The Snowball

Warren Buffett's authorised biography written by Alice Schroeder will be out tmrw! The publishing house has posted a interview with the author on Youtube. At 976 pages, it details the personal side of Buffett, his insecurities, and mistakes in life. 

Financial Times posted an excerpt of the book here. For some reason, i couldn't view the full article the second time around without registering. Nevertheless, the first reading has piqued my interest enough to decide to 'reward' myself by reading this book for the rest of tuesday afternoon after my AFA quiz. Hope MPH will the the book in place tmrw.   

I've not felt this excited about a new book since Harry Potter! 

All righty, back to slaying the AFA and MS monster , before i can find peace and sit down and read interesting stuff again. 

I must find the middle path between incessant focus and balance.

The Tale of Icarus

Icarus, I advise you to take a middle course.

If you fly too low, the sea will soak the wings;

If you fly too high, the sun's heat will burn them.

Fly between sea and sun!

Take the course along which I shall lead you.

作中庸，乃孔伋。中不偏，庸不易。~ 三字经

 

Kla kla kla

Learning a new song at choir today - Pasigin. 

It's supposed to be about fishing, but due to the cluck cluck cluck sound we make while singing it, it sounds like we're a bunch of chicken. hahaha. 

Thanks Mark! for finding new songs and and new vocal warmups for us. Sometimes his philosophical musings while conducting is really chim! And i thought Jie Chao is the only chim one. And thanks to Nadia, we have music lessons every week. She's like superwoman, doing everything and taking care of everyone. having weekly quizzes from Nad is intense! haha. maybe that's why everyone's late today. Our alumni choir is really lucky to have all these amazing pple contributing to it. Despite all our busy schedule, weekly turn up has improved a lot. Chee Guan and gang must be doing something right!

Christabel gave me an envelope of 5 different sachets of tea today, with the following quote written on it;

Tea's proper use is to amuse the idle, and relax the studious, and dilute the full meals of those who cannot use exercise, and will not use abstinence. ~ Samual Johnson

How appropriate! Thanks for the tea!

A little learning

A little Learning is a dang'rous Thing;
Drink deep, or taste not the Pierian Spring:
There shallow Draughts intoxicate the Brain,
And drinking largely sobers us again.

[...]

The Vulgar thus through Imitation err;
As oft the Learn'd by being Singular;
So much they scorn the Crowd, that if the Throng
By Chance go right, they purposely go wrong; [...]

Alexander Pope, "An Essay on Criticism"

A cup of tea

MPH Raffles just called me and said that the release of the Warren Buffett book will be delayed by one day (next mon). All right then. I don't have much time to read anyway given that i'll have 2 mid terms/quizzes next week. That's super light compared to my peers. 

BTW, MPH selling the book (usual price $47.03) at discount of $36 nett if you pre-order before Sunday. GO GET IT!!!

Feeling sian these days cuz i can't help feeling that i'm really damn slow (and quite dumb for the matter). Doing a course called Management Science (MS) and i just can't figure out the mathematics and intuition behind the method used. Feels like math in J1 where i just dunno what's going on. Advance Financial Accounting is also very challenging for me. I was appalled yesterday that i don't understand throughly the journal entries to a simple intercompany inventory sales transaction. 

Worse still is that I've finally finished my second re-run of Friends on my ipod. Thanks to Ryan has painstaking converted ALL TEN SEASONS into ipod ready video. Haiz, no more crazy guy laughing in the train to a little white box.

Last night i did something that i regretted. In the midst of a brain-numbing experience while tackling my MS homework, i made degrading comments on a fellow schoolmate who talked to me while i'm "in the flow". Those words are totally uncalled for. Apologised. But i don't expect any forgiveness. I don't deserve it anyway, who wants to befriend a mean old man.

Watched half of "The Pursuit of Happyness" that Daniel recommended to me last year. I felt so sad halfway through that i stopped watching. Switched to 30 Rock. and Tina Fey lights up my day...or should i say night. The cast and crew of 30 Rock deserve all the recognition they got at this year's Emmy. Whoohoo. 

Drinking a cup of green tea...supposed to calm me down? so why am i feeling so restless?

Maybe i should try Eucalyptus tea next. 

A week of ups and down

Read this on Bloomberg today and found it very interesting that after a week of turmoil in the financial market, the general S&P index is mostly unchanged. Imagine if you did some panic selling of your unit trusts in the middle of the week, you would have suffered unnecessary losses. Stay the course. 

On the other hand, knowing that when pessimism is high, its the best time to buy if you have the fortitude to hold on. Yet few of us can do it.

No matter how much faculty of idle seeking a man has, the step from knowing to do doing is rarely taken.

~ Ralph Waldo Emerson

  

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S&P 500 Is Unchanged, Wall Street Forever Altered: Chart of Day 

By Nick Baker and Jeff Kearns

Sept. 20 (Bloomberg) -- U.S. stocks were little changed this week.

The CHART OF THE DAY shows the swings in the Standard & Poor's 500 Index that left the equity benchmark up 0.3 percent since Sept. 12. That's the smallest weekly move for the S&P 500 in a month, even as it posted the biggest daily plunges in seven years and the steepest two-day surge since the aftermath of the October 1987 stock-market crash.

The index tumbled more than 4.7 percent twice after Lehman Brothers Holdings Inc.'s bankruptcy, Bank of America Corp.'s takeover of Merrill Lynch & Co. and the government seizure of American International Group Inc. The S&P 500 ended the week by jumping 8.5 percent in two days on the government's plan to purge banks of bad assets and crack down on short sellers.

``We moved around a lot to get nowhere,'' said Douglas Peta, a New York-based market strategist at J&W Seligman & Co., which manages about $20 billion. ``If you were away for a week and just came back and looked at the indexes, you'd say to the person next to you, `nothing happened while I was gone, huh?'''

The S&P 500 added 3.38 points to 1,255.08 this week.

Return on capital vs. Return OF capital

Gotta post to push the previous post down before i gain a reputation of being a reckless gambler.

There seems to be a focus on return on capital (ie 8% return on 100 bucks invested) vs. return OF capital (do you get at least your 100 bucks back at the end of the day?). 

Do you remember just just a few weeks ago i blogged about the potential risks of structured products and that many investors take on huge amount of risk unknowingly? Today's Straits Times reported that a structured product that was sold by local banks is now facing a huge risk of default, or at least high possibility of impairment of capital. 

It is sad that in search of a few percent of returns, some retirements is now put at stake.

Hear this, think about this, and WARN PEOPLE AROUND YOU about structured products.

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Sep 18, 2008, The Straits Times 
DBS High Notes investors at risk 
Bank warns they may lose entire stake in Lehman-linked product 

SOME local investors of a product linked to bankrupt investment giant Lehman Brothers have received late-night phone calls from DBS Bank warning them that their entire stake may be wiped out. The investors have their cash in a product called DBS High Notes 5 that the bank offered wealthier clients last year. It came with a promised annual return of about 5 per cent. 

But Lehman's collapse on Monday means the product will be unwound and investors may only get a portion of their investment back - or none at all. 

One 52-year-old customer told The Straits Times: 'I received a call from my relationship manager late Tuesday night. He told me that...my investment may amount to zero.' The man had invested $50,000 - savings he had earmarked for retirement. 

A customer in her late 40s said: 'My relationship manager called and told me to be prepared to receive a letter from the bank...[it] would say something to the effect that my investments in products like High Notes 5 may be totally gone.' She invested $50,000 and US$30,000 (S$43,000) in two separate transactions. 

Investors are mostly clients of DBS's priority banking unit, DBS Treasures. 

The product - DBS High Notes 5 - is a 5-1/2 year structured product linked to eight underlying shares, including Goldman Sachs, Morgan Stanley, Merrill Lynch, Macquarie Bank and Lehman. 

Customers who invested in Notes 5 said they were sold on the relatively high 5 per cent annual payout by DBS. But now they just want their money back. 'What we do not understand is: How can the fall of one bank cause our funds to just vanish when there are seven other stocks within the product that are still trading?' said a man whose elderly aunt invested $50,000 in DBS High Notes 5. 

According to a person familiar with the matter, the largest single investment made on High Notes 5 was $2 million, although this could not be verified by DBS. 

DBS confirmed that it took immediate action to notify customers once it learned of Lehman's chapter 11 bankruptcy filing. 

'As soon as the news broke we immediately started communicating...to our retail investor customer base,' the bank said in an e-mail reply to The Straits Times. 'We are very concerned and understand the anxieties our customers face as they wonder what will become of their hard-earned money.' 

DBS said the Lehman collapse has triggered a 'credit event' and the bank called for a redemption of the notes on Monday. It said unwinding of the product has begun and it will be at least 30 business days before clients learn of the final payout. But DBS also confirmed that investors in High Notes 5 may - 'in the worst-case scenario' - not get back their entire principal amount invested. 

The product's prospectus also indicated that in a credit event such as bankruptcy, the notes 'will be terminated and the investor will receive zero payout'. 

The bank said the product does not contain a guarantee that the principal will be protected. It also told The Straits Times it would 'fully investigate' claims by some customers that High Notes 5 was in fact sold on such a promise. 

Meanwhile, UOB and OCBC Bank said that though some customers have invested in Lehman-linked products, the volume was 'modest' and 'negligible'. 'Since news of Lehman filing for Chapter 11 broke, we have taken a proactive approach in updating clients on the latest developments,' said UOB's spokesman. 

OCBC's spokesman said in an e-mail that its securities unit has advised customers to wait for updates from Lehman.

Junkie...junk

Lehman Brothers has filed for bankrupcy protection.

The market has opened in New York.

The market value of LEH's equity has evapourated.

Whose next? Wachovia Corporation? Washington Mutual?

Or AIG or Citigroup?

Let us be reminded of the following quotes:
"You only learn who has been swimming naked when the tide goes out — and what we are witnessing at some of our largest financial institutions is an ugly sight.”
~ Berkshire Hathaway 2007 Shareholders letter


Charlie and I believe Berkshire should be a fortress of financial strength – for the sake of our owners, creditors, policyholders and employees. We try to be alert to any sort of megacatastrophe risk, and that posture may make us unduly apprehensive about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are
potentially lethal.
~ Berkshire Hathaway 2002 Shareholders letter

In each action we must look beyond the action at our past, present, and future state, and at others whom it affects, and see the relations of all those things. And then we shall be very cautious.
~ Blaise Pascal

I MUST LEARN!

Banking Junkie

Last Thursday I did some impulsive buying on Lehman Brothers (LEH) at about $4 per share. 200 bucks was as stake. I FULLY ACKNOWLEDGE that it was GAMBLING, not investing.

Let’s go back to the definition of INVESTING:
An investment operation is one which upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.

Buying LEH does NOT promise safety of principle as there is very high possible risk of permanent capital loss. However, it does provide high potential return should LEH manage to survive this financial tsunami as it is selling at potentially 20 to 30 percent of breakup value. Lastly, I did no ‘through analysis’ to arrive at the purchase decision.

I sat in Prof Andrew Lee’s Corporate Reporting class today and he gave a great overview of sources of liquidity and why LEH exhausted most of its sources liquidity.

Some sources of liquidity?
1) Cash on hand
2) Sell assets (real estates, business unit, loans portfolio, etc)
3) Raise debt
4) Raise equity
5) Sell out of better financed companies

Looking at LEH, it tried to sell its assets, but in this turbulent market, there are few buyers. Debt financing for LEH is almost impossible as the cost of debt is prohibitively high due to perceived risk of the bank. Furthermore, there could be NO buyers should the company try to sell either debt or equity. On top of that, even if there ARE buyers, due to the depressed share price, the dilutive effect on existing shareholder essentially wipe out current shareholder’s stake.

Tonight we’ll probably know more about the near term future for Lehman Brothers.

In an email, Yado sent me the following message “Now from countrywide u have ml too lol” 

The interesting turn of events is the announced purchase of Merrill Lynch by Bank of America. It is ironical that I got my BAC shares via my doomed purchase of CountrywideFinancial. And now BoA is getting Merrill Lynch on the cheap. Observing evolution of financial landscape via my brokerage account is indeed interesting :)

USA Today provides quite a balanced and succinct story of the series of financial event over the past month here.

Where have all the flowers gone?

"Where Have All the Flowers Gone" is a beautiful written by Pete Seeger song. I especially love the first verse

Where have all the flowers gone?
Long time passing
Where have all the flowers gone?
Long time ago
Where have all the flowers gone?
Girls have picked them every one
When will they ever learn?
When will they ever learn?



In the financial market, it seems that all the bulls have gone home and there's little place to hide in the waves of deleveraging we are going under. Fannie and Freddie in essence have been nationalised, Lehman posted over $3.9bn in Q3 loss and dark clouds seem to loom over every corner of the market.

In Bill Gross's latest Investment Outlook, he discussed the concept of "deleveraging" in great details. I think it is a great read for anyone who's cares about the impact and process of the financial turmoil the world is going through and will go through.

What Happens During Delevering
1. Risk spreads, liquidity spreads, volatility, term premiums – they all go up.

2. Delevering slows/stops when assets have been liquidated and/or sufficient capital has been raised to produce an equilibrium.

3. The raising of sufficient capital now depends on the entrance of new balance sheets. Absent that, prices of almost all assets will go down.

Remember the multiplier effect we learnt in A level economics? Roughly speaking, a small increase in any factor of AD (C + I + G + X) will result in large effect on the economy. The deleveraging process is like a negative multiplier effect as the negative impact of of asset worth feeds into other economic agent...and the process goes on and on.

Buffett has also been quoted that the pain of this correction will be "...will be deeper and last longer than many think." However, he also said that "If the world were falling apart I'd still invest in companies,". Some financial commentator came up with a nice analogy on Buffett's position on the state of the economy, instead of having a glass half full vs. glass half empty postition, he thinks that that its that "glass is cracked".
(for the Buffett-phile out there, this is an amazing site Warren Buffett Watch)

I think in general we should be long term optimist. It will do us great psychological damange to think that the world as we know it is going to end soon. Furthermore in the long run, it is amazing how human beings have been able to find new ways to inflict damange on ourselves, yet we're super resilient in coming back and surviving most of the self-inflicted wounds (and then find yet another way to self destruct).

When will we ever learn?
When will we ever learn?

I just might be a cocked eyed optimist.

Harry Potter and the Half-Blood Prince

To know the future......Return to the past

The trailer looks great. Young Tom Riddle freaks me out.
Can't wait for the show!

Gossip Girl and Efficient Market

Season 2 of Gossip Girl is BACK. Ok. i know you think i'm probably crazy. But i seriously think that the anology of Gossip Girl to the Semi-Strong Form of Efficient Market Hyphothesis (EMH) is pretty solid.

Wonder who will read this post?!?, cuz pple i know who cares for Gossip Girls cares not for EMH, and vice versa, heehee :)

Semi-Strong Form of EMH is simply the idea that all public information is immediately known by all market participants and prices will INSTANTANEOUSLY adjust to the new info (ie that you can't make profit from publicly available information).

Isn't that just like in Gossip Girl, where information is instantly available online and everyone in their little private school would know everyone's business. Those who 'know' doesn't have an edge, but those who 'don't know', lose out. Think poor Dan Humphrey who's always the last to know as he's rarely on Gossip Girl website. Btw, Hump-phrey is a pretty good name for the character, people are always free riding off him. And i'm pretty sure Serena will be getting some other phrey hump somewhere soon.

However, Blair is different, knowing that the market is pretty efficient, she does one of two things, (i) she uses information in a superior manner, (ii) she digs deeper than the rest to get access to private (sometimes too private) information.

Hey! that's exactly what great investors do! People like Martin Whitman said that the information that he used are public information, he simply used them in a superior way. Berkshire Hathaway Assurance Corporation, which offerred to reinsure the portfolio of several existing financial guarantors is another creature which has been collecting information on the industry for over 20 years. And now when others and facing downgrade or losing access to capital market, they are one of the few which have the ability and capacity to underwrite huge volume of insurance for municipal bonds. Read this speech by Ajit Jain to understand Berkshire's rationale to enter into this market.

Be prepared, or be bitten in the ass.

"Ain't karma a bitch?..................We know Blair Waldorf is."

~Gossip Girl

Aye E.y.E

I had fun over the weekend being part of the E.y.E Investment Bootcamp as a faci. I'm really glad that this year's turnup was very good and that the participants enjoyed the games designed and excecuted flawlessly by the awesome team that runs the camp!

It is great to see a bunch of committed people having fun while working effectively with each other. And at the end of the day, celebrating each other's success.

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We had a great speaker on the second day of the camp who talked about asset allocation strategy. She's awesome! I share her anger at financial products that is introduced irresponsibly to the lay person. She talked about different forms of Structured Products that is being introduced in banks which is being touted as a Fixed Deposit alternative. However, it is NOT!

Some examples of structured products

Dual Currency Returns

http://www.dbs.com.sg/sg/personal/investments/structured/

I'll try to understand what the speaker has said and will try to blog about the potential risks and return soon.

Meanwhile, read this great introduction to investing written by Xin Hong for the first time investor( and yah, not forgetting to shamelessly plug E.y.E club here. It written for our members.) Its an awesome guide and reads like a storybook.

"By periodically investing in an index fund, for example, the know-nothing investor can actually out-perform most investment professionals. Paradoxically, when "dumb" money acknowledges its limitations, it ceases to be dumb."

Warren E Buffett ~ 1993 Chairman's letter