Puppets

Ave Q is Wicked! hahaha!


And thanks to zkai who introduced me to Mika. Amazing talent!

Mika - Grace Kelly
by SamFisher037

Amazing Day

Watched Avenue Q today! Its amazing. 

Warning! Puppet Nudity on Stage. haha. These puppets do things on stage that only puppets can get away with. Mmmm...so now we know that on stage, as long as its puppets doing it, it will not be censored.

The cast is fun and sounds great. The energy level was high throughout and interaction with the audience was pretty good too. Glad that i watched it with the choir people, if not i'll be the ONLY one laughing that loud. I think i traumatized the very pregnant looking lady sitting beside me, she must be wondering what type of monster am i?

Went K-box afterwards. Released lots of pent up stress! haha. Never realised how much i like the Amy Winehouse's Rehab until just now where i have a huge urge to sing that song! Crazy woman...maybe that's why i identify with her songs...hahaha...

Weird. i can't post on my tagbox...something's wrong....

3 more weeks to EXAMS!!!! gotta put my act together and put on a brilliant performance. Its like in a musical, before the intermission, the song is typically the best song in the show. This term is my song before my break. The dark hours before dawn. I'll survive anyhow.

The Uncommon Sense

Watched the Charlie Munger interview in Caltech (March 2008) again last night. Munger is truly amazing. The way he put things across is both eloquent and direct. He talks about issues ranging from his favorite subject on mental models, the problem with the social sciences, his fear for nuclear proliferation and what young poeple should do to get ahead in life.

He said something along the line that after being around people who are the best in their field, he realised that he'll never be the GREATEST in any field. So the question is 'How to do very well without being very good in anything?" Soln: Given that there is so much folly in the world, he think the if he simply avoids all these follies, he's pretty sure to he'll do quite well.

He also talks about the folly that has gone into derivatives accounting. The fact the accountants 'blessed' the accounting figures and FASB issued the accounting rules in no way means that the numbers mean anything. Imagine that you have 200 regulators looking at the books of Freddie and Fannie and NOT be able to figure out what is really wrong BEFORE it blows up tells us much about how convoluted the accounting of these two institution is.

Studying FRS 39 in my Advance Financial Accounting course now, and i must say that Prof Pearl Tan makes the whole , and i find some of the rules rather silly. Due to rules in derivatives accounting (for cash flow hedge), we have to recognise the associated asset or liability for the hedge instrument. However, due to the 'matching' principle, companies are required to recognise the 'hedged item' even before it materialise or risk and reward has been transferred. That's crazy!!! The whole idea of revenue recognition has been flipped upside down.

Furthermore, the inputs that goes into 'estimating' profits and fair value would allow two parties to BOTH book a profit in zero sum game. Such atrocities are once again blessed by the accountants. If you tie management compensation to the these numbers that are estimated (or fabricated), what numbers do you expect to get? Of course we will expect aggressive accounting, and unless the auditors can VERIFY that the numbers are wrong, the accounts will be certified True and Fair if not risking losing the clients. But such estimates are in its essence NOT VERIFIABLE. We can only trust the manager's conscience in estimating the fair value of such opaque accounting figures. Gosh, i have been partly brain washed by Prof JJ!!! AAAAHHHHH!!!!

Go watch the video and be blown away!
http://today.caltech.edu/theater/item?story%5fid=30623
If any of you wants the extracted audio, drop me a mail :)

Charles T. Munger, vice chairman of Berkshire Hathaway Inc., is the business partner of Warren Buffett and a major contributor to Berkshire Hathaway's legendary performance record. Forbes lists the self-made Munger as one of the 400 richest people in the United States.

The 'A Team'

The Straits Times (25th Oct) article which MM Lee commented on some human capital issues gave me much to think about. 

On the qualities of A Team members: "people with good minds, a sense of obligation to do a good job for the people and the ability to execute". He also cautioned against glib speaker who cannot deliver performance. 

Commenting on out local architecture: "(Here in Singapore, we just pick them by their O levels and A levels, what they scored for math, science, languages, not... how well they did in aesthetics.  We've had the same problem with architecture. We have stereotype buildings....i wonder why. Because we employ or rather we train people who scored well in engineering..."

On knowledge and creating an environment to foster it: "You've got to make it quite clear that knowledge, learning, application of knowledge are what will gain you a good life. If they come to the conclusion that the system depends on good connections, skiving, cheating, then you are in trouble because he sees no reason in acquiring all this knowledge."

Sometimes i wonder who will be the future leaders that are churned out from the nice little factory called SMU. I worry that we will be stereotyped as those who are "glib speaker who cannot deliver performance". Prof Leong warned us against that in Year 1. Given that one has to present to the class more than at least 5 times a sem, it is natural that he/she will be more skilled at presenting than people who have not had the opportunity. However, there's always the case of people who has contributed little to the project, but due to their eloquence, scored brownie points with the prof. In the name of collegiality or just plain unwillingness to 'rock the boat', many of us will not act to 'out' such people. 

I'm really fortunate that in my past 3 years, i've only met ONE such person, and it was a course that i really couldn't care less about. Haha. Most of my team mates are great people who deliver what they promise, and many times more. It such a wonderful experience working with people you can totally trust. Sometimes i would look at people around me and ask myself, "if i am to go into business in the future, who will i want to partner. Who am i willing to work under?" and it often leads to the simple question of "Who can i trust?" which finally leads to the question "Will people trust me and am i trustworthy?"

Acquire knowledge, learn, apply the knowledge, commit, execute and deliver, and never break my promises.

Pascal

Sent the following quote to some friends today "How can a part know the whole? Man is related to everything he knows. And everything is both cause and effect, working and worked upon, mediate and immediate, all things mutually dependent." Pensees by Blaise Pascal

When i read this quote, i was thinking along the line of Munger's multidisciplinary approach to decision making. Then i thought it was about always leaving room for uncertainty, or Feynman's notion on mankind's precious gift of "freedom to dobut". 

Then i got a reply from Guoyi, who said "...that the part cannot know the whole does not mean there is no whole. And all of man's pursuit can be said to be in search of that illusive whole, which if found, would render man no longer man, but God. Are all things cause and effect? How can we know if we cannot see the whole?"

Wow! Guoyi gets straight to the core of the question. And from Pensees, the following was put forth "But perhaps this subject goes beyond the capacity of reason." That explains why Wiki said that Pensees represented Pascal defense of the Christian religion. (and it is disturbing that i'm quoting Wiki like it is some sage or something). Included in the treatise, is the famous Pascal's wager, "You must wager; it is not optional... Let us weigh the gain and the loss in wagering that God exists... If you gain, you gain all; if you lose, you lose nothing. Wager, then, without hesitation, that He exists."

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Sometimes i wonder what have i gained from studying stuff i studied in accountancy? and Weifa asked me a good question last week, "would you trust financial statements?". I think i would now read financial statements with a HUGE pinch of salt. And at least i kinda know what is the the process that goes into 'making' the financial statements, so reading FS makes slightly more sense.

There is some sort of economic reality 'out there'. A FS tries to represent all that (at least the so called "true and fair" ones). Without knowing how these 'stuff' in real world is being represented in the FS, it makes no sense trying to analyze financial ratios and make decision based on a set of figures we don't even understand. 

Recent move by both SEC/FASB in the US and EU Committee/IASB to modify Fair value accounting rules when there is an inactive market would be a case in point. Without knowing the how the financial figures of Level I, II and III assets come about, how could we know what is the financial position of a firm (at least those with this sort of assets)? When people discussed about "marked to model", how many of us actually know the actual inputs to the model, what affects the model, what are they exactly modeling? What is the extent of disclosure needed? and analytical adjustments FS users should make?

If we do not understand how the accounting figures are created, how are we going to be able to understand the FS? 

If we don't understand the FS, then how can we claim that we understand the firm we are analyzing through its FS? 

If the FS itself does not even reflect economic reality then what should we rely on?

What is economic reality?

What is reality?

The real deal

I think Tina Fey should run for president. Alec Baldwin can be her VP. Love the cameo by Sarah Palin: "No, I won't take your question".

Management Science

Had a wonderful time during MS today. Today's lesson is on probability, which was more like a review of what i've learnt in A levels and Stats 101 course. It is sad that i have not learnt much from these past teachings, especially on the concept of joint probability and conditional probability. I need to grasp the super useful concept of Bayes' theorem, where observation is used to update probability of event.

Jie Chao ask me a question after reading"Fooled by Randomness" by Nassim Taleb. A variant of the question is as follow; A drug test will correctly identify a drug user with positive test result 99% of the time, and will correctly identify a non-user as test negative 99% of the time. Given that 0.5 % of the underlying population are drug user, what is the probability of a person being tested POSITIVE is actually a NON-USER?
(the above example is adapted from wikipedia, look under example 1)

MCQ

So imagine now that a friend of yours went through the test and tested POSITIVE, what's the probability of him being a NON-USER? 

a) 7% (i'm almost certain he's guilty)

b) 37% (i'm quite sure he's guilty) 

c) 67 % (i think he's probably innocent)

d) 100% (no friend of mine would do drugs!!!)

Guess, and dun cheat by looking at wiki answer. Alternatively, it would be great if you can dig out your A levels notes and calculate it (maybe only XinHong is diligent enough to do this, heehee). Answer at the end of the post :)

Then Prof Pascale Crama gave us the classic Monty Hall problem. She let us chose from 1 of 3 envelope of which one contains 20 dollars (REAL CASH). She'll reveal an empty envelop after i've chosen one and i'll be given a chance to change my envelop. The twist is that we'll have to bid for the chance to play the game. NO ONE in the class participated at first. Damn weird, prof giving out money and almost no one wanted to play the game by giving up even 1 buck. Finally some students participated and i WON the bid at $5. 

The probability of winning is about 67% (if you change the envelope) thus expected return is about $13. I'm willing to bid up to $8 to play this game. I changed the envelope after prof revealed the empty one. and I WON!!! yippee, 400% return on my initial investment!!!! since we only spent about 5 mins on this activity, can you imagine the ANNUALIZED return?!? haha. Fat hope.

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"When Markets Collide" is so engaging that i can hardly put it down over the past few days. The changing role of emerging economies in the globally will put a strain on current infrastructure. There will likely be displacement in the market and it will take some time for the world to adapt to.  As a creditor to many 'developed' countries, there are many challenges that they will faced. Singapore was mentioned in the book as an exemplary example of how a country should manage its reserve. And it is also a model that many emerging economies will follow. For a good summary this changing landscape was published by Legg Mason's Maubossin article.

Reading letters by great investors that have been through market cycles allow us to see thru the valley and maintain a long term view. The Wintergreen Fund has been investing successfully globally over the years. A discussion by Bill Nygren on the 'mistakes' he has committed is particularly educational and refreshing. Click on the following paragraph to read the original commentary. And click here to read the letters to shareholders. 

What did you miss on Washington Mutual?
Washington Mutual was held in all three Funds I co-manage. We sold our position during the quarter when it appeared that regulators were increasingly looking at mark-to-market implied losses, which eliminated the chance that Washington Mutual could, over time, earn back its mortgage losses. Selling was the right decision but by the time we sold, the damage had been done. Owning Washington Mutual was a big mistake for which I fully accept responsibility. Though we believed home prices had been rising at an unsustainable pace, we took comfort that previous home price bubbles had corrected with home prices plateauing for several years rather than sharply falling. Expecting that to continue, I took too much comfort in the fact that the overwhelming majority of mortgages Washington Mutual owned had balances of less than 80% of appraised value. Believing that the collateral was so valuable, I wasn’t as concerned as I should have been with softening underwriting standards. After all, if the borrower defaulted, the house could still be sold for more than the mortgage debt. After nationwide prices fell 20%—and further in hot markets—the collateral was no longer worth more than the loan, and serious losses resulted. A mortgage market previously viewed as secure became viewed as very risky. Sellers flooded the market, and prices fell sharply. Because of its leverage, Washington Mutual’s assets, marked-to-market, were no longer greater than its liabilities. Ironically, the asset we’ve always believed was under appreciated, its strong retail deposit base, is now owned by another of our holdings, JP Morgan. Though there are many lessons to be learned from this error, perhaps the most important is that in today’s economic climate, we need to consider a broader array of outcomes than we previously considered, especially for companies that employ financial leverage.

Lastly, Warren Buffett wrote on op-ed on NYT. READ IT!

The ans to the mcq is C. Your friend has a 67% probability of being a non-user. So be wary of such tests results.