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. :-)