Economist: School of thoughts – Austrian School

A forum friend has mentioned a website which I think is a great repository of Austrian School of Economics’ ideas and literatures.

Ludwig von Mises Institute
website

Some of the literatures (in PDF files) can give a glimpse of who are the Austrian School economists and their ideas.

Recommended these few PDF files for a start:
15 great Austrian Economists
PDF file
Method, Process and Austrian Economics
PDF file
New Directions in Austrian Economics
PDF file

Its daily articles are also good read, giving insights on other ways looking at same things.

Red flags in Bernard Madoff’s fund


Found 2 articles (see below) on red flags in Bernard Madoff’s fund.
We can get a glimpse of which portion of due diligence can uncover the red flags in Madoff’s case.

Some insights:
1. whether volatility, returns are tally with investment strategy claimed; backtesting using investment strategy and compare

2. "literature" study: whether others have due diligence check and result; news of feeder fund’s shutdown

3. trading records, regulatory filings to compare with trading (volume) claimed

4. corporate governance : comptroller, auditor of firm, feeder funds; independence of comptroller/auditor/compliance officer etc.

Article: The Red Flags In the Madoff Fund's Past (from CNBC)
link to CNBC's article
Who: Aksia, a firm that does due diligence on investment advisers
What: investigation for client
When: Apr 08

Red flags:
excerpt:
[1. The Madoff investment strategy, called "split-strike conversion," is known to be very volatile; it involves trading huge positions around options expirations. Despite that volatility, its returns over the past decade were an amazingly stable 8-10 percent.

2. Aksia discovered a 2005 letter to the Securities and Exchange Commission from a financial advisor who supposedly studied Madoff's operations. That letter asserted Madoff was running a Ponzi scheme. There was also a Wall Street Journal story at the time about one of the Madoff's associated "feeder funds" getting shut down in 1992.

3. Madoff's strategy was bizarre: He said he would move $13 billion in various trades at once, yet Aksia couldn't find traders who saw his trades. There were also no regulatory filings. And family members were running the firm.

4. The comptroller of the firm was based in Bermuda. Most mainstream hedge fund investment advisers have their comptroller in-house. Madoff's so-called feeder funds, meanwhile, were audited by respectable auditors. That gave the impression that Madoff had a professional operation. But the central investment action wasn't with the feeder funds, but in Madoff's New York City headquarters. And those activities were audited by a smaller, lesser known firm.

5. Madoff sent out accounting statements by mail. Most hedge funds email statements and allowed them to be downloaded via computer for easier analysis by investors.]
(but I haven’t figured out what’s wrong with this)

Advice:
[….warned clients not to do business with Bernard Madoff's investment fund.]


Article: European banks tally losses linked to Madoff (from International Herald Tribune)
link to IHT's article
Who: Société Générale
What: routine due diligence audit
When: early 2003

Some findings:
[…strategy consisted of balancing holdings in large Standard & Poor's funds with options to buy and sell shares, known as puts and calls;….. when Société Générale back-tested the strategy, it could not match the results that Madoff claimed to have produced.
…troubled by the fact that Peter Madoff, Madoff's brother, was the chief compliance officer.]

Advice:
[…..Société Générale immediately put Bernard L. Madoff Investment Securities on its internal blacklist, forbidding its investment bank from doing business with him, and also strongly discouraging wealthy clients at its private bank from his investments]

Investment Guru: Bill Gross

Bill Gross is PIMCO’s Managing Director.
He is an investment guru of fixed income/bond.
He is writing the monthly "Investment Outlook" article which can be read from PIMCO’s website.
His "Investment Outlook" articles are not only informational, they are very insightful.
website

Books by him:
1. Everything You've Heard About Investing Is Wrong!
2. Bill Gross on Investing
(but I don’t have these two books yet)
a book on him:
1. the bond king: investment secrets from PIMCO’s Bill Gross

Some examples of great insights I got from his "Investment Outlook":
November 08 article on "nuclear-like global financial system".
June 08 article on "authenticity of US inflation data".
Mar 07 article on "asset carry path" (10 little assets, much like Agatha Christie’s Ten Little Indians)

I also learnt from the "Investment Outlook" terms such as shadow banking system, deleverage etc..

US: Obama-Biden plan (1)

Obama-Biden plan from Change.gov (the Office of the President – Elect)
Obama-Biden plan link
However, whether it will exactly be the same may depend on how the crisis will further proceed.
It is better to get to this direct source for information on Obama-Biden plan.

But some questions remain:
How will it be modified ?
Will it be successful in lifting US from financial turmoil ?

Excerpt from the initial Obama-Biden plan:
(for details of Obama-Biden plan, refer to the website; updates may be available from its Newsroom)

plan to revitalize the economy
1. Immediate Action to Create Good Jobs in America

  • A New American Jobs Tax Credit
    ($3,000 refundable tax credit for each additional full-time employee hired)
  • Raise the small business investment expensing limit to $250,000 through the end of 2009
  • Zero capital gains rate for investment in small businesses
  • Save one million jobs through immediate investments to rebuild America's roads and bridges and repair our schools
    ($25 billion immediately available in a Jobs and Growth Fund)
  • Partner with America's automakers to help save jobs and ensure that the next generation of clean vehicles is built in the United States
    ($50 billion in loan guarantees)

2. Immediate Relief for Struggling Families

  • A tax cut for 95 percent of workers and their families -- plus seniors
    permanent tax cut of $500 for workers and $1,000 for families
    extend these expedited tax credits to senior citizens who are retired as a down payment on his plan to eliminate taxes for all seniors making up to $50,000.
  • Extend unemployment insurance benefits and temporarily suspend taxes on these benefits
  • Penalty-free hardship withdrawals from IRAs and 401(k)s in 2008 and 2009
    allow withdrawals of 15% up to $10,000 from retirement accounts without penalty (although subject to the normal taxes)
  • Instruct the Treasury to allow seniors to delay required withdrawals from 401(k)s and IRAs
  • Funds to counteract high heating costs this winter

3. Direct, Immediate Assistance for Homeowners, Not a Bailout for Irresponsible Mortgage Lenders

  • Instruct the Secretaries of the Treasury and Housing and Urban Development (HUD) to use their existing authority to more aggressively modify the terms of mortgages
    HOPE for Homeowners Act
  • Reform the bankruptcy code to assist homeowners and remove legal impediments to encouraging broader mortgage restructuring
  • Enact a 90-day foreclosure moratorium for homeowners who are acting in good faith
  • Provide $25 Billion in state fiscal relief to help avoid painful property tax increases
  • Create a universal mortgage tax credit for homeowners
    10 percent refundable tax credit on the mortgage interest paid by hardworking American families who do not itemize their taxes

4. A Rapid, Aggressive Response to Our Financial Crisis, Using All the Tools We Have

  • Be prepared, if necessary, for broader assurances for credit to banks
  • Extend asset purchases to unfreeze other critical sectors
  • Make credit available to small businesses and state or local governments
  • Address the credit crisis facing our states and localities
  • Address the credit crisis facing our small businesses
    two immediate steps:
    (1) a nationwide emergency lending facility for small businesses that could be run through the SBA's Disaster Loan Program, which helped thousands of businesses in the wake of 9/11;
    (2) temporarily eliminating fees on the SBA's 7(a) and 504 loan guarantee programs for small businesses, to help increase private lending for small businesses.

China 2008 additional investment plan

We can get a glimpse of which industry the investment will flow to from government’s stimulus package. If the amount is very big, it will give some breathing spaces or even a boost for the industry’s participants.

Wonder whether there is an online compilations of various countries’ stimulus packages in details.

Below is China 2008 additional investment plan:
今年新增1000亿元中央投资计划
link to China 2008 additional investment plan

Excerpts:
一是廉租住房建设、棚户区改造等保障性住房建设100亿元。

二是农村沼气、饮水、通路、通电、通邮工程、重大水利工程等农村民生工程和农村基础设施建设340亿元。

三是铁路、公路和机场等重大基础设施建设250亿元。

四是基层卫生、计划生育服务体系、中西部农村初中校舍改造等医疗卫生、教育、文化社会事业发展130亿元。

五是城镇污水、垃圾处理设施建设、重点流域水污染防治等节能减排和生态建设工程120亿元。

六是自主创新和产业结构调整项目60亿元。

summary:
low cost housing: 100亿元
village infrastructure: 340亿元
railways, roads, airports: 250亿元
health, education, culture: 130亿元
cities sewerage, waste treatment, pollution prevention, conservation project etc. : 120亿元
innovation, industry structural change: 60亿元
Total: 1000亿元

OPEC (Organization of the Petroleum Exporting Countries)


OPEC (Organization of the Petroleum Exporting Countries)
website
OPEC website is a great resource for oil-related industry.

I find its publications below very useful:
World oil outlook (annual):
This is a great industry analysis report. It started of with main assumptions.
Oil supply and demand outlook is analysed.
The report also covers oil downstream industry.

OPEC is using OPEC World Energy Model (OWEM) and World Oil Refining Logistic Demand (WORLD) model to analyse the energy industry and oil downstream industry.
The portion "major data source" tells where to get your information if you want to do your own research.
I prefer industry analysis that comes with assumptions, models used and data source/reference.

monthly oil market report (monthly)
Publishing schedule of monthly oil market report is available.

The report highlights many important components related to oil industry:
crude oil price, oil futures, commodity markets, world economy, world oil demand/supply, product markets and refinery, tanker market, oil trade, stock movements etc.

In the future, if we wish to analyse on oil industry, at least these components need to be analysed. The "world economy" portion is also useful for economic analysis, in the point of view of oil industry people.


OPEC bulletin
This OPEC bulletin has write-up on the industry.

The latest of these publications available on date of this post:
World Oil Outlook 2008
link
December monthly oil market report
link
OPEC bulletin (Nov-Dec 2008)
link

Other information that I find useful:
OPEC upstream investment
OPEC downstream capacity
OPEC oil reserves
It is like a "pipeline" – from oil reserves, upstream, then downstream, then to customer.

China’s document regarding ideas of using finance to boost economic growth (1)

国务院办公厅关于当前金融促进经济发展的若干意见

On 13 December 2008, China government releases a document "国务院办公厅关于当前金融促进经济发展的若干意见"(the document is dated 8 December 2008).
document

a 9-sections; total 30-points document.

On my previous post on China's fiscal stimulus, some lingering questions are on how will it be implemented, where will the fund comes from and flow to.
This document probably answers some of those questions. It covers monetary policy, credit, capital, insurance, company’s fund, foreign funds management, financial services, taxation, risk management etc..

Its 9-sections are:
一、落实适度宽松的货币政策,促进货币信贷稳定增长

二、加强和改进信贷服务,满足合理资金需求

三、加快建设多层次资本市场体系,发挥市场的资源配置功能

四、发挥保险保障和融资功能,促进经济社会稳定运行

五、创新融资方式,拓宽企业融资渠道

六、改进外汇管理,大力推动贸易投资便利化

七、加快金融服务现代化建设,全面提高金融服务水平

八、加大财税政策支持力度,增强金融业促进经济发展能力

九、深化金融改革,加强风险管理,切实维护金融安全稳定

This is interesting.. Wish to explore and learn on these..

Laws of Malaysia

Legal protection and regulations are one of the important aspects of investment and business.
Without laws especially those governing investment and business aspects, markets cannot function well, if even function at all.

Changes of laws and regulations are also important to valuation of companies.
Modification of laws and new laws can create, boost or even destroy an industry.
Functioning of a country’s legal system is also an important intangible when doing country analysis.

Website of Attorney General’s Chambers (Jabatan Peguam Negara) of Malaysia is a good resource for laws in Malaysia.

List of laws that are related to investment, business in Malaysia:
website

They are classified into:
Banking and Finance Laws
Commercial Laws
Corporate and Business Laws
Constitutional Law
Custom Laws
Development Corridor Laws
Dispute Settlement Laws
Employment Laws
Environmental Law
Immigration Law
Industrial Laws
Insurance Laws
Intellectual Property Laws
Land Laws
Local Government Laws
Promotion of Investment Laws
Securities Laws
Shipping Law
Taxation Laws

Cool..This is quite a surprise. I didn’t expect there are laws like Development Corridor Laws, Promotion of Investment Laws etc..

For investment, those laws under Banking and Finance Laws, Securities Laws are particularly relevant.

List of laws (with PDF files) in Malaysia:
link

We may not need to know in details these laws to start investing, but it’s good to know where to look for the information when needed.

Investment analysis: company analysis, industry analysis, economic analysis


I just realise I have posted twice on "Laws of Malaysia".
(Wonder what is wrong with the system)
So I edit one of the two posts to this post. :-)

You may see that I have posted more on economy recently.
It is just my personal preference to explore more on economy during this period of turbulence (or financial tsunami). During this period of time, many of the market/business/investment participants are in a "jittery" mode. Many stimulus/rescue packages, businesses asking for rescue, retrenchment, downsizing, debate of economic ideas/policies, volatile reactions, more fear, more greed…. the list goes on.

It is a good time to brush up on economy and economic theories.
However, for investment analysis, it is not only economic analysis.

For investment analysis,
company analysis, industry analysis, economic analysis are all important.
However, their relative importances are debatable.

If we proceed in sequence of company -> industry -> economy, it is called "bottom-up" approach.
If we proceed in sequence of economy ->industry -> company, it is called "top-down" approach.

My personal preference:
I place more importance on company analysis and industry analysis; but I didn’t ignore economic analysis. Need to know effects of economic situation/policies (exchange rate, interest rate change, credit situation, fiscal/monetary policy, state of economy etc..) to the company’s financial position, competitive position, etc. and effects on customers.

I didn’t strictly follow either "bottom-up" or "top-down" approach.
I proactively pick up bits and pieces of information on company, relevant industries (supplier, current industry, customer’s "industry") and relevant economic data;
add on to the "database";
decide based on the "database"..
More like when the three (company, industry, economy) clicks, then I buy or sell.

Company analysis is a must (but is quite a routine task, though may have pitfalls here and there);
I like industry analysis the most :-)

Economist: Robert Shiller

On previous post, I have compiled blogs/websites of some world renowned economists like Mr. Zhang Wuchang, Gary Becker, Richard Posner, Nouriel Roubini, Paul Krugman and Joseph Stiglitz.

Add in one more today.

Robert Shiller
Robert Shiller's website

This is an informative website on Robert Shiller: his papers, his books and links to his columns in Project Syndicate and New York Times.
We can also access the course he teaches from Open Yale (link included in the website).
Also, the Stockmarket Confidence Index and S&P’s/Case-Shiller Home Price Indices.

Knowledge@Wharton

Knowledge@Wharton
website

Knowledge @ Wharton is a great website linked to Wharton School of University of Pennsylvania.

Many business function related articles are available.
The section "Finance and Investment" is particularly useful for investment.
link

Wharton finance professor Jeremy Siegel frequently writes insightful articles about finance/investment.

Again, email newsletter is available. This reduces "searching cost".

McKinsey Quarterly

McKinsey Quarterly
website

Currently it is subdivided into different sections:
Functions
Industries
Regions
Big Ideas
Multimedia
Outside Voices

I particularly like the subsections Functions, Industries and Outside Voices very much.
On "Functions", we can learn about different aspects of businesses :
Corporate Finance,
Economic Studies,
Governance,
IT,
Marketing,
Operations,
Organization,
Risk,
Strategy.

On "Outside Voices", we can learn a lot from its "interviews" with industrial participants/experts and "surveys". Cool !

Email newsletter is available. This reduces "searching cost".

Sina.com special section on China’s 改革开放三十年

Sina.com’s financial section recently has a special section on China’s 改革开放三十年.
It is a good read. Lots of information on China’s industries’, policy changes and development.
The special section is still ongoing.

link to 龙跃于渊 新浪财经改革开放三十年特别策划

Until today, it has 3 parts.
1. On agricultural industry
link

2. On heavy industry
link

3. On securities industry
link

Energy Information Administration (EIA) - International Energy Outlook 2008


Energy Information Administration (EIA) website is a great resource on energy-related industry.
EIA website

It has a lot of information on different types of energy sources:
petroleum
natural gas
electricity
coal
renewable & alternative fuels
nuclear

"Forecasts & Analyses", "Geography" are very useful too.

International Energy Outlook 2008 (published on September 2008)
link to International Energy Outlook 2008
PDF file:
PDF file

Economists’ blogs/websites


I find that many world renowned economists actually have blogs/websites.

Yeah ! A great way to learn from these economists, especially on current economic issues.

Besides Mr. Zhang Wuchang that I mention in my previous post,
below are some of the world renowned economists that have blogs or websites.

Gary Becker’s and Richard Posner’s blog:
blog

Nouriel Roubini’s blog:
blog

Paul Krugman’s blog:
blog

Joseph Stiglitz’s website:
website
His column in Project Syndicate:
link

Project Syndicate is also a website of treasure.

10-point plan by Ministry of Industry & IT (MIIT) of PRC China to boost internal needs


On previous post, we see that to boost internal needs, China has a 10-point plan to boost internal needs, mostly through different types of infrastructure building and policy on agriculture, taxation, credits.

Came across this complementary 10-point plan by "Ministry of Industry and Information Technology of the People’s Republic of China" (MIIT) (工业和信息化部) to boost China’s internal needs.
Link on MIIT

A good read. We can see which are the industries or industries’ aspects that the China government is going to promote/encourage. This one will be more on the industries.

Related aspects/industries (refer to website for details) in summary:
1. On factor of productions like energy, transport, commodity; also on import-export, pricing, taxation, credits
2. Some projects are mentioned: 钢铁基地、百万吨乙烯、百万吨钾肥、磷复肥基地
Wow.. million tonne !
3. Equipment industry
4. Communication, Integrated System industry
5. on SME funding, credit, risk
6. IT + Industrial integration; emphasis on 汽车电子、机床电子、医疗电子
7. TD-SCDMA, IMT-Advanced
8. Agriculture
9. Fashion/apparel industry
10. Quality of corporate internal management

How will it be implemented ? Will it be effective in boosting internal needs ?

Financial Stability Forum

On previous post about G20, one of the bodies mentioned are Financial Stability Forum.
website

Let's explore Financial Stability Forum today :-)

There are some publications by category:
capital flows
credit risk transfer
dealing with weak banks
deposit insurance
enhanced disclosure
highly leveraged institutions (HLIs)
implementation of standards
market and institutional resilience
offshore financial centres (OFCs)
ongoing work on sound financial systems
other

Members Institutions
link
We can find relevant bodies here. Lots of information..

Compendium of standards
link
This is cool ! The "12 key standards for sound financial systems" and its issuing bodies are eye-opener. Will the "New Financial Order" (if any) be following these standards (or its variations) ?

Changes on China export tax/rebate on goods

Taxes/rebates play an important part in whether sales or exports of goods are profitable and profit by how much. It can promote and break an industry/company especially if it is in its infant stage. This type of government policy changes make valuation more difficult and fair price less predictable.

China is going to change its export tax rebate on goods (again).

国务院关税税则委员会关于调整出口关税的通知:
website
Attached in the website are 2 PDF files showing details of the change, effective on 1 December, 2008.
Excerpt: (Refer to above 2 PDF files for details)

一、取消部分产品的出口关税或特别出口关税,主要包括冷热轧板材、带材、钢丝、大型型钢、合金钢材、焊管等钢材产品;硝酸铵、硫酸铵等化工产品;玉米、杂粮及其制粉等粮食产品,共计102项产品。
  二、降低部分产品的出口关税,主要包括部分化肥及其原料、部分铝材以及小麦、大米及其制粉等,共计23项产品。降低氮肥、磷肥等及其部分原料的特别出口关税,共计31项产品。
  三、调整尿素、磷酸一铵、磷酸二铵等化肥产品的淡季出口关税征收方式。调整粉末状天然石墨等3项产品的应税产品范围。
  四、提高磷灰石和硅等5项产品的出口关税。
  五、新增对部分产品征收出口关税,主要包括天然硫酸钡、非纯氧化镁、滑石、棕刚玉、四氧化三钴以及氟化物等,共计15项产品。
  对出口至香港、澳门和台湾地区自用的原粮及其制粉,继续不征收出口关税。对我国对外无偿援助的粮食,免征出口关税。

website
Excerpt:
通知明确了3770项提高退税率的商品的具体范围,主要内容如下:将轮胎等部分橡胶制品、主体或全部以人工速生材为原料的部分林产品的退税率由5%提高到9%;将金属挤压用模等部分模具、玻璃器皿的退税率由5%提高到11%;将冻对虾仁、冻蟹等部分水产品的退税率由5%提高到13%;将箱包、鞋、帽、伞、家具、寝具、灯具、钟表等商品的退税率由11%提高到13%;将牙膏等部分化工产品、石材、铝板带等有色金属加工材等商品的退税率分别由5%、9%提高到11%、13%;将农用泵、摩托车、自行车、家用电器等部分机电产品的退税率分别由9%提高到11%,11%提高到13%,13%提高到14%。

Wow..3770 types of goods !

G20 Leaders Summit on Financial Markets and the World Economy

Found on website of "G20 Information Centre": the "Documents and Declarations G20 Leaders Summit on Financial Markets and the World Economy November 14-15, 2008, Washington DC" and other related documents.
Link

The "Declaration of the Summit on Financial Markets and the World Economy" is available inside.

It is a great read, particularly the "Common Principles for Reform of Financial Markets" and its more detailed "action plans" part.

Its timeline: Immediate Actions by March 31, 2009; Medium-term actions.
Its "common principles for reform":
1. Strengthening Transparency and Accountability
2. Enhancing Sound Regulation
3. Promoting Integrity in Financial Markets
4. Reinforcing International Cooperation
5. Reforming International Financial Institutions

There will be lots of new regulations and standardizations, in global scale, provided a consensus can be reached.

Some of the international bodies/"guidelines" etc. that are mentioned in the documents may worth a search or understanding to get a glimpse on the future "world financial order" will be (however, the list below is not exhaustive):

  • IMF, World Bank and other multilateral development banks (MDBs)
  • Financial Stability Forum (FSF)
  • World Trade Organization (WTO)
  • WTO's Doha Development Agenda
  • Millennium Development Goals
  • development principles agreed at the 2002 United Nations Conference on Financing for Development
  • Financial Sector Assessment Program (FSAP)
  • Credit Ratings Agencies
  • Basel Committee
  • Financial Action Task Force
  • World Bank - UN Stolen Asset Recovery (StAR) Initiative
  • Organization for Economic Cooperation and Development (OECD)
  • Bretton Woods Institutions

    Other more general information on G20:
    website

list of good investment/business books


I always wish to compile a list of great investment/business books (at least those that I think are good) and encourage reading of those books. Better if it can be linked to online available book reviews, excerpt, content, pdf files etc..

It is again 80/20 rule: get the classics that really matters.. 20% of books covering 80% of important investment/business ideas.

Wonder whether there is an efficient/effective way of doing it.
I am trying to compile list of great investment/business books using Amazon’s "My favourites".
Will put the "My favourites" on the sidebar.
I may write some comments or blog entries in the future..

Tell me if there are other better ways.

Fiscal stimulus packages (1) - China

As there is a great possibility of recession spreads globally, many countries are having their own fiscal stimulus packages to encourage internal needs (since export will be harder) and promote economy growth.

I hope government will take this opportunity to really improve infrastructure (for examples utilities, transport, medical, education etc. ), especially for rural areas and set the stage to reduce poverty.

We can get useful information from the stimulus packages. Hopefully, we will have a glimpse of how government spending will trickle down and on what "pathway".

China’s 10-point fiscal stimulus package:
中国出台扩大内需促进经济增长十项措施
website

How big is the stimulus package ?
Excerpt:
到2010年底约需投资4万亿元。
今年四季度先增加安排中央投资1000亿元,
明年灾后重建基金提前安排200亿元,带动地方和社会投资,总规模达到4000亿元.

books summary (business, investment books included)

Many books are published. Coupled with busy life, we often don’t have enough time to read enough books to gain new insights.

Learning new knowledge, gaining new insights are important. One of the "7 habits of highly effective peoples" is "sharpen the saw".

Is there a way we can learn the important concepts of books without reading whole books ?
Is there a more efficient way of gaining new insights ?
(Much like 80/20 rule: e.g read 20% of a book to gain 80% of its insights)

A friend of mine once told me there is this website called Business Summary.
website
It is a great treasure of books summary, investment and business books included.

You may wish to check it out. Previously I got the trial account which enables me to read (and download !) summaries of books for 2 days. The website will occasionally send book summaries to email account.

It may be more helpful if we know before-hand which are the good books worth reading (meaning "classics").

UNCTAD World Investment Report

UNCTAD (United Nations Conference on Trade and Development) World Investment Report 2008:
PDF report
(Wow, a 411-page PDF report)

The 2008 report emphasizes on FDI (foreign direct investment), TNC (transnational corporation), infrastructure industries, policy challenges and options.

The "Methodological Notes" portion is a good resource on how and where to get FDI data for different countries: inflows, outflows, inward stocks, outward stocks.

FDI statistics are also available from:
link

Linked Notes, structured debt (2) - Malaysia

Linked Notes that are linked to Lehman Brothers have caused big losses to investors in Hong Kong, Singapore and other more financially advanced countries.

Caveat Emptor (buyer bewares) is often the rule. However, information asymmetry often disadvantaged the investors, especially when the investors are of lower educational level, not knowing English and under excessive sales gimmicks..

Sellers had the advantages. Sales pamphlet’s facts may be selectively presented; prospectus may be available only after the sales; high risk product (like LNs) be recommended to low risk investors etc..

I just wonder whether these Linked Notes are marketed in Malaysia to the general public and what the regulator’s standpoint on Linked Notes.

Found this "Guidelines on the offering of structured products" (2007) from Securities Commission of Malaysia:
PDF file

The above guidelines are applicable to :
Equity LN, Bond LN, Index LN, Currencies LN, Interest Rate Linked Notes, Commodity LN, Credit LN etc..

In my opinion, the requirement that makes a difference and gives investors’ extra protection are the "suitability and fair dealing requirements".

Excerpts of some of the notable points inside (refer to the PDF file for details):
(bracketed text below is my comment)
1. ....primary seller shall adopt fair dealing best practices when dealing, marketing and selling structured products to investors…. (this puts the responsibility to the seller)

2. ....different standards of fair dealing in relation to institutional investors and investor individuals…
(this sets a more stringent requirement to sales to investor individuals)

3. ...giving an investor individual who invests in structured products during an offer period, the option to obtain a full refund of his principal investment sum within three working days of such investment or the remaining offer period
(a cooling off period; good for investors who are bombarded with sales gimmicks)

4. A primary seller should endeavour to make an investor understand the risks in relation to investing in structured products before marketing and selling structured products to that investor.
(this again puts the responsibility to the seller)

i. know your client: ……primary seller should take all reasonable steps beforehand to assess the client’s financial position, investment experience and investment objectives.
(not only puts responsibility to the seller, it also sets the proper sequence of the sales process)

ii. duty of care: …..financial risks and potential losses that may arise from investing in structured products are fully explained to clients before the client makes his investment decision

iii. sales personnel: …. specifically identified personnel who have a financial background and possess adequate knowledge and understanding of structured products, particularly when dealing with investor individuals….. (only peoples with adequate product knowledge can sell)

iv. provided risk disclosure statement: …..risk disclosure statement is to be provided separately from the application form or other document constituting a contract between an Eligible Issuer and the investor, and is to be furnished to the potential investor together with other promotional and sales documents, before any binding contract is entered into by the investor….

v. confirmation of disclosure by client: …..primary seller should invite the client to read the risk disclosure statement, ask questions and take independent advice if the client so wishes….client should be requested to sign a confirmation..

vi. investors individual: …primary seller should ensure that a higher standard of diligence is exercised when dealing with investor individuals… (this sets a higher standard for sales to investor individuals)

I hope these guidelines have helped reducing/eliminating misrepresentation in LN sales in Malaysia and Malaysian investors are not affected by these LNs.
If that is the case, special thanks should be given to the Securities Commission. It has safeguarded the investors’ interest.

FT/Goldman Sachs book award 2008

Many new investment/business/management/economics books are published each year. Too many until we can’t keep track of them. We may therefore won’t know which may be a good book.

We can take a look on "FT/Goldman Sachs book award" to look for ideas of a good book.
link

The book "When Markets Collide: Investment Strategies for the Age of Global Economic Change" by Mohamed El-Erian won the "FT/Goldman Sachs book award 2008".

Excerpts from the website:
Five of the other finalists were:
The Snowball, the biography of Warren Buffett, the investor;
Remix, on copyright and the internet generation;
Mc­Mafia, about globalisation and organised crime;
Cold Steel, on the Arcelor/Mittal takeover; and
A Splendid Exchange, a history of free trade.

Some of the past winners:

2007 Award Winner
The Last Tycoons,
a vivid account of the tumultuous evolution of investment bank Lazard

2006 Award Winner
China Shakes the World,
A gripping exploration of the economic and business implications of China’s breakneck growth.

2005 Award Winner
The World is Flat,
book by Thomas Friedman, an exuberant account of the challenges and benefits of globalisation.

Wonder whether these are really good books. Maybe will check them out during next visit to bookshop :-)

National Bureau of Statistics of China


National Bureau of Statistics of China
website

Statistical data is available monthly.
data

The Chinese version website has more information compared to English version.

Found this 改革开放30年经济社会发展成就系列报告 in Chinese version only.
report
A great read.

Quite a lot of information on 统 计 分 析:
For examples:
企业景气报告
link
农 产 品 价 格
link
工 业 品 价 格
link

Though the information may still lag the real situation, there are still good reads.

changes in PIDM’s deposit guarantee

On 23 Oct 08, Malaysia Deposit Insurance Corporation (PIDM) has temporarily (said to be until December 2010) changes its depositor protection measures to preserve confidence in Malaysia’s financial systems.

Factsheet

List of financial institutions guaranteed under govt deposit guarantee:
(list of Commercial Banks, Islamic Banks, Investment Banks, International Islamic Bank, Deposit-taking Development Financial Institutions):
list

FAQ

Sovereign Wealth Funds (SWF)

Sovereign Wealth Funds had grown in importance due to its size and closed link to government.

Some resources on SWF:

SWF Institute
website

A good resource on SWF. There are website links to various SWFs, fund rankings, statistics & research.

Some of the important parameters for SWFs are size, SWF-to-foreign-exchange-reserve ratio and transparency. The transparency index for SWF is called Linaburg-Maduell Transparency Index. We can find these parameters of SWFs from fund rankings.

Singapore’s SWFs are GIC and Temasek Holding (Temasek itself claims that it is not a SWF).
Malaysia’s SWF is Khazanah.

International Working Group (IWG) of Sovereign Wealth Funds (SWF) has published a set of 24 voluntary principles to ensure an open international investment environment.

Generally Accepted Principles and Practices (GAPP)for SWF (called Santiago Principles)
pdf file

SWF Radar:
website
We can look for updated SWF news here.

Ethics on financial/investment field (2) - CFA Institute Standards of Professional Conduct

Both CFA Institute and CAIA are using CFA Institute Standards of Professional Conduct.

Let’s explore what is inside.

The portion more related to clients/customers are Professionalism; Duties to clients;
Investment analysis, recommendations and actions; Conflicts of interest.

For details, refer to the following files:
Code of Ethics and Standards of Professional Conduct

Standard of Practice Handbook
(we can find many Guidances, Recommended Procedures, Applications etc.)

CFA Institute Standards of Professional Conduct:
1. Professionalism
a. knowledge of the law
b. independence and objectivity
c. misrepresentation
d. misconduct

2. Integrity of capital markets
a. material nonpublic information
b. market manipulation

3. Duties to clients
a. loyalty, prudence and care
b. fair dealing
c. suitability
d. performance presentation
e. preservation of confidentiality

4. Duties to employers
a. loyalty
b. additional compensation arrangement
c. responsibilities of supervisors

5. Investment analysis, recommendations and actions
a. diligence and reasonable basis
b. communication with clients and prospecting clients
c. record retention

6. Conflicts of interest
a. disclosure of conflicts
b. priority of transactions
c. referral fees

7. Responsibilities as a CFA Institute member or CFA candidate
a. conduct as members and candidates in the CFA program
b. reference to CFA Institute, the CFA designation and the CFA program

Ethics on financial/investment field (1)

Ethics are very important in financial/investment professionals, especiallly to those that are advising customers/investors directly. Whenever there are financial scandals, questions related to ethics will be asked, especially by investors that are "victimised".

What are the ethics relevant to financial/investment professionals ?
Are ethics incorporated into curriculums ?
Are there laws/regulations governing ethics of financial/investment professionals ?
Can they be sued ? Can we recover the losses ?
… the list goes on…

Many of the questions are too big for me. Let’s explore..

Let’s take a look whether Ethics materials are included in curriculum of financial/investment professionals and what the aspects of Ethics are.

I look for the curriculum of financial/investment professionals from websites mentioned in my previous post.

CFP’s curriculum:
Code of Ethics and Professional Responsibility and Disciplinary Rules and Procedures,
Financial Planning Practice Standards,
Disciplinary Rules and Procedures.

CFA Institute’s curriculum:
Code of Ethics and Standards of Professional Conduct,
"Guidance" for Standards I-VII

CAIA’s curriculum:
CAIA is using CFA Institute Standards of Professional Conduct

FRM’s curriculum:
couldn’t find material on ethics from its website.
Maybe because risk management is more of technical work and involves less direct dealings with customers/investors.

Financial Times presentation on financial crisis


Financial Times’ website has few interactive presentation showing timeline of financial institutions affected in The Financial Crisis and governments’ intervention.


Bank Street:
link
I think this is creative ! It shows someone walking through Bank Street, showing sequences of financial institutions having problems and their outcomes.

Governments’ intervention:
link


We can actually select types of governments’ intervention:
liquidity and lending guarantees,
interest rate moves,
bank deposit guarantees,
bank recapitalisation
asset purchase,
short selling crackdown.

Cool !

Euromoney Institutional Investor

Euromoney Institutional Investor
website

This website is a great resource on news for investment/financial industry.
We can find updated news on asset management, banking/brokerage, capital markets, derivatives, hedge funds, legal/regulatory… etc..

It also has various rankings & awards showing the top ranks/rising stars of the investment/financial industry. Maybe we can learn from their insights.

Haha, hopefully one day my friends in investment/financial industry are on the top ranks :-)

Email newsletter is available from the website.
It is a good way to let the information go directly to your doorstep (in this case "Inbox") when it is available.

Its "Events Calendar" may be useful if you are in the investment/financial industry.

It has also offered me once free subscription of its magazine.

The Medici Effect (1)

Came across this book "The Medici Effect" by Frans Johansson.
It is a great book on innovation (by intersection of fields/disciplines/cultures to generate new ideas).

Below are some resources available online:
website

What a surprise ! The PDF file of the book is available from the website.
book in pdf format

Medici Effect blog
blog

time value of money (2)

2. Discounted cashflow (DCF)

From FV = PV * (1 + r) ^n,
rearranging, we get:
PV = FV/ [(1 + r)^n]

Inversely, using the same examples from previous post,
$105 of 1 year later,
$110.25 of 2 year later,
$115.76 of 3 year later,
$162.89 of 10 year later
are all equivalent to $100, respectively.

It makes future value be able to "discount" back to present value.
If we convert all cashflow that we can get in the future to present,
we are using "discounted cashflow (DCF)".

time value of money (1)

If I’m to choose only one concept that is most important in investment, I will choose the concept of time value of money.

It can be used to elaborate a lot of important concepts in investment.
It is not difficult: its maths is learnt in secondary school.
I really hope this concept of time value of money can be taught in secondary school.

FV = PV * (1 + r) ^n
FV: future value
PV: present value
r: rate
n: number of years

1. Power of Compounding

To illustrate, $100 now, put in bank, at interest rate of 5%.
For
1 year: FV = $100 * (1+ 5%) ^ 1 = $105
2 year: FV = $100 * (1+ 5%) ^ 2 = $110.25
3 year: FV = $100 * (1+ 5%) ^ 3 = $115.76
……
10 year: FV = $100 * (1+ 5%) ^ 10 = $162.89
See how the value increases. This explains the power of "compounding effect".
(to be continued)

Linked Notes, structured debt (1) - Singapore

With the fall of Lehman Brothers, some of the Notes where Lehman Brothers is swap counterparty, reference entity/reference obligation etc (for e.g Lehman Minibonds, DBS High Notes, Morgan Stanley Pinnacle Notes and Merill Lynch Jubilee Notes), suffers wipe-out in value. Many Singaporean investors suffered big losses.

Found from Monetary of Singapore (MAS): "Singapore Corporate debt market review 2007".
PDF file

From the "pie chart",
Equity Linked Notes issuance (SGD denominated): 3.7B in 2007,
is 28% of SGD denominated structured debt.
That makes Structured Debt issuance (SGD denominated, 2007): about 13.21B.

Equity Linked Notes issuance (non-SGD denominated): 2.6B in 2007,
is 15% of non-SGD denominated structured debt.
That makes Structured Debt issuance (non-SGD denominated, 2007): about 17.33B

Other structured debts besides ELNs are:
CDO, credit linked notes, currency linked notes, callable notes, asset securitised notes, convertibles etc..

We can get examples of prospectus/pricing statement of structured product from Monetary of Singapore (MAS)’s Opera under "debentures".

We can learn a lot about Linked Notes from these prospectus and pricing statements.

7 traits shared by great investors

Read an article by Mark Sellers "So you want to be the next Warren Buffett ? How’s your writing ?"
article
Is a good read !

The article touches on competitive advantage as an investor.
It was said that reading lots of books/magazines/newspaper, getting MBA/CFA/PhD/CPA/MS etc, experience do not guarantee great success as an investor.
The article emphasizes the importance of psychology.

The articles mentioned 7 traits shared by great investors that are true sources of advantage in investment.

Trait #1
Ability to buy stocks while others are panicking and sell stocks while others are euphoric.

Trait #2
Obsessive about playing the game (investment) and wanting to win.

Trait #3
Willingness to learn from past mistakes.

Trait #4
Inherent sense of risk based on common sense.

Trait #5
Have confidence in their own conviction and stick with them, even when facing criticism.

Trait #6
Have both sides of your brain working.

Trait #7
Ability to live through volatility without changing your investment thought process.

Intangibles - brands

Brand is one of the "intangibles" that are hard to evaluate.

Came across this "Best 100 Global Brand" report in Business Week’s website.

We can get a glimpse of how brand can be evaluated from its ranking methodology.
This is one of the many ways to evaluate value of "brand".
evaluate "brand"

Step 1
Calculating how much of a company's total sales falls under a particular brand.
Projects five years of sales and earnings tied to each brand's products and services.

Step 2
Calculating how much of those earnings results from the power of the brand.
Strips out operating costs, taxes, and charges for the capital employed to arrive at the earnings attributable to intangible assets.
Estimates the brand's effect on earnings relative to other intangible assets such as patents and management strength.

Step 3
Future earnings are discounted against current interest rates and also against the brand's overall risk profile (to factor in brand strength) to arrive at a net present value.
Factors include market leadership, stability, and global reach—or the ability to cross both geographic and cultural borders.

Some "insights":
1.The same method should be applicable to evaluation of other intangibles too, for e.g patents, management strength etc.

2.Factors mentioned in step 3 is applicable to brands. To use the same method for other intangibles, other related factors are to be used.

3. We can learn ways to evaluate intangibles and related factors to use from methodology of ranking/index. Besides this ranking of brands, also mentioned in previous posts are WEF Financial Development Report and socio-economic risk.

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.





One of Warren Buffett’s famous quote is:
Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1.


Let’s look at to what extent not losing money is important in investment.


To illustrate,
if an investor loses 10%,
how much percentage does he have to earn, to go back to the pre-loss level ?

When he lost 10%, he left with 90% of his initial investment.


To go back to 100%, he will need to earn back the 10% he lost using what he has now, 90%.
Profit% he needs = 10%/90% = 11.11%


To generalise, if he lost x%, profit% he needs, to go back to pre-loss level is x%/ (100% - x%) .


Look at the table and graph.

we will be able to see:
as we lose more, it is more difficult to earn back to pre-loss level.
Just imagine, if we lost 50%, we need profit% of 100% to earn back to pre-loss level !


Therefore, to stress again :
Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1. :-)

Economist: 张五常 Steven N.S. Cheung

Economists: 张五常 Steven N.S. Cheung
(His blog)
Strongly recommend :
张五常 Steven N.S. Cheung, a renowned economist with expertise in property rights, transaction cost etc.

Some compilations of his works (in chinese):
website

His blog and his articles are good read (and light-hearted too).

We will be able to gain insights on how property rights, transaction cost, supply and demand, methodology in economics theory are used in explaining and predicting real life outcome.

Some of his works are available in internet, in the format of PDF files or ebooks.

Corporate Governance, Shareholder’s Rights (1)

I have attended few shareholder’s meetings (AGMs) in Malaysia.

My general feel is that many, if not most shareholders,
do not uphold their shareholder’s rights.

In the AGMs, many shareholders merely attend to collect gifts, have meals,
become "Yes man" during votings and obstructing critical questions being asked in Q&A sessions. Unjustifiable praises are hailed on the management and Board of Directors even during cases when they should be criticised. Ridiculous questions are being applaused. Good, critical questions (sometimes being raised towards the end after finally getting their turns) are being jeered at.

One important concept is Board of Directors should act in the best interest of shareholders.
Shareholders pay them large sum of director’s fees to take care of shareholders’ interests and to act as check-and-balance for the management team. Need to make sure they do their jobs.

Hopefully this post can shed some lights on Corporate Governance and Shareholder’s Rights.

The Corporate Governance of Listed Companies: A Manual for Investors (from CFA Institute)
PDF file

One of the intangibles to look into a company when investing is Corporate Governance.

A number of studies show strong links between good corporate governance and strong profitability and investment performance (the studies are mentioned in above PDF file).
We need to pay particular attentions to the Board of Directors, Management and Shareowner Rights.

For Board of Directors,
take note of its independence, member qualifications, authority to hire external consultants, terms, related-party transactions and board committees.

For Management, take note of implementations of code of ethics, personal use of company assets and corporate transparency on executive compensation, share-repurchase and price stabilization program.

For shareowner rights, pay attention to shareowner voting and shareowner proposals.

The Manual is a great read !

Investment Guru: Benjamin Graham, the father of value investing

Benjamin Graham is considered the
"father of financial analysis",
"father of value investing".

Graham mentored (among others) Warren Buffett.

Books by Benjamin Graham or co-authored by him:
1.The Intelligent Investor
2. Security Analysis
3. Benjamin Graham: memoirs of the dean of Wall Street
4. The Interpretation of Financial Statements
5. Storage and Stability
6. World Commodities and World Currency

I only have the 1st two books.
"The Intelligent Investor" is easier to read and more affordable than the great classic "Security Analysis". English version of "Security Analysis" is very expensive. Chinese version is much much cheaper.

More elaborated list of his works
(click on "Benjamin Graham")

The Heilbrunn Center for Graham & Dodd Investing at Columbia Business School
value investing history

Some students who had studied with Graham or Murray (Graham’s successor of his course) became legends in investment management, including
Warren Buffett MS ’51,
Mario Gabelli ’67,
Glenn Greenberg ’73,
Charles Royce ’63,
Walter Schloss and John Shapiro ’78.

The Rediscovered Benjamin Graham:
has 10 lecture texts by Benjamin Graham (presented at NY Institute of Finance in 1946 – 1947).
A summary of his life, method etc.

Some of his important concepts are:
intrinsic value,
margin of safety,
Mr. Market etc..

History of CFA Institute
Benjamin Graham had proposed the need for a rating designation for analysts. The idea which eventually become CFA designation.

One of the articles on Benjamin Graham (on his life) from CFA Institute.

XBRL (extensible Business Reporting Language)

Currently when retail investor wishes to do its own financial analysis on companies, he will have to:
1.Download many quarterly, annual reports (often in PDF format)
2. Key in the financial items on spreadsheet
3.Making relevant adjustment based on financial items
4.Analyse in the format of ratio, table, graph etc.

Though steps 3 and 4 can be automated easily,
steps 1, 2 (especially step 2) are the tedious and time-consuming steps.
It becomes a deterrent for retail investor to do its own financial analysis (assume he has the knowledge on how to do one).

Imagine in the not-so-distant future:
The second when quarterly/semi-annual/annual report is available,
it can send you an alert telling you that there are new information;

you open your PC/laptop/mobile, the new data is incorporated into your previous financial analysis.
Based on pre-customised software settings. it automatically calculates ratios, draw out tables, charts etc for your perusal.
A searchable, updated database of companies (for examples those that met certain pre-defined investment criteria) is readily available.

Financial analysis on invested companies becomes common. Even a layman can do it, they just have to get a analysis software or a securities company with such software (but he needs to have slight training on that).

Came across this development in investment field that may make this possible:
XBRL (extensible Business Reporting Language)

Some presentation materials that are useful:
XBRL website
IASB website on XBRL

Read from one of the articles, Microsoft Office has already a Prototype to facilitate XBRL use:
Microsoft Office Tool for XBRL Prototype

Saw news that US and China are going to implement this XBRL.
My wishes are that Malaysia and Singapore are implementing this XBRL soon and there are securities companies who offer the analysis software to his clients free :-)

Beware of bankruptcy – bank (2)

Prevention is better than cure.
Instead of relying on getting Deposit Insurance after bank went bankruptcy,
it will be better if we can detect when certain banks are going "bad".

Found this "Examiner’s guide to Problem Bank identification, rehabilitation and resolution" from
Comptroller of the Currency Administrator of National Banks, US:
PDF file

The part "Problem Bank Identification" and "Accounting Issues in Problem Banks" are particular useful.

Some of the red flags mentioned (the "guide" teaches on details of these red flags):
1.rapid growth/aggressive growth strategies
2. deterioration in economy
3. management/oversight deficiencies
4. inappropriate limits on OCC access to bank staff and documents (applies to US, in simple term, not letting enough "regulator"’s access to bank staff and documents)
5.risk management deficiencies
6.significant off-balance-sheet exposure
7. asset quality deterioration
8.significant ALLL (Allowance for Loan and Lease Losses) and asset valuation adjustment issues
9. strained liquidity
10.insider abuse and fraud

Beware of bankruptcy - bank (1)

What if banks, where we put our money inside, bankrupt ?

Money we deposit in banks are guaranteed to certain extent by Deposit Insurance.
See below for details of Deposit Insurance for Malaysia, Singapore and US.

Note which are the institutions under cover, type of deposit products covered and amount of the coverage..

PIDM (Perbadanan Insurans Deposit Malaysia)

PIDM handbook and other resources for download
read the handbook:
total coverage is 60k per depositor per member institution;
one good thing is joint accounts held with different people enjoy separate coverage limits, wow !

Examples of calculations
Quiz have some fun:-)

SDIC (Singapore Deposit Insurance Corporation)
SIDC website
coverage is 20k, aggregated (including joint account’s share) and net of liabilities.

FDIC (Federal Deposit Insurance Corporation)
FDIC website
Wow, basic insurance amount is 100k per depositor, per insured bank.. Generous :-)

IADI (International Association of Deposit Insurers)
IADI website
We can find list of countries with a deposit insurance system

Beware of bankruptcy

Seeing Lehman Brothers filing for Chapter 11 protection,
it gives a chill..


One of the worst nightmares of investing is "bankruptcy"..
It can affect our financial well-being badly, some examples:

  • company invested bankrupt,
  • critical supplier/customer of company invested bankrupt,
  • bank holding big portion of our savings bankrupt,
  • insurance company underwriting our policy bankrupt,
    ….. the list goes on…

For US,
Visual charts about different types of bankruptcy:
Chapter 7
Chapter 11
Chapter 13

http://www.bankrupt.com/
Its "Troubled Company Reporter" (Asia Pacific, US, Europe) is useful..
We can look for potential problematic companies news here..
(though not sure whether the database is complete)

Web BRD (Bankruptcy Research Database)
website
A website to do Bankruptcy Research :-)
(to be continued….)

Country analysis : Socio-political risk

PERC (Political & Economic Risk Consultancy)
website

Free reports are available in its library.

Its framework of analysing socio-political risk are:

  • Domestic political risk
  • Social disorder risk
  • External risk
  • Systemic risk

Refer to any one of the Risk Monitoring Service’s reports for more detailed breakdown.
Too bad not all its updated reports are freely available.

Book : The Snowball – Warren Buffett and the business of life

"The Snowball – Warren Buffett and the business of life" is Warren Buffett’s authorised biography to be published on 29 Sept 2008.
website on the book

Thre is an article which features Warren Buffett "10 ways to get rich":
article

It’s a good read with condensed wisdoms.
I try to "re-phrase" the main points using my own words (after reading the "10 ways to get rich").


1. Reinvest your profits

Power of compounding;

2. Be willing to be different
Beware of "herd mentality";
Own yardstick to judge yourself, not the world’s;
Live your own life, not others

3. Never suck your thumb
Gather info/database before hand to enable fast decision making;
Set a deadline for decision;
Don’t procrastinate on decision

4. Spell out the deal before you start
Get the specifics/details before start

5. Watch small expenses
Beware of any cost that can eat into profit;

6. Limit what you borrow
Be debt free, then work on savings, then only invest

7. Be persistent
Importance of cost reduction;
Importance of negotiation;
Persistance even when in "underdog" situation;

8. Know when to quit
Beware of "mental accounting";
Know when to quit;
Learn from mistakes;
Never repeat mistakes;

9. Assess the risks
Risk analysis by using scenario analysis: best case scenario, worst case scenario;
Decision making analysis : "and then what ?" (much like decision tree)

10. Know what success really means
Success is not measured by dollars nor monuments;
Success is charity, be loved

Industry Analysis – treasure hunt using Wikipedia

Though a good insightful industry analysis may not be easy to do,
but even a layman can leapfrog his knowledge in the industry pretty fast
(much like a steep learning curve).

To illustrate the point, imagine I am a layman (I really am) to the palm oil industry and
I know nothing about palm oil except the word "palm oil". :-)

You can try it out yourself to understand my point.
Let's start the "treasure hunt" using Wikipedia.
http://en.wikipedia.org/wiki/Palm_oil

From the Wikipedia’s external links only, we found:
1. Palm Oil HQ: (bingo, hourly updated palm oil industry news, CPO future prices, historical prices)
http://www.palmoilhq.com/

2. oil palm production, consumption, export, import: (bingo, can do supply/demand analysis, can know which are the big producers and users, industry concentration etc..)
http://www.indexmundi.com/en/commodities/agricultural/oil-palm/

3. Greenpeace report (bingo, we know one of the threats to palm oil industry)

From the Wikipedia’s references, we found industry associations like: MPOA, MPOB, MPOPC
search using Google:
1. MPOA (Malaysian Palm Oil Association)
http://www.mpoa.org.my/
which further leads us to RSPO (Roundtable on Sustainable Palm Oil)

2. MPOB (Malaysian Palm Oil Board)
http://mpob.gov.my/
which further leads us to more "links" from its links.

3. MPOPC (Malaysian Palm Oil Promotion Council)
which is showing dead link but found:
MPOC (Malaysian Palm Oil Council)
http://www.mpoc.org.my/main_ind.asp
This is a treasure of palm oil industry data.

Just wonder why the industry bodies are MPOA, MPOB, MPOC respectively, so funny :-)

Technopreneur’s presentation : Demo Fall 08 and TechCrunch50 Conference

Have a real feel on how technopreneurs presenting to VCs !

Demo Fall 08, San Diego.
website
(The Launchpad for Emerging Technology)
Date: September 7-9, 2008

  • Click on "DEMOfall 08" for lists of videos showing technopreneurs presenting their products/ideas/companies.
  • Click on "Demonstrator" to have a quick view of what are the new startup companies/products/competitions/industries etc.

TechCrunch50 Conference 2008, San Francisco
Date: September 8-10, 2008
website

  • Click on "Companies" to see the shortlisted companies and their presentations.
  • Click on "Experts" to see some examples of Venture Capitalists.

Financial Development Report by World Economic Forum

Came across this Financial Development Report by World Economic Forum.
Financial Development Report link

Financial Development Index 2008 ranking.

We can learn a great deal from the report:
components of financial development, weak and strong points of each country etc..

The Financial Development Index is divided into 3 categories, 7 pillars:
Categories are :
factors, policies, institution – pillars 1 to 3
financial intermediation – pillars 4 to 6
capital availability and access – pillar 7

1st pillar: institutional environment
2nd pillar: biz environment
3rd pillar: financial stability
4th pillar: bank
5th pillar: non-banks
6th pilllar: financial markets
7th pillar: size, depth and access

Singapore is at rank #10 . Malaysia is at rank #20.
Maybe we can see what our country is weak at and learn from the best in class.

From Table 2 (page 14):
Wow, Malaysia actually gets #2 position in "bank", what a surprise !
Singapore gets #1 position in pillars 1-3, all the pillars related to policymaker !

Malaysia detailed report is at page 156, Singapore at page 204.

Seems like Malaysia’s bank is good at "financial information disclosure" (rank #1).

Technical Notes and Sources (page 331 onwards) provides information of where to get data for all the indicators for the Financial Development Index. Great resources to do country analysis, economic analysis !

Manage your energy

Came across this concept of "manage your energy, not your time" from one of the Harvard Business Review (HBR) article.
article

In the website, there is a "test" to check whether how well you are managing your "energy".
energy test
It touches on aspects below:
physical energy (body): sustainability
emotional energy (emotions): self-worth
mental energy (mind): self-expression
spiritual energy (spirit): significance

After the test, you will be able to read 3 related HBR articles in brief with great insights:
1. extreme jobs: the dangerous allure of the 70-hour workweek
2. manage your energy, not your time
3. overloaded circuits: why smart people underperform

Good read ! Good to ponder whether your job is too "extreme" and whether you manage your "energy" well.

The concept is from this company called Energy Project.
Energy Project website

Professional Skepticism - Beware of financial reporting fraud !

One of the important pillars of investment analysis is company analysis.

Let's say we analyse the account, we find that the account is audited by some famous audit firm. Everything points to a "strong buy". Can it be wrong ?

Yes, it can go wrong, even extremely wrong too.
We will be surprised by how many cases of accounting frauds that are uncovered (not counting those that are not surfaced yet).


Areas of reporting most susceptible to fraud
report pursuant to section 704 of Sarbanes-Oxley Act of 2002

In this SEC study, areas of reporting most susceptible to fraud, inappropriate manipulations and earnings management mentioned are:

  • improper revenue recognition,
  • improper expense recognition,
  • improper accounting in connection with business combinations,
  • inadequate disclosure in MD&A & elsewhere,
  • failure to disclose related party transactions,
  • inappropriate accounting for non-monetary & rountrip transactions,
  • improper accounting for foreign payments,
  • improper use of off-balance sheet arrangement,
  • improper use of non-GAAP financial measures.

The number of cases in the report can shock you. Real cases for different types were mentioned.

Fraud risk factors
Frauds take time to be uncovered.

Often when it is uncovered, it is already too late for the investors. Share price plummets, "trapped" investors suffer big losses.

It is better to avoid them in the first place.

Look for the warning signs and red flags.
If we see the warning signs and red flags, if we are in doubt, avoid the firm.

3 conditions generally present when financial reporting fraud occur:

  • incentives/pressures
  • opportunities
  • attitudes/rationalizations

Refer to Appendix (page 300-7 onwards) of the following document for list of fraud risk factor.
"(AICPA SAS 99) Consideration of fraud in financial statement audit"

(AICPA is American Institute of Certified Public Accountants.)

Though "areas of reporting most susceptible to fraud" and "fraud risk factors" are mentioned, be always aware that the list is not exhaustive. New instruments, new environment, make possible new ways of frauds. Buyer bewares !

Professional Skepticism

Today I will blog on something light-hearted. A story, instead of data or resources.
I like this insightful story very much. I read it in a book titled "Wisdom of Jews" (a chinese book).

One day, a man went to visit a Jewish Rabbi trying to seek on knowledge from the Rabbi.
Below were their conversation:

Rabbi: "This event happened in 12th century in United States of America. One day, two men came down from the same chimney. One’s face was smeared, the other’s face was clean, which one would wash his face first ?"

Man: "The one with a smeared face."

Rabbi: "No. It’s the one with the clean face, as he saw the other man having a smeared face."

Man: "Oh ya. That’s right. I understand now."

Rabbi: : "This event happened in 12th century in United States of America. One day, two men came down from the same chimney. One’s face was smeared, the other’s face was clean, which one would wash his face first ?"

Man (feeling confused): "Of course it’s the one with the clean face, as he saw the other man having a smeared face. Why do you ask again ?"

Rabbi: "You should ask, "Why both men came down from the same chimney, yet one face is clean, the other face is smeared ?""

Insights from the story:
When the man answered the smeared-face man would wash his face,
his scope : the one with smeared face

When the answer is the clean-face man would wash his face,
his scope: both men and their interactions (seeing each other after coming down)
questioning the implicit assumption : the one with smeared-face would wash his face first

When the question is raised about the impossibility of one smeared-face man, one clean-face man,
scope: both men, same chimney
questioning the implicit assumption of: one smeared-face man, one clean-face man, coming down from the same chimney

When we get whatever data/knowledge/model, we would need to know the scope and think hard on its implicit assumption. Be professionally skeptical on data you get !

There is continuation from the story…

Rabbi (asked again): "This event happened in 12th century in United States of America. One day, two men came down from the same chimney. One’s face was smeared, the other’s face was clean, which one would wash his face first ?"

Man (feeling confused again): ……

Think deeply on it… Would you be able to answer the Rabbi’s question ?
(Note: the answer is not: "Why both men came down from the same chimney, yet one face is clean, the other face is smeared ?")
(Hint: Go one more level up…)

Think again before mouse over the following paragraph..
Answer: The event didn’t happen at all. United States of America was non-existent in 12th century. It was founded in 1776.
Scope: the time it happens, 2 men, chimney
questioning the implicit assumption of: what the Rabbi said is true
We need to question the validity of the medium carrying the data/knowledge/model too !

Industry Analysis - using prospectus

Prospectus has a great amount of information. Any novice can learn a great amount from prospectus.

To illustrate the point,
let say we choose: Sime Darby (listed in Malaysia)
Sime Darby's prospectus


We can find information such as:

  • risk factors,
  • industry overview,
  • business,
  • information on substantial shareholders, directors, management,
  • financial information

Many are self-explanatory. Some pointers:
1. Pay particular attention to the risk factors
This "risk factor" is a very interesting section.
The company will honestly cover every angle to tell you what can go wrong with the company, as if trying to convince you not to buy shares of the company :-)
With this information, we will know what can affect the company’s performance in the future.
We can get information useful for Porter’s 5 forces analysis (briefly discussed in this post)

2. "Industry overview" and "business" sections. It may provide some data/insights by industry bodies to substantiate some statements. Note down the industry bodies so that we can go to them directly for data in the future.

3. "Information on substantial shareholders, directors, management" is useful to analyse on corporate governance and quality of management.

Industry analysis - industry classifications

Companies can be segregated into different industry classification for ease of discussion and analysis.

Two of the more popular industry classification methods are:
1. Industry Classification Benchmark (ICB) which is developed by Dow Jones and FTSE.
ICB website
PDF file

ICB classification is in the format of :
industry
supersector
sector
subsector.

DJ Indices and FTSE Indices are following ICB classification.

2. Global Industry Classification Standard (GICS) which is developed by Morgan Stanley Capital International (MSCI) and Standard & Poor (S&P).
GICS website

GICS classification is in the format of :
sector
industry group
industry
subindustry.

MSCI Indices and S&P Indices are following GICS classification.
GICS classification comes with code, for example: semiconductor (45205020)

free online learning

Sometimes, we may not have the money or time to attend formal lectures/talks/seminar.
However, we can learn through online learning at our own free time, own pace.
Many of these online lectures/talks are free :-)

MIT OpenCourseWare
MIT OCW website
MIT courses' materials for many disciplines are put online..
Look for Economics, Sloan School of Management

MIT World
MIT World website
Look for Business/Leadership, Economics, Innovation/invention etc.
This website has lots of video by great speakers..
On business alone, we can find Jack Welch, Carly Florina,Peter Senge, Negroponte, Muhammad Yunus, LesterThurow, Bill Gates.... wow :-)

OOPS
OOPS website
this is the chinese version of OpenCourseWare..
course materials for many other universities too..
website

OOPS video
OOPS video website
Chinese version of "MIT World" + video of presentationin Taiwan..

Open Learn
Open Learn website
UK version.

Industry Analysis – get data from MICE

MICE (Meetings, Incentives, Conventions and Exhibition) information is a good source to do Industry Analysis.

Malaysia Convention & Exhibition Directory
website
Look for calendar of events .
It shows a list of events, conventions, exhibitions that have been held and are going to be held.
We can get a lot of information from Industry Exhibition, for e.g
  • Industry participants (industry leaders, challengers, numbers of main participants etc.)
  • Buyers
  • Suppliers
  • Industry publications, magazines, newsletters
  • Industry groups
  • Regulators
  • Industry experts
  • Talks/seminars (sometimes presentation materials are available)
  • Products, niche markets etc…

Take for example, from Calendar of Events,

choose ISF 2008 (17 June – 20 June 2008)
go to ISF website (International Security & Safety Expo & Forum) (click on the logo),
you can get "e-brochure" (can find related Ministry, industry body, lots of industry participants can be found inside).

The logo shows the sponsors (usually important industry players), industry publications etc.

We will be able to get even more information about the industry cluster (to use Michael Porter’s word: "cluster") if we continue to search for the sponsors, industry publications, professional bodies etc.
We have not even set foot on the real Exhibition and already got so much information :-)

Malaysia - 2007 Auditor-General Report

Jabatan Audit Negara Malaysia

2007 Auditor-General Report (only Malay version available as of now)
2007 Auditor-General Report
(going a level up will be other Audit Report)

  • It comes with :
    Penyata Akaun Awam & Pengurusan Kewangan
    (can see how Ministries, government agencies’ financial accounts are managed)
  • Pengurusan & Aktiviti Kementerian/Jabatan dan Pengurusan Syarikat Kerajaan Persekutuan
    (can see what are the activities carried out by Ministries, their structures, new projects etc.. a good source of information)

From (a), (Sigh) What a mess ! Lots of rooms for improvement !

Page 20: Table showing weaknesses of expenditures for development
(subsequent pages showing the details and amount involved. )
Page 74-75: "scores" for financial management of different Ministries, Departments
Page 115: Conclusion


Both reports also have some photographs showing examples of what need to be improved.
Seems like this Audit is really painstakingly done.

Hopefully, those weaker Ministries & Departments can buck up as soon as possible and improve themselves in financial "governance".

Economic Analysis : Malaysia


Where to get data for economic analysis of Malaysia ?


1. Bank Negara Malaysia
BNM website

Some of the data available:
National Summary Data,
Statement of Asset & Liabilities (official international reserves position) ,
detailed breakdown of official international reserves,
rates like: exchange rate, interest rates, Islamic interbank rates,
Malaysian Government Securities ("risk free rate" for Malaysia, useful in investment calculation. Also can look at MGS yield curve),
Kijang Emas prices (gold price),
primary issues of all instruments etc.

  • Some information comes with downloadable historical data or historical chart. A good source to see the trend of the parameters.
  • By checking Advance Release Calendar, we can proactively know and check for timely, relevant data, instead of passively waiting to see the same data appearing in newspaper etc..
  • Monthly statistical bulletin is a compilation of monetary, financial & macro economic statistics. A good one-stop summary.


2. Department of Statistics, Malaysia
website
We can find macro-economic statistics for e.g population, vital statistics, GDP/GNI, BOP, external trade, exports, production, CPI, PPI etc. from the website. The growth rate is useful as a benchmark for economic growth.

Management guru: Michael Porter

Michael Porter’s ideas are greatly useful in investment analysis.
His ideas on Competitive Advantage (of companies, states, countries etc.), Strategy, Clusters are insightful for industry analysis.
(In investment analysis, we normally do: company analysis, industry analysis, economic analysis.)

Magazine "Economist" has an article on Michael Porter:
article on Michael Porter

Institute for Strategy and Competitiveness of Harvard Business School is headed by Michael Porter.
ISC website

It has a great resources (pdf files) on Michael Porter’s past lectures or presentation.
We can see how his method is used to analyse competitiveness of strings of countries, Singapore included. Too bad Malaysia’s report is not included yet.

Look at a sample of how he analyses on competitiveness, clusters, strategy.
competitiveness (e.g Singapore)
Clusters
Strategy

Michael Porter’s consultant firm Monitor:
Monitor's website
Lots of resources on business issues and industries can be found here.

Examples of how Michael Porter’s 5-forces (threat of new entrants, power of suppliers, power of buyers, threats of substitutes, competitive rivalry) can be used in industry analysis can be seen in Investopedia’s Industry Handbook. A few industries are analysed.
Industry Handbook

Enjoy exploring :-)


Management gurus


One of the great insights from Warren Buffett on investment is :
investing is most intelligent when it is most business like;
I am a better investor because I am a businessman and
a better businessman because I am an investor.


When investing, we are actually "buying a business".
From the book "The Warren Buffett Way", it was said that we need to look at management tenet, business tenet, financial tenet and market tenet.


Let’s take a look into who are the gurus in management and their ideas.

Recommending 2 books:

1. the Handy guide to the gurus of management

This book is written by Charles Handy who himself is a management guru.
BBC website has some texts (pdf files), audio and explanation on their contributions to management.
Handy guide summary

Management gurus mentioned are Charles Handy, Peter Drucker, Tom Peters, Warren Bennis, Sumantra Ghoshal, Kenichi Ohmae, Gary Hamel, Rosabeth Moss Kanter, Bill Gates, Ricardo Semler, Michael Porter , Fons Trompenaar and Charles Hampden Turner.

2. The Ultimate Business Library: the greatest books that made management by Stuart Crainer

This book shows a good summary of management gurus, their books and their ideas. A good read.

I.O.U.S.A

I.O.U.S.A
Get a copy of "the state of the union’s finance – citizen guide".
It’s a good read on US national debts, revenues, budgets and financial well beings. In the end of the pages, there are a list of high "information density" websites related to US finances.
Take a look also at the "Bonus clip". (quite a number of them !)

Investment guru: Warren Buffett


There are many books on Warren Buffett, some of which that I like are:

The Warren Buffett Way
This is my 1st book on Warren Buffett. Works great as a summary, introductory book on Warren Buffett.


The Real Warren Buffett
I like this book very much. It touches on Warren Buffett in aspects of People Leader, Capital Manager and To Act Like An Owner. More insights on his concepts.

Buffettology
written by Mary Buffett. Perhaps she has a better understanding on Buffett’s method.

Of Permanent Value
emphasis is on his life and deeds.

There isn’t a book by Warren Buffett on his investment method yet but we can get a glimpse through his own writings/lectures.

From Berkshire Hathaway’s website, we can get:

Owner-related business principles:
website
Berkshire Hathaway annual reports:
website

Besides that, here is another good Buffett’s resources online:
website

Business Game:Business Choice and CSR

Great, I found two business simulation games from BT (British Telecommunications plc) website that are interesting and real cool !
Biz simulation game

One is Better Business Choice, in which 3 venture capitalists with 3 different types of business environments (boundary world, fluid world, engaged world). You are given a limited budget and will have to make your choices on product, consumer, materials, supplier location, suppliers, employees, R&D, energy, marketing, training. After you launch your business, it will show your year 1, 3, 5 performance on environmental, economic and social aspect. Detailed Report will then explain the effect of your choices.

The other game, Better Business Dilemmas puts you in situations of a CEO on various CSR(Corporate Social Responsibility) issues in the form of emails, phone calls, memos etc. Your choice of reply will affect your performance in the view of shareholders, neighbours, employees, customers, pressure groups, shown in a chart. In the end of the game, a news article will show what happens in the annual shareholder meeting. You will be praised by some groups and scolded by some other groups. Haha, it seems that it is not easy to be a CEO.

Enjoy and have fun :-)

Investment Gurus, Money Masters

Gurufocus
website
many many investment gurus, in fact it is too many :-)

Greatest Investors from Investopedia
website

World’s richest people 2006, in investment industry, from Forbes:
website
(2008 list exists, but it doesn’t have the filter to choose the industry)

For the books mentioned below, you can search in Amazon and look for "table of content". An excerpt is available too. With the investment gurus name or their fund’s name, we can search using Google or Wikipedia.

book : money masters of our time, by John Train

Warren Buffett, Paul Cabot, Philip Fisher, Benjamin Graham, Stanley Kroll, T. Rowe Price, John Templeton, Larry Tisch, Robert Wilson

book: the new money masters of our time, by John Train

Jim Rogers, Michael Steinhardt, Philip Carret, George Soros, George Michaelis, John Neff, Ralph Wanger, managing Harvard’s Money, Peter Lynch

book: the winner’s circle – Wall Street’s best mutual fund managers

Richie Freeman, David Dreman, Bill Miller, Christopher Davis, John Calamos, Wallace Weitz, Richard Aster, Jr., Jeff Cardon, Joel Tillinghast, Bill Ricks & team, Bill Wilby, Jeff Everett, Sam Isaly, Bob Rodriguez..

It can be seen that (from the book’s Table of Contents) it includes large-cap, mid-cap, small-cap, global/foreign, sector/bond successful mutual fund managers.

Investment quiz

Morningstar website has a structured way to learn about investment.
(Morningstar is an investment research company which provides data on investment offerings like stocks, mutual funds, bonds, ETF etc. )

Morningstar Classroom

It is divided into 4 curriculum: stocks, funds, bonds, portfolio.

Read and take the quiz. It comes in bite size, not many materials and questions per "chapter".
It’s full of funs. We can keep track of our learning progress with an account. Points can be accumulated to change for 60 days of premium subscription.

Enjoy !
Related Posts with Thumbnails

Disclaimer

Disclaimer:
The opinion post on this blog is personal and is not an inducement to buy or sell any investment products. The author of this blog will NOT be held responsible for any losses incurred due to the reliance on any content of this blog for investment decisions.