Watched the Jon Stewart show last night when he was grilling Jim Cramer. It was sad to me that so many people relied on snakeoil peddler who sells hope bottled in 24/7 news, dishing out advice and market forecast. Watching financial new non-stop and having ticker symbols flashing in your face all the time create a sense of false urgency to act and encourages short termism.
Tuning them out, aka the bloomberg and cnbc of the world is the best i can do. News are important as they contain information. However, to what extent are these news noise or information is dependent on the thoughtful user to seive out the junk. Even price has information, but does the market over-react to good and bad news, i think it does.
After doing my derivatives course in Ivey, taught by the really really great Prof Walid, i'm convinced that many of the hedging strategies out there are actually pretty risky. Riskless arbitrage opportunities simply doesn't exist in huge quantities to make it a profitable pursuit. Not so riskless arbitrage like merger arbitrage exists, but investor must have a good handle on the dynamics of mergers and acquisitions, the parties involved, time horizon, deal structure, probablity of success to have any chance of making profits in these area.
However, as XH argued with Prof Chua last year, time arbitrage probably exist. A person with a true long term view and long term holding power may choose a course of action that is vastly different from the rest of the crowd. I think this is the true edge a long term investor has in order to outperform. Another edge would be a stomach for lumpy performance. Short term volatility is NOT RISK. Permanent impairment of capital (aka lw's attempts at buying bank stocks on the cheap last year) is RISK.
I can't help but quote the following paragrah from Keynes again. It just amazes me that after 70 years since The General Theory of Employment, Interest and Money was published, it still rings true today.
"But there is one feature in particular which deserves our attention. It might have been supposed that competition between expert professionals, possessing judgment and knowledge beyond that of the average private investor, would correct the vagaries of the ignorant individual left to himself. It happens, however, that the energies and skill of the professional investor and speculator are mainly occupied otherwise. For most of these persons are, in fact, largely concerned, not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public. They are concerned, not with what an investment is really worth to a man who buys it “for keeps”, but with what the market will value it at, under the influence of mass psychology, three months or a year hence. Moreover, this behaviour is not the outcome of a wrong-headed propensity. It is an inevitable result of an investment market organised along the lines described. For it is not sensible to pay 25 for an investment of which you believe the prospective yield to justify a value of 30, if you also believe that the market will value it at 20 three months hence.
Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called “liquidity”. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is “to beat the gun”, as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.
This battle of wits to anticipate the basis of conventional valuation a few months hence, rather than the prospective yield of an investment over a long term of years, does not even require gulls amongst the public to feed the maws of the professional; — it can be played by professionals amongst themselves. Nor is it necessary that anyone should keep his simple faith in the conventional basis of valuation having any genuine long-term validity. For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs — a pastime in which he is victor who says Snap neither too soon nor too late, who passes the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all the players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated.
Sometimes the game of Musical Chairs turned out ugly. When the music stops, there turned out to be no chairs after all....that's the illusion of a growing economy built on leverage creates...
Tuesday, March 24, 2009
Saturday, March 21, 2009
Pain of investing
Until Seth Klarman said it out explicitly, i haven't been aware that my investing behaviour has changed quite a bit over the last 2 years after being down by about 50% for my personal portfolio. Two years ago, i could be said to be fearless, knowing that i'm committed for the long run - therefore as long as i pick good companies, i'll do fine in the long run.
However, after seeing some companies you own plummet over 50%, your behavior changes. I managed to raise some long term debt from family members to allow me to average down in this market. This was what Xin Hong and I talked about in early 2007 (before the whole financial crises started to happen) that we need to stay committed to our long plan. After i have my cash in hand in late november, i committed a portion of it to the MSCI world index monthly for the rest of the time until i graduate. The rest is supposed to be deployed into individual stock picks. HOWEVER, i have been sitting on this warm pile of cash earning next to nothing for the past 4 months.
I could have justified my behaviour as 'i know the market is going to plummet further, so i stayed on cash...i could show you the charts if you want...' That would of course be a blatant lie.
The truth is that i'm afraid that i'll be wrong again, and there's also the pain avoidance behavior that prevents me from logging into my brokerage account to see the loss amount. Reviewing my individual stock positions, it is amazing how the market help u reduce your stock holding in financials by slashing their value by over 75% and the more defensive stocks by less than 40%.
Be fearful when others are greedy, said Buffett. I'll be the first to admit that this very profitable strategy is very hard to follow psychologically. Therefore i believe for the majority of us, we should simply commit ourselves to a long term portfolio with diverse asset mix, invest monthly, and rebalance (semi) annually.
But I hope i can do better. If intrinsic value has fallen by 20% over the last year and stock price has fallen 50%, if i liked it last year, i should LOVE it this year. Its hard, but i'll darn well try.
However, after seeing some companies you own plummet over 50%, your behavior changes. I managed to raise some long term debt from family members to allow me to average down in this market. This was what Xin Hong and I talked about in early 2007 (before the whole financial crises started to happen) that we need to stay committed to our long plan. After i have my cash in hand in late november, i committed a portion of it to the MSCI world index monthly for the rest of the time until i graduate. The rest is supposed to be deployed into individual stock picks. HOWEVER, i have been sitting on this warm pile of cash earning next to nothing for the past 4 months.
I could have justified my behaviour as 'i know the market is going to plummet further, so i stayed on cash...i could show you the charts if you want...' That would of course be a blatant lie.
The truth is that i'm afraid that i'll be wrong again, and there's also the pain avoidance behavior that prevents me from logging into my brokerage account to see the loss amount. Reviewing my individual stock positions, it is amazing how the market help u reduce your stock holding in financials by slashing their value by over 75% and the more defensive stocks by less than 40%.
Be fearful when others are greedy, said Buffett. I'll be the first to admit that this very profitable strategy is very hard to follow psychologically. Therefore i believe for the majority of us, we should simply commit ourselves to a long term portfolio with diverse asset mix, invest monthly, and rebalance (semi) annually.
But I hope i can do better. If intrinsic value has fallen by 20% over the last year and stock price has fallen 50%, if i liked it last year, i should LOVE it this year. Its hard, but i'll darn well try.
Wednesday, March 18, 2009
Ivey interview with Seth Klarman – Value investing course
I’m so happy today. We had a video conference with Seth Klarman. I want to be this man in 35 years time. Unassuming and really knows his stuff, and btw…rich too. So glad that Prof George Athanassakos arranged for such an amazing speaker.
Seth Klarman is the President of Baupost Group and has been running the investment house for more than 20 years. His annualized return over that period is over 20%. Over the last few years, astute side-stepping of land mine and holding cash when no margin-of-safety could be established allowed the firm to perform well in this volatile market.
Klarman wrote the now out of print Margin of Safety which is sold on ebay and amazon for over 1400 USD. Pssst….SMU library has a copy, donated by our librarian - Ruth
The 3 underlying pillars to his investment approach
1. Focus on risk
Be a big fan of worrying. Risk is NOT BETA. Risk is the probability and size of losing under different scenarios. It is most important to not be obsessed about single point estimate, focus on range of outcome.
2. The world is orientated to relative performance
Mutual funds are largely asset gatherer, as they earn management fee from % of underlying asset than by outperformance. Mutual funds are hugely penalized when they underperform as client defect, thus this encouraged many actively managed funds to be closet index fund. Being mediocre is perfectly fine in the mutual fund world.
To gain an edge, we should focus on absolute return. Thus we would rank not losing money as more important than not underperforming index. Losing 18% when the world is losing 20% is just insane.
3. Bottom up orientation
Very very few people has shown that they are able to predict the macro economy. And even if they are accurate, then asset class and security chosen may not work out as well as they macro prediction.
Focus on bottom up approach to investing. Analyze the individual company/security thoroughly and work out all the possible outcome for that individual security under different stress test scenarios.
Identify an edge
Klarman told us to focus and identify an edge. Every investors needs to think about this, but few of us do. One of Baupost’s edge is that it has a long term orientated investment policy backed by long term money. Many good funds couldn’t invest right now as they are afraid that they’ll have to sell more stocks to meet redemptions demands. Having committed long term capital is crucial to long term investment success.
Another edge Baupost has is that it loves messy situation. A favorite asset class right now is distressed debt that has been recently downgraded. Many pension funds and bond funds invest in high credit rating bond because they want safety, and that their fund mandates it. When a downgrade occurs (ie ‘safety’ condition removed, many such investors are forced to sell. Good investors love to buy when the other party is in panic selling mode.
Know who you are buying from. Think twice about buying when you know that the seller is a good investor who has done due diligence; or the other party is an insider. You don’t want to be the pasty :)
Other Mispriced Situation
A stock that is knocked out of S&P index would have huge selling pressure. About 10% of all S&P stocks are owned by index fund. Being kicked out would mean that many funds would be forced to sell.
Corporate Spinoff – It is often the unloved child that is being spun off. Normally it has low ROA, litigation, or weak management. Owners of the parent company stock don’t want to own the ugly child, causing huge mispricing opportunity
For beginners – there are some close end fund trading way below NAV. If you think there is sufficient MOS, this could be a beautiful opportunities.
Margin of Safety
Only buy when an appropriate Margin of Safety could be established. Hold cash when you can’t find any. Klarman’s fund entered 2008 with over 35% in cash, and it is now in the low 20s. However, he sold some assets to maintain a high cash position as he said this is a period of time where you don’t want to be caught without cash. (interestingly, Buffett sold some JNJ after his buying spree late last year to maintain high cash position).
One of the biotech company that his fund owns has a royalty streams of over 30% IRR. There is no need for great things to happen, and the price is lower than the value of this highly predictable stream of royalty. There is no place for optimism for valuation.
He currently price in several years of GDP decline into every scenario analysis and would only buy if he’s comfortable with that.
Risk
Perform intensive sensitivity analysis on every security that you purchase. For instance, when he stress test mortgage backed security (where there are some interesting mispricing going on), Factors such as housing prices changes, default rate changes, and repayment of loan rate chages would be fed into the model. And at depression level, would the security still be a good buy? If yes, then BUY!
Academics thinks that more risk (volatility or beta) more return. But Value investor know that the less the risk (P(of loss)xloss) and MOS, the more return.
On a macro level, in 2006 when financial institution grew to 40% of S&P, Klarman got worried because it showed that the growing economy is driven by growing leverage. Over the last 2 years, many traditional value investors got killed as they are not quick enough to re-calibrate their understanding of book value. He also noticed that for most investor, once you lose 30% - 50% of capital, your thinking gets fuzzy.
Further example of modeling financial Armageddon – For instance, when analyzing car loans (many originator are keen to sell this off, but the traditional securitization market has dried up) would the security still be of value if historical loss rate quadruple? Can we still be safe?
Or when analyzing housing related security, if housing prices in the area goes back to 1979 level, can we still be safe?
Some things are easier to forecast in this current environment; earnings from gaming houses in Las Vegas is down 20%, but it is very hard to guess what next year earnings will be. However, the sale of Kleenex is unlikely to decline by 20% over the next year as people are still going to buy Kleenex.
Valuation
Make use of MULTIPLE scenarios and valuation method to value. If the current price is right smack in the middle of your multiple case, you know you don’t have a Margin of Safety.
Valuation technique used - liquidation value, replacement cost, book value, PV of cashflow, earnings and cashflow multiples, breakup value, private market take over value (not levered) , LBO or MBO.
If everyone in the market looks at a business and values it a certain way, e.g. as a LBO target, it is often beneficial to look at it another way – e.g. at liquidation value. This provides both margin of safety and a more dynamic approach to valuation.
Optimism
The period with the highest return going forward would be the worst period of return looking backward. He simply don’t understand why some people believe that the world is not going to wake up tomorrow. Klarman has not seen so many opportunities to invest in since the day he graduated.
--------------AWESOME DAY!!!--------------------
Seth Klarman is the President of Baupost Group and has been running the investment house for more than 20 years. His annualized return over that period is over 20%. Over the last few years, astute side-stepping of land mine and holding cash when no margin-of-safety could be established allowed the firm to perform well in this volatile market.
Klarman wrote the now out of print Margin of Safety which is sold on ebay and amazon for over 1400 USD. Pssst….SMU library has a copy, donated by our librarian - Ruth
The 3 underlying pillars to his investment approach
1. Focus on risk
Be a big fan of worrying. Risk is NOT BETA. Risk is the probability and size of losing under different scenarios. It is most important to not be obsessed about single point estimate, focus on range of outcome.
2. The world is orientated to relative performance
Mutual funds are largely asset gatherer, as they earn management fee from % of underlying asset than by outperformance. Mutual funds are hugely penalized when they underperform as client defect, thus this encouraged many actively managed funds to be closet index fund. Being mediocre is perfectly fine in the mutual fund world.
To gain an edge, we should focus on absolute return. Thus we would rank not losing money as more important than not underperforming index. Losing 18% when the world is losing 20% is just insane.
3. Bottom up orientation
Very very few people has shown that they are able to predict the macro economy. And even if they are accurate, then asset class and security chosen may not work out as well as they macro prediction.
Focus on bottom up approach to investing. Analyze the individual company/security thoroughly and work out all the possible outcome for that individual security under different stress test scenarios.
Identify an edge
Klarman told us to focus and identify an edge. Every investors needs to think about this, but few of us do. One of Baupost’s edge is that it has a long term orientated investment policy backed by long term money. Many good funds couldn’t invest right now as they are afraid that they’ll have to sell more stocks to meet redemptions demands. Having committed long term capital is crucial to long term investment success.
Another edge Baupost has is that it loves messy situation. A favorite asset class right now is distressed debt that has been recently downgraded. Many pension funds and bond funds invest in high credit rating bond because they want safety, and that their fund mandates it. When a downgrade occurs (ie ‘safety’ condition removed, many such investors are forced to sell. Good investors love to buy when the other party is in panic selling mode.
Know who you are buying from. Think twice about buying when you know that the seller is a good investor who has done due diligence; or the other party is an insider. You don’t want to be the pasty :)
Other Mispriced Situation
A stock that is knocked out of S&P index would have huge selling pressure. About 10% of all S&P stocks are owned by index fund. Being kicked out would mean that many funds would be forced to sell.
Corporate Spinoff – It is often the unloved child that is being spun off. Normally it has low ROA, litigation, or weak management. Owners of the parent company stock don’t want to own the ugly child, causing huge mispricing opportunity
For beginners – there are some close end fund trading way below NAV. If you think there is sufficient MOS, this could be a beautiful opportunities.
Margin of Safety
Only buy when an appropriate Margin of Safety could be established. Hold cash when you can’t find any. Klarman’s fund entered 2008 with over 35% in cash, and it is now in the low 20s. However, he sold some assets to maintain a high cash position as he said this is a period of time where you don’t want to be caught without cash. (interestingly, Buffett sold some JNJ after his buying spree late last year to maintain high cash position).
One of the biotech company that his fund owns has a royalty streams of over 30% IRR. There is no need for great things to happen, and the price is lower than the value of this highly predictable stream of royalty. There is no place for optimism for valuation.
He currently price in several years of GDP decline into every scenario analysis and would only buy if he’s comfortable with that.
Risk
Perform intensive sensitivity analysis on every security that you purchase. For instance, when he stress test mortgage backed security (where there are some interesting mispricing going on), Factors such as housing prices changes, default rate changes, and repayment of loan rate chages would be fed into the model. And at depression level, would the security still be a good buy? If yes, then BUY!
Academics thinks that more risk (volatility or beta) more return. But Value investor know that the less the risk (P(of loss)xloss) and MOS, the more return.
On a macro level, in 2006 when financial institution grew to 40% of S&P, Klarman got worried because it showed that the growing economy is driven by growing leverage. Over the last 2 years, many traditional value investors got killed as they are not quick enough to re-calibrate their understanding of book value. He also noticed that for most investor, once you lose 30% - 50% of capital, your thinking gets fuzzy.
Further example of modeling financial Armageddon – For instance, when analyzing car loans (many originator are keen to sell this off, but the traditional securitization market has dried up) would the security still be of value if historical loss rate quadruple? Can we still be safe?
Or when analyzing housing related security, if housing prices in the area goes back to 1979 level, can we still be safe?
Some things are easier to forecast in this current environment; earnings from gaming houses in Las Vegas is down 20%, but it is very hard to guess what next year earnings will be. However, the sale of Kleenex is unlikely to decline by 20% over the next year as people are still going to buy Kleenex.
Valuation
Make use of MULTIPLE scenarios and valuation method to value. If the current price is right smack in the middle of your multiple case, you know you don’t have a Margin of Safety.
Valuation technique used - liquidation value, replacement cost, book value, PV of cashflow, earnings and cashflow multiples, breakup value, private market take over value (not levered) , LBO or MBO.
If everyone in the market looks at a business and values it a certain way, e.g. as a LBO target, it is often beneficial to look at it another way – e.g. at liquidation value. This provides both margin of safety and a more dynamic approach to valuation.
Optimism
The period with the highest return going forward would be the worst period of return looking backward. He simply don’t understand why some people believe that the world is not going to wake up tomorrow. Klarman has not seen so many opportunities to invest in since the day he graduated.
--------------AWESOME DAY!!!--------------------
Saturday, March 14, 2009
One Short Day in the Emerald City
I'm currently laptopless as i've sent my aging (not so gracefully) Acer for repair after 2 days of grueling phone marathon with Acer Canada to get it fixed. Something like Jie Min's laptop, the screen just turns a greyish green after i switch it on. Hope it would comeback to me in a week's time. Meanwhile, I'm using the school's computer to check emails and stuff, but couldn't update facebook. Gotta install Firefox (secretly) to access my blog. haha.
Spent the last weeked in NYC. It was the most amazing weekend ever! I got to watch 2 of my favorite musicals - Mary Poppins and Wicked!!!
I remember that the Mary Poppins soundtrack was one of the first CDs that i memorized the lyrics from the first track to the last. The stage version is just as magical as the movie starring Julie Andrews and Dick Van Dyke. We have to give it Disney to re-create something so special every night on stage. Some things you expect of a Disney production - beautiful costumes, choreography and great actors are of course there. But there are wonderful surprises for all - like Bert tap dancing across the stage (not on the ground mind u, but on the pillars) and the wonderful Mary Poppins flying on and off stage with her super powerful umbrella. I was half tempted to buy one of those ridiculosly priced items after show! haha.
The next night, i tried my luck with the lottery at the Wicked booth. Thanks Playbill! for getting me affordable tickets so many times!
There were about 180 people queing for 27 tickets. And i was the first name called ~ Looiii Wee! I guessed it was me, so i rushed forward with my heart pounding and blood rushing to my ears! I guess i got lucky because i went alone, so i got the 26 + 1 odd man ticket. Odd man indeed...
It was a first row seat, and the whole experience was amazing. I swear that i caught Glinda looking at me twice! Maybe she's wondering who's that freak that knows all the lyrics to the songs. Whoohoo. Alli Mauzey who plays Glinda sings well, but what was exceptional was her comic timing. The audience laughed so hard during her rendition of Popular, which was like a sultry + legally blond version. Nicole Parker was the new Elphaba, a good singer and u can really feel that the 2 actors were connected on stage. During the song - For Good, Glinda's voice wavered a little as u can see some tears in her eyes. The harmony for that song wasn't perfect, but the raw emotions on display were.
It was such a wonderful experience. Just hope that my family and friends were here to share my joy and excitement :)
By the way, i was in New York for an interview. It went ok, but i'm up against very strong candidates. Hope i did well enough to secure an intership, but like i often say, its the process that matters. Good process + Good outcome = Deservedly so. Good process + Bad outcome = unlucky. Hopefully i belong to the first category.
Till i get a chance to use my computer in school again or get my laptop back....Aidos!
Spent the last weeked in NYC. It was the most amazing weekend ever! I got to watch 2 of my favorite musicals - Mary Poppins and Wicked!!!
I remember that the Mary Poppins soundtrack was one of the first CDs that i memorized the lyrics from the first track to the last. The stage version is just as magical as the movie starring Julie Andrews and Dick Van Dyke. We have to give it Disney to re-create something so special every night on stage. Some things you expect of a Disney production - beautiful costumes, choreography and great actors are of course there. But there are wonderful surprises for all - like Bert tap dancing across the stage (not on the ground mind u, but on the pillars) and the wonderful Mary Poppins flying on and off stage with her super powerful umbrella. I was half tempted to buy one of those ridiculosly priced items after show! haha.
The next night, i tried my luck with the lottery at the Wicked booth. Thanks Playbill! for getting me affordable tickets so many times!
There were about 180 people queing for 27 tickets. And i was the first name called ~ Looiii Wee! I guessed it was me, so i rushed forward with my heart pounding and blood rushing to my ears! I guess i got lucky because i went alone, so i got the 26 + 1 odd man ticket. Odd man indeed...
It was a first row seat, and the whole experience was amazing. I swear that i caught Glinda looking at me twice! Maybe she's wondering who's that freak that knows all the lyrics to the songs. Whoohoo. Alli Mauzey who plays Glinda sings well, but what was exceptional was her comic timing. The audience laughed so hard during her rendition of Popular, which was like a sultry + legally blond version. Nicole Parker was the new Elphaba, a good singer and u can really feel that the 2 actors were connected on stage. During the song - For Good, Glinda's voice wavered a little as u can see some tears in her eyes. The harmony for that song wasn't perfect, but the raw emotions on display were.
It was such a wonderful experience. Just hope that my family and friends were here to share my joy and excitement :)
By the way, i was in New York for an interview. It went ok, but i'm up against very strong candidates. Hope i did well enough to secure an intership, but like i often say, its the process that matters. Good process + Good outcome = Deservedly so. Good process + Bad outcome = unlucky. Hopefully i belong to the first category.
Till i get a chance to use my computer in school again or get my laptop back....Aidos!
Thursday, March 5, 2009
Out of touch
After 2 weeks in Mexico, i felt completely out of touch with financial news and stuff. Not having a fully functional laptop does not help.
Read and re-read Buffett's latest shareholder letter. Nothing calms me down better than reading his letters. In a world where everyone seems to be anxious over when will we hit the next low or when are we going to recover, Buffett timeless approach to business seems idiosyncratic. Find great company run be great manager, buy at fair price, repeat. Find mis-priced securities (stocks, bonds, insurance contracts, or derivatives) wait for mis-pricing to correct, repeat. Build a impreganable balance sheet, hold ample liquidity, minimise counter party risk.
Keynes wrote about liquidity crises years ago, "...the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called “liquidity”. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future."
I'm simply glad that i've followed simple asset allocation plan for managing my parents portfolio by following simple strategies put forth by David Swensen. When i lose my own money, i sleep reasonably well....but when i lose money that has been entrusted to me, i felt that i had let others down. Reviewing the investment policy, i believe that it is still sound and the portfolio should do relatively well over the next 5 years despite the recent calamity. However, 5 years seem like an eternity if u are fretting over the next market meltdown and thinking about how much the market has to rebound for you just to breakeven. Find great company run be great manager, buy at fair price, repeat....sounds easy, but will take me the rest of my life to master.
Read and re-read Buffett's latest shareholder letter. Nothing calms me down better than reading his letters. In a world where everyone seems to be anxious over when will we hit the next low or when are we going to recover, Buffett timeless approach to business seems idiosyncratic. Find great company run be great manager, buy at fair price, repeat. Find mis-priced securities (stocks, bonds, insurance contracts, or derivatives) wait for mis-pricing to correct, repeat. Build a impreganable balance sheet, hold ample liquidity, minimise counter party risk.
Keynes wrote about liquidity crises years ago, "...the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called “liquidity”. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of investment institutions to concentrate their resources upon the holding of “liquid” securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future."
I'm simply glad that i've followed simple asset allocation plan for managing my parents portfolio by following simple strategies put forth by David Swensen. When i lose my own money, i sleep reasonably well....but when i lose money that has been entrusted to me, i felt that i had let others down. Reviewing the investment policy, i believe that it is still sound and the portfolio should do relatively well over the next 5 years despite the recent calamity. However, 5 years seem like an eternity if u are fretting over the next market meltdown and thinking about how much the market has to rebound for you just to breakeven. Find great company run be great manager, buy at fair price, repeat....sounds easy, but will take me the rest of my life to master.
Tuesday, March 3, 2009
Mexico Trip
My 2 weeks mexico trip was the most amazing trip i've taken so far. Within the short span of 2 weeks, we covered a HUGE distance, and visited some of the most amazing ancient ruins, beautiful cities untainted by macdonalds and starbucks....and tourists, and some of the very beautiful natural wonders of the world.
This trip across mexico was organised by GAP Adventures and led by our very competent tour leader - Rebecca. Our group consists of pple from Australia, Denmark, Switzerland, UK, New Zealand, Czech, France, Brazil and Slovenia. My tour group is simply fantastic. I miss them already. haha.
My arrival at Mexico is pretty exciting. My flight from Toronto to Washington was overbooked, so we waited for people to be bumped around to other time slots. Then in Washington, the plane that we are supposed to take had one control panel down, the pilot is not willing to take off (phew...) so we waited 4 hrs for another plane. Finally arrived at Mexico City near mid night and guess what? my luggage didn't arrive. It was still in Washington. Lukily, i have all my important stuff with me with 2 days worth of clothes. See, diversification is super important. The airline promised to deliver it to mexico on the next flight in from Washington. Haha. One of my tour mates joked that it is possible that my bag will always be one day behind me as we move around every 1-2 days. Luckily it arrived on the following night.
One of the most breathtaking ruins that we visit is the one at Teotihuacan. The scale of the city and the Till this day, we don't know who built this city and why was it abandoned. There are thesis, but none could be verified.
The abv pix is the Pyramid of the Sun (viewed from the Pyramid of the Moon).
There no wonder why the view from the Pyramid of Sun is breathtaking. You could see every one trying to catch their breath after getting all the way to the top of the pyramid.
I would really love to write more about my trip and this amazing experience. But my left eye (ya. the sleepy one) is closing on its own now.
I've uploaded my pics in Mexico City, Puebla and Oaxaca on Facebook.
Does anyone know how to let people view pictures on Facebook without account?
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