国库收入，数年间，蒙地卡罗成为世界赌场之都。
今天的国际赌场大多提供四大种桌局———二十一点(一种作庄牌局，玩者力争二十一点总牌点，或者比庄家更接近二十一点，但不得超过二十一点)、双骰子赌博、轮盘赌局和扑克牌局；非桌局则以老虎机最为普遍。
这些赌博绝大多数是或然率游戏，由数学专才精心设计，既能吸引赌徒，又能百分百保障赌场老板利益。例如轮盘。一般轮盘局有三十七个槽，号码为○至三十七。○号槽是绿色的，其它号码则是红色和黑色相间，庄家以一个方向旋转轮盘，然后以相反方向往轮盘边甩出小球，小球从转动状态到慢慢停下时，会掉落轮盘中心其中一个槽内，以决定胜果。
这种游戏的吸引处在于多种投注方式和多种赔率、小球掉落槽内掀动刺激感，以及每晚都有不少人赢钱。不过，数学家已透过赔率的设定，把赌徒胜率设计至低至于总或然率，也就是说，整个晚上最终赢家还是赌场老板。
老虎机是赌场内最简便的赌博，那是美国人查尔斯·费伊一八九五年发明的，一九○七年正式投产，原先老虎机滚轮上的图画是些扑克牌，一九一○年改为水果，大概要减少赌徒战死赌场的血腥味吧。一般来说，三个滚轮都旋到车厘子图画，就叫“满堂红”，这时老虎机会吐出全部硬币归中奖者所有。六十年代老虎机开始电子化，部分老虎机的图画改为太空时代象征物。
老虎机吃人不吐骨
哪怕你是天才，也无法战胜老虎机。赌场会闢出老虎机室，内放很多很多(愈多愈好)老虎机，专家预设这组老虎机的“满堂红”吐钱机率，务求每隔一段不长时间就有一部机器吐钱，目的是营造中奖机会经常出现的错觉，硬币铿铿锵锵掉落金属兜时，往往是整个老虎机室全部玩家情绪最高涨的时刻，不独中奖者会继续甘心情愿把彩金输回去，非中奖者也会希望大增，继续向赌场老板进贡。
在滚盘赌戏中，老虎机最吃人不吐骨，也是赌场的最大滚盘式财神。相对之下，轮盘赌局则是赌场“薄利多销”游戏，例如，玩者连续玩足三百七十局(每局十元，赔率三十五)，局局都买“死”一个号码，从理论上说那号码的大约平均胜出率是三十七分一，即三百七十局中有十局胜出。玩者一局赢三百五十元，十局就赢了三千五百元；但别忘记他同时已输掉三百六十局，即输掉三千六百元，总计起来还是要输一百元。
总而言之，阁下若走入赌场，就不要抱着赢钱心态，赌博其实不叫博彩，因为其中绝无彩数(幸运)可言。一如六合彩，间中会制造些富翁出来，但“这个富翁不是你”的机率极大极大。
赌马、赌波、网上赌博的情况一样，精心策划的游戏方式，能勾起人性的欲念，甚至令人陷入迷恋、上瘾和不能自拔境地，而庄家永远是大赢家。
忘了赌神、赌圣这类超级虚拟人物吧，看看报章上多少人为赌博家破人亡。买六合彩可以当作捐款，别望中奖，其中奖率不足一千四百万分之一。金钱能买快乐吗？答案是“不一定”。一项面对二百四十九名曾中彩七十万元以上美国人士的调查结果显示，百分之四十五觉得中奖后不比以前快乐。
Tuesday, April 29, 2008
“慢,稳,忍” 高明的拙招
慢的意境
仓促行事考虑不周往往只会见期好不见其坏 不客观的态度+不完整的资料=错误的判断慢， 可以让你更清醒，在适当的时机买入卖出， 通常熊市都会持续一段不短的时间，低价高值股偏地 可是都不多人买 800-900点不买都等1200才追 本末倒置, SUPPOSELY 在1200卖 800点买的。 目前的全世界股市“横尸片野”，机会应该不远了.
稳
巴菲特的“不 损失”的高招， 就如打仗一样 要探清楚敌军的虚实，一步一脚印，不打没把握的仗. 轻率出击 将王兵损 智者不为也。 那些喜欢每次全力进攻的将领你认为可以活过多少次的厮杀？一次的失利也许就把99次的胜利化为零机会永远存在，只看你有没有机会看到它，如果没了本钱 有机会也便没机会了。不亏钱也是赚钱的方法之一
忍
忍？对就是它买进之前 忍人所不能忍 才能低价买进卖出之前 忍人所不能忍 才能高价卖出买进之后 忍人所不能忍 才能长期获大利股坛里有多少短线高手？至少我不是买股是买公司的将来 业务，计划，发展都需要时间故“忍”有百益而无一害
故快不如慢，狠不如稳，准不如忍 看似笨拙实属高明.
仓促行事考虑不周往往只会见期好不见其坏 不客观的态度+不完整的资料=错误的判断慢， 可以让你更清醒，在适当的时机买入卖出， 通常熊市都会持续一段不短的时间，低价高值股偏地 可是都不多人买 800-900点不买都等1200才追 本末倒置, SUPPOSELY 在1200卖 800点买的。 目前的全世界股市“横尸片野”，机会应该不远了.
稳
巴菲特的“不 损失”的高招， 就如打仗一样 要探清楚敌军的虚实，一步一脚印，不打没把握的仗. 轻率出击 将王兵损 智者不为也。 那些喜欢每次全力进攻的将领你认为可以活过多少次的厮杀？一次的失利也许就把99次的胜利化为零机会永远存在，只看你有没有机会看到它，如果没了本钱 有机会也便没机会了。不亏钱也是赚钱的方法之一
忍
忍？对就是它买进之前 忍人所不能忍 才能低价买进卖出之前 忍人所不能忍 才能高价卖出买进之后 忍人所不能忍 才能长期获大利股坛里有多少短线高手？至少我不是买股是买公司的将来 业务，计划，发展都需要时间故“忍”有百益而无一害
故快不如慢，狠不如稳，准不如忍 看似笨拙实属高明.
Sunday, April 27, 2008
为什么不能等三年？
●你买了一间屋子，由跟发展商签约到发展商交屋给你，前后三年，你觉得这是理所当然的事，三年的等待，你觉得一点也不长。在这期间，你没有分文收入，却定期的给银行利息，你也毫无怨言。
●你买了一百英亩的荒地，开辟为油棕园，由伐木、烧芭、开路挖沟，育苗，种植，除草，施肥，整整忙了三年，才看到棕果出现，收成仍不足以维持开支，再等两年，棕果渐丰，油棕园的收支才达到平衡，仍没钱赚。这已是第五个年头了。忙了五年，只有付出，没有收入，你不以为苦，因为你知道那是赚钱无可避免的途径。
●你买了五十亩的地，是树胶园，属农业地，你要把它发展为住宅区，於是你向土地局申请将农业地转为屋地，再将屋地分割为五、六百段每段20′×75′的屋地，以兴建五，六百间排屋出售。分割后为每段屋地申请个别地契，请绘测师设计屋子的图样，请工程师计算成本，请承包商承建屋子，由市场部登广告出售屋子，跟银行接洽融资问题，屋子建筑过程中要处理许多附近居民的申诉，要按期向购屋者收款，到领到入伙纸，把屋交给购屋者，由购买土地到交屋收工，前后长达五年，总算钱赚到了手。作为发展商，你认为以五年的时间赚钱，是正常的，是合理的，你耐心地等待，从无怨言。
●你是一名中小型企业家，你有制造某种产品的经验，过去你是为别人管理公司的，现在决定自己创业，你决定建一间工厂，你从调查市场，向银行接洽借款，寻找厂地，设计厂房，招聘员工，装置机器，试验生产，到产品推入市场，从策划到产品出现在百货公司的货架上，前后三年，再苦撑两年，才开始有盈利，那已是第五个年头了。你认为这是创业的正常过程，你心甘情愿与你的事业同行五年，毫无怨言。
●你是开药剂店的，你决定在城市的另一区，开一间分店，为来自该区的顾客服务，从寻找店铺，装修，聘请药剂师，筹备开张，到正式做生意，前后也要一年半。
以上的五个例子－－买屋子收租，开辟油棕园，建屋出售，从事工业，开零售店，从筹备到赚钱，快则一年半，慢则五年，业者从无怨言，因为他们了解，做任何事业，都需要时间，绝对没有一蹴即成这回事。
以上的五个例子有一个共同点，那就是投入资金，希望赚取合理的利润，这叫“投资”，业者除了知道投资需要时间外，他们也接受一个事实，即凡是投资，都有风险，没有任何投资是没有风险的，风险是他们赚取比银行定存更高的利润所面付出的代价。
投资者接受两项事实：
①投资需要时间才能赚到利润，没有捷径可操。
②凡投资都有风险，风险的高低常与利润成正比。
股票投资，是许许多多投资管道之一，为什么投资者不能接受以上的两项事实。做事业，你可以等三、五年，股票投资为什么不能等三、五年？
绝大部份的股票投资者，都希望今天买进，明天就卖出，赚取暴利。假如你告诉他，低价买进好股，持握三年，可以赚钱，他们觉得时间太长，难以接受。
为什么买屋子可以等三年，买股票却不能？
为什么肯化五年的时间去完成一项建屋计划，等油棕成熟，等工业产生利润，为什么股票投资不肯等五年？
为什么肯化一年半的时间去开一间药剂店分行，买股票却不愿等一年半载？
股票就是公司的股份，跟合资买屋，参股种油棕，建屋，开工厂，开药剂店分行没有两样，你拥有股份的上市公司，跟你所参股的别的私人公司一样，需要时间去完成业务，才能赚到钱，为什么你用不一样的态度去对待同样的股份？
这种态度合理吗？
投资生意有赚有亏，做生意的人坦然面对，无怨无尤。
你持有股份的上市公司也是在做生意，当然也是有赚有亏，投资者为什么不能忍受亏蚀，为什么不能接受可能亏蚀的事实而怨无尤人？
上市公司多达950家，任你挑选参股的对象，你因为无知，因为贪婪，因为听信谣言，而参股於错误的企业，岂能完全归咎於股市？你自己没有责任吗？
大多数股票每年的股价波动幅度由数十巴仙至数百巴仙不等，你在低价时不买，高价时抢进，亏了本，不怨自己怨别人，合理吗？
参股做生意，例如合股种油棕，六、七年之后才可能分红，买棕油股，当年就可分到股息，不是更合算吗？
在做任何事情失败后，多数人只怨别人，把责任推在别人或环境身上，能自我反省的人少之又少。
股票投资也一样，亏了本不是怨股市，就是怨别人使奸用诈，从来不检讨自己失败的原因。
我再问：买屋子可以等三年，为什么买股票不能等三年？
●你买了一百英亩的荒地，开辟为油棕园，由伐木、烧芭、开路挖沟，育苗，种植，除草，施肥，整整忙了三年，才看到棕果出现，收成仍不足以维持开支，再等两年，棕果渐丰，油棕园的收支才达到平衡，仍没钱赚。这已是第五个年头了。忙了五年，只有付出，没有收入，你不以为苦，因为你知道那是赚钱无可避免的途径。
●你买了五十亩的地，是树胶园，属农业地，你要把它发展为住宅区，於是你向土地局申请将农业地转为屋地，再将屋地分割为五、六百段每段20′×75′的屋地，以兴建五，六百间排屋出售。分割后为每段屋地申请个别地契，请绘测师设计屋子的图样，请工程师计算成本，请承包商承建屋子，由市场部登广告出售屋子，跟银行接洽融资问题，屋子建筑过程中要处理许多附近居民的申诉，要按期向购屋者收款，到领到入伙纸，把屋交给购屋者，由购买土地到交屋收工，前后长达五年，总算钱赚到了手。作为发展商，你认为以五年的时间赚钱，是正常的，是合理的，你耐心地等待，从无怨言。
●你是一名中小型企业家，你有制造某种产品的经验，过去你是为别人管理公司的，现在决定自己创业，你决定建一间工厂，你从调查市场，向银行接洽借款，寻找厂地，设计厂房，招聘员工，装置机器，试验生产，到产品推入市场，从策划到产品出现在百货公司的货架上，前后三年，再苦撑两年，才开始有盈利，那已是第五个年头了。你认为这是创业的正常过程，你心甘情愿与你的事业同行五年，毫无怨言。
●你是开药剂店的，你决定在城市的另一区，开一间分店，为来自该区的顾客服务，从寻找店铺，装修，聘请药剂师，筹备开张，到正式做生意，前后也要一年半。
以上的五个例子－－买屋子收租，开辟油棕园，建屋出售，从事工业，开零售店，从筹备到赚钱，快则一年半，慢则五年，业者从无怨言，因为他们了解，做任何事业，都需要时间，绝对没有一蹴即成这回事。
以上的五个例子有一个共同点，那就是投入资金，希望赚取合理的利润，这叫“投资”，业者除了知道投资需要时间外，他们也接受一个事实，即凡是投资，都有风险，没有任何投资是没有风险的，风险是他们赚取比银行定存更高的利润所面付出的代价。
投资者接受两项事实：
①投资需要时间才能赚到利润，没有捷径可操。
②凡投资都有风险，风险的高低常与利润成正比。
股票投资，是许许多多投资管道之一，为什么投资者不能接受以上的两项事实。做事业，你可以等三、五年，股票投资为什么不能等三、五年？
绝大部份的股票投资者，都希望今天买进，明天就卖出，赚取暴利。假如你告诉他，低价买进好股，持握三年，可以赚钱，他们觉得时间太长，难以接受。
为什么买屋子可以等三年，买股票却不能？
为什么肯化五年的时间去完成一项建屋计划，等油棕成熟，等工业产生利润，为什么股票投资不肯等五年？
为什么肯化一年半的时间去开一间药剂店分行，买股票却不愿等一年半载？
股票就是公司的股份，跟合资买屋，参股种油棕，建屋，开工厂，开药剂店分行没有两样，你拥有股份的上市公司，跟你所参股的别的私人公司一样，需要时间去完成业务，才能赚到钱，为什么你用不一样的态度去对待同样的股份？
这种态度合理吗？
投资生意有赚有亏，做生意的人坦然面对，无怨无尤。
你持有股份的上市公司也是在做生意，当然也是有赚有亏，投资者为什么不能忍受亏蚀，为什么不能接受可能亏蚀的事实而怨无尤人？
上市公司多达950家，任你挑选参股的对象，你因为无知，因为贪婪，因为听信谣言，而参股於错误的企业，岂能完全归咎於股市？你自己没有责任吗？
大多数股票每年的股价波动幅度由数十巴仙至数百巴仙不等，你在低价时不买，高价时抢进，亏了本，不怨自己怨别人，合理吗？
参股做生意，例如合股种油棕，六、七年之后才可能分红，买棕油股，当年就可分到股息，不是更合算吗？
在做任何事情失败后，多数人只怨别人，把责任推在别人或环境身上，能自我反省的人少之又少。
股票投资也一样，亏了本不是怨股市，就是怨别人使奸用诈，从来不检讨自己失败的原因。
我再问：买屋子可以等三年，为什么买股票不能等三年？
Saturday, April 26, 2008
两大“投资明星”：联储局降息 美国将陷入经济衰退 - 20 September 2007
正当投资者为美国联邦储备局同时大幅下调基准利率和贴现率50个基点的强力货币政策措施而欢欣鼓舞之际，全球明星投资人罗杰斯(Jim Rogers)和麦嘉华(Marc Faber)则为投资者泼了一盆冷水。
有“商品投资大师”之称的罗杰斯在上海接受媒体采访时，对联储局的利率决定评论说，大幅降息托市无异于大量印刷美钞，美国将面临严重通胀的威胁。他说：“每当联储局转向拯救其在华尔街的朋友时，情况就会恶化，如果联储局主席伯南克开始采取加印钞票的动作，我们将步入严重衰退。”
有市场人士指出，伯南克大幅降息的举措表明，他仍无法摆脱“格林斯潘式”政策模式的窠臼。
有“末日博士”之称的麦嘉华指出，伯南克正在重复其前任格林斯潘的错误，今日的房价和信贷市场严重泡沫问题就是由长期低利率水平引发的。他警告，如果联储局不把通胀、资产价格非理性泡沫扼杀在萌芽状态，未来美国经济将更为糟糕。
罗杰斯和麦嘉华均认为，联储局非但不能降息，反而应升息以抑制通胀，并防止美元崩溃。
甚至连联储局前主席格林斯潘在联储局此次降息前也指出，目前通胀压力比1998年长期资本(LTCM)倒闭时更大，未来30年美国面临严重通胀威胁，联储局仍应关注通胀压力，虽然金融动荡持续，他并不主张过度降息。此次降息后，格林斯潘拒绝发表评论。
全球著名的债券基金经理人格罗斯(Bill Gross）也指出，在过去20年中，联储局以50个基点为开端降息周期仅有两次，且两次均伴随着未来美国经济陷入衰退。
格罗斯愈发对美国经济悲观，他将未来12个月内美国经济增长预测由原先的2-2.5％下调至1.25-1.75％。格林斯潘此前也表示，由于房市持续严重衰退，美国经济衰退的可能性已升至三分之一以上。
罗杰斯建议投资者卖出美元和美国公债。他说，他正在卖空美国投资银行的股票，他还持续看好大宗商品价格和人民币汇率走势。
麦嘉华则强烈看好金价，他说，尽管目前金价已破700美元，但相对其他大宗商品价格而言仍被低估。
不过，“股神”巴菲特在接受美国CNBC财经频道采访时则称，联储局大幅降息措施对他的长期投资策略毫无影响，他周三并没有买卖任何一只股票。
一些分析员则欢迎联储局的行动，认为可纾缓房贷与金融信用危机。
美国富国银行资深经济专家安德森表示：“我认为联储局对于美国房市与经济情况，开了一剂货币政策良方。”
他说：“联储局积极行动以扭转经济衰退情势，我想未来可看到效果。”
一些专家指出，联储局选择较积极的行动，主要是希望经济与金融信用市场能够回归正常，一次大幅降息后，联储局决策委员下次在10月30日、31日召开会议时，可能不会再降利率。
有“商品投资大师”之称的罗杰斯在上海接受媒体采访时，对联储局的利率决定评论说，大幅降息托市无异于大量印刷美钞，美国将面临严重通胀的威胁。他说：“每当联储局转向拯救其在华尔街的朋友时，情况就会恶化，如果联储局主席伯南克开始采取加印钞票的动作，我们将步入严重衰退。”
有市场人士指出，伯南克大幅降息的举措表明，他仍无法摆脱“格林斯潘式”政策模式的窠臼。
有“末日博士”之称的麦嘉华指出，伯南克正在重复其前任格林斯潘的错误，今日的房价和信贷市场严重泡沫问题就是由长期低利率水平引发的。他警告，如果联储局不把通胀、资产价格非理性泡沫扼杀在萌芽状态，未来美国经济将更为糟糕。
罗杰斯和麦嘉华均认为，联储局非但不能降息，反而应升息以抑制通胀，并防止美元崩溃。
甚至连联储局前主席格林斯潘在联储局此次降息前也指出，目前通胀压力比1998年长期资本(LTCM)倒闭时更大，未来30年美国面临严重通胀威胁，联储局仍应关注通胀压力，虽然金融动荡持续，他并不主张过度降息。此次降息后，格林斯潘拒绝发表评论。
全球著名的债券基金经理人格罗斯(Bill Gross）也指出，在过去20年中，联储局以50个基点为开端降息周期仅有两次，且两次均伴随着未来美国经济陷入衰退。
格罗斯愈发对美国经济悲观，他将未来12个月内美国经济增长预测由原先的2-2.5％下调至1.25-1.75％。格林斯潘此前也表示，由于房市持续严重衰退，美国经济衰退的可能性已升至三分之一以上。
罗杰斯建议投资者卖出美元和美国公债。他说，他正在卖空美国投资银行的股票，他还持续看好大宗商品价格和人民币汇率走势。
麦嘉华则强烈看好金价，他说，尽管目前金价已破700美元，但相对其他大宗商品价格而言仍被低估。
不过，“股神”巴菲特在接受美国CNBC财经频道采访时则称，联储局大幅降息措施对他的长期投资策略毫无影响，他周三并没有买卖任何一只股票。
一些分析员则欢迎联储局的行动，认为可纾缓房贷与金融信用危机。
美国富国银行资深经济专家安德森表示：“我认为联储局对于美国房市与经济情况，开了一剂货币政策良方。”
他说：“联储局积极行动以扭转经济衰退情势，我想未来可看到效果。”
一些专家指出，联储局选择较积极的行动，主要是希望经济与金融信用市场能够回归正常，一次大幅降息后，联储局决策委员下次在10月30日、31日召开会议时，可能不会再降利率。
别轻信媒体和分析师之说
肯尼迪总统的爸爸老肯尼迪曾经说过，如果擦鞋的小子也开始给热股建议的时候，卖出的时机就到了。
成熟的投资者不爱听小道消息，试图从权威渠道获得信息。
不过，根据三位美国金融教授在最近一期的《金融分析师杂志》上发表的一篇论文，媒体热情的渲染报道，反而是一个值得注意的卖出信号。
这三位教授搜集了从1983年到2002年美国《商业周刊》、《财富》、《福布斯》杂志的549篇封面文章，来检验媒体报道对公司股价的影响。
他们把文章分为正面、中立和负面三种，然后研究文章发表之前500天和之后500天公司股价的表现。
这些文章中正面的占总数的64%，中立的文章占18%，而负面的文章只有18%。这倒是和股票研究分析师们给出的买入、持有和卖出评级的比例相差不多。
不是说坏消息更能够帮助卖报纸吗？为什么正面的报道大大超过负面的？可能因为一个走上坡路的公司更容易配合采访，另外媒体也考虑到负面报道可能带来各种麻烦，甚至法律纠纷，因此报喜不报忧的情况更多一些。
记者和分析师们一样，都喜欢重复已经发生的事情。公司在获得正面报道之前，股票平均大幅跑赢大市，而被负面报道的公司普遍跑输大市。这也不让人感到意外，要先知先觉毕竟不容易。一般人的倾向是认为已经发生的事情会按照惯性持续下去，这在行为金融学上有一个专用名词，叫做“追踪趋势”(chasing trends)。就是说投资者喜欢从过去的交易中总结规律，并试图用这个规律来预测市场未来的发展，但事实上这么做往往不成功。
这三位教授还发现，等到这些文章面世以后，股价的表现就倒了过来。文章发表后500天内，获得最负面报道的公司平均比大市表现要强12.4%，而媒体热捧的一些公司的股价比大市表现只强4.2%。这篇文章总结说，一家公司一旦登上杂志封面，它们之前或强或弱的极端表现随即走向终结。
负面报道后的反弹
按照常理，媒体报道可以帮助提高知名度，让好的更好，糟的更糟。但媒体报道影响的以普通个人投资者为多。他们在好消息出来的时候买入，坏消息出来的时候卖出。而机构投资者则在利空出尽的时候买入，利好出尽的时候卖出。因此教授们建议投资者在负面报道出来以后就不要再做空了，因为这往往是股票几将触底反弹的一个信号。
从这个调查还可以看出，市场并非完全有效。股票短期内对信息往往反应过度，而长期应该会调整回到合理价位。
另外，一个规律和现象一旦公之于众，也就开始失灵。比如原来常说的“1月效应”，即投资者因为税务的考虑，在12月卖股票并在1月买入，已经不常被人提起。
还有“5月份卖股票后去休假，9月份再回来买股票”的理论也是一样。花旗数据显示这一规律在1990年开始到2003年可以帮助投资者获得超过大市的回报，但之后就不再管用了。
这项调查是根据美国媒体和上市公司来做的。美国新闻记者相对从业素质较高，给出的信息准确性较强，这提高了媒体的权威性和影响力。但美国的金融市场信息更为公开，给记者挖出完全独家的消息的可能性也不大。另外美国是一个机构投资者为主的市场，他们受媒体报道的影响较小，这两点因素也削弱了媒体对市场的影响。
中国市场谣言满天飞，媒体准确性也有待提高。但分析师力量相对薄弱，媒体起到了很好的补充作用。另外中国的散户相对机构的比例远高于美国。
不过，虽然国情不同，这项调查对中国的投资者也应该有所启迪，就是不要被媒体的一些过度乐观或悲观的报道所左右。
现在中国已经到了全民炒股的时刻，不仅仅是擦鞋的小朋友，媒体也大肆渲染不少一夜暴富的故事。这些报道吸引新的资金进入股市，推动市场再创新高，可以说是市场可能即将见顶的信号。
不过值得注意的是，教授们建议投资者在负面报道登上封面的时候停止做空，但并没有倡导投资人在正面报道出来以后抛售股票。因为之后这些公司的股价升幅虽然有所放慢，但上升趋势还可以保持一段时间。
成熟的投资者不爱听小道消息，试图从权威渠道获得信息。
不过，根据三位美国金融教授在最近一期的《金融分析师杂志》上发表的一篇论文，媒体热情的渲染报道，反而是一个值得注意的卖出信号。
这三位教授搜集了从1983年到2002年美国《商业周刊》、《财富》、《福布斯》杂志的549篇封面文章，来检验媒体报道对公司股价的影响。
他们把文章分为正面、中立和负面三种，然后研究文章发表之前500天和之后500天公司股价的表现。
这些文章中正面的占总数的64%，中立的文章占18%，而负面的文章只有18%。这倒是和股票研究分析师们给出的买入、持有和卖出评级的比例相差不多。
不是说坏消息更能够帮助卖报纸吗？为什么正面的报道大大超过负面的？可能因为一个走上坡路的公司更容易配合采访，另外媒体也考虑到负面报道可能带来各种麻烦，甚至法律纠纷，因此报喜不报忧的情况更多一些。
记者和分析师们一样，都喜欢重复已经发生的事情。公司在获得正面报道之前，股票平均大幅跑赢大市，而被负面报道的公司普遍跑输大市。这也不让人感到意外，要先知先觉毕竟不容易。一般人的倾向是认为已经发生的事情会按照惯性持续下去，这在行为金融学上有一个专用名词，叫做“追踪趋势”(chasing trends)。就是说投资者喜欢从过去的交易中总结规律，并试图用这个规律来预测市场未来的发展，但事实上这么做往往不成功。
这三位教授还发现，等到这些文章面世以后，股价的表现就倒了过来。文章发表后500天内，获得最负面报道的公司平均比大市表现要强12.4%，而媒体热捧的一些公司的股价比大市表现只强4.2%。这篇文章总结说，一家公司一旦登上杂志封面，它们之前或强或弱的极端表现随即走向终结。
负面报道后的反弹
按照常理，媒体报道可以帮助提高知名度，让好的更好，糟的更糟。但媒体报道影响的以普通个人投资者为多。他们在好消息出来的时候买入，坏消息出来的时候卖出。而机构投资者则在利空出尽的时候买入，利好出尽的时候卖出。因此教授们建议投资者在负面报道出来以后就不要再做空了，因为这往往是股票几将触底反弹的一个信号。
从这个调查还可以看出，市场并非完全有效。股票短期内对信息往往反应过度，而长期应该会调整回到合理价位。
另外，一个规律和现象一旦公之于众，也就开始失灵。比如原来常说的“1月效应”，即投资者因为税务的考虑，在12月卖股票并在1月买入，已经不常被人提起。
还有“5月份卖股票后去休假，9月份再回来买股票”的理论也是一样。花旗数据显示这一规律在1990年开始到2003年可以帮助投资者获得超过大市的回报，但之后就不再管用了。
这项调查是根据美国媒体和上市公司来做的。美国新闻记者相对从业素质较高，给出的信息准确性较强，这提高了媒体的权威性和影响力。但美国的金融市场信息更为公开，给记者挖出完全独家的消息的可能性也不大。另外美国是一个机构投资者为主的市场，他们受媒体报道的影响较小，这两点因素也削弱了媒体对市场的影响。
中国市场谣言满天飞，媒体准确性也有待提高。但分析师力量相对薄弱，媒体起到了很好的补充作用。另外中国的散户相对机构的比例远高于美国。
不过，虽然国情不同，这项调查对中国的投资者也应该有所启迪，就是不要被媒体的一些过度乐观或悲观的报道所左右。
现在中国已经到了全民炒股的时刻，不仅仅是擦鞋的小朋友，媒体也大肆渲染不少一夜暴富的故事。这些报道吸引新的资金进入股市，推动市场再创新高，可以说是市场可能即将见顶的信号。
不过值得注意的是，教授们建议投资者在负面报道登上封面的时候停止做空，但并没有倡导投资人在正面报道出来以后抛售股票。因为之后这些公司的股价升幅虽然有所放慢，但上升趋势还可以保持一段时间。
Tips from Warren Buffett
Widely regarded as the most successful investor of all time, Warren Buffett is a luminous example of the school of value, or rather intelligent, investing.
With an initial war chest of $105,000 in 1956 garnered from his close friends and family, Warren grew it to over $56 billion over the next 50 years, making him the richest man in the world.
How did a single simple man from the quietest of all cities, Omaha, manage to bulldoze his way to such position, and in the process, became a major owner in some of the most important businesses in the world? Though he is widely recognized as being an investor, the bulk of Buffett’s wealth was built through intelligent use of leverage offered by his insurance companies. Since most individual investors do not have access to the type of capital that Buffett does, it is tough to replicate his type of astounding wealth-building feat. Nevertheless, not being able to be like Buffett doesn’t mean unable to be at least like Graham. So, by understanding and applying the basic principles of Buffett’s investment approach to their own investing decisions, most long term investors can comfortably beat the returns of all but the best mutual fund managers.
“There’re only two courses investment students need to learn – How to value a business & How to think about market prices. This of course is not the prevailing view at most business schools [but it doesn’t dampen its importance].” – Warren E. Buffett
Thus, in an attempt to answer the two questions as raised. The following will shed some light to unraveling the answers.
Invest in Businesses, not in stocks
“Whenever we buy common stocks for Berkshire’s insurance companies (leaving aside arbitrage purchases), we approach the transaction as if we were buying into a private business. We look at the economic prospects of the business, the people in charge of running it, and the price we must pay.” – Warren Buffett
This is one of the cornerstones of Buffett’s investment style. Whenever he evaluates an opportunity in investment, he thinks of it as a business, and not as pieces of papers of stocks. He even noted that investment is best approached in the most business-like manner. This makes him look closely at the business’s fundamentals, earnings prospects, financial health, and management. On the converse, this style of evaluating a business bars him from buying a stock just because it is going up even though it has dubious prospects. A lot of investors tend to buy stocks based on tips from friends, rumors, or brokers. By adopting Buffett’s approach, you can save yourself a lot of grief later on, although in the short term, it would seems that you forego a lot of easy and quick profits.
Stick to businesses you understand
“Did we foresee thirty years ago what would transpire in the television manufacturing or computer industries? Of course not. Why, then, should Charlie and I now think we can predict the future of other rapidly evolving business? We’ll stick instead with the easy cases. Why search for a needle buried in a haystack when one is sitting in plain sight?” – Warren Buffett
Buffett has a record of compounding over 20 percent of annual returns over a 50-year investment time span, a feat hardly matched, or rather unmatched, by very few investment managers. Though some technology companies delivered some of the best returns during this period, Buffett has never owned one for the simple reason that he could not understand the long term economic prospects of these companies. So the next time you get a tip to buy a “hot” company that you do not understand, you should ask yourself: “If the greatest investor in the world will not invest in something he doesn’t understand, should I?”
Buy companies with defensible “franchises” or “moats”
“As Peter Lynch says, stocks of companies selling commodity-like products should come with a warning label: ‘Competition may prove hazardous to human wealth’.” – Warren Buffett
Bulk of Berkshire Hathaway’s holdings in marketable securities are concentrated in no more than ten businesses – such as Coca Cola, P&G, Johnson & Johnson, Moodys, and American Express. These are examples of businesses that have a significant hold over their market that they are in. This can be attributed to the inherent competitive advantages, whether it be a highly recognizable brand, or near-monopoly status in a geographical area. This in turn leads to fantastic earnings growth (that far exceeds inflation rate) and, consequently, great investment performance. What counts in the best kind of business to own is the question if such a business can raise price as it wants to without losing market share.
A couple of test on how to evaluate how good a business is to ask two questions:
1) How long does the management takes to think before they decide to raise prices;
2) Will the core business strength be the same as it is five or ten years from now?
You have to decide whether the business will still be around, and if there’s any other way people can get the same service from different sources. In determining the ability to raise prices, you’re only looking at a marvelous business when you look in the mirror and say “mirror, mirror on the wall, how much should I charge for Coke this fall?” and the mirror says “more.” On the other hand, when you say, for example in a commodity-like business, when you get down on your knees, summon all the priests, rabbis, monks, and just about every holy ones, and pray to rise for “just half a cent.” Then you get up and they say “We won’t pay it.” It’s just a lousy business. An example is if you walk into a convenience store and you say “I’d like a Hershey bar” and the man says “I don’t have any Hershey bars but I’ve this unmarked chocolate bar, and it’s 20cents cheaper than a Hershey bar.” And if you just walk out of the store and cross the road and look for a Hershey bar, that’s a great business.
Over time, you will find only a few companies that meet these stringent standards. So when you see one that qualifies, you should buy a meaningful amount of stock.
Hold for the long term
“We are willing to hold a stock indefinitely so long as we expect the business to increase in intrinsic value at a satisfactory rate……we do not sell our holdings just because they have appreciated or because we have held them for a long time.” – Warren Buffett
“You must also resist the temptations to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upwards over the years, and so also will the portfolio’s market value.” – Warren Buffett
Berkshire Hathaway’s investment of $10 million in 1973 in the Washington Post Company had grown to more than a billion by 2003. While a lot of us may be able to do this occasionally, Buffett has been able to do so with startling regularity. One of the reasons he is able to achieve so is because he holds for the long term and is not quick to dance in or out or the business as would the market suggests so. In fact, he stuck with WPC for two years even though its price fell below his purchase price significantly because he understood the fundamentals of the business and believed it was undervalued. Even once it became profitable, he was not quick to exit because it is firstly not easy to find a great business at a fair price that can be purchased in a meaningful amount and also, good management cannot be purchased at any price. He held it through several bull and bear markets and no greater proof is needed than the return he achieved to show that he was right in holding it for the long run.
Ignore short-term fluctuations in price
“Charlie and I let our marketable equities tell us by their operating results – not by their daily, or even yearly, price quotations – whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it.” - Warren Buffett
One of the most famous quotes of Benjamin Graham that is imprinted and cast in stone in Buffett’s mind is “In the short run, the stock market is a voting machine, in the long run, it is a weighing machine.” The stock market has an incurable tendency to overreact on both the upside and downside. Often the market ignores the fundamentals of a business and reacts sharply to news flow. Sometimes entire sectors become either overly depressed or overdriven by euphoria. Ben Graham, having one of the best brains in understanding the behavior of the market participants, told the story of an imaginative character – Mr. Market. If Mr. Market is happy, he will offer you an extraordinary high price to buy out your stake for he fears you will make more than him. If he is depressed, he will sell you his stake at a low price for he fears you will unload your interest on him. One of the pillars to Buffett’s strategy is to ignore short-term fluctuations in price. If he does, it is to take advantage of it, not to let it guides him. He does not sell a stock because the market suddenly drops. Neither, does he buy because it goes up. He will only buy the stock once he thinks that the business fundamentals are correct and at a good price. If the business is great but the price is not, he will wait. He waited for over 50 years before he buys his first share in Coca Cola. Even if the stock dips after he purchases it, he does not worry so long as its fundamentals are good. He said: “The less they sell for, the better I like it. Any time any thing gets cheaper, I like it better than I did the day before.” Had he got jittery due to short-term price fluctuations, he would have been a lot less richer than he is currently.
Buy good businesses when prices are down or at rational prices
“If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get his one wrong. Even though they are going to be net buyers of stocks for many years to come, they feel elated when stock prices rise and depressed when they fall. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective buyers should much prefer sinking prices.” – Warren Buffett
“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.” – Warren Buffett.
On 19th October 1987, all global stock markets crashed. The Dow Jones Industrial Average suffered its greatest single-day drop in its history by 22%. Every stock on the market fell. Most people sold their holdings in panic that day. Buffett, however, was scooping them up. He made the single largest stock purchase of his life that day. While all others hit the panic button, Buffett scooped up ten percent of Coca Cola for $1 billion. Not only was it his largest single stock purchase, he also became the single largest shareholder in the company. In his analysis, Coca Cola had a great business franchise, great long-term prospects both in price and product, and the ability to expand because of globalization. If the market was willing to sell it at an unreasonable cheap price, he was willing to scoop it up with both hands. Coca Cola became one of his most famous and successful investments in Berkshire’s portfolio. By 2006, Berkshire’s gain on it was over $11 billion.
Besides purchasing businesses when prices drop, it is also important to purchase at a rational price. Investors must realize that it takes time for the stock to play catch up to the high price that they pay depending on how high they value each dollar of earnings in multiples. Investors who bought Coke in late 1990s at an earning multiple of 50 are still suffering about 20% deficit. Investors who bought Coke in the same period at an earning multiple of 30 is making at an average compounded return of 3%.
Be a passive investor, not an active trader
“Indeed, we believe that according to the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic.” – Warren Buffett
Buffett is an unusual investor not only because he is highly successful but also because he does not even look at stock tickers. He believes that trading too much is a tax-inefficient and costly approach to investing. As a result, he has a very low turnover portfolio, very low brokerage fees and has not paid very much in the nature of capital gain taxes (of course, capital gain tax in stocks is not applicable in Singapore).
Do not over-diversify
“If you are a know-something investor, able to understand business economics and to find five to ten sensibly priced companies that possess important long-term competitive advantage, conventional diversification makes no sense for you.” – Warren Buffett
A striking aspect of Berkshire’s portfolio is the small number of stocks in it. This number has rarely exceeded 10 stocks (for the long term holdings). Buffett believes that there’re very few outstanding investment opportunities at any given point of time and that one should invest enough in each of those to make a substantial difference. In contrast, most people (of course not retail investors because most do not have the kind of money, this is referring to fund houses, pension funds and such) fill up their portfolios with more than fifty stocks. As a result, even if a stock appreciates 100 percent, the impact on their net worth will only be 2 percent. Investors who want to generate truly outstanding returns should identify a small number of great businesses at the right prices and invest a significant amount of their money in each of them in order to make a big difference to the net-worth positively.
Invest only when there is a Margin of Safety
Buffett believes that the concept of margin of safety by Benjamin Graham is the most important cornerstone to the field of investment. Though it is slightly difficult to understand at times, it does not diminish its importance. It can be loosely defined as the difference between price and value. Price is easy to see but value is not, thus arising in the difficulty in understanding this concept. If the value of what you buy is higher than the price you pay for it, you have a margin of safety. When the margin of safety is high, the investor need not worry about short-term fluctuations in price and can buy more if he or she has the resources to do so. If you are putting your money in a business bought with a significant margin of safety, you are likely to make a higher return because you are buying at a relatively low price.
However, how does one quantify this margin of safety? It is admittedly a grey area. There’re seemingly scientific approaches such as discounted cash flow which are taught in most corporate finance textbooks. In practice, it is both highly subjective and very difficult for an individual investor to apply with accuracy. However, there’re some simplified ways that are more easily understood but has its own pitfalls. One way is to purchase stocks at a price below its net working capital.
Ignore macroeconomic events
“Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage & price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%. But, surprise – none of these blockbuster events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated prices of fine businesses at sensible prices. Imagine the cost to us, then, if we had let the fear of the unknowns cause us to defer or alter the deployment of capital. Indeed, we’ve usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist. A different sort of major shock is sure to occur in the next 30 years. We will neither try to predict those nor profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results.” – Warren Buffett
Market participants generally have the habit to try to guess what the Fed is doing, what price oil will be in the next few months, or raise or fall in inflation. Buffett does not think it makes any difference whatsoever to an investor in stocks what they do today. Although his view is apparently not in line with the general public, I’m inclined to agree with him. Not because it came from him but more important, it’s better to be approximately correct than to be precisely wrong. He went on to explain that he wouldn’t care if the Fed raise their rates in terms of what he’d do in stock, even if he knew exactly what the Fed did do. The important thing in investing is to buy stocks in good businesses, at a reasonable price. Anybody that is buying or selling stocks based on what the Fed is doing, or what they think they’d do at their next meeting is destined not to have a great financial future. People who think they can dance in and out based on some tips or signals are only going to make their brokers rich, but they are not going to make themselves rich.
Intelligent investing = one that has both growth and value
“In our opinion, the two opinions are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous, and whose impact can be negative as well as positive.” – Warren Buffett
Most analysts think that value investing and growth are strategies of opposite poles. They think these two approaches are mutually exclusive where the fundamental investing are based on stocks with low price to earnings ratio, or price to book ratio, and growth strategies with the exact opposite characteristics. However, such characteristics, even if they appear in combination, are far from determinative as to whether an investor is indeed buying something for what it is worth and is therefore truly operating on the principle of obtaining value in his investments.
In Buffett’s initial investment career, he was famous for not paying two or three times book value of any company. In fact, he nearly forego buying See’s Candies because the owner wanted $30 million but Buffett was only willing to pay $25 million but fortunately, the owner then lower his price. This original strategy of paying low price to book ratio was effective for a while, but thanks to Charlie Munger, Buffett discovered it is far better to pay a fair price for a great business rather than a great price for a fair business.
Thus, opposite characteristics as advocated by Graham are in no way inconsistent with a “value” purchase. Indeed, value is what happens when a business can deploy a dollar to finance growth that creates more than a dollar in long-term market value. The best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.
The problem with the traditional Graham method lies in that it may take an extended period in order for 50 cent to appreciate to a dollar. You don’t want a dollar bill that’s sitting for 50 cents and it’s only going to be a dollar bill ten years from now. What you should want is a dollar bill that’s going to compound at 12% for a long run.
With all that have been said, Buffett’s investment approach is easy to understand, but calls for significant effort on your part to understand businesses, evaluate them and invest successfully, but then, no one said that becoming a billionaire is easy.
With an initial war chest of $105,000 in 1956 garnered from his close friends and family, Warren grew it to over $56 billion over the next 50 years, making him the richest man in the world.
How did a single simple man from the quietest of all cities, Omaha, manage to bulldoze his way to such position, and in the process, became a major owner in some of the most important businesses in the world? Though he is widely recognized as being an investor, the bulk of Buffett’s wealth was built through intelligent use of leverage offered by his insurance companies. Since most individual investors do not have access to the type of capital that Buffett does, it is tough to replicate his type of astounding wealth-building feat. Nevertheless, not being able to be like Buffett doesn’t mean unable to be at least like Graham. So, by understanding and applying the basic principles of Buffett’s investment approach to their own investing decisions, most long term investors can comfortably beat the returns of all but the best mutual fund managers.
“There’re only two courses investment students need to learn – How to value a business & How to think about market prices. This of course is not the prevailing view at most business schools [but it doesn’t dampen its importance].” – Warren E. Buffett
Thus, in an attempt to answer the two questions as raised. The following will shed some light to unraveling the answers.
Invest in Businesses, not in stocks
“Whenever we buy common stocks for Berkshire’s insurance companies (leaving aside arbitrage purchases), we approach the transaction as if we were buying into a private business. We look at the economic prospects of the business, the people in charge of running it, and the price we must pay.” – Warren Buffett
This is one of the cornerstones of Buffett’s investment style. Whenever he evaluates an opportunity in investment, he thinks of it as a business, and not as pieces of papers of stocks. He even noted that investment is best approached in the most business-like manner. This makes him look closely at the business’s fundamentals, earnings prospects, financial health, and management. On the converse, this style of evaluating a business bars him from buying a stock just because it is going up even though it has dubious prospects. A lot of investors tend to buy stocks based on tips from friends, rumors, or brokers. By adopting Buffett’s approach, you can save yourself a lot of grief later on, although in the short term, it would seems that you forego a lot of easy and quick profits.
Stick to businesses you understand
“Did we foresee thirty years ago what would transpire in the television manufacturing or computer industries? Of course not. Why, then, should Charlie and I now think we can predict the future of other rapidly evolving business? We’ll stick instead with the easy cases. Why search for a needle buried in a haystack when one is sitting in plain sight?” – Warren Buffett
Buffett has a record of compounding over 20 percent of annual returns over a 50-year investment time span, a feat hardly matched, or rather unmatched, by very few investment managers. Though some technology companies delivered some of the best returns during this period, Buffett has never owned one for the simple reason that he could not understand the long term economic prospects of these companies. So the next time you get a tip to buy a “hot” company that you do not understand, you should ask yourself: “If the greatest investor in the world will not invest in something he doesn’t understand, should I?”
Buy companies with defensible “franchises” or “moats”
“As Peter Lynch says, stocks of companies selling commodity-like products should come with a warning label: ‘Competition may prove hazardous to human wealth’.” – Warren Buffett
Bulk of Berkshire Hathaway’s holdings in marketable securities are concentrated in no more than ten businesses – such as Coca Cola, P&G, Johnson & Johnson, Moodys, and American Express. These are examples of businesses that have a significant hold over their market that they are in. This can be attributed to the inherent competitive advantages, whether it be a highly recognizable brand, or near-monopoly status in a geographical area. This in turn leads to fantastic earnings growth (that far exceeds inflation rate) and, consequently, great investment performance. What counts in the best kind of business to own is the question if such a business can raise price as it wants to without losing market share.
A couple of test on how to evaluate how good a business is to ask two questions:
1) How long does the management takes to think before they decide to raise prices;
2) Will the core business strength be the same as it is five or ten years from now?
You have to decide whether the business will still be around, and if there’s any other way people can get the same service from different sources. In determining the ability to raise prices, you’re only looking at a marvelous business when you look in the mirror and say “mirror, mirror on the wall, how much should I charge for Coke this fall?” and the mirror says “more.” On the other hand, when you say, for example in a commodity-like business, when you get down on your knees, summon all the priests, rabbis, monks, and just about every holy ones, and pray to rise for “just half a cent.” Then you get up and they say “We won’t pay it.” It’s just a lousy business. An example is if you walk into a convenience store and you say “I’d like a Hershey bar” and the man says “I don’t have any Hershey bars but I’ve this unmarked chocolate bar, and it’s 20cents cheaper than a Hershey bar.” And if you just walk out of the store and cross the road and look for a Hershey bar, that’s a great business.
Over time, you will find only a few companies that meet these stringent standards. So when you see one that qualifies, you should buy a meaningful amount of stock.
Hold for the long term
“We are willing to hold a stock indefinitely so long as we expect the business to increase in intrinsic value at a satisfactory rate……we do not sell our holdings just because they have appreciated or because we have held them for a long time.” – Warren Buffett
“You must also resist the temptations to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upwards over the years, and so also will the portfolio’s market value.” – Warren Buffett
Berkshire Hathaway’s investment of $10 million in 1973 in the Washington Post Company had grown to more than a billion by 2003. While a lot of us may be able to do this occasionally, Buffett has been able to do so with startling regularity. One of the reasons he is able to achieve so is because he holds for the long term and is not quick to dance in or out or the business as would the market suggests so. In fact, he stuck with WPC for two years even though its price fell below his purchase price significantly because he understood the fundamentals of the business and believed it was undervalued. Even once it became profitable, he was not quick to exit because it is firstly not easy to find a great business at a fair price that can be purchased in a meaningful amount and also, good management cannot be purchased at any price. He held it through several bull and bear markets and no greater proof is needed than the return he achieved to show that he was right in holding it for the long run.
Ignore short-term fluctuations in price
“Charlie and I let our marketable equities tell us by their operating results – not by their daily, or even yearly, price quotations – whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it.” - Warren Buffett
One of the most famous quotes of Benjamin Graham that is imprinted and cast in stone in Buffett’s mind is “In the short run, the stock market is a voting machine, in the long run, it is a weighing machine.” The stock market has an incurable tendency to overreact on both the upside and downside. Often the market ignores the fundamentals of a business and reacts sharply to news flow. Sometimes entire sectors become either overly depressed or overdriven by euphoria. Ben Graham, having one of the best brains in understanding the behavior of the market participants, told the story of an imaginative character – Mr. Market. If Mr. Market is happy, he will offer you an extraordinary high price to buy out your stake for he fears you will make more than him. If he is depressed, he will sell you his stake at a low price for he fears you will unload your interest on him. One of the pillars to Buffett’s strategy is to ignore short-term fluctuations in price. If he does, it is to take advantage of it, not to let it guides him. He does not sell a stock because the market suddenly drops. Neither, does he buy because it goes up. He will only buy the stock once he thinks that the business fundamentals are correct and at a good price. If the business is great but the price is not, he will wait. He waited for over 50 years before he buys his first share in Coca Cola. Even if the stock dips after he purchases it, he does not worry so long as its fundamentals are good. He said: “The less they sell for, the better I like it. Any time any thing gets cheaper, I like it better than I did the day before.” Had he got jittery due to short-term price fluctuations, he would have been a lot less richer than he is currently.
Buy good businesses when prices are down or at rational prices
“If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get his one wrong. Even though they are going to be net buyers of stocks for many years to come, they feel elated when stock prices rise and depressed when they fall. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective buyers should much prefer sinking prices.” – Warren Buffett
“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.” – Warren Buffett.
On 19th October 1987, all global stock markets crashed. The Dow Jones Industrial Average suffered its greatest single-day drop in its history by 22%. Every stock on the market fell. Most people sold their holdings in panic that day. Buffett, however, was scooping them up. He made the single largest stock purchase of his life that day. While all others hit the panic button, Buffett scooped up ten percent of Coca Cola for $1 billion. Not only was it his largest single stock purchase, he also became the single largest shareholder in the company. In his analysis, Coca Cola had a great business franchise, great long-term prospects both in price and product, and the ability to expand because of globalization. If the market was willing to sell it at an unreasonable cheap price, he was willing to scoop it up with both hands. Coca Cola became one of his most famous and successful investments in Berkshire’s portfolio. By 2006, Berkshire’s gain on it was over $11 billion.
Besides purchasing businesses when prices drop, it is also important to purchase at a rational price. Investors must realize that it takes time for the stock to play catch up to the high price that they pay depending on how high they value each dollar of earnings in multiples. Investors who bought Coke in late 1990s at an earning multiple of 50 are still suffering about 20% deficit. Investors who bought Coke in the same period at an earning multiple of 30 is making at an average compounded return of 3%.
Be a passive investor, not an active trader
“Indeed, we believe that according to the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic.” – Warren Buffett
Buffett is an unusual investor not only because he is highly successful but also because he does not even look at stock tickers. He believes that trading too much is a tax-inefficient and costly approach to investing. As a result, he has a very low turnover portfolio, very low brokerage fees and has not paid very much in the nature of capital gain taxes (of course, capital gain tax in stocks is not applicable in Singapore).
Do not over-diversify
“If you are a know-something investor, able to understand business economics and to find five to ten sensibly priced companies that possess important long-term competitive advantage, conventional diversification makes no sense for you.” – Warren Buffett
A striking aspect of Berkshire’s portfolio is the small number of stocks in it. This number has rarely exceeded 10 stocks (for the long term holdings). Buffett believes that there’re very few outstanding investment opportunities at any given point of time and that one should invest enough in each of those to make a substantial difference. In contrast, most people (of course not retail investors because most do not have the kind of money, this is referring to fund houses, pension funds and such) fill up their portfolios with more than fifty stocks. As a result, even if a stock appreciates 100 percent, the impact on their net worth will only be 2 percent. Investors who want to generate truly outstanding returns should identify a small number of great businesses at the right prices and invest a significant amount of their money in each of them in order to make a big difference to the net-worth positively.
Invest only when there is a Margin of Safety
Buffett believes that the concept of margin of safety by Benjamin Graham is the most important cornerstone to the field of investment. Though it is slightly difficult to understand at times, it does not diminish its importance. It can be loosely defined as the difference between price and value. Price is easy to see but value is not, thus arising in the difficulty in understanding this concept. If the value of what you buy is higher than the price you pay for it, you have a margin of safety. When the margin of safety is high, the investor need not worry about short-term fluctuations in price and can buy more if he or she has the resources to do so. If you are putting your money in a business bought with a significant margin of safety, you are likely to make a higher return because you are buying at a relatively low price.
However, how does one quantify this margin of safety? It is admittedly a grey area. There’re seemingly scientific approaches such as discounted cash flow which are taught in most corporate finance textbooks. In practice, it is both highly subjective and very difficult for an individual investor to apply with accuracy. However, there’re some simplified ways that are more easily understood but has its own pitfalls. One way is to purchase stocks at a price below its net working capital.
Ignore macroeconomic events
“Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage & price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%. But, surprise – none of these blockbuster events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated prices of fine businesses at sensible prices. Imagine the cost to us, then, if we had let the fear of the unknowns cause us to defer or alter the deployment of capital. Indeed, we’ve usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist. A different sort of major shock is sure to occur in the next 30 years. We will neither try to predict those nor profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results.” – Warren Buffett
Market participants generally have the habit to try to guess what the Fed is doing, what price oil will be in the next few months, or raise or fall in inflation. Buffett does not think it makes any difference whatsoever to an investor in stocks what they do today. Although his view is apparently not in line with the general public, I’m inclined to agree with him. Not because it came from him but more important, it’s better to be approximately correct than to be precisely wrong. He went on to explain that he wouldn’t care if the Fed raise their rates in terms of what he’d do in stock, even if he knew exactly what the Fed did do. The important thing in investing is to buy stocks in good businesses, at a reasonable price. Anybody that is buying or selling stocks based on what the Fed is doing, or what they think they’d do at their next meeting is destined not to have a great financial future. People who think they can dance in and out based on some tips or signals are only going to make their brokers rich, but they are not going to make themselves rich.
Intelligent investing = one that has both growth and value
“In our opinion, the two opinions are joined at the hip: Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous, and whose impact can be negative as well as positive.” – Warren Buffett
Most analysts think that value investing and growth are strategies of opposite poles. They think these two approaches are mutually exclusive where the fundamental investing are based on stocks with low price to earnings ratio, or price to book ratio, and growth strategies with the exact opposite characteristics. However, such characteristics, even if they appear in combination, are far from determinative as to whether an investor is indeed buying something for what it is worth and is therefore truly operating on the principle of obtaining value in his investments.
In Buffett’s initial investment career, he was famous for not paying two or three times book value of any company. In fact, he nearly forego buying See’s Candies because the owner wanted $30 million but Buffett was only willing to pay $25 million but fortunately, the owner then lower his price. This original strategy of paying low price to book ratio was effective for a while, but thanks to Charlie Munger, Buffett discovered it is far better to pay a fair price for a great business rather than a great price for a fair business.
Thus, opposite characteristics as advocated by Graham are in no way inconsistent with a “value” purchase. Indeed, value is what happens when a business can deploy a dollar to finance growth that creates more than a dollar in long-term market value. The best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.
The problem with the traditional Graham method lies in that it may take an extended period in order for 50 cent to appreciate to a dollar. You don’t want a dollar bill that’s sitting for 50 cents and it’s only going to be a dollar bill ten years from now. What you should want is a dollar bill that’s going to compound at 12% for a long run.
With all that have been said, Buffett’s investment approach is easy to understand, but calls for significant effort on your part to understand businesses, evaluate them and invest successfully, but then, no one said that becoming a billionaire is easy.
The Kelly Formula make easy
Some 50 years ago, John Larry Kelly came up with a formula to determine how much you should bet on a gamble or investment to optimize your bankroll.
Now known as the Kelly Formula, the equation determines the optimal percentage of your cash to bet on a favorable bet.
Let’s talk about this a little as I find it an interesting concept and it echoes somewhat on my perspective of life and principle towards investing – bet (read invest) when the odds are with you or otherwise do nothing. So I guess again I should try to be a copycat. But heck, it pays to be one.
What is Kelly Formula?
I first came across Kelly Formula in the book, Fortune’s Formula. The history of it is detailed in the book that also happens to be a favorite book of Charlie Munger. Despite all the odds, a minority of gamblers – unsure if I should really classify this group of minority as gamblers because of how they carry out their bets that in high likelihood they shouldn’t be for they know what they are doing - still able to make a lot of money. For example, in Hong Kong, people are wild over horse racing, yet somebody was actually making a lot of money despite the croupier’s take because that person was able to develop some form of an algorithms that taught him how much to bet each time given the odds. One of such algorithms is the Kelly Formula that seems quite plausible. The gist of it makes sense in terms of sizing your bet according to the odds.
In essence, the Kelly Formula is a mathematical formula that is used to maximize the long-term growth rate of a series of repeated bets that have a positive expected value. Huh?
The Kelly Formula simply figures out how much to bet if the odds are in your favor – in Vegas, in card games, in the stock market, in a coin flip, whatever. The equation of the Kelly Formula can be simplified to:
That is the simplified formula. The actual formula (for purists) is:
A Kelly ExampleLet’s say you have $1,000 in cash and someone offers you 2 to 1 on a coin flip. That is, they’ll pay you $2 if it comes up heads or you’ll lose $1 if it comes up tails. The Kelly Formula will tell you how much you should bet on the coin flip to earn the maximum amount of money.By inserting the numbers in the formula, it shows:
In this coin flip gamble, the Kelly Formula tells you that the maximum you should bet on any flip is 25% of your bankroll – $250 in this case. Doing so will give you the maximum long-term growth with minimum downside.
The Kelly Formula Guarantees and its WeaknessesDon’t fool yourself. There’s no perfect system to avoid all losses. All we can do is minimize losses, maximize gains, and optimize bankrolls. The Kelly Formula insures that you’ll never loss everything; still, it doesn’t guarantee that you won’t lose at times.
You never want to overbet the Kelly Formula. That is, you never want to put more of your bankroll than the formula prescribes.At any rate, investing is somewhat like a coin flip offering favorable odds. On any given flip of the coin, you can lose money. Still, over the long term, if the odds are in your favor (as they are when you buy more of the dollar-for-fifty-cent cases rather than its contrast), you’ll make good money. In short, the Kelly Formula helps maximize your return though it does nothing for volatility that is something to understand about on how to think about stock prices.
Kelly Formula Applied to Investing
There’s one thing to note with the Kelly Formula when applying it to investing in businesses when they are on hot-fire sale: It would prescribe you to put a large portion of your bankroll into one business. That may not be a bad event actually. As said earlier, bet big when odds are highly favorable.
When you wait patiently for dollars to sell for half of it, the odds of winning is so large that it overwhelms the odds of losing, and you will end up putting 85% or more of your available bankroll into one position.
Now, if you try to run the Kelly Formula on most value stocks, what the model will tell you is likely to be you ought to put a high percentage of your bankroll in such position.
Does this make sense? Hell, it does to me at least. Why? Because the odds of a loss are so low and the odds of winning are so high.
So, why should we care about the Kelly Formula?
For one, it helps us understand that it is alright to own just a few holdings when the odds are good – be it five or fifteen.
Don’t focus on calculating the Kelly Formula for your investments and then diversifying based on your mathematical models. Rather, spend the time and energy finding “no-brainers” – investments that would be in that 85%-of-bankroll or more range. Then, buy the heck out of them.
Now known as the Kelly Formula, the equation determines the optimal percentage of your cash to bet on a favorable bet.
Let’s talk about this a little as I find it an interesting concept and it echoes somewhat on my perspective of life and principle towards investing – bet (read invest) when the odds are with you or otherwise do nothing. So I guess again I should try to be a copycat. But heck, it pays to be one.
What is Kelly Formula?
I first came across Kelly Formula in the book, Fortune’s Formula. The history of it is detailed in the book that also happens to be a favorite book of Charlie Munger. Despite all the odds, a minority of gamblers – unsure if I should really classify this group of minority as gamblers because of how they carry out their bets that in high likelihood they shouldn’t be for they know what they are doing - still able to make a lot of money. For example, in Hong Kong, people are wild over horse racing, yet somebody was actually making a lot of money despite the croupier’s take because that person was able to develop some form of an algorithms that taught him how much to bet each time given the odds. One of such algorithms is the Kelly Formula that seems quite plausible. The gist of it makes sense in terms of sizing your bet according to the odds.
In essence, the Kelly Formula is a mathematical formula that is used to maximize the long-term growth rate of a series of repeated bets that have a positive expected value. Huh?
The Kelly Formula simply figures out how much to bet if the odds are in your favor – in Vegas, in card games, in the stock market, in a coin flip, whatever. The equation of the Kelly Formula can be simplified to:
That is the simplified formula. The actual formula (for purists) is:
A Kelly ExampleLet’s say you have $1,000 in cash and someone offers you 2 to 1 on a coin flip. That is, they’ll pay you $2 if it comes up heads or you’ll lose $1 if it comes up tails. The Kelly Formula will tell you how much you should bet on the coin flip to earn the maximum amount of money.By inserting the numbers in the formula, it shows:
In this coin flip gamble, the Kelly Formula tells you that the maximum you should bet on any flip is 25% of your bankroll – $250 in this case. Doing so will give you the maximum long-term growth with minimum downside.
The Kelly Formula Guarantees and its WeaknessesDon’t fool yourself. There’s no perfect system to avoid all losses. All we can do is minimize losses, maximize gains, and optimize bankrolls. The Kelly Formula insures that you’ll never loss everything; still, it doesn’t guarantee that you won’t lose at times.
You never want to overbet the Kelly Formula. That is, you never want to put more of your bankroll than the formula prescribes.At any rate, investing is somewhat like a coin flip offering favorable odds. On any given flip of the coin, you can lose money. Still, over the long term, if the odds are in your favor (as they are when you buy more of the dollar-for-fifty-cent cases rather than its contrast), you’ll make good money. In short, the Kelly Formula helps maximize your return though it does nothing for volatility that is something to understand about on how to think about stock prices.
Kelly Formula Applied to Investing
There’s one thing to note with the Kelly Formula when applying it to investing in businesses when they are on hot-fire sale: It would prescribe you to put a large portion of your bankroll into one business. That may not be a bad event actually. As said earlier, bet big when odds are highly favorable.
When you wait patiently for dollars to sell for half of it, the odds of winning is so large that it overwhelms the odds of losing, and you will end up putting 85% or more of your available bankroll into one position.
Now, if you try to run the Kelly Formula on most value stocks, what the model will tell you is likely to be you ought to put a high percentage of your bankroll in such position.
Does this make sense? Hell, it does to me at least. Why? Because the odds of a loss are so low and the odds of winning are so high.
So, why should we care about the Kelly Formula?
For one, it helps us understand that it is alright to own just a few holdings when the odds are good – be it five or fifteen.
Don’t focus on calculating the Kelly Formula for your investments and then diversifying based on your mathematical models. Rather, spend the time and energy finding “no-brainers” – investments that would be in that 85%-of-bankroll or more range. Then, buy the heck out of them.
Probability and its relevance to life
Why do we lose money in our ventures, be it business, lottery, gambling, stocks?
Marcus Tullius Cicero cited “Probability is the very guide of life.”Between winning and losing, it is a 50/50 chance of each events happening. Some quarter of the population thinks it is difficult or even impossible to overcome the odds for the market or outcome of an event is always efficient.
Warren Buffett said “if the market is always efficient, I’d be a bum with a tin can lying on the street.”
Probabilities of an event happening are like guesses. Whoever that has the most accurate information that goes through a thoughtful process will have a higher likelihood of getting a higher probability of guessing the event rightly.
The question in a successful life of getting what you want is “How likely do we believe that some sort of event will occur?” There are again two sides to the guesses, the good guesses and the bad guesses.
The theory of probability is a system for making better guesses.
Probability can either be estimated based on its relative frequency (the proportion of times an event happened in the past) or by making an educated guess based on past experiences or whatever important and relevant information or evidence is available.
How likely is it a hurricane strikes Texas?According to the National Hurricane Center, there’ve been 36 hurricane strikes in Texas from 1900 to 1996. Based on based experience and barring no change in conditions, we can estimate there is about a 37% chance that a hurricane will strike Texas in any given year. This figure is also called the base rate of frequency of outcomes.In order for relative frequency to be accurate and use it for our future guide, we must ensure that the conditions that produced the past frequency of events remain relatively unchanged.Besides ensuring conditions remaining pretty much the same as before, we must also look at the variations of outcome and severity – the level of damage caused by an event. Take Tornadoes for example, according to the National Climate Data Center, between 1950 to 1999, there has been an average of 810 tornadoes yearly in the United States. But in 1950, there were 201 tornadoes causing 70 deaths, in 1975 there were 919 causing 60 deaths, and in 1999, there were 1342 tornadoes causing 94 deaths.
At times, a doctor says, “This is the first time I’ve seen this disease. I estimate there’s a 50-50 chance that the patient will come through.” This statement has only two possible outcomes. Either the patient dies or not. Probing further, does then saying 50-50 chance of surviving makes any sense if there is no past date or other evidence to base the probability on? Does it really tell us something? If there is no historical comparable or representative date to base an estimate on, the probability figure only measures the doctor’s belief in the outcome of the event. And to say 50-50 chance of an unprecedented event is a statement any one can intelligently make.Another doctor says, “According to medical records of similar cases, under the same conditions, 50% of the patients survived five years or longer.” The more representative the background data we have the better our estimate of the probability.
Events may happen with great frequency or rarely. Some events are not repeatable and some events have never happened before. For certain events, past experience may not be representative. Others are characterized by low past frequency and high severity. Unforeseen events occur where our actual exposure is unknown.
The more uncertainty there is, the harder it is to find a meaningful probability. Instead our estimate must be constrained to a range of possible outcomes and their probabilities.
Uncertainty increases the difficulty for insurers to appropriately price catastrophes, such as hurricanes or earthquakes.
Warren Buffett says:Catastrophe insurers can’t simply extrapolate past experience. If there is truly “global warming,” for example, the odds would shift, since tiny changes in atmospheric conditions can produce momentous changes in weather patterns. Furthermore, in recent years there has been a mushrooming of population and insured values in U.S. coastal areas that are particularly vulnerable to hurricanes, the number one creator of super-cats. A hurricane that caused X dollars of damage 20 years ago could easily cost 10X now.But Warren went on to say it is possible to price sensibly.Even if perfection in assessing risks is unattainable, insurers can underwrite sensibly. After all, you need not know a man’s precise age to know that he is old enough to vote no know his exact weight to recognize his need to diet.
How reliable is past experience for predicting the future then? Peter Bernstein in his book, In Against the Gods, refers to a 1703 letter written by German mathematician Gottfried Wilhelm von Leibniz to the Swiss scientist and mathematician Jacob Bernoulli referring to mortality rates: “New illnesses flood the human race, so that no matter how many experiments you have done on corpes, you have not thereby imposed a limit on the nature of events so that in the future they could not vary.” Even with the best empirical evidence, nobody knows precisely what will happen in the future.After 9/11, Warren Buffett wrote the importance on focusing on actual exposure and how using past experience sometimes can be dangerous.In setting prices and also in evaluating aggregation risk, we had either overlooked or dismissed the possibility of large-scale terrorism losses. In pricing property coverages, for example, we had looked to the past and taken into account only costs we might expect to incur from windstorm, fire, explosion and earthquake. But what will be the largest insured property loss in history originated from none of these forces. In short, all of us in the industry made a fundamental underwriting mistake by focusing on experience, rather than exposure, thereby assuming a huge terrorism risk for which we received no premium.Experience, of course, is a highly useful starting point in underwriting most coverages. For example, it’s important for insurers writing California earthquake policies to know how many quakes in the state during the past century have registered 6.0 or greater on the Richter scale. This information will not tell you the exact probability of a big quake next year, or where in the state it might happen. But the statistic has utility, particularly if you are writing a huge statewide policy.
At certain times, however, using experience as a guide to pricing is not only useless, but actually dangerous. Late in the bull market, for example, large losses from directors and officers liability insurance (D&O) are likely to be relatively rare. When stocks are rising, there’re a scarcity of targets to sue, and both questionable accounting and management chicanery often go undetected. At that juncture, experience on high-limit D&O may look great.But that’s just when exposure is likely to be exploding, by way of ridiculous public offerings, earnings manipulation, chain-letter-like stock promotions and a potpourri of other unsavory activities. When stocks fall, these sins surface, hammering investors with losses that can run into the hundreds of billions.
Even if we can’t estimate the probability for some events, there may be some evidence telling us if their probabilities are increasing or decreasing.
Ask: Do I understand the forces that can cause an event? What are the key factors? Are there more opportunities for the event to happen?
Warren Buffett says on terriorism:No one knows the probability of a nuclear detonation in a major metropolis area this year….Nor can anyone, with assurance, assess the probability in this year, or another, of deadly biological or chemical agents being introduced simultaneously…into multiple office buildings and manufacturing plant.
Here’s what we do know:
a. The probability of such mind-boggling disasters, though likely very low at present, is not zero. b. The probabilities are increasing, in an irregular and immeasurable manner, as knowledge and materials become available to those who wish us ill.
Low frequency events
Adam Smith, a Scottish philosopher, said: The chance of gain is by every man more or less overvalued, and the chance of loss is by most men undervalued.
Supreme Court Justice Oliver Wendell Holmes, Jr. said: “Most people think dramatically, not quantitatively.” We overestimate the frequency of deaths from publicized events like tornadoes, floods, homicides, and underestimate the frequency of deaths from less publicized ones like diabetes, stroke, and stomach cancer. Why? We tend to overestimate how often rare but recent, vivid or highly publicized events happen. The media has an interest in translating the improbable to the believable. There’s a difference between the real risk and the risk that sells papers. A catastrophe like a plane crash makes a compelling news story.
Highly emotional events make headlines but are not an indicator of frequency. Consider instead all the times that nothing happens. Most flights are accident-free.
Ask: How likely is the event? How serious are the consequences?John is board a plane tomorrow and wonders, “How likely am I to die on this trip?”What is the risk of a disaster? First, we need to know the available record of previous flights that can be compared to John’s flight. Assume, we find that in 1 out of 10,000 flights there was an accident. The record also shows that when an accident happens, on average 8 out of 10 are killed, 1 injured, and 1 safe. This means that the chance that a passenger will be involved in an accident is 1 in 10,000; being killed, 1 in 12,500 (10,000/0.8); being injured, 1 in 100,000 (10,000/0.1).According to the National Transportation Safety Board, the number of passengers killed in air accidents in the U.S. during 1992 to 2001 was 433. For reference, in 2001, the annual number of lives lost in road traffic accidents in the U.S. was 42,119.That people feel safer driving than flying makes sense since we are orientated towards survival. As Antonio Damasio says in Descartes’ Error, “Planes do crash now and then, and fewer people survive plane crashes than survive car crashes.”
Studies also show that we fear harm from what’s unfamiliar much more than mundane hazards and by things we feel we control. We don’t feel in control when we fly.
Why do we lose money gambling? Why do we invest in exotic long shot ventures?We often overestimate the chance of low probability but high-payoff bets.
For example, how likely is it that anyone guesses a number between 1 and 8 million?
What is John’s chance of winning “Toto (6 winning numbers out of 45)” if there are 8 million outcomes? What must happen? He must pick 6 numbers out of 45 and if they all match the winning numbers, he wins. What can happen? How many permutations can he chose from? The possible number of ways he can chose 6 numbers out of 49 is 8,145,060. The probability that someone chooses the winning combination is thus one in about 8 million. An odd merely slightly better than throwing heads on 20 successive tosses of a coin.Imagine the time it takes to put together 8 million combinations. If we assume each combination on average takes a minute to put down on paper, and John spend 24 hours a day writing the numbers, it will take him 15.5 years to write them all down.Even if John invests $8 million to buy 8 million tickets in the hopes of winning a $15 million jackpot, he may have to share the jackpot with others that picked the winning number. If just one other person picked the winning combination, he would lose $0.5 million.
Why do people play a game when the likelihood of losing is so high? Even if we exclude the amusement factor and the reinforcement from an occasional payoff, it is understandable since they perceive the benefit of being right as huge and the cost of being wrong as low – merely the cost of the ticket or a dollar.
It brings us back to Benjamin Franklin’s teaching: “He that waits upon fortune, is never sure of a dinner.”
Chance has no memory
How many times have we heard “My luck is about to change. The trend will reverse.”
Sir John Templeton cited: “The four most expensive words in the English language are, ‘This time it is different.’”
We tend to believe that the probability of an independent event is lowered when it has happened recently or that the probability is increased when it hasn’t happened recently. For example, after a run of bad outcomes in independent events that appear randomly, we sometimes believe a good outcome is due. But previous outcomes neither influence nor have any predictive value of future outcomes. There is neither memory nor a sense of justice.John flipped a coin and got 5 heads in a row. Is a tail due next? It must be, since in the long run heads and tails balance out.
When we say that the probability of tossing tails is 50%, we mean that over a long run of tosses, tails come up half the time. The probability that John flips a head on his next toss is still 50%. The coin has no sense of fairness. As the 19th century French mathematician Joseph Bertrand said: “The coin has neither memory or consciousness.” John committed the gambler’s fallacy. This happens when we believe that when something has continued for a certain period of time, it goes back to its long-term average. This is the same as the roulette player when he bets on red merely because black has come up four times in a row. But black has the same chance as red to come up on the next spin. Each spin, each outcome is independent of the one before. Only in the long run will the ratio of red to black be about equal.
Every single time John tosses, the probability it lands on heads is 50% and tails 50%. Even if we know that the probability is 50%, we can’t predict if a given flip results in a head or tail. We may flip heads ten times in a row or none. The laws of probability don’t count our luck.
John thought, “I got a speeding ticket yesterday, so now I can cross the speed limit again.” Even criminals suffer the gambler’s fallacy. Studies show that repeat criminals expect their chance of getting caught to be reduced after being caught and punished unless they are extremely unlucky.
John finds it comforting knowing it will take another 99 years until the next giant storm happen.What is a 100-year storm? To predict storms we look at past statistics. We also assume that the same magnitude of storm will occur with the same frequency in the future. A 100-year storm doesn’t mean it happens only once every 100 years. It could happen any year. If we get a once in 100-year storm this year, another big one could happen next year. A 100-year storm only means that there’s a 1% chance that the event will happen in any given year. So even if large storms are rare, they occur at random. The same reasoning is true for floods, tsunamis, or plane crashes.
In all independent events that have random components in them, there is no memory of the past.
Controlling chance events
We believe in lucky numbers and we believe we can control the outcome of chance events. But skill or effort doesn’t change the probability of chance events.
Someone offered John to exchange his lottery tickets. John said: “Change tickets. Are you crazy? I would feel awful if my number comes up and I’d traded it away.”
In one experiment a social psychologist found that people were more reluctant to give up a lottery ticket they had chosen themselves, than one selected at random for them. They wanted four times as much money for selling the chosen ones compared to what they wanted for the randomly selected ticket. But in random drawings, it doesn’t make any difference if we choose a ticket or are assigned one. The probability of winning is the same. The lesson is, if you want to sell lottery tickets, let people choose their own numbers instead of randomly drawing them.
The consequences of being wrong
“Pascal’s Wager” is the application by Blaise Pascal of the decision theory for believing in God. Pascal reasoned that it is a better “bet” to believe that God exists than not to believe because the expected value of believing is always greater than the expected value of not believing. He thought: If we believe in God, and God exists, we would gain in afterlife. If we don’t believe in God, and God exists, we will lose in afterlife.
Independent of the probabilities of a God, the consequences of not believing are so awful, we should hedge our bet and believe.
Pascal suggests that we are playing a game with 2 choices, believe and not believe: If God exists, and we believe God exists, we are saved. This is good. If we don’t believe, and God is unforgiving, we are damned. If we believe but God doesn’t exist, we miss out on some worldly pleasures. If God doesn’t exist and we don’t believe that God exists, we live a normal life.
Pascal said: “If I lost, I would have lost little. If I won I would have gained eternal life.” Our choice depends on the probabilities, but Pascal assumed that the consequences of being damned as infinite, meaning the expected value of believing is least negative and therefore he reasoned that believing in God is best no matter how low we set the probability of God exists.
John wants to make some extra money and is offered to play Russian roulette. If John wins he gets $10 million. Should he play? There are 6 equally likely possible outcomes when he pulls the trigger – empty, empty, empty, empty, empty, bullet. This makes a probability of 5/6 or 83%.Should he play this game once? The probability is 83% that he gets $10 million. The probability is only 17% that he loses.Let’s look at the consequences. If John doesn’t play and there’s a bullet he is glad he didn’t play. If he plays and there is a bullet, he dies. If he doesn’t play and there is no bullet, he loses the pleasure the extra money could have brought him. If he plays and there is not bullet he gains $10 million which would buy him extra pleasure. To play is to risk death in exchange for extra pleasure. There’s an 83% probability that John is right but the consequence of being wrong is fatal. Even if the probabilities favor him, the downside is unbearable. Why should John risk his life? The value of survival is infinite, so the strategy of not playing is best no matter what probability we assign for the existence of “no bullet” or what money is being offered. But there may be exceptions. Someone that is poor, in need of supporting a family who knows he will die of a lethal disease within 3 months might pull the trigger. He could lose 3 months of life, but if he wins, his family will be taken care of after his death.
We should never risk something that we have and need for something that we don’t have and don’t need. But some people pull the trigger anyway. This is what Warren Buffett said about the Long Term Capital Management affair:
Here are 16 extremely bright – and I do mean extremely bright – people at the top of LTCM. The average IQ among their top 16 people would probably be as high or higher than at any other organization you could find. And individually, they had decades of experience – collectively, centuries of experience – in the sort of securities in which LTCM was invested.Moreover, they had a huge amount of their own money up – and probably a very high percentage of their net worth in almost every case. So here were super-bright, extremely experienced people, operating with their own money. And yet, in effect, on that day in September, they were broke. To me, that’s absolutely fascinating.
In fact, there’s a book with a great title – You only have to get rich once. It’s a great title, but not a very good book. (Walter Guttman wrote it many years ago.) But the title is right: You only have to get rich once.
Why do very bright people risk losing something that’s very important to them to gain something that’s totally unimportant? The added money has no utility whatsoever – and the money that was lost had enormous utility. And on top of that, their reputation gets tarnished and all of that sort of thing. So the gain/loss ration in any real sense is just incredible. Whenever a really bright person who has lost a lot of money goes broke, it’s because of leverage. It’s almost impossible to go broke without borrowed money in the equation.
Marcus Tullius Cicero cited “Probability is the very guide of life.”Between winning and losing, it is a 50/50 chance of each events happening. Some quarter of the population thinks it is difficult or even impossible to overcome the odds for the market or outcome of an event is always efficient.
Warren Buffett said “if the market is always efficient, I’d be a bum with a tin can lying on the street.”
Probabilities of an event happening are like guesses. Whoever that has the most accurate information that goes through a thoughtful process will have a higher likelihood of getting a higher probability of guessing the event rightly.
The question in a successful life of getting what you want is “How likely do we believe that some sort of event will occur?” There are again two sides to the guesses, the good guesses and the bad guesses.
The theory of probability is a system for making better guesses.
Probability can either be estimated based on its relative frequency (the proportion of times an event happened in the past) or by making an educated guess based on past experiences or whatever important and relevant information or evidence is available.
How likely is it a hurricane strikes Texas?According to the National Hurricane Center, there’ve been 36 hurricane strikes in Texas from 1900 to 1996. Based on based experience and barring no change in conditions, we can estimate there is about a 37% chance that a hurricane will strike Texas in any given year. This figure is also called the base rate of frequency of outcomes.In order for relative frequency to be accurate and use it for our future guide, we must ensure that the conditions that produced the past frequency of events remain relatively unchanged.Besides ensuring conditions remaining pretty much the same as before, we must also look at the variations of outcome and severity – the level of damage caused by an event. Take Tornadoes for example, according to the National Climate Data Center, between 1950 to 1999, there has been an average of 810 tornadoes yearly in the United States. But in 1950, there were 201 tornadoes causing 70 deaths, in 1975 there were 919 causing 60 deaths, and in 1999, there were 1342 tornadoes causing 94 deaths.
At times, a doctor says, “This is the first time I’ve seen this disease. I estimate there’s a 50-50 chance that the patient will come through.” This statement has only two possible outcomes. Either the patient dies or not. Probing further, does then saying 50-50 chance of surviving makes any sense if there is no past date or other evidence to base the probability on? Does it really tell us something? If there is no historical comparable or representative date to base an estimate on, the probability figure only measures the doctor’s belief in the outcome of the event. And to say 50-50 chance of an unprecedented event is a statement any one can intelligently make.Another doctor says, “According to medical records of similar cases, under the same conditions, 50% of the patients survived five years or longer.” The more representative the background data we have the better our estimate of the probability.
Events may happen with great frequency or rarely. Some events are not repeatable and some events have never happened before. For certain events, past experience may not be representative. Others are characterized by low past frequency and high severity. Unforeseen events occur where our actual exposure is unknown.
The more uncertainty there is, the harder it is to find a meaningful probability. Instead our estimate must be constrained to a range of possible outcomes and their probabilities.
Uncertainty increases the difficulty for insurers to appropriately price catastrophes, such as hurricanes or earthquakes.
Warren Buffett says:Catastrophe insurers can’t simply extrapolate past experience. If there is truly “global warming,” for example, the odds would shift, since tiny changes in atmospheric conditions can produce momentous changes in weather patterns. Furthermore, in recent years there has been a mushrooming of population and insured values in U.S. coastal areas that are particularly vulnerable to hurricanes, the number one creator of super-cats. A hurricane that caused X dollars of damage 20 years ago could easily cost 10X now.But Warren went on to say it is possible to price sensibly.Even if perfection in assessing risks is unattainable, insurers can underwrite sensibly. After all, you need not know a man’s precise age to know that he is old enough to vote no know his exact weight to recognize his need to diet.
How reliable is past experience for predicting the future then? Peter Bernstein in his book, In Against the Gods, refers to a 1703 letter written by German mathematician Gottfried Wilhelm von Leibniz to the Swiss scientist and mathematician Jacob Bernoulli referring to mortality rates: “New illnesses flood the human race, so that no matter how many experiments you have done on corpes, you have not thereby imposed a limit on the nature of events so that in the future they could not vary.” Even with the best empirical evidence, nobody knows precisely what will happen in the future.After 9/11, Warren Buffett wrote the importance on focusing on actual exposure and how using past experience sometimes can be dangerous.In setting prices and also in evaluating aggregation risk, we had either overlooked or dismissed the possibility of large-scale terrorism losses. In pricing property coverages, for example, we had looked to the past and taken into account only costs we might expect to incur from windstorm, fire, explosion and earthquake. But what will be the largest insured property loss in history originated from none of these forces. In short, all of us in the industry made a fundamental underwriting mistake by focusing on experience, rather than exposure, thereby assuming a huge terrorism risk for which we received no premium.Experience, of course, is a highly useful starting point in underwriting most coverages. For example, it’s important for insurers writing California earthquake policies to know how many quakes in the state during the past century have registered 6.0 or greater on the Richter scale. This information will not tell you the exact probability of a big quake next year, or where in the state it might happen. But the statistic has utility, particularly if you are writing a huge statewide policy.
At certain times, however, using experience as a guide to pricing is not only useless, but actually dangerous. Late in the bull market, for example, large losses from directors and officers liability insurance (D&O) are likely to be relatively rare. When stocks are rising, there’re a scarcity of targets to sue, and both questionable accounting and management chicanery often go undetected. At that juncture, experience on high-limit D&O may look great.But that’s just when exposure is likely to be exploding, by way of ridiculous public offerings, earnings manipulation, chain-letter-like stock promotions and a potpourri of other unsavory activities. When stocks fall, these sins surface, hammering investors with losses that can run into the hundreds of billions.
Even if we can’t estimate the probability for some events, there may be some evidence telling us if their probabilities are increasing or decreasing.
Ask: Do I understand the forces that can cause an event? What are the key factors? Are there more opportunities for the event to happen?
Warren Buffett says on terriorism:No one knows the probability of a nuclear detonation in a major metropolis area this year….Nor can anyone, with assurance, assess the probability in this year, or another, of deadly biological or chemical agents being introduced simultaneously…into multiple office buildings and manufacturing plant.
Here’s what we do know:
a. The probability of such mind-boggling disasters, though likely very low at present, is not zero. b. The probabilities are increasing, in an irregular and immeasurable manner, as knowledge and materials become available to those who wish us ill.
Low frequency events
Adam Smith, a Scottish philosopher, said: The chance of gain is by every man more or less overvalued, and the chance of loss is by most men undervalued.
Supreme Court Justice Oliver Wendell Holmes, Jr. said: “Most people think dramatically, not quantitatively.” We overestimate the frequency of deaths from publicized events like tornadoes, floods, homicides, and underestimate the frequency of deaths from less publicized ones like diabetes, stroke, and stomach cancer. Why? We tend to overestimate how often rare but recent, vivid or highly publicized events happen. The media has an interest in translating the improbable to the believable. There’s a difference between the real risk and the risk that sells papers. A catastrophe like a plane crash makes a compelling news story.
Highly emotional events make headlines but are not an indicator of frequency. Consider instead all the times that nothing happens. Most flights are accident-free.
Ask: How likely is the event? How serious are the consequences?John is board a plane tomorrow and wonders, “How likely am I to die on this trip?”What is the risk of a disaster? First, we need to know the available record of previous flights that can be compared to John’s flight. Assume, we find that in 1 out of 10,000 flights there was an accident. The record also shows that when an accident happens, on average 8 out of 10 are killed, 1 injured, and 1 safe. This means that the chance that a passenger will be involved in an accident is 1 in 10,000; being killed, 1 in 12,500 (10,000/0.8); being injured, 1 in 100,000 (10,000/0.1).According to the National Transportation Safety Board, the number of passengers killed in air accidents in the U.S. during 1992 to 2001 was 433. For reference, in 2001, the annual number of lives lost in road traffic accidents in the U.S. was 42,119.That people feel safer driving than flying makes sense since we are orientated towards survival. As Antonio Damasio says in Descartes’ Error, “Planes do crash now and then, and fewer people survive plane crashes than survive car crashes.”
Studies also show that we fear harm from what’s unfamiliar much more than mundane hazards and by things we feel we control. We don’t feel in control when we fly.
Why do we lose money gambling? Why do we invest in exotic long shot ventures?We often overestimate the chance of low probability but high-payoff bets.
For example, how likely is it that anyone guesses a number between 1 and 8 million?
What is John’s chance of winning “Toto (6 winning numbers out of 45)” if there are 8 million outcomes? What must happen? He must pick 6 numbers out of 45 and if they all match the winning numbers, he wins. What can happen? How many permutations can he chose from? The possible number of ways he can chose 6 numbers out of 49 is 8,145,060. The probability that someone chooses the winning combination is thus one in about 8 million. An odd merely slightly better than throwing heads on 20 successive tosses of a coin.Imagine the time it takes to put together 8 million combinations. If we assume each combination on average takes a minute to put down on paper, and John spend 24 hours a day writing the numbers, it will take him 15.5 years to write them all down.Even if John invests $8 million to buy 8 million tickets in the hopes of winning a $15 million jackpot, he may have to share the jackpot with others that picked the winning number. If just one other person picked the winning combination, he would lose $0.5 million.
Why do people play a game when the likelihood of losing is so high? Even if we exclude the amusement factor and the reinforcement from an occasional payoff, it is understandable since they perceive the benefit of being right as huge and the cost of being wrong as low – merely the cost of the ticket or a dollar.
It brings us back to Benjamin Franklin’s teaching: “He that waits upon fortune, is never sure of a dinner.”
Chance has no memory
How many times have we heard “My luck is about to change. The trend will reverse.”
Sir John Templeton cited: “The four most expensive words in the English language are, ‘This time it is different.’”
We tend to believe that the probability of an independent event is lowered when it has happened recently or that the probability is increased when it hasn’t happened recently. For example, after a run of bad outcomes in independent events that appear randomly, we sometimes believe a good outcome is due. But previous outcomes neither influence nor have any predictive value of future outcomes. There is neither memory nor a sense of justice.John flipped a coin and got 5 heads in a row. Is a tail due next? It must be, since in the long run heads and tails balance out.
When we say that the probability of tossing tails is 50%, we mean that over a long run of tosses, tails come up half the time. The probability that John flips a head on his next toss is still 50%. The coin has no sense of fairness. As the 19th century French mathematician Joseph Bertrand said: “The coin has neither memory or consciousness.” John committed the gambler’s fallacy. This happens when we believe that when something has continued for a certain period of time, it goes back to its long-term average. This is the same as the roulette player when he bets on red merely because black has come up four times in a row. But black has the same chance as red to come up on the next spin. Each spin, each outcome is independent of the one before. Only in the long run will the ratio of red to black be about equal.
Every single time John tosses, the probability it lands on heads is 50% and tails 50%. Even if we know that the probability is 50%, we can’t predict if a given flip results in a head or tail. We may flip heads ten times in a row or none. The laws of probability don’t count our luck.
John thought, “I got a speeding ticket yesterday, so now I can cross the speed limit again.” Even criminals suffer the gambler’s fallacy. Studies show that repeat criminals expect their chance of getting caught to be reduced after being caught and punished unless they are extremely unlucky.
John finds it comforting knowing it will take another 99 years until the next giant storm happen.What is a 100-year storm? To predict storms we look at past statistics. We also assume that the same magnitude of storm will occur with the same frequency in the future. A 100-year storm doesn’t mean it happens only once every 100 years. It could happen any year. If we get a once in 100-year storm this year, another big one could happen next year. A 100-year storm only means that there’s a 1% chance that the event will happen in any given year. So even if large storms are rare, they occur at random. The same reasoning is true for floods, tsunamis, or plane crashes.
In all independent events that have random components in them, there is no memory of the past.
Controlling chance events
We believe in lucky numbers and we believe we can control the outcome of chance events. But skill or effort doesn’t change the probability of chance events.
Someone offered John to exchange his lottery tickets. John said: “Change tickets. Are you crazy? I would feel awful if my number comes up and I’d traded it away.”
In one experiment a social psychologist found that people were more reluctant to give up a lottery ticket they had chosen themselves, than one selected at random for them. They wanted four times as much money for selling the chosen ones compared to what they wanted for the randomly selected ticket. But in random drawings, it doesn’t make any difference if we choose a ticket or are assigned one. The probability of winning is the same. The lesson is, if you want to sell lottery tickets, let people choose their own numbers instead of randomly drawing them.
The consequences of being wrong
“Pascal’s Wager” is the application by Blaise Pascal of the decision theory for believing in God. Pascal reasoned that it is a better “bet” to believe that God exists than not to believe because the expected value of believing is always greater than the expected value of not believing. He thought: If we believe in God, and God exists, we would gain in afterlife. If we don’t believe in God, and God exists, we will lose in afterlife.
Independent of the probabilities of a God, the consequences of not believing are so awful, we should hedge our bet and believe.
Pascal suggests that we are playing a game with 2 choices, believe and not believe: If God exists, and we believe God exists, we are saved. This is good. If we don’t believe, and God is unforgiving, we are damned. If we believe but God doesn’t exist, we miss out on some worldly pleasures. If God doesn’t exist and we don’t believe that God exists, we live a normal life.
Pascal said: “If I lost, I would have lost little. If I won I would have gained eternal life.” Our choice depends on the probabilities, but Pascal assumed that the consequences of being damned as infinite, meaning the expected value of believing is least negative and therefore he reasoned that believing in God is best no matter how low we set the probability of God exists.
John wants to make some extra money and is offered to play Russian roulette. If John wins he gets $10 million. Should he play? There are 6 equally likely possible outcomes when he pulls the trigger – empty, empty, empty, empty, empty, bullet. This makes a probability of 5/6 or 83%.Should he play this game once? The probability is 83% that he gets $10 million. The probability is only 17% that he loses.Let’s look at the consequences. If John doesn’t play and there’s a bullet he is glad he didn’t play. If he plays and there is a bullet, he dies. If he doesn’t play and there is no bullet, he loses the pleasure the extra money could have brought him. If he plays and there is not bullet he gains $10 million which would buy him extra pleasure. To play is to risk death in exchange for extra pleasure. There’s an 83% probability that John is right but the consequence of being wrong is fatal. Even if the probabilities favor him, the downside is unbearable. Why should John risk his life? The value of survival is infinite, so the strategy of not playing is best no matter what probability we assign for the existence of “no bullet” or what money is being offered. But there may be exceptions. Someone that is poor, in need of supporting a family who knows he will die of a lethal disease within 3 months might pull the trigger. He could lose 3 months of life, but if he wins, his family will be taken care of after his death.
We should never risk something that we have and need for something that we don’t have and don’t need. But some people pull the trigger anyway. This is what Warren Buffett said about the Long Term Capital Management affair:
Here are 16 extremely bright – and I do mean extremely bright – people at the top of LTCM. The average IQ among their top 16 people would probably be as high or higher than at any other organization you could find. And individually, they had decades of experience – collectively, centuries of experience – in the sort of securities in which LTCM was invested.Moreover, they had a huge amount of their own money up – and probably a very high percentage of their net worth in almost every case. So here were super-bright, extremely experienced people, operating with their own money. And yet, in effect, on that day in September, they were broke. To me, that’s absolutely fascinating.
In fact, there’s a book with a great title – You only have to get rich once. It’s a great title, but not a very good book. (Walter Guttman wrote it many years ago.) But the title is right: You only have to get rich once.
Why do very bright people risk losing something that’s very important to them to gain something that’s totally unimportant? The added money has no utility whatsoever – and the money that was lost had enormous utility. And on top of that, their reputation gets tarnished and all of that sort of thing. So the gain/loss ration in any real sense is just incredible. Whenever a really bright person who has lost a lot of money goes broke, it’s because of leverage. It’s almost impossible to go broke without borrowed money in the equation.
组屋转售价稳健上涨 售价和溢价仍偏高 交易量减6%
今年第一季的组屋转售价指数上涨，步伐放缓但稳健上涨，溢价也比前个季度稍低，以估价或低于估价成交的交易数量与前个季度相近。整体而言，转售市场稳健成长。
不过，由于售价和溢价仍高企，因此整体交易量比前个季度减少了6%。
建屋发展局昨天公布第一季度组屋转售市场数据。第一季转售价指数上扬了3.7%，比去年第四季的上涨幅度5.7%少了两个百分点。
各类型组屋的转售价中位数（median）都上涨，幅度介于4.2%至5.5%。各类型组屋的转售价中位数分别是三房式20万7800元、四房式28万5000元、五房式35万5000元及公寓式43万2500元。
第一季所有转售交易的溢价中位数是2万1000元，比去年第四季的2万2000元稍微低了1000元。
尽管大部分组屋区的溢价中位数保持不变，但一些组屋区的某类型组屋的溢价中位数开始大幅度减少。碧山五房式组屋减少5000元至3万7500元，公寓式组屋减少2万5000元至4万5000元。马林百列的五房式也减少1万5000元至5万元，那里的五房式组屋在去年底曾以73万元价格创最高转售价纪录。
与去年第四季一样，有86%的交易需支付溢价，其余的交易以估价或低于估价成交。
租赁市场方面，组屋租金也跟随私宅市场的脚步上升。从三房式到公寓式的各类型组屋的租金中位数都上涨，幅度介于5.9%至14.8%。
建屋局在第一季批准约3600个出租组屋申请，市场上受批准的可出租组屋达到1万8700间
房地产经纪公司ERA助理副总裁林东荣指出，交易量一再减少，是因为高转售价和高溢价让买家裹足不前。
他说：“我们已在去年第四季看到转售市场出现阻力，因为买家没有这么多现金，或者不愿意拿出这么多现金。这种阻力也出现在今年第一季。有不少转售交易无法完成或费时更久，是因为不切实际的卖家要求很高的溢价。”
博纳集团总裁伊斯迈认为，私宅整体出售明显减少，转购组屋的私宅业主也明显减少，使溢价开始降低。由于建屋局的未售新组屋已没货了，加上转售组屋需求殷切，所以他估计溢价将在2万元的水平持衡。
尽管美国引起的全球经济放缓可能对新加坡造成冲击，但由于新加坡经济基础强劲，因此市场人士仍看好组屋转售市场。
伊斯迈说，按目前的市场气氛，转售价指数的上涨幅度是意料中事。不过他认为，由于经济前景看好，所以这样的上涨幅度是良好的。他也有信心今年组屋转售指数可取得双位数成长。
林东荣说，建屋局陆续推出新组屋，不少买家宁可等待建屋局的新组屋，转售市场会减少一些压力，所以价格会以较稳健的步伐上涨，全年估计会取得10%或以上的成长。
建屋局在今年第一季推出1100间组屋供预购，未来6个月将陆续推出5000间组屋供预购。当局也会根据需求，在大巴窑和勿洛推出两个由私人发展商负责设计、兴建和销售的组屋项目。
不过，由于售价和溢价仍高企，因此整体交易量比前个季度减少了6%。
建屋发展局昨天公布第一季度组屋转售市场数据。第一季转售价指数上扬了3.7%，比去年第四季的上涨幅度5.7%少了两个百分点。
各类型组屋的转售价中位数（median）都上涨，幅度介于4.2%至5.5%。各类型组屋的转售价中位数分别是三房式20万7800元、四房式28万5000元、五房式35万5000元及公寓式43万2500元。
第一季所有转售交易的溢价中位数是2万1000元，比去年第四季的2万2000元稍微低了1000元。
尽管大部分组屋区的溢价中位数保持不变，但一些组屋区的某类型组屋的溢价中位数开始大幅度减少。碧山五房式组屋减少5000元至3万7500元，公寓式组屋减少2万5000元至4万5000元。马林百列的五房式也减少1万5000元至5万元，那里的五房式组屋在去年底曾以73万元价格创最高转售价纪录。
与去年第四季一样，有86%的交易需支付溢价，其余的交易以估价或低于估价成交。
租赁市场方面，组屋租金也跟随私宅市场的脚步上升。从三房式到公寓式的各类型组屋的租金中位数都上涨，幅度介于5.9%至14.8%。
建屋局在第一季批准约3600个出租组屋申请，市场上受批准的可出租组屋达到1万8700间
房地产经纪公司ERA助理副总裁林东荣指出，交易量一再减少，是因为高转售价和高溢价让买家裹足不前。
他说：“我们已在去年第四季看到转售市场出现阻力，因为买家没有这么多现金，或者不愿意拿出这么多现金。这种阻力也出现在今年第一季。有不少转售交易无法完成或费时更久，是因为不切实际的卖家要求很高的溢价。”
博纳集团总裁伊斯迈认为，私宅整体出售明显减少，转购组屋的私宅业主也明显减少，使溢价开始降低。由于建屋局的未售新组屋已没货了，加上转售组屋需求殷切，所以他估计溢价将在2万元的水平持衡。
尽管美国引起的全球经济放缓可能对新加坡造成冲击，但由于新加坡经济基础强劲，因此市场人士仍看好组屋转售市场。
伊斯迈说，按目前的市场气氛，转售价指数的上涨幅度是意料中事。不过他认为，由于经济前景看好，所以这样的上涨幅度是良好的。他也有信心今年组屋转售指数可取得双位数成长。
林东荣说，建屋局陆续推出新组屋，不少买家宁可等待建屋局的新组屋，转售市场会减少一些压力，所以价格会以较稳健的步伐上涨，全年估计会取得10%或以上的成长。
建屋局在今年第一季推出1100间组屋供预购，未来6个月将陆续推出5000间组屋供预购。当局也会根据需求，在大巴窑和勿洛推出两个由私人发展商负责设计、兴建和销售的组屋项目。
Thursday, April 24, 2008
Deferred payment scheme: Up to 4,200 homes may be dumped
No URA figure on units sold but experts say 30% could be offloaded
THE hugely popular deferred payment scheme (DPS) - scrapped last year - may now be a thing of the past, but what sort of shadow will it cast on the Singapore property market going forward? This has been the question on market watchers' lips since the Urban Redevelopment Authority (URA) revealed last week that as many as 29,250 homes offered under the DPS, including 5,760 unsold units as at the end of last month, will be completed from this year to 2013.
The concern is that speculators who bought homes under the DPS could dump their units at below-market prices, and this could drastically drag down overall sentiment. But just how many units are at risk of being sold, and how big will the impact be?
The URA said while it has the number of units approved under DPS, it does not have data on how many units were actually sold under the scheme. But four property experts The Straits Times spoke to estimated that up to 30 per cent of homes sold under the scheme last year could be held by speculators who may offload homes as the completion date nears. This translates to roughly 4,200 homes, going by a back-of-the-envelope calculation.
That is because out of the 23,490 units approved under the DPS and sold, only about 50 to 60 per cent - or roughly 14,000 - are likely to have been sold under the DPS, say property consultants and agency bosses from Knight Frank, Savills Singapore, HSR Property Group and PropNex. The remaining 40 to 50 per cent were not bought under the DPS. Either developers did not eventually offer it, or buyers chose to pay via progressive payments, because buying a home with DPS usually means a further 2 to 3 per cent added to the price.
Next, property experts estimated that of the 14,000 or so homes sold under the DPS, about 20 to 30 per cent were probably sold to short-term investors or speculators. This means that as a group, speculators could be holding on to as many as 4,200 units. Why are speculators prone to selling their units as they near completion? The DPS allowed buyers to pay just 10 or 20 per cent of the sale price upon purchase, with the rest due only when the unit received its temporary occupation permit (TOP) on completion. Speculators would, therefore, typically opt for the DPS and hope to sell their units for a profit before the TOP. Any later and they would have to pay up for their homes by arranging for bank loans or other means of financing. Industry experts were, however, divided on the impact these 4,200 homes would have on the market. Some maintained that panic selling is not likely, given Singapore's strong economic outlook, which is backed by upcoming mega projects such as the integrated resorts and the 2010 Youth Olympics.
Mr Eric Cheng, HSR's executive director, noted that homes set to be completed this year and next are less likely to be sold indiscriminately, since their owners are probably sitting on healthy gains. But those who bought at the peak of last year's buying frenzy, from April till October, are most likely to be at risk. These homes are likely to be completed after 2010.
Mr Ku Swee Yong, Savills' director of business development and marketing, said the sell-off will likely be staggered, because investors have different levels of holding power. Also, investors have bigger coffers compared to the last property peak in 1996, he added. But he warned that if too many units in a single large project get dumped at below-market prices, overall market sentiment may be hit.
Mr Colin Tan, Chesterton International's head (research and consultancy), thinks that the potential risk created by the DPS is relatively high. He added that data on homes sold under the DPS should be collected and made public, so investors know 'what they're getting themselves into'. Yhe DPS was scrapped abruptly last October after a decade-long run to remove excessive speculation and ensure financial prudence in the property market.
THE hugely popular deferred payment scheme (DPS) - scrapped last year - may now be a thing of the past, but what sort of shadow will it cast on the Singapore property market going forward? This has been the question on market watchers' lips since the Urban Redevelopment Authority (URA) revealed last week that as many as 29,250 homes offered under the DPS, including 5,760 unsold units as at the end of last month, will be completed from this year to 2013.
The concern is that speculators who bought homes under the DPS could dump their units at below-market prices, and this could drastically drag down overall sentiment. But just how many units are at risk of being sold, and how big will the impact be?
The URA said while it has the number of units approved under DPS, it does not have data on how many units were actually sold under the scheme. But four property experts The Straits Times spoke to estimated that up to 30 per cent of homes sold under the scheme last year could be held by speculators who may offload homes as the completion date nears. This translates to roughly 4,200 homes, going by a back-of-the-envelope calculation.
That is because out of the 23,490 units approved under the DPS and sold, only about 50 to 60 per cent - or roughly 14,000 - are likely to have been sold under the DPS, say property consultants and agency bosses from Knight Frank, Savills Singapore, HSR Property Group and PropNex. The remaining 40 to 50 per cent were not bought under the DPS. Either developers did not eventually offer it, or buyers chose to pay via progressive payments, because buying a home with DPS usually means a further 2 to 3 per cent added to the price.
Next, property experts estimated that of the 14,000 or so homes sold under the DPS, about 20 to 30 per cent were probably sold to short-term investors or speculators. This means that as a group, speculators could be holding on to as many as 4,200 units. Why are speculators prone to selling their units as they near completion? The DPS allowed buyers to pay just 10 or 20 per cent of the sale price upon purchase, with the rest due only when the unit received its temporary occupation permit (TOP) on completion. Speculators would, therefore, typically opt for the DPS and hope to sell their units for a profit before the TOP. Any later and they would have to pay up for their homes by arranging for bank loans or other means of financing. Industry experts were, however, divided on the impact these 4,200 homes would have on the market. Some maintained that panic selling is not likely, given Singapore's strong economic outlook, which is backed by upcoming mega projects such as the integrated resorts and the 2010 Youth Olympics.
Mr Eric Cheng, HSR's executive director, noted that homes set to be completed this year and next are less likely to be sold indiscriminately, since their owners are probably sitting on healthy gains. But those who bought at the peak of last year's buying frenzy, from April till October, are most likely to be at risk. These homes are likely to be completed after 2010.
Mr Ku Swee Yong, Savills' director of business development and marketing, said the sell-off will likely be staggered, because investors have different levels of holding power. Also, investors have bigger coffers compared to the last property peak in 1996, he added. But he warned that if too many units in a single large project get dumped at below-market prices, overall market sentiment may be hit.
Mr Colin Tan, Chesterton International's head (research and consultancy), thinks that the potential risk created by the DPS is relatively high. He added that data on homes sold under the DPS should be collected and made public, so investors know 'what they're getting themselves into'. Yhe DPS was scrapped abruptly last October after a decade-long run to remove excessive speculation and ensure financial prudence in the property market.
Wednesday, April 23, 2008
Seven Reasons to Welcome a Recession
Recessions breed fear.
It's only natural. A slowdown in production at companies can result in layoffs and restructuring. People fret about their jobs and worry that it will be much more difficult to find new employment if they are let go. These are understandable concerns.
But for contrarians and bargain hunters, recessions provide a world of opportunities.
Here are seven ways that a recession can actually benefit your personal finances:
Affordable Homes
Those who bought homes looking to flip them for a quick profit and those who took out huge loans that they couldn't afford to pay will look at a recession with fear, but a recession should have little meaning for those who bought a home with the purpose of living in it for a long time.
Recessions are usually short-lived, and the housing market should recover long before most people are planning to sell their house.
For those who had been unable to afford a house because of soaring prices in the past few years, a recession is a golden opportunity. It brings housing prices down to more affordable levels. That means that many people who wanted to buy a house will be able to purchase one.
Recessions are also a good time to look for investment properties or vacation homes if either had been in consideration.
A recession gives anyone looking for quality housing a lot more bang for their buck than when the economy is flying high. Being able to purchase a quality house at an affordable price can greatly increase a person's net worth in the long run.
Low Mortgage Rates
In the attempt to ward off a recession, the Federal Reserve has made interest rates extremely low, resulting in more affordable loans for those who are in the market to purchase a house.
While these rates may not be available throughout the entire recession if inflation continues to rise, the rates will be around as long as the Fed can use them to ease the recession. Taking advantage of these low rates along with lower housing prices can truly make housing a deal.
Great Consumer Deals
As the economy sours and people buy less and less, stores need to provide better deals and discounts to attract consumers to their doors. This can mean steep discounts through sales and promotions, as well as financing that allows consumers to pay no interest over long periods of time.
These deals are not limited to the retail stores. It also means that there are great deals in the second-hand markets, since there are more people trying to sell and fewer people looking to buy. If you are an investor in collectibles and know them well, you can often buy collectibles at steep discounts during a recession that can be turned into a healthy profit when the economy recovers. For those who have saved money waiting for good deals, a recession is a great time to find those deals.
Inexpensive Stocks
While everyone is taking their money out of the market, hard economic times can be a great time to pick up stocks on the cheap when you look at them as long-term investments. Consumer stocks for large, stable companies such as Proctor & Gamble that provide necessities such as soap and toilet paper will do well no matter what the economic conditions.
Recessions can be a great time to pick up undervalued stocks if you know what you're doing. That can greatly improve your net worth when the stock market recovers.
Great Travel Deals
During times of recession, most people don't think about traveling. For this exact reason, traveling can be a great deal when the economy is shaky. Lack of demand results in excess inventory, which forces hotels and other related travel industries to lower their prices. It also means a greater inventory to choose from and the ability to bargain for upgrades and other perks. That dream vacation that you have always wanted to take can be a lot more affordable during a recession, when travel related industries are begging for your business.
Streamline Your Finances
When things look like they are going to get a bit tougher, people begin to look at their personal finances a bit more closely and start to trim some of the fat. They look at ways that their money can be better spent and how they can get more for each dollar that they do spend. They pad their emergency fund a bit more and don't spend quite as freely as they do during times of rapid growth. This trimming of the fat is a good exercise that can help you see the important financial goals that you want to achieve and, by doing so, help you reach them more quickly.
Lower Credit-Card Rates
If you have a good credit rating, you are in a position to get extra perks from your credit-card company. Credit-card companies see higher delinquency payment rates during a recession, and it becomes even more important for them to keep their best customers. That gives you extra leverage to ask favors from them, such as having your interest rates lowered and annual fees waived.
While most people will look at a recession with fear and uneasiness, it's important to also realize that it's an opportunity to get some great deals and improve your personal finances. Taking advantage will allow you to reap greater benefits from all those dollars you have saved.
It's only natural. A slowdown in production at companies can result in layoffs and restructuring. People fret about their jobs and worry that it will be much more difficult to find new employment if they are let go. These are understandable concerns.
But for contrarians and bargain hunters, recessions provide a world of opportunities.
Here are seven ways that a recession can actually benefit your personal finances:
Affordable Homes
Those who bought homes looking to flip them for a quick profit and those who took out huge loans that they couldn't afford to pay will look at a recession with fear, but a recession should have little meaning for those who bought a home with the purpose of living in it for a long time.
Recessions are usually short-lived, and the housing market should recover long before most people are planning to sell their house.
For those who had been unable to afford a house because of soaring prices in the past few years, a recession is a golden opportunity. It brings housing prices down to more affordable levels. That means that many people who wanted to buy a house will be able to purchase one.
Recessions are also a good time to look for investment properties or vacation homes if either had been in consideration.
A recession gives anyone looking for quality housing a lot more bang for their buck than when the economy is flying high. Being able to purchase a quality house at an affordable price can greatly increase a person's net worth in the long run.
Low Mortgage Rates
In the attempt to ward off a recession, the Federal Reserve has made interest rates extremely low, resulting in more affordable loans for those who are in the market to purchase a house.
While these rates may not be available throughout the entire recession if inflation continues to rise, the rates will be around as long as the Fed can use them to ease the recession. Taking advantage of these low rates along with lower housing prices can truly make housing a deal.
Great Consumer Deals
As the economy sours and people buy less and less, stores need to provide better deals and discounts to attract consumers to their doors. This can mean steep discounts through sales and promotions, as well as financing that allows consumers to pay no interest over long periods of time.
These deals are not limited to the retail stores. It also means that there are great deals in the second-hand markets, since there are more people trying to sell and fewer people looking to buy. If you are an investor in collectibles and know them well, you can often buy collectibles at steep discounts during a recession that can be turned into a healthy profit when the economy recovers. For those who have saved money waiting for good deals, a recession is a great time to find those deals.
Inexpensive Stocks
While everyone is taking their money out of the market, hard economic times can be a great time to pick up stocks on the cheap when you look at them as long-term investments. Consumer stocks for large, stable companies such as Proctor & Gamble that provide necessities such as soap and toilet paper will do well no matter what the economic conditions.
Recessions can be a great time to pick up undervalued stocks if you know what you're doing. That can greatly improve your net worth when the stock market recovers.
Great Travel Deals
During times of recession, most people don't think about traveling. For this exact reason, traveling can be a great deal when the economy is shaky. Lack of demand results in excess inventory, which forces hotels and other related travel industries to lower their prices. It also means a greater inventory to choose from and the ability to bargain for upgrades and other perks. That dream vacation that you have always wanted to take can be a lot more affordable during a recession, when travel related industries are begging for your business.
Streamline Your Finances
When things look like they are going to get a bit tougher, people begin to look at their personal finances a bit more closely and start to trim some of the fat. They look at ways that their money can be better spent and how they can get more for each dollar that they do spend. They pad their emergency fund a bit more and don't spend quite as freely as they do during times of rapid growth. This trimming of the fat is a good exercise that can help you see the important financial goals that you want to achieve and, by doing so, help you reach them more quickly.
Lower Credit-Card Rates
If you have a good credit rating, you are in a position to get extra perks from your credit-card company. Credit-card companies see higher delinquency payment rates during a recession, and it becomes even more important for them to keep their best customers. That gives you extra leverage to ask favors from them, such as having your interest rates lowered and annual fees waived.
While most people will look at a recession with fear and uneasiness, it's important to also realize that it's an opportunity to get some great deals and improve your personal finances. Taking advantage will allow you to reap greater benefits from all those dollars you have saved.
Monday, April 21, 2008
积弱难返，熊气十足
不管怎么分析，昨天晚上出台的限制大小非减持的政策指导意见从短期看也是个利好，但是，市场不为利好所动，利好政策竟然只体现在开盘然后就继续下跌，这种走法是出乎大多数投资人预料的，也证明了在熊市中每次利好都是出货机会这一经典定律。
我们分析有利好而下跌的原因不外乎以下三点：
第一，目前A股非常弱，已经在深层次对宏观调政策恐惧，这不是一两个利好所能解救的。从涨跌榜来看，跌停的股票一版都排不下，而且以地产、有色金属股为主，表明机构投资人不看好地产和有色板块的未来，每次利好都是他们卖出的机会。
第二，大小非面对减持政策而加速集中减持。
第三，部分机构故意打压，造成极端恐慌气氛，然后不明真相的散户跟风抛出，机构可以在底部接到更加廉价的筹码并且希望更多的利好政策出台。
本轮下跌暴露了A股有很多制度设计上的问题，包括下跌中没有对冲稳定市场的机制；没有应急救市机制；一级市场的高利润给二级市场带来了很大的风险；没有保护二级市场中小投资人的利益的机制；在解决国有股全流通时，没有考虑到资金的供给；股改和国有股减持的完成需要一个健康的牛市环境，投资人信心遭到打击的熊市是不可能顺利完成金融改革任务的。
作为散户永远不要去抄底，在A股没有彻底走出底部之前，我们建议继续空仓持币观望。
如何识别空头陷阱与主力出货？
所谓骗取筹码的陷阱就是空头陷阱，简单地说就是市场主流资金大力做空，通过盘面中显现出明显疲弱的形态，诱使投资者得出股市将继续大幅下跌的结论，并恐慌性抛售的市场情况。一段时间，急转直下，龙头股纷纷跳水，指数连续快速的下跌，这时投资者更要谨防空头陷阱。对于空头陷阱的判别主要是从消息面、资金面、宏观基本面、技术分析和市场人气等方面进行综合分析研判：
一、在消息面上的分析。
主力资金往往会利用宣传的优势，营造做空的氛围。所以当投资者遇到市场利空不断时，反而要格外小心。因为，正是在各种利空消息满天飞的重磅轰炸下，主流资金才可以很方便地建仓。
二、从成交量分析。
空头陷阱在成交量上的特征是随着股价的持续性下跌，量能始终处于不规则萎缩中，有时盘面上甚至会出现无量空跌或无量暴跌现象，盘中个股成交也是十分不活跃，给投资者营造出阴跌走势遥遥无期的氛围。恰恰在这种制造悲观的氛围中，主力往往可以轻松地逢低建仓，从而构成空头陷阱。
三、从宏观基本面的分析。
需要了解从根本上影响大盘走强的政策面因素和宏观基本面因素，分析是否有实质性利空因素，如果在股市政策背景方面没有特别的实质性做空因素，而股价却持续性地暴跌，这时就比较容易形成空头陷阱。
四、从技术形态上分析。
空头陷阱在K线走势上的特征往往是连续几根长阴线暴跌，贯穿各种强支撑位，有时甚至伴随向下跳空缺口。在形态分析上，空头陷阱常常会故意引发技术形态的破位，让投资者误以为后市下跌空间巨大，而纷纷抛出手中持股，从而使主力可以在低位承接大量的廉价股票。在技术指标方面，空头陷阱会导致技术指标上出现严重的背离特征，而且不是其中一两种指标的背离现象，往往是多种指标的多重周期的同步背离。
五、从市场人气方面分析。
由于股市长时间的下跌，会在市场中形成沉重的套牢盘，人气也在不断被套中被消耗殆尽。然而往往是在市场人气极度低迷的时刻，恰恰说明股市离真正的底部已经为时不远。
我们分析有利好而下跌的原因不外乎以下三点：
第一，目前A股非常弱，已经在深层次对宏观调政策恐惧，这不是一两个利好所能解救的。从涨跌榜来看，跌停的股票一版都排不下，而且以地产、有色金属股为主，表明机构投资人不看好地产和有色板块的未来，每次利好都是他们卖出的机会。
第二，大小非面对减持政策而加速集中减持。
第三，部分机构故意打压，造成极端恐慌气氛，然后不明真相的散户跟风抛出，机构可以在底部接到更加廉价的筹码并且希望更多的利好政策出台。
本轮下跌暴露了A股有很多制度设计上的问题，包括下跌中没有对冲稳定市场的机制；没有应急救市机制；一级市场的高利润给二级市场带来了很大的风险；没有保护二级市场中小投资人的利益的机制；在解决国有股全流通时，没有考虑到资金的供给；股改和国有股减持的完成需要一个健康的牛市环境，投资人信心遭到打击的熊市是不可能顺利完成金融改革任务的。
作为散户永远不要去抄底，在A股没有彻底走出底部之前，我们建议继续空仓持币观望。
如何识别空头陷阱与主力出货？
所谓骗取筹码的陷阱就是空头陷阱，简单地说就是市场主流资金大力做空，通过盘面中显现出明显疲弱的形态，诱使投资者得出股市将继续大幅下跌的结论，并恐慌性抛售的市场情况。一段时间，急转直下，龙头股纷纷跳水，指数连续快速的下跌，这时投资者更要谨防空头陷阱。对于空头陷阱的判别主要是从消息面、资金面、宏观基本面、技术分析和市场人气等方面进行综合分析研判：
一、在消息面上的分析。
主力资金往往会利用宣传的优势，营造做空的氛围。所以当投资者遇到市场利空不断时，反而要格外小心。因为，正是在各种利空消息满天飞的重磅轰炸下，主流资金才可以很方便地建仓。
二、从成交量分析。
空头陷阱在成交量上的特征是随着股价的持续性下跌，量能始终处于不规则萎缩中，有时盘面上甚至会出现无量空跌或无量暴跌现象，盘中个股成交也是十分不活跃，给投资者营造出阴跌走势遥遥无期的氛围。恰恰在这种制造悲观的氛围中，主力往往可以轻松地逢低建仓，从而构成空头陷阱。
三、从宏观基本面的分析。
需要了解从根本上影响大盘走强的政策面因素和宏观基本面因素，分析是否有实质性利空因素，如果在股市政策背景方面没有特别的实质性做空因素，而股价却持续性地暴跌，这时就比较容易形成空头陷阱。
四、从技术形态上分析。
空头陷阱在K线走势上的特征往往是连续几根长阴线暴跌，贯穿各种强支撑位，有时甚至伴随向下跳空缺口。在形态分析上，空头陷阱常常会故意引发技术形态的破位，让投资者误以为后市下跌空间巨大，而纷纷抛出手中持股，从而使主力可以在低位承接大量的廉价股票。在技术指标方面，空头陷阱会导致技术指标上出现严重的背离特征，而且不是其中一两种指标的背离现象，往往是多种指标的多重周期的同步背离。
五、从市场人气方面分析。
由于股市长时间的下跌，会在市场中形成沉重的套牢盘，人气也在不断被套中被消耗殆尽。然而往往是在市场人气极度低迷的时刻，恰恰说明股市离真正的底部已经为时不远。
Friday, April 18, 2008
不可任何東西都想要
John Paulson成為去年最高薪嘅對沖基金管理人，收入共37億美元，跑贏索羅斯嘅29億美元，以及第三名James Simon嘅28億美元。
今年美國唔係進入經濟衰退期，而係進入 GDP絲路至溫巴仙增長時代！估計今年標普五百指數純利平均跌6％，O由二十倍下降到十五倍；反之，每日指數波幅可超過2％，投資策略宜保守。
熊市二期每次見底便強力反彈，第一季表現最出色係公用股，因為利率下降，4月份應係最後一次減息，即公用股上升期又差唔多矣。
2000年1月至02年10月，標普五百指數O下降咗23％；去年10月至今，指數O只下降14％，估計仍可再跌10％（加上純利回落6％，即後市美股跌幅仍有15％）。戰後至今美股熊市平均跌幅32％，日子共三百八十四個交易天。如上述有參考價值，美股熊市應响明年第一季才結束，家吓約完成一半左右。
不可任何東西都想要
一個人只有兩隻手，可以攞得住嘅實在有限，因此不能任何東西都想要。黎瑞恩曾唱過一首歌《一人有一個夢想》，事實的確係咁，一生人只做好一件事，咁就成功機會好大；反之樣樣想，但你只有兩隻手，又點可以攞得住咁多？英語亦有云：「Choice, not chance, makes life different」。人生過程中，每一個抉擇決定你嘅將來，而非所謂機緣巧合或運氣。人人所作抉擇不同，最後結果人人唔一樣。過去每一個抉擇皆影響你嘅今天，今天你嘅抉擇亦將影響你嘅將來。
例如我老曹相信依家係熊市二期，恒指响20000至25000點上上落落。上落市唔易玩，因此連放响分析股票方面嘅時間今年都減少咗。另一方面，我老曹仍偏愛美元及外幣，至今冇人民幣存款（雖然明知實賺）。上述點點滴滴，最後必影響我老曹未來所擁有嘅財富。一個人只有兩隻手，喺一生中你又攞得住幾多？
趨勢醞釀而未成形
閒話少說。2008年最頭痛嘅地方係How to make Profits in Sick Economy。2008年首季已經過去，本港基金表現平均數係負增長，至於我老曹成績亦唔比基金公司好，即係略有虧損。
响上落市中挑選跑贏大市股份，並非想像咁容易，即使睇市正確，揀唔中上升股份一樣冇錢賺。畢非德所教方法──別人恐慌你貪心，別人貪心你恐慌，就更難做到，最多只能做到別人恐慌時你唔驚，別人貪心時你唔貪已經好叻，因為we are all human，都有人性弱點。
今年不妨放開 D，因為好多趨勢仍在醞釀而未成形（潛龍勿用）。人生中失去一次機會，仍有無數機會等住你；反之，一次重大錯誤決定，往往翻唔到身。年輕時一個錯誤決定，可以損失幾十萬元；中年時一個錯誤決定，可以失去幾百萬元；踏入老年，作出一個錯誤決定代價就更大，此乃點解年紀漸大，投資策略一定傾向保守嘅理由。請唔好嘗試outsmart the market。
股市冇過去，只有將來；炒股票唔係炒過去業績，而係炒前景展望。嗰D去年10月冇及時減持者，更喺投資研討會上努力 talk up the market去抵銷個人嘅恐懼感，可惜股市從來唔因多人睇好而上升，亦唔會因多人睇淡而回落。股市上升理由係因為人人想入貨，股市回落理由係人人想出貨而未果。今天有邊個仲坐擁巨資等入貨？持貨睇好則不值一哂。
由高O走向低O
踏入2008年，全球金融面對反槓桿化（de-leverage），簡單D講就係信貸收縮。上述情況以美國影響最大，歐洲少D，亞洲區又少D。去年8月前嘅資金泛濫情況已結束，近期各國央行努力注資亦無法扭轉此大趨勢，只能讓信貸市場收縮有秩序地進行，而非無秩序式撤退。上述影響唔係一季兩季，甚至唔係一年兩年，而係未來大趨勢，可令美國同歐洲GDP長期陷入低增長期。
反而歐洲上述問題唔大，因O已喺十點七二倍水平。
從高O走向低O方法有二：
一、企業純利保持增長，而股市指數不前，例如1966至82年美股。
二、企業純利不前甚至回落，股市指數大跌，例如1990至2003年日經平均指數（依家已跌至O十五倍）。至於滬深三百指數點樣完成由高O走向低O？由於依家O仍高達二十七倍，一旦中國GDP增長率下降，股市要跌到邊個水平才有真正支持？家吓恒生指數平均O係十四點七倍。今天歐洲Dow Stock 50平均O十倍，恒指O十四點七倍，表面睇唔算貴，但純利中幾多來自物業升值重估？剔除物業升值後，恒生指數O絕對唔便宜（起碼冇歐洲及日本咁便宜）。何況抵買絕對唔係投資嘅理由。恒生指數已進入上落市，即升幅有限、波幅無限。
油價高企、食物價格高漲，歐洲同北美洲銀行及大金融機構則忙於集資，因為今年第一季虧損已令資本充足比率不足。响咁嘅環境下，後市可升幾多？去年下半年幾多股份高價被綁（以香港每天成交平均800億元計，一百二十個交易天，即有九萬六千億元股票喺市場高價易手）。大量股份高價被綁，形成今年股市進入短期供不應求，呢個拉鋸局面可維持幾耐？冇人可預知。
3月份美國新建房屋跌至十七年低點，住宅方面回落5.2%，相等於每年一百零一萬間；新批合約更少，跌至年率九十七萬間，係1991年8月以來最低。美國全國建屋商協會估計，今年建屋量將減少30%，較先前估計嘅27%更大。
今年美國唔係進入經濟衰退期，而係進入 GDP絲路至溫巴仙增長時代！估計今年標普五百指數純利平均跌6％，O由二十倍下降到十五倍；反之，每日指數波幅可超過2％，投資策略宜保守。
熊市二期每次見底便強力反彈，第一季表現最出色係公用股，因為利率下降，4月份應係最後一次減息，即公用股上升期又差唔多矣。
2000年1月至02年10月，標普五百指數O下降咗23％；去年10月至今，指數O只下降14％，估計仍可再跌10％（加上純利回落6％，即後市美股跌幅仍有15％）。戰後至今美股熊市平均跌幅32％，日子共三百八十四個交易天。如上述有參考價值，美股熊市應响明年第一季才結束，家吓約完成一半左右。
不可任何東西都想要
一個人只有兩隻手，可以攞得住嘅實在有限，因此不能任何東西都想要。黎瑞恩曾唱過一首歌《一人有一個夢想》，事實的確係咁，一生人只做好一件事，咁就成功機會好大；反之樣樣想，但你只有兩隻手，又點可以攞得住咁多？英語亦有云：「Choice, not chance, makes life different」。人生過程中，每一個抉擇決定你嘅將來，而非所謂機緣巧合或運氣。人人所作抉擇不同，最後結果人人唔一樣。過去每一個抉擇皆影響你嘅今天，今天你嘅抉擇亦將影響你嘅將來。
例如我老曹相信依家係熊市二期，恒指响20000至25000點上上落落。上落市唔易玩，因此連放响分析股票方面嘅時間今年都減少咗。另一方面，我老曹仍偏愛美元及外幣，至今冇人民幣存款（雖然明知實賺）。上述點點滴滴，最後必影響我老曹未來所擁有嘅財富。一個人只有兩隻手，喺一生中你又攞得住幾多？
趨勢醞釀而未成形
閒話少說。2008年最頭痛嘅地方係How to make Profits in Sick Economy。2008年首季已經過去，本港基金表現平均數係負增長，至於我老曹成績亦唔比基金公司好，即係略有虧損。
响上落市中挑選跑贏大市股份，並非想像咁容易，即使睇市正確，揀唔中上升股份一樣冇錢賺。畢非德所教方法──別人恐慌你貪心，別人貪心你恐慌，就更難做到，最多只能做到別人恐慌時你唔驚，別人貪心時你唔貪已經好叻，因為we are all human，都有人性弱點。
今年不妨放開 D，因為好多趨勢仍在醞釀而未成形（潛龍勿用）。人生中失去一次機會，仍有無數機會等住你；反之，一次重大錯誤決定，往往翻唔到身。年輕時一個錯誤決定，可以損失幾十萬元；中年時一個錯誤決定，可以失去幾百萬元；踏入老年，作出一個錯誤決定代價就更大，此乃點解年紀漸大，投資策略一定傾向保守嘅理由。請唔好嘗試outsmart the market。
股市冇過去，只有將來；炒股票唔係炒過去業績，而係炒前景展望。嗰D去年10月冇及時減持者，更喺投資研討會上努力 talk up the market去抵銷個人嘅恐懼感，可惜股市從來唔因多人睇好而上升，亦唔會因多人睇淡而回落。股市上升理由係因為人人想入貨，股市回落理由係人人想出貨而未果。今天有邊個仲坐擁巨資等入貨？持貨睇好則不值一哂。
由高O走向低O
踏入2008年，全球金融面對反槓桿化（de-leverage），簡單D講就係信貸收縮。上述情況以美國影響最大，歐洲少D，亞洲區又少D。去年8月前嘅資金泛濫情況已結束，近期各國央行努力注資亦無法扭轉此大趨勢，只能讓信貸市場收縮有秩序地進行，而非無秩序式撤退。上述影響唔係一季兩季，甚至唔係一年兩年，而係未來大趨勢，可令美國同歐洲GDP長期陷入低增長期。
反而歐洲上述問題唔大，因O已喺十點七二倍水平。
從高O走向低O方法有二：
一、企業純利保持增長，而股市指數不前，例如1966至82年美股。
二、企業純利不前甚至回落，股市指數大跌，例如1990至2003年日經平均指數（依家已跌至O十五倍）。至於滬深三百指數點樣完成由高O走向低O？由於依家O仍高達二十七倍，一旦中國GDP增長率下降，股市要跌到邊個水平才有真正支持？家吓恒生指數平均O係十四點七倍。今天歐洲Dow Stock 50平均O十倍，恒指O十四點七倍，表面睇唔算貴，但純利中幾多來自物業升值重估？剔除物業升值後，恒生指數O絕對唔便宜（起碼冇歐洲及日本咁便宜）。何況抵買絕對唔係投資嘅理由。恒生指數已進入上落市，即升幅有限、波幅無限。
油價高企、食物價格高漲，歐洲同北美洲銀行及大金融機構則忙於集資，因為今年第一季虧損已令資本充足比率不足。响咁嘅環境下，後市可升幾多？去年下半年幾多股份高價被綁（以香港每天成交平均800億元計，一百二十個交易天，即有九萬六千億元股票喺市場高價易手）。大量股份高價被綁，形成今年股市進入短期供不應求，呢個拉鋸局面可維持幾耐？冇人可預知。
3月份美國新建房屋跌至十七年低點，住宅方面回落5.2%，相等於每年一百零一萬間；新批合約更少，跌至年率九十七萬間，係1991年8月以來最低。美國全國建屋商協會估計，今年建屋量將減少30%，較先前估計嘅27%更大。
获准延迟付款计划下出售近三万私宅或成楼市炸弹
尽管延迟付款计划(Deferred Payment Scheme)已经在去年10月被撤销，仍有多达2万9000个获准在该计划下出售的私宅单位尚未完工。房地产分析员认为，这些只支付了一二成楼价的单位，很可能威胁到接下来的楼市走向，甚至是整体的购屋信心。
最近楼市开始走软，让市场人士担心，过去几年以延迟付款计划卖出的私宅单位，可能会在不久的将来，如“定时炸弹”一样震动市场。
特别是明后两年为私宅单位的完工高峰期，分别有1万3463个和1万8306个私宅单位完工，如果楼价明显下挫，到时必须开始供楼的买家很可能会被迫削价卖房，甚至索性悔约，让发展商把房子收回。
尽管金融管理局和市区重建局都在去年先后指出延迟付款计划对金融界和房地产市场的不利影响，市建局甚至在去年10月撤销了有关计划，但市场至今仍然不知道，近年来到底有多少个私宅单位是在延迟付款计划下卖出去的？
本地房地产上市公司向来不愿提供有关数据。本报向交易所查询，发展商是否有必要申报在延迟付款计划方面的曝险，交易所表示，根据上市守则，上市公司应该自己评估有关资料是否属于重要资讯(material informa- tion)。
金管局在受询时指示记者向市建局查询。市建局昨天回复本报的询问时说，从1997年至2007年10月，市建局批准了大约600个私宅项目(共有7万2380个私宅单位)提供延迟付款计划给买家。
当中，4万3140个单位已经取得临时入伙准证(TOP)，其余2万9250个单位预计会在2008年至2013年取得临时入伙准证——这包括2万3490个已售单位，以及5760个未售单位。
没有准确数据
市建局指出，虽然有2万9250个未完工的单位获准提供延迟付款计划，但并非所有买家都会选择延迟付款，因此真实数据相信较少。至于到底有多少单位是以延迟付款计划卖出的，市建局说，它并没有这个数据。
德意志银行(Deutsche Bank)私人财富管理首席亚洲策略师蔡学敏说：“这是我第一次看到这些数据，不过可惜它们说的不多。”
他认为，市建局或者其他政府机构，有必要收集延迟付款计划的相关数据，因为它正是本地楼价飞涨的其中一个主要原因。“既然政府已经发现了延迟付款计划令人担忧的地方，如果能够提供数据让人们了解整个大局，将有很大的帮助。”
他相信，延迟付款计划的问题可大可小，“如果不趁早应付，说不定会演变成新加坡版的次贷问题。”
卓登(Chesterton)国际研究部主管陈瑞谨也认为，了解过去几年的延迟付款概况，将能协助人们评估新加坡楼市的风险到底有多大？
“当然，如果市场景气良好，这不会带来什么问题。不过，如果经济情况继续恶化，导致人们失去工作，一些人就会被迫降价脱售手头上的单位，甚至是悔约，这不但会影响发展商的盈利，也会冲击人们的购屋信心，进一步影响整体楼价。”
他猜测，延迟付款计划的潜在风险应该是相当高，所以才会引起金管局和市建局的关注，并且将有关计划撤销。
据他所知，利用延迟付款计划来买楼的，有不少是本地人。其中一些甚至一个人扫下十多二十个单位。“他们都是有财有势的人，但尽管如此，一旦房子入伙时，要同时吞下十多个高价单位也不是简单的事。”
刚刚从花旗集团跳槽到德意志银行的蔡学敏，去年写的一系列延迟付款计划报告书，在市场上引起相当大的回响。他认为，尤其是去年在楼市最高峰，以延迟付款计划卖房子的发展商，将面对最大的风险。
他指出，实际上一些项目，包括联合工程的One Rochester、吉宝置业的Reflections，以及永泰控股的Duchess Crest，最近被买家拿到二手市场放盘的单位，叫价都已经跌破当初发展商的推出价格。
虽然过去买家因为还不起房贷而导致房子被银行收回的比例很少，但是蔡学敏不肯定这一次买家悔约的比率会有多高，特别是一些高档项目有超过半数买家是外国人，有些在新加坡完全没有任何业务或资产。
他猜测，这些买家当中，一些人可能将已经支付了一二成的首期，当成是定金，希望能够放弃定金了事，但这要看发展商是否能够向他们追回中间的价差。
最近楼市开始走软，让市场人士担心，过去几年以延迟付款计划卖出的私宅单位，可能会在不久的将来，如“定时炸弹”一样震动市场。
特别是明后两年为私宅单位的完工高峰期，分别有1万3463个和1万8306个私宅单位完工，如果楼价明显下挫，到时必须开始供楼的买家很可能会被迫削价卖房，甚至索性悔约，让发展商把房子收回。
尽管金融管理局和市区重建局都在去年先后指出延迟付款计划对金融界和房地产市场的不利影响，市建局甚至在去年10月撤销了有关计划，但市场至今仍然不知道，近年来到底有多少个私宅单位是在延迟付款计划下卖出去的？
本地房地产上市公司向来不愿提供有关数据。本报向交易所查询，发展商是否有必要申报在延迟付款计划方面的曝险，交易所表示，根据上市守则，上市公司应该自己评估有关资料是否属于重要资讯(material informa- tion)。
金管局在受询时指示记者向市建局查询。市建局昨天回复本报的询问时说，从1997年至2007年10月，市建局批准了大约600个私宅项目(共有7万2380个私宅单位)提供延迟付款计划给买家。
当中，4万3140个单位已经取得临时入伙准证(TOP)，其余2万9250个单位预计会在2008年至2013年取得临时入伙准证——这包括2万3490个已售单位，以及5760个未售单位。
没有准确数据
市建局指出，虽然有2万9250个未完工的单位获准提供延迟付款计划，但并非所有买家都会选择延迟付款，因此真实数据相信较少。至于到底有多少单位是以延迟付款计划卖出的，市建局说，它并没有这个数据。
德意志银行(Deutsche Bank)私人财富管理首席亚洲策略师蔡学敏说：“这是我第一次看到这些数据，不过可惜它们说的不多。”
他认为，市建局或者其他政府机构，有必要收集延迟付款计划的相关数据，因为它正是本地楼价飞涨的其中一个主要原因。“既然政府已经发现了延迟付款计划令人担忧的地方，如果能够提供数据让人们了解整个大局，将有很大的帮助。”
他相信，延迟付款计划的问题可大可小，“如果不趁早应付，说不定会演变成新加坡版的次贷问题。”
卓登(Chesterton)国际研究部主管陈瑞谨也认为，了解过去几年的延迟付款概况，将能协助人们评估新加坡楼市的风险到底有多大？
“当然，如果市场景气良好，这不会带来什么问题。不过，如果经济情况继续恶化，导致人们失去工作，一些人就会被迫降价脱售手头上的单位，甚至是悔约，这不但会影响发展商的盈利，也会冲击人们的购屋信心，进一步影响整体楼价。”
他猜测，延迟付款计划的潜在风险应该是相当高，所以才会引起金管局和市建局的关注，并且将有关计划撤销。
据他所知，利用延迟付款计划来买楼的，有不少是本地人。其中一些甚至一个人扫下十多二十个单位。“他们都是有财有势的人，但尽管如此，一旦房子入伙时，要同时吞下十多个高价单位也不是简单的事。”
刚刚从花旗集团跳槽到德意志银行的蔡学敏，去年写的一系列延迟付款计划报告书，在市场上引起相当大的回响。他认为，尤其是去年在楼市最高峰，以延迟付款计划卖房子的发展商，将面对最大的风险。
他指出，实际上一些项目，包括联合工程的One Rochester、吉宝置业的Reflections，以及永泰控股的Duchess Crest，最近被买家拿到二手市场放盘的单位，叫价都已经跌破当初发展商的推出价格。
虽然过去买家因为还不起房贷而导致房子被银行收回的比例很少，但是蔡学敏不肯定这一次买家悔约的比率会有多高，特别是一些高档项目有超过半数买家是外国人，有些在新加坡完全没有任何业务或资产。
他猜测，这些买家当中，一些人可能将已经支付了一二成的首期，当成是定金，希望能够放弃定金了事，但这要看发展商是否能够向他们追回中间的价差。
Monday, April 14, 2008
短线操盘八大纪律
股市里只有今天和明天，没有昨天，明末皇帝崇祯也算是个好皇帝，但是如果他知道杀了袁崇焕会亡国，打死也不会杀的，因为杀了袁崇焕不但丧失了明军精锐关宁铁骑，也让冒死来解救北京围困的援军心寒，谁救谁就要被杀，所以北京城被闯王攻破的时候，根本就没有一股援军敢来救援，谁救皇帝谁就要死当然就没有人敢来救。
目前的股市也象明末时期，场外的资金之所以不敢进场，就是目前谁进场解救谁都是被套死在里面，既然进场就被套死，为什么还要进场呢？
短线操盘八大纪律
第一， 趋势投资：
大盘是决定能否做短线的前提，大盘不好，必须坚持持币；大盘转好，结合市场热点才有可能取得良好的收益。所以只要出现大盘跳空底开2%以上，所有的操盘计划全部取消。我们的黄金线确保趋势向上，目前没有站上黄金线，继续观望为好。
第二， 周期操盘：
在上涨和下跌周期应该采取不同的操盘策略，在下跌周期，一般都会在周三形成最低点，所以最佳买进时间为周三的下午收盘前一个小时内，选择热门股介入都会有不错的收益；在上涨周期，一般都会在周五前后冲高回落，所以最佳买进时间为周五的下午收盘前一个小时内，最佳卖出时间为周二上午冲高卖出。
第三， 择机买进：
买进时间一般最佳为收盘前一个小时，选择股价维持在全天最高点附近的股票逢底介入；开盘后1个小时以内是卖出股票的好时机，15分钟以内不能买股票，但是可以按照八卦箱体的下强支撑位埋单，一般冲高后都会回落，试探支撑位。
第四， 不赚钱不补仓:
做短线绝对不能因为套住而改做长线，不管你是什么原因买入的，任何一只股票，不赚钱绝对不补仓，在任何时间亏损达到5％以上、10％以内，收盘前10－30分钟必须卖出50％！
第五， 坚持止损：
不管是机构推荐的，还是有很强的利好消息，在任何时间亏损达到10％，必须立即止损，无条件全部卖出！
第六， 控制仓位：
短线参与的资金不能过重，建议控制仓位在20%以下，并且持股不超过3只。
第七， 坚持止赢：
大盘趋势向上的时候，我们的止赢线是30%；大盘不好的时候，我们的止赢线是15%.建议赢利达到10%立即卖出一半。
第八， 现金为王：
牛短熊长，熊市中要尽量持币，不要频繁的买股，不要去抄底。严格控制仓位在半仓以下，甚至空仓。
目前的股市也象明末时期，场外的资金之所以不敢进场，就是目前谁进场解救谁都是被套死在里面，既然进场就被套死，为什么还要进场呢？
短线操盘八大纪律
第一， 趋势投资：
大盘是决定能否做短线的前提，大盘不好，必须坚持持币；大盘转好，结合市场热点才有可能取得良好的收益。所以只要出现大盘跳空底开2%以上，所有的操盘计划全部取消。我们的黄金线确保趋势向上，目前没有站上黄金线，继续观望为好。
第二， 周期操盘：
在上涨和下跌周期应该采取不同的操盘策略，在下跌周期，一般都会在周三形成最低点，所以最佳买进时间为周三的下午收盘前一个小时内，选择热门股介入都会有不错的收益；在上涨周期，一般都会在周五前后冲高回落，所以最佳买进时间为周五的下午收盘前一个小时内，最佳卖出时间为周二上午冲高卖出。
第三， 择机买进：
买进时间一般最佳为收盘前一个小时，选择股价维持在全天最高点附近的股票逢底介入；开盘后1个小时以内是卖出股票的好时机，15分钟以内不能买股票，但是可以按照八卦箱体的下强支撑位埋单，一般冲高后都会回落，试探支撑位。
第四， 不赚钱不补仓:
做短线绝对不能因为套住而改做长线，不管你是什么原因买入的，任何一只股票，不赚钱绝对不补仓，在任何时间亏损达到5％以上、10％以内，收盘前10－30分钟必须卖出50％！
第五， 坚持止损：
不管是机构推荐的，还是有很强的利好消息，在任何时间亏损达到10％，必须立即止损，无条件全部卖出！
第六， 控制仓位：
短线参与的资金不能过重，建议控制仓位在20%以下，并且持股不超过3只。
第七， 坚持止赢：
大盘趋势向上的时候，我们的止赢线是30%；大盘不好的时候，我们的止赢线是15%.建议赢利达到10%立即卖出一半。
第八， 现金为王：
牛短熊长，熊市中要尽量持币，不要频繁的买股，不要去抄底。严格控制仓位在半仓以下，甚至空仓。
Sunday, April 13, 2008
Bull, Bear, and Cowardly Lion Markets
For the next dozen years or so the US broad stock markets will be a wild roller-coaster ride. The Dow Jones Industrial Average and the S&P 500 index will go up and down (and in the process will set all-time highs and multiyear lows), stagnate, and trade in a tight range. At some point during the ride, index investors and buy and hold stock collectors will realize that their portfolios aren’t showing much of a return.
Over the last 200 years, every full-blown, long-lasting (secular) bull market (and we just had a supersized one from 1982 to 2000) was followed by a range-bound market that lasted about 15 years. Yes, this happened every time, with the exception of the Great Depression, over the last two centuries.
Though we tend to think about market cycles in binary terms - bull (rising) or bear (declining) - in the long run markets spend a lot more time in bull or range-bound (sideways) states, roughly half in each, and visit a bear cage a lot less often then we think. This distinction between bear and range-bound markets is extremely important, as you’d invest very differently in one versus the other.
Are bull markets driven by superfast economic growth? Are range-bound markets caused by subpar economic growth? Could the subpar market performance be related to high or low inflation?
The answer to all these questions is undoubtedly - "no." Though it is hard to observe in the everyday noise of the stock market, in the long run stock prices are driven by two factors: earnings growth (or decline) and/or price-to-earnings expansion (or contraction).
By taking a look at the last full 1966-2000 range-bound/bull market cycle, we can see that the Fed Model perfectly predicted the direction of equities in relation to interest rates. Long-term interest rates were rising from 1966 to 1982, while implied and actual P/Es were falling. Whereas from 1982 to 2000 interest rates were dropping, and implied and actual P/Es were rising. Intellectually that makes sense, because stocks and bonds compete for investors’ capital, and thus higher interest rates make equities less attractive and vice versa.
However, it is hard to find ANY relationship between interest rates and the animal with its name on the secular market if you look at the first 66 years of the 20th century. None!
It is difficult to dismiss the role interest rates play in stock valuations, but they seem to be a second fiddle in the orchestra conducted by economic growth and valuation. If the Fed Model worked flawlessly, how could we explain declining P/Es of Japanese stocks in the last decade of the 20th century, when interest rates declined and were scratching zero levels?
It is valuation! If earnings growth in the long run remains consistent with the past, P/E is the wild card that is responsible for future returns. Though continued economic growth appears to be a wildly optimistic assumption given the meltdown of the housing industry in particular, and job layoffs, it is not particularly unrealistic to predict that we will see economic growth overall. With the exception of the Great Depression, though it had its ups and downs, economic growth was fairly stable throughout the 20th century. Earnings, though more volatile than real GDP, grew consistently decade after decade, paying no attention to the animal (bull, bear … or cowardly lion - my pet name for range-bound markets, whose bursts of occasional bravery lead to stock appreciation, but which are ultimately overrun by fear that leads to a subsequent descent) lending its name to the stock market.
Though economic fluctuations were responsible for short-term (cyclical) market volatility, as long as economic performance was not far from the average, long-term market cycles were either bull or range-bound. Valuation - the change in price to earnings, its expansion or contraction - was the wild card that was mainly responsible for markets being in a bull or range-bound state.
During bull markets, a vibrant, peaceful combination of P/E expansion (a staple of bull markets, a great source of return) and earnings growth brings outsize returns to jubilant investors. Prolonged bull markets start with below- and end with above-average P/Es.
P/Es are some of the most mean-reverting creatures, and range-bound markets act as clean-up guys: they rid us of the mess (i.e., deflate high P/Es) caused by bull markets, taking them down towards and actually below the mean. P/E compression wipes out most if not all earnings growth, resulting in zero (or nearly) price appreciation plus dividends.
Bear markets are range-bound markets’ cousins; they share half of their DNA: high starting valuations. However, where in cowardly lion markets economic growth helps to soften the blow caused by P/E compression, during secular bear markets the economy is not there to help. Economic blues (runaway inflation, severe deflation, subpar or negative economic or earnings growth) add oil to the fire (started by high valuations) and bring devastating returns to investors.
A true secular bear market has not really taken place in the US, but one has occurred across the pond in Japan. The market decline caused by the Great Depression, though referred to as the greatest decline in US stocks in the 20th century, only lasted three years and thus doesn’t really fit the traditional "secular" requirement of lasting more than five years. Japan’s Nikkei 225 suffered through a true secular bear market: stock prices declined over 80 percent from their 1989-1991 highs until they bottomed in 2003 (the market seems to be coming back now). For more than a decade the country struggled with deflation caused by its banking system coming to a near halt on the heels of a collapsing real estate market and the bad loans that came with it. Of course, all this took place on the heels of a huge bull market, and thus very high valuations.
A unique aspect that contributed to the severity and longevity of the Japanese deflation was a cultural issue: the Japanese government intervened and did not allow structurally defunct companies to go bankrupt, thus tampering with the nucleus of capitalism (and Darwinism as well), creative destruction. I must admit, it seems that lately we’ve been importing a lot more from Japan than their cars and flat-screen TVs, as the US government steps in to "fix" our troubled financial firms.
The conclusions we can draw are:
Secular bull markets end at P/Es much above average. The 1982-2000 bull market ended at the highest valuations ever!
Secular range-bound markets ended when P/Es were below average.
Markets spent very little time at what is known to be a "fairly valued" state of 15 times 12-month trailing earnings. Historically, stocks only saw average valuations on the way from one extreme to the other. From 1900 to 2006 the S&P 500 spent less than 27% of the time between P/Es of 13 and 17.
Today, after eight years of plentiful volatility and no returns, what the WSJ called a "lost decade," stocks are not cheap. If you look at ten-year trailing earnings, they are still at levels where previous range-bound markets started. In other words, based on 10-year trailing earnings, stocks are still at 64% above their average stated valuations.
Now, if you look at historical valuations where P/Es are computed based on one-year trailing earnings, the picture is not that exciting but less grim. At about 18 times trailing earnings, US stocks don’t appear that expensive.
As a side note: The bulk of excesses in overall profit margins, 54.5% to be exact, were in "stuff" stocks (i.e., energy, materials, and industrials). Profit margins will deflate when the global economy slows down. This goes far beyond oil and commodities. Companies that make "stuff," which historically have been very cyclical (today is no different) have benefitted from tremendous operational leverage that contributed to considerable improvement in margins. However, leverage works both ways: lower sales and high fixed costs will push margins to the other extreme.
Financials were responsible for 22% of the excess in margins, as they benefitted from tremendous liquidity hosed down by the Fed over recent years; now they are drowning in it. Their margins are compressing at a faster rate than you can read this.
Finally, the "new" economy stocks are responsible for 17% of the excess. However, I’d argue that these industries have transformed substantially since 1988, so that higher-margin software and services now account for a much larger portion of technology and telecom sales. It is kind of like Microsoft vs. IBM in 1988: the hardware company vs. the new. Thus the "new" economy stocks should have higher margins than they did in 1988, but by how much? I don’t know, but they likely will face a lower margin compression than "stuff" and financials.
The bottom line: Remember those long-term double-digit returns you were promised by stock market gurus during the last bull market? Well, an average passive buy-and-hold investor will be lucky to have very low single-digit returns for the long term. In fact, during the last 1966-1982 range-bound market, investors received almost zero real total returns.
A long-lasting secular range-bound market consists of many mini (months to several years long) cycles. For instance, the last 1966-1982 range-bound market consisted of five mini bull, five bear, and one range-bound market.
Successful investing is a lonely place, as it requires an independent thought process that often goes contrary to the herd mentality. In the range-bound market, a contrarian mindset comes in especially handy, as you’ll be selling when everyone else is buying. Your stocks will be hitting their fair value, and you’ll be buying when everyone else is selling - during the mini bear markets.
This is not to suggest that you need to be a market timer, not at all. Market timing only looks easy with the benefit of hindsight, and it is very difficult to do on a consistent basis. Instead, time (price) individual stocks, one at a time. Buy when they are undervalued and sell when they are fairly valued, and repeat the process over and over again. In other words, instead of focusing on the bowling alley (the market) focus on the ball (individual stocks).
Selling is looked upon as a four-letter word, and therefore a sin, in a bull market. A buy-and-hold strategy is rewarded richly in secular bull markets - every time you made a "don’t sell" decision, stocks go higher. And though buy and hold is not dead but in a coma (waiting for the next bull market), it takes investors to a place of no returns. Forgive yourself the "sin" of selling and become a buy-and-sell investor.
The almighty US constitutes 4% of the world population, but its stock market capitalization represents more than a third of the world’s wealth. It has been comfortable for us to buy US stocks; it felt safe. However, by solely focusing on US stocks we are insulating ourselves from a greater pool of stocks to choose from.
I could be wrong but I doubt it
What if I am wrong and the range-bound market I describe is not in the cards? After all, history is prolific about the past but mute about the future. What if they find life on Venus and our economy starts growing at double digits and the secular bull market thunders upon us? Or the current credit market problems spill into a Japanese-like prolonged recession, causing a bear market? Every strategy should be evaluated not just on a "benefit of being right" basis, but at least as importantly on a "cost of being wrong" basis. An active value-investing strategy has the lowest cost of being wrong in comparison to other investment strategies, as you’ll see in Exhibit
Over the last 200 years, every full-blown, long-lasting (secular) bull market (and we just had a supersized one from 1982 to 2000) was followed by a range-bound market that lasted about 15 years. Yes, this happened every time, with the exception of the Great Depression, over the last two centuries.
Though we tend to think about market cycles in binary terms - bull (rising) or bear (declining) - in the long run markets spend a lot more time in bull or range-bound (sideways) states, roughly half in each, and visit a bear cage a lot less often then we think. This distinction between bear and range-bound markets is extremely important, as you’d invest very differently in one versus the other.
Are bull markets driven by superfast economic growth? Are range-bound markets caused by subpar economic growth? Could the subpar market performance be related to high or low inflation?
The answer to all these questions is undoubtedly - "no." Though it is hard to observe in the everyday noise of the stock market, in the long run stock prices are driven by two factors: earnings growth (or decline) and/or price-to-earnings expansion (or contraction).
By taking a look at the last full 1966-2000 range-bound/bull market cycle, we can see that the Fed Model perfectly predicted the direction of equities in relation to interest rates. Long-term interest rates were rising from 1966 to 1982, while implied and actual P/Es were falling. Whereas from 1982 to 2000 interest rates were dropping, and implied and actual P/Es were rising. Intellectually that makes sense, because stocks and bonds compete for investors’ capital, and thus higher interest rates make equities less attractive and vice versa.
However, it is hard to find ANY relationship between interest rates and the animal with its name on the secular market if you look at the first 66 years of the 20th century. None!
It is difficult to dismiss the role interest rates play in stock valuations, but they seem to be a second fiddle in the orchestra conducted by economic growth and valuation. If the Fed Model worked flawlessly, how could we explain declining P/Es of Japanese stocks in the last decade of the 20th century, when interest rates declined and were scratching zero levels?
It is valuation! If earnings growth in the long run remains consistent with the past, P/E is the wild card that is responsible for future returns. Though continued economic growth appears to be a wildly optimistic assumption given the meltdown of the housing industry in particular, and job layoffs, it is not particularly unrealistic to predict that we will see economic growth overall. With the exception of the Great Depression, though it had its ups and downs, economic growth was fairly stable throughout the 20th century. Earnings, though more volatile than real GDP, grew consistently decade after decade, paying no attention to the animal (bull, bear … or cowardly lion - my pet name for range-bound markets, whose bursts of occasional bravery lead to stock appreciation, but which are ultimately overrun by fear that leads to a subsequent descent) lending its name to the stock market.
Though economic fluctuations were responsible for short-term (cyclical) market volatility, as long as economic performance was not far from the average, long-term market cycles were either bull or range-bound. Valuation - the change in price to earnings, its expansion or contraction - was the wild card that was mainly responsible for markets being in a bull or range-bound state.
During bull markets, a vibrant, peaceful combination of P/E expansion (a staple of bull markets, a great source of return) and earnings growth brings outsize returns to jubilant investors. Prolonged bull markets start with below- and end with above-average P/Es.
P/Es are some of the most mean-reverting creatures, and range-bound markets act as clean-up guys: they rid us of the mess (i.e., deflate high P/Es) caused by bull markets, taking them down towards and actually below the mean. P/E compression wipes out most if not all earnings growth, resulting in zero (or nearly) price appreciation plus dividends.
Bear markets are range-bound markets’ cousins; they share half of their DNA: high starting valuations. However, where in cowardly lion markets economic growth helps to soften the blow caused by P/E compression, during secular bear markets the economy is not there to help. Economic blues (runaway inflation, severe deflation, subpar or negative economic or earnings growth) add oil to the fire (started by high valuations) and bring devastating returns to investors.
A true secular bear market has not really taken place in the US, but one has occurred across the pond in Japan. The market decline caused by the Great Depression, though referred to as the greatest decline in US stocks in the 20th century, only lasted three years and thus doesn’t really fit the traditional "secular" requirement of lasting more than five years. Japan’s Nikkei 225 suffered through a true secular bear market: stock prices declined over 80 percent from their 1989-1991 highs until they bottomed in 2003 (the market seems to be coming back now). For more than a decade the country struggled with deflation caused by its banking system coming to a near halt on the heels of a collapsing real estate market and the bad loans that came with it. Of course, all this took place on the heels of a huge bull market, and thus very high valuations.
A unique aspect that contributed to the severity and longevity of the Japanese deflation was a cultural issue: the Japanese government intervened and did not allow structurally defunct companies to go bankrupt, thus tampering with the nucleus of capitalism (and Darwinism as well), creative destruction. I must admit, it seems that lately we’ve been importing a lot more from Japan than their cars and flat-screen TVs, as the US government steps in to "fix" our troubled financial firms.
The conclusions we can draw are:
Secular bull markets end at P/Es much above average. The 1982-2000 bull market ended at the highest valuations ever!
Secular range-bound markets ended when P/Es were below average.
Markets spent very little time at what is known to be a "fairly valued" state of 15 times 12-month trailing earnings. Historically, stocks only saw average valuations on the way from one extreme to the other. From 1900 to 2006 the S&P 500 spent less than 27% of the time between P/Es of 13 and 17.
Today, after eight years of plentiful volatility and no returns, what the WSJ called a "lost decade," stocks are not cheap. If you look at ten-year trailing earnings, they are still at levels where previous range-bound markets started. In other words, based on 10-year trailing earnings, stocks are still at 64% above their average stated valuations.
Now, if you look at historical valuations where P/Es are computed based on one-year trailing earnings, the picture is not that exciting but less grim. At about 18 times trailing earnings, US stocks don’t appear that expensive.
As a side note: The bulk of excesses in overall profit margins, 54.5% to be exact, were in "stuff" stocks (i.e., energy, materials, and industrials). Profit margins will deflate when the global economy slows down. This goes far beyond oil and commodities. Companies that make "stuff," which historically have been very cyclical (today is no different) have benefitted from tremendous operational leverage that contributed to considerable improvement in margins. However, leverage works both ways: lower sales and high fixed costs will push margins to the other extreme.
Financials were responsible for 22% of the excess in margins, as they benefitted from tremendous liquidity hosed down by the Fed over recent years; now they are drowning in it. Their margins are compressing at a faster rate than you can read this.
Finally, the "new" economy stocks are responsible for 17% of the excess. However, I’d argue that these industries have transformed substantially since 1988, so that higher-margin software and services now account for a much larger portion of technology and telecom sales. It is kind of like Microsoft vs. IBM in 1988: the hardware company vs. the new. Thus the "new" economy stocks should have higher margins than they did in 1988, but by how much? I don’t know, but they likely will face a lower margin compression than "stuff" and financials.
The bottom line: Remember those long-term double-digit returns you were promised by stock market gurus during the last bull market? Well, an average passive buy-and-hold investor will be lucky to have very low single-digit returns for the long term. In fact, during the last 1966-1982 range-bound market, investors received almost zero real total returns.
A long-lasting secular range-bound market consists of many mini (months to several years long) cycles. For instance, the last 1966-1982 range-bound market consisted of five mini bull, five bear, and one range-bound market.
Successful investing is a lonely place, as it requires an independent thought process that often goes contrary to the herd mentality. In the range-bound market, a contrarian mindset comes in especially handy, as you’ll be selling when everyone else is buying. Your stocks will be hitting their fair value, and you’ll be buying when everyone else is selling - during the mini bear markets.
This is not to suggest that you need to be a market timer, not at all. Market timing only looks easy with the benefit of hindsight, and it is very difficult to do on a consistent basis. Instead, time (price) individual stocks, one at a time. Buy when they are undervalued and sell when they are fairly valued, and repeat the process over and over again. In other words, instead of focusing on the bowling alley (the market) focus on the ball (individual stocks).
Selling is looked upon as a four-letter word, and therefore a sin, in a bull market. A buy-and-hold strategy is rewarded richly in secular bull markets - every time you made a "don’t sell" decision, stocks go higher. And though buy and hold is not dead but in a coma (waiting for the next bull market), it takes investors to a place of no returns. Forgive yourself the "sin" of selling and become a buy-and-sell investor.
The almighty US constitutes 4% of the world population, but its stock market capitalization represents more than a third of the world’s wealth. It has been comfortable for us to buy US stocks; it felt safe. However, by solely focusing on US stocks we are insulating ourselves from a greater pool of stocks to choose from.
I could be wrong but I doubt it
What if I am wrong and the range-bound market I describe is not in the cards? After all, history is prolific about the past but mute about the future. What if they find life on Venus and our economy starts growing at double digits and the secular bull market thunders upon us? Or the current credit market problems spill into a Japanese-like prolonged recession, causing a bear market? Every strategy should be evaluated not just on a "benefit of being right" basis, but at least as importantly on a "cost of being wrong" basis. An active value-investing strategy has the lowest cost of being wrong in comparison to other investment strategies, as you’ll see in Exhibit
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