Wednesday, November 28, 2007

More on Mems Restating of Its Earnings

I took some time and I reflected on what I had posted on Mems before.

My first ever blog posting was actually on Mems.

And the update to that posting:

These two blog postings reflected the bullish projections made by S&P on Mems.

And I did a more detailed posting on Mems here:

  • Did Mems deserve the rather optimistic projections, assumptions from folks in CIMB, OSK and even S&P?


    For me, i believe this is a rather simple example of an overly-hyped stock which simply failed to meet their expectations. It reminds me of Warren Buffett's mumbling that when the tide resides, we will know who has been swimming naked. Well, from Mems actual reported quarterly earnings, we can clearly see the nakedness in Mems share price and of course the insane earnings projections assigned to Mems.

    So curious to know... since Mems has not meet these so-called expectations... i wonder... i really wonder... did Mems failed or did the market itself failed? What do you reckon?

And last but not least which, I made the following remarks:

  • That's how Mems had performed since listing, which was pretty decent i think. Yes, the cash flow is a bit questionable but all in Mems is decent. (Oooh.. cash flow looking really questionable!)

    Did Mems deserve the rather optimistic projections, assumptions from folks in CIMB, OSK and even S&P?


In today Star news report:

  • Wednesday November 28, 2007

    MEMS Technology to conduct special audit on accounts

    PETALING JAYA: MEMS Technology Bhd's board of directors wants to conduct a special audit on its financial accounts as the company has overstated its revenue by 26.8% or RM19.7mil for the financial year ended July 31 (FY07).

    In a statement to Bursa Malaysia yesterday, MEMS Technology said its external auditor had expressed concerns over “certain transactions relating to revenue, property plant and equipment”.

    “As a result of this, the unaudited consolidated revenue for the financial year ended July 31 will be revised to RM53.7mil.

    This will consequently result in the unaudited net profit being reduced from RM21.47mil to RM13.45mil,” it said.

    Under the listing requirements of Bursa Malaysia, MEMS Technology was required to furnish the audited financial statements FY07, within four months from the close of the financial year.

    The company said it was not able to issue its audited financial statements by this Friday's deadline.

    The board had resolved to appoint an independent committee comprising the company's independent directors to consider the matters highlighted by the external auditors, including the mandate to appoint a professional firm to carry out a special audit.

    “The professional firm will report directly to the independent committee, comprising Zakaria Merican Osman Merican, Datuk Dr Mohamed Ariffin Aton, Dr Aziuddin Ahmad and Norazharuddin Abu Talib,” the company said in the statement.

    MEMS Technology was in the midst of applying for a transfer to the Bursa Malaysia main board.

    Part of the transfer requirements is to have an uninterrupted cumulative audited profit of at least RM30mil over three to five years and a minimum audited net profit of RM8mil for the most recent financial year.

How? What do you think of Mems overstating of its earnings?

And here is how Mems had traded for the past 6 months.

Tuesday, November 27, 2007

Update on Mems Accounting Issue

Blogged the other day: OSK comments on Mems

In which OSK wrote the following...

  • We understand that there has been speculation since last week indicating that MemsTech’s audited FY07 net profit could be much lower than reported in September 2007 after adopting a new accounting standard. We have contacted the management and we think it is still premature at this juncture to actually conclude anything. First of all, this is not a special investigation on the company’s FY07 financial results. It is a standard procedure that the full-year financial results of PLCs will eventually be audited. According to management, the audited FY07 results will only be released at least two weeks from now. Meanwhile, our concerns that investors may further dump the shares until this uncertainty is alleviated, we have revised our recommendation on MemsTech to a Neutral. Nevertheless, our fair value of RM0.95 is maintained until the audited report is obtained..... (do read OSK comments on Mems )

Mems made the following announcement tonight:


  • Pursuant to Paragraph 9.24(b) of the Listing Requirements of Bursa Securities Malaysia Berhad for the MESDAQ Market (“Bursa Securities”), MEMS is required to furnish Bursa Securities its Audited Financial Statements for the financial year ended 31 July 2007 for public release, within a period of 4 months from the close of the financial year, which falls on 30 November 2007.

    The Board of Directors of MEMS (“Board”) wishes to announce that the Company is not able to issue its Audited Financial Statements by 30 November 2007, as the Company’s external auditors have expressed concerns over certain transactions relating to revenue and property plant and equipment.

    In light of the above, and after due deliberation, the Board has resolved not to recognize revenue of RM19.72 million. As a result of this, the unaudited consolidated revenue for the financial year ended 31 July 2007 will be revised to RM53.7 million. This will consequently result in the unaudited profit after tax for the financial year ended 31 July 2007 to be reduced from RM21.47 million as announced on 27 September 2007, to RM13.45 million.
Bottom line is net earnings will be reduced from 21.47 million to just 13.45 million!


That's pretty drastic!

For a stock that was touted for its stellar growth, doesn't this reflects so rather poorly on the company!

Monday, November 26, 2007

Cymao IV

Cymao reported it's earnings on Friday. It was not pretty at all. It reported a loss of 1.612 million, bring ytd losses to 7.023 million.

And what interested me most was the copy of the OSK report I received this morning.

I had blogged on it before based on OSK report back in Aug 2007:
Cymao III

And this was my comments to its report back in Aug 2007.

  • Ses, I do not understand it. They understand that earnings will be bad and they acknowledge the fact that the US housing market depression will have an impact on Cymao.

    And incredibly, they had slashed their FY 2007 earnings by a whopping 86%!


    So, if they can slash their earnings by 87%, from 15.3 million to a mere 2.1 million, does Cymao deserves a HOLD recommendation with a TP of 1.30??

    Oh.. Cymao is currently trading at 1.02, down 12 sen!

Cymao is currently traded at 0.79.

If one owned Cymao, listening to OSK's Hold recommendation was pretty damaging to one's portfolio, yes?

And here is what they wrote this morning:

  • 3Q07 results continued to be disappointed. A loss of RM1.6m was incurred, compared to a RM5.7m loss incurred in the preceding quarter. Although shipment volume was 16% lower, average selling prices were 5% higher and average log cost was 11% lower q-o-q, which resulted in a slightly better margin. We downgrade the stock to a Sell, given its high exposure to the US market, which is currently facing a recession in the housing sector. We think the US housing activities will take some time to recover. Adding to that, the continuous weakening of the US$ will also negatively affect the company. Due to the small operating scale of Cymao, its bargaining power of pricing and ability to withstand adversity will be relatively weaker compared to other bigger timber players. Our fair value for Cymao is revised down to RM0.46 based on FY08 7x PE.

    Below. Cymao’s 3Q07 net earnings fell below our estimates. Against 2Q07, shipment volume was 16% lower but average selling prices were 5% higher and average log cost was 11% lower. This resulted in a slightly better gross margin at 7%. No dividend was declared for the quarter. We do not expect the company to pay any dividend this year given its poor earnings.

    High exposure to the US market. We are pessimistic on the company’s performance going forward given its >60% exposure to the US market. Plywood volume as well as pricing has been dampened by the depression in the US housing sector. With the US housing starts continued to slump by 33% in the month of Sept 07, we do not think the sector will recover anytime soon.

    Negative impact from weakening US$. In addition, the continuous sliding US$ currency will also have an adverse impact to the company’s turnover as almost all the sales are denominated in US$. However, only 10-20% of operating costs are denominated in US$, hence unable to offset the negative effect.

    Downgrade to Sell, TP: RM0.46. We remain cautious on the performance of small timber players. Given the relatively smaller scale of operation, bargaining power of pricing is unlikely to be strong. The ability to cushion adversity will also be weaker compared to bigger timber players. As the company is surrounded by various negative factors which are unlikely to turnaround at anytime soon, we downgrade the stock to a Sell.


From a Hold of 1.30 to a SELL with a TP of 46 sen?

Holy COW!

Ok.. some has mentioned that I am highly critical of analyst(s)... but... look at this Cymao example and ask if it's justifiable or not? The HOLD recommendation back in Aug was terrible in my opinion. It should have been a SELL. And the SELL recommendation this morning, seriously, isn't the TP of 46 sen way too drastic? In a space of 3 months, this stock went from a hold of 1.30 to a sell with a TP of 46 sen!

Now this is a WOW to me!

Friday, November 23, 2007

Wall Street Bonus

Published on Bloomber news:

  • Wall Street Plans $38 Billion of Bonuses as Shareholders Lose

    By Christine Harper

    Nov. 19 (Bloomberg) -- Shareholders in the securities industry are having their worst year since 2002, losing $74 billion of their equity. That won't prevent Wall Street from paying record bonuses, totaling almost $38 billion.

    That money, split among about 186,000 workers at Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos., equates to an average of $201,500 per person, according to data compiled by Bloomberg. The five biggest U.S. securities firms paid $36 billion to employees last year.

    The bigger bonus pool derives from a record $9 billion of fees for arranging acquisitions and $5 billion for underwriting initial public offerings and sales of junk bonds, the most lucrative securities, Bloomberg data show. Bankers' record fees help explain why 2007 will prove to be the industry's second- most profitable after the subprime mortgage market collapse led to losses at Merrill and Bear Stearns. The last time bonuses declined was 2002 when the Standard & Poor's 500 Index fell 23 percent, and Enron Corp. and WorldCom Inc. went bankrupt.

    Goldman's record earnings and gains at Morgan Stanley and Lehman mean all the New York-based firms will be forced to pay more in a year when all but Goldman lost more than 20 percent of their market value, said Charles Geisst, finance professor at Manhattan College in Riverdale, New York.

    ``They're all going to have to fall into line,'' said Geisst, author of ``100 Years of Wall Street.'' ``If Bear and Merrill plead poverty, they're going to lose all of their good people.''

    Pay for Performance

    John Thain, Merrill's newly appointed chairman and chief executive officer, is already grappling with the bonus issue and he doesn't start at the world's biggest brokerage until next month. Thain, whose contract calls for him getting at least $44 million in cash and stock payable over five years, said top performers will receive bonuses while those involved in the subprime market collapse that led to the firm's $8.4 billion third-quarter writedown will be penalized.

    ``Most of Merrill Lynch's businesses are actually doing well, and so what you have to do in that circumstance is to pay the people who are performing,'' Thain, 52, said in a Nov. 15 interview. ``Getting that balance right, paying the people who perform well and taking enough money from the people who caused some of the problems, that is going to be one of the first topics I address.''

    Bonus Pool

    Securities firms typically use slightly less than 50 percent of their revenue to pay salaries, benefits and bonuses, a percentage that firms adjust throughout the year. This year's bonus estimate was based on the five-year average ratio at each of the five firms. Year-end bonuses usually account for about 60 percent of compensation.

    In the first nine months of 2007, Goldman, Morgan Stanley, Merrill, Lehman and Bear Stearns told their shareholders that they set aside $52.4 billion for compensation, up 9 percent from a year earlier. For the whole year, the figure rises to $62.5 billion, according to analysts' estimates that combined revenue at the five largest securities firms will climb 1.7 percent to $135 billion.

    That brings bonuses to almost $38 billion. The total increases when bonuses for employees at hedge funds, leveraged buyout firms and banks such as New York-based JPMorgan Chase & Co. and Frankfurt-based Deutsche Bank AG are included.

    The industry's bonuses are larger than the gross domestic products of Sri Lanka, Lebanon or Bulgaria. The average $201,500 bonus is more than four times the $48,201 median household income in the U.S. last year, according to U.S. Census Bureau statistics.

    `A Good Hand'

    It's also enough to buy a Porsche 911 Turbo Cabriolet, a day for two at a VIP spa suite at New York's Mandarin Oriental hotel, and a year's tuition and fees for a high-school student at Trinity School on the Upper West Side of Manhattan.

    Goldman is the world's biggest securities firm and also the most profitable. Analysts estimate the company, led by CEO Lloyd Blankfein, will earn an all-time high of $11 billion this year. Goldman reported a 79 percent increase in third-quarter net income, while profits slid at Morgan Stanley, Lehman and Bear Stearns, and Merrill reported a $2.24 billion loss. Goldman set aside $16.9 billion to pay salaries, benefits and bonuses in the first nine months of the year, exceeding the full-year record in 2006.

    ``They're playing a good hand as aggressively as you can play it,'' said John Gutfreund, 78, president of Gutfreund & Co. and former chief executive officer of Salomon Brothers, now part of New York-based Citigroup Inc. That has put Goldman's competitors in ``an awkward position,'' he said.

    Natural History Museum

    Merrill's revenue probably will decline 13 percent this year after losses from mortgage-related bets in the third quarter, analysts estimate. Merrill said last month that it set aside 58 percent of revenue in the first nine months of 2007 for compensation, up from 49 percent a year earlier, to ``appropriately reward employees.'' The firm said the ratio may rise further in the fourth quarter.

    ``I can understand what they're doing at Merrill,'' said William Fitzpatrick, an analyst at Racine, Wisconsin-based Johnson Asset Management, which oversees $1.7 billion and holds Morgan Stanley shares. ``If they don't pay up now, they could lose a lot of their top performers.''

    Bankers are showing their confidence about the size of payouts they expect to receive by donating record amounts to organizations including the American Museum of Natural History in New York and the UJA-Federation of New York.

    The American Museum of Natural History raised $3.2 million last week at its annual Museum Gala dinner, said communications director Steve Reichl. About 650 people attended, the most ever, he said.

    Park Avenue

    UJA-Federation, a Jewish philanthropy, raised $41 million, up from $38 million last year, at an annual campaign event hosted last month at the home of Alan Greenberg, the 80-year-old chairman of Bear Stearns's executive committee. The organization hopes to raise at least $21.5 million at its annual Wall Street dinner on Dec. 5, topping last year's $21 million, said Stuart Tauber, UJA's senior vice president.

    Demand for ``super-luxury'' apartments in Manhattan, those priced at or above $10 million, also was at an all-time high in 2007, said Pamela Liebman, chief executive officer of the Corcoran Group real estate brokers. A 12-room Park Avenue apartment placed on the market this month sold in less than a week for more than the $12 million asking price, she said.

    ``Some people were a little surprised because there's been so much negative talk in the press about the market,'' Liebman said. ``When there's all this talk about the credit crunch and potential job loss and not everybody sharing in the same pie, the ones who are the most fortunate don't want to rub it in anyone's face so they're quiet about their purchases.''

    Stock Options

    Investment banks will distribute the money less evenly than in 2005 and 2006, according to the Options Group, the New York- based firm that has tracked pay and hiring trends for more than a decade. Employees involved in packaging and trading mortgage- backed securities will see bonuses drop 30 percent to 35 percent, while commodities traders may see gains of as much as 20 percent, the company estimates.

    Another change this year: 70 percent or more of bonuses will be stock grants instead of cash, up from 50 percent in a typical year, said Michael Karp, Options Group's CEO.

    UBS AG, Europe's biggest bank by assets, is capping the cash portion of investment bank bonuses this year at $750,000 and paying anything above that in stock, said a person familiar with the company's plans. The Zurich-based bank, which reported its first quarterly loss in almost five years, is adding a new type of restricted stock award that employees can sell after one year instead of waiting for three years, the person said.

    Slumping Stocks

    ``What they do is they issue the majority of the compensation in shares,'' said Roy Smith, a finance professor at New York University's Stern School of Business and a former partner at Goldman Sachs. ``You want these people to be thinking of themselves as working for the same company, and that means they will suffer and improve with the company.''

    The size of the payouts is a concern given how badly the shares of most securities firms have performed this year, said Fitzpatrick of Johnson Asset Management.

    ``They're paid very handsomely in good times because they're supposed to take a hit in bad times,'' Fitzpatrick said. ``Performance has dwindled this year, and I think they should feel that.''

Well, just how about that?

Such bonus is simply insane!

Thursday, November 22, 2007

The Lady Replies..

Many thanks to D for the following link.. ( )

To the gentleman who called me a depreciating asset ( ref blog posting: here )

Dear Sir,

I must confess that I was somewhat taken aback upon reading your email. Indeed, it has taken some time for me to sufficiently recuperate from my surprise. Lest your confidence quickly inflate for little reason (as we know is the predisposition for Wall St. types), allow me to hasten to reassure you that the source of my surprise was neither your candor nor the accuracy of your perception. Indeed, it is your "claimed" success in light of your poor grasp of economics which has me baffled. If the standards required to meet with financial success on Wall St. have sunk so low, perhaps I should indeed "make my own money", except for the fact that the effort/reward ratio is far too high for my liking - especially when so many of your ilk have displayed a far more cogent grasp of market realities than you have.

By now you are likely scratching your ever-vanishing hairline in confusion, so allow me to elaborate, dear man. To build some credibility I will tell you a bit more about yourself. Though you did not mention the details of your occupation, it is clear that you are an investment banker and not a trader, as any good trader would understand that human courtships are based upon a semi-efficient open market, and not an investment banking cartel. However, your inability to grasp the realities of the dating market is not surprising, given that you have successfully employed the tools of collusion and market manipulation rather that true acumen in your supposed wealth generation.

If your grasp of finance were not a minority partner with your ego, you would realize that the "outflows" associated with my depreciating "assets" are quite certain, and therefore subject to a low discount rate when determining their present value. In addition, though your concept of economics evidentially failed to move past the 1950s, advancement in plastic surgery is not subject to the same limitation. Thus, with some additional capital expenditure, the overall lifetime of "outflows" generated by these assets is greatly increased. Sad that Ashton Kutcher has demonstrated understanding of the female asset class which you, in all of your financial "wisdom", have not.

You, on the other hand, are, given the uncertainty of the Wall St. job market, more of an inflation-indexed junk bond with an underwater nested call option. Though you may argue that you are more of an equity investment, my monetary minimums required from you do not change, and if you are unable to pay them, I will liquidate you without the benefit of a chapter 11, just as you would me.

Because your outflows are so much more uncertain with respect to mine, I require additional compensation in the form of a underwater nested call option on your future assets. I say underwater because, even taking into account the value of your junk bond coupon payment to me, the value of my "outflow" is in excess of the market price of your equity (which is quite low due to its riskiness associated with your poor grasp of finance and my existing claim upon your junk bond coupon).

I must thank you though for raising the question, despite the reputation cost of subjecting your weak logic to such widespread scrutiny. This took either considerable courage or ignorance on your part- and we'll give you the benefit of doubt, just this once. My current boyfriend (a trader who lives in Central Park West, of course) and I thoroughly enjoyed discussing your response and we wish you the best of luck in your unhappy pursuit of that elusive market inefficiency.

Wednesday, November 21, 2007

OSK comments on Mems

I was reading thru the copy of OSK research report on Mems.

Let me share it here for I reckon that there is some serious implications here if some of the comments made were true...

  • We understand that there has been speculation since last week indicating that MemsTech’s audited FY07 net profit could be much lower than reported in September 2007 after adopting a new accounting standard. We have contacted the management and we think it is still premature at this juncture to actually conclude anything. First of all, this is not a special investigation on the company’s FY07 financial results. It is a standard procedure that the full-year financial results of PLCs will eventually be audited. According to management, the audited FY07 results will only be released at least two weeks from now. Meanwhile, our concerns that investors may further dump the shares until this uncertainty is alleviated, we have revised our recommendation on MemsTech to a Neutral. Nevertheless, our fair value of RM0.95 is maintained until the audited report is obtained.

    What if MemsTech’s FY07 earnings is excessively overstated? Obviously, there willbe a few negative consequences in such an event, which include :-

    (i) Reputation of the company would be severely discounted
    (ii) The transfer of listing from MESDAQ to Main Board might be affected
    (iii) 1Q FY08 results could be lower than expected after adopting the new accounting standard (iv) Our earnings estimates for FY08 will also be adjusted lower as our growth assumption for the company’s traditional sensors business which contributed over 90% its FY07 revenue will not be as high anymore.

    Risks. Besides the risk mentioned above, we mentioned in our previous reports that silicon microphone is essentially the main investment theme for the stock at the moment and key investment risks associated with are : (i) lower than expected shipment (ii) pricing pressure (iii) quality issue (iv) delay in ramping up capacity

    Keeping an eye. We will be monitoring the situation with undivided attention and on a lookout for any future developments.

Well, if you own this stock, I do hope you understand what is happening and what's the implications here.

For the sake of our market, I pray hard that this is not yet another company overstating its earnings!

Stock Trading Tips!!!!!!!!!!!

Well... sort of. :)

I received this TIP in my mail box. As with all tips, I eagerly opened the mail....

Do enjoy...

* * * * *

A young and pretty lady posted this on a popular forum,

Title: What should I do to marry a rich guy?

I'm going to be honest of what I'm going to say here. I'm 25 this year. I'm very pretty, have style and good taste. I wish to marry a guy with $500k annual salary or above. You might say that I'm greedy, but an annual salary of $1M is considered only as middle class in New York. My requirement is not high. Is there anyone in this forum who has an income of $500k annual salary? Are you all married? I wanted to ask: what should I do to marry rich persons like you? Among those I've dated, the richest is $250k annual income, and it seems that this is my upper limit. If someone is going to move into high cost residential area on the west of New York City Garden (?), $250k annual income is not enough.

I'm here humbly to ask a few questions:

1) Where do most rich bachelors hang out? (Please list down the names and addresses of bars, restaurant, gym)

2) Which age group should I target?

3) Why most wives of the riches is only average-looking? I've met a few girls who doesn't have looks and are not interesting, but they are able to marry rich guys

4) How do you decide who can be your wife, and who can only be your girlfriend? (my target now is to get married)

Ms. Pretty

Here's a reply from a Wall Street Financial guy:

Dear Ms. Pretty,

I have read your post with great interest. Guess there are lots of girls out there who have similar questions like yours. Please allow me to analyze your situation as a professional investor. My annual income is more than $500k, which meets your requirement, so I hope everyone believes that I'm not wasting time here.

From the standpoint of a business person, it is a bad decision to marry you. The answer is very simple, so let me explain. Put the details aside, what you're trying to do is an exchange of "beauty" and "money": Person A provides beauty, and Person B pays for it, fair and square. However, there's a deadly problem here, your beauty will fade, but my money will not be gone without any good reason. The fact is, my income might increase from year to year, but you can't be prettier year after year. Hence from the viewpoint of economics, I am an appreciation asset, and you are a depreciation asset. It's not just normal depreciation, but exponential depreciation. If that is your only asset, your value will be much worried 10 years later.

By the terms we use in Wall Street, every trading has a position, dating with you is also a "trading position". If the trade value dropped we will sell it and it is not a good idea to keep it for long term & same goes with the marriage that you wanted. It might be cruel to say this, but in order to make a wiser decision any assets with great depreciation value will be sold or "leased". Anyone with over $500k annual income is not a fool; we would only date you, but will not marry you. I would advice that you forget looking for any clues to marry a rich guy. And by the way, you could make yourself to become a rich person with $500k annual income. This has better chance than finding a rich fool.

Hope this reply helps. If you are interested in "leasing" services, do contact me.


J.P. Morgan

Saturday, November 17, 2007

Born to Be Good?

Reading the S'pore Business Times, I cam across this article by Ms. Teh Hooi Ling, Reading this won't make you great

  • Business Times - 17 Nov 2007

    Reading this won't make you great

    Mark Sellers, founder of a Chicago-based hedge fund, argues that the best investors are born with particular psychological traits that others can never learn


    WHAT makes someone a great investor? It's something you have to be born with, said Mark Sellers, founder and managing member of Sellers Capital LLC, a long/short equity hedge fund based in Chicago.

    Apparently, it's not about your IQ, the education you've had, the books you've read, or the experience you've accumulated. 'If it's experience, then all the great money managers would have their best years in their 60s and 70s and 80s, and we know that's not true,' he said in a speech to a class of Harvard MBA students.

    Intelligence and learning are obviously necessary too, and are sources of competitive advantage for an investor, but there are structural assets some possess that cannot be copied or learnt by others. 'They have to do with psychology and psychology is hard wired into your brain. It's part of you. You can't do much to change it even if you read a lot of books on the subject,' said Mr Sellers...

This made me so interested. I searched the net and I found the text of his speech: here

Here's part of the said speech.

  • Another thing that won't make you a great investor is an MBA from a top school or a CFA or PhD or CPA or MS or any of the other dozens of possible degrees and designations you can obtain. Harvard can’t teach you to be a great investor. Neither can my alma mater, Northwestern University, or Chicago, or Wharton, or Stanford. I like to say that an MBA is the best way to learn how to exactly, precisely, equal the market return. You can reduce your tracking error dramatically by getting an MBA. This often results in a big paycheck even though it’s the antithesis of what a great investor does. You can’t buy or study your way to being a great investor. These things won’t give you a moat. They are simply things that make it easier to get invited into the poker game.

    Experience is another over-rated thing. I mean, it's incredibly important, but it’s not a source of competitive advantage. It's another thing that is just required for admission. At some point the value of experience reaches the point of diminishing returns. If that wasn't true, all the great money managers would have their best years in their 60s and 70s and 80s, and we know that’s not true. So some level of experience is necessary to play the game, but at some point, it doesn’t help any more and in any event, it’s not a source of an economic moat for an investor. Charlie Munger talks about this when he says you can recognize when someone ‘gets it’ right away, and sometimes it’s someone who has almost no investing experience.

    So what are the sources of competitive advantage for an investor? Just as with a company or an industry, the moats for investors are structural. They have to do with psychology, and psychology is hard wired into your brain. It's a part of you. You can't do much to change it even if you read a lot of books on the subject.

    The way I see it, there are at least seven traits great investors share that are true sources of advantage because they can't be learned once a person reaches adulthood. In fact, some of them can’t be learned at all; you’re either born with them or you aren't.

    Trait #1 is the ability to buy stocks while others are panicking and sell stocks while others are euphoric. Everyone thinks they can do this, but then when October 19, 1987 comes around and the market is crashing all around you, almost no one has the stomach to buy. When the year 1999 comes around and the market is going up almost every day, you can't bring yourself to sell because if you do, you may fall behind your peers. The vast majority of the people who manage money have MBAs and high IQs and have read a lot of books. By late 1999, all these people knew with great certainty that stocks were overvalued, and yet they couldn’t bring themselves to take money off the table because of the 'institutional imperative', as Buffett calls it.

    The second character trait of a great investor is that he is obsessive about playing the game and wanting to win. These people don’t just enjoy investing; they live it. They wake up in the morning and the first thing they think about, while they’re still half asleep, is a stock they have been researching, or one of the stocks they are thinking about selling, or what the greatest risk to their portfolio is and how they’re going to neutralize that risk. They often have a hard time with personal relationships because, though they may truly enjoy other people, they don’t always give them much time. Their head is always in the clouds, dreaming about stocks. Unfortunately, you cannot learn to be obsessive about something. You either are, or you aren't. And if you aren't, you can't be the next Bruce Berkowitz.

    A third trait is the willingness to learn from past mistakes. The thing that is so hard for people and what sets some investors apart is an intense desire to learn from their own mistakes so they can avoid repeating them. Most people would much rather just move on and ignore the dumb things they’ve done in the past. I believe the term for this is 'repression'. But if you ignore mistakes without fully analyzing them, you will undoubtedly make a similar mistake later in your career. And in fact, even if you do analyze them it’s tough to avoid repeating the same mistakes.

    A fourth trait is an inherent sense of ris based on common sense. Most people know the story of Long Term Capital Management, where a team of 60 or 70 PhDs with sophisticated risk models failed to realize what, in retrospect, seemed obvious: they were dramatically overleveraged. They never stepped back and said to themselves, 'Hey, even though the computer says this is ok, does it really make sense in real life?' The ability to do this is not as prevalent among human beings as you might think. I believe the greatest risk control is common sense, but people fall into the habit of sleeping well at night because the computer says they should. They ignore common sense, a mistake I see repeated over and over in the investment world.

    Trait #5: Great investors have confidence in their own convictions and stick with them, even when facing criticism. Buffett never get into the dot-com mania thought he was being criticized publicly for ignoring technology stocks. He stuck to his guns when everyone else was abandoning the value investing ship and Barron’s was publishing a picture of him on the cover with the headline 'What's Wrong, Warren?' Of course, it worked out brilliantly for him and made Barron’s look like a perfect contrary indicator. Personally, I’m amazed at how little conviction most investors have in the stocks they buy. Instead of putting 20% of their portfolio into a stock, as the Kelly Formula might say to do, they’ll put 2% into it. Mathematically, using the Kelly Formula, it can be shown that a 2% position is the equivalent of betting on a stock has only a 51% chance of going up, and a 49% chance of going down. Why would you waste your time even making that bet? These guys are getting paid $1 million a year to identify stocks with a 51% chance of going up? It’s insane.

    Sixth, it's important to have both sides of your brain working, not just the left side (the side that's good at math and organization.) In business school, I met a lot of people who were incredibly smart. But those who were majoring in finance couldn’t write worth a damn and had a hard time coming up with inventive ways to look at a problem. I was a little shocked at this. I later learned that some really smart people have only one side of their brains working, and that is enough to do very well in the world but not enough to be an entrepreneurial investor who thinks differently from the masses. On the other hand, if the right side of your brain is dominant, you probably loath math and therefore you don’t often find these people in the world of finance to begin with. So finance people tend to be very left-brain oriented and I think that’s a problem. I believe a great investor needs to have both sides turned on. As an investor, you need to perform calculations and have a logical investment thesis. This is your left brain working. But you also need to be able to do things such as judging a management team from subtle cues they give off. You need to be able to step back and take a big picture view of certain situations rather than analyzing them to death. You need to have a sense of humor and humility and common sense. And most important, I believe you need to be a good writer. Look at Buffett; he's one of the best writers ever in the business world. It’s not a coincidence that he’s also one of the best investors of all time. If you can’t write clearly, it is my opinion that you don’t think very clearly. And if you don't think clearly, you're in trouble. There are a lot of people who have genius IQs who can’t think clearly, though they can figure out bond or option pricing in their heads.

    And finally the most important, and rarest, trait of all: The ability to live through volatility without changing your investment thought process. This is almost impossible for most people to do; when the chips are down they have a terrible time not selling their stocks at a loss. They have a really hard time getting themselves to average down or to put any money into stocks at all when the market is going down. People don't like short term pain even if it would result in better long-term results. Very few investors can handle the volatility required for high portfolio returns. They equate short-term volatility with risk. This is irrational; risk means that if you are wrong about a bet you make, you lose money. A swing up or down over a relatively short time period is not a loss and therefore not risk, unless you are prone to panicking at the bottom and locking in the loss. But most people just can't see it that way; their brains won't let them. Their panic instinct steps in and shuts down the normal brain function.

    I would argue that none of these traits can be learned once a person reaches adulthood. By that time, your potential to be an outstanding investor later in life has already been determined. It can be honed, but not developed from scratch because it mostly has to do with the way your brain is wired and experiences you have as a child. That doesn’t mean financial education and reading and investing experience aren’t important. Those are critical just to get into the game and keep playing. But those things can be copied by anyone. The seven traits above can’t be.

Extremely interesting... eh?


$1000 Gold

US$1000 Gold so says Dr. Marc Faber in a news article published on Bloomberg.

  • Nov. 15 (Bloomberg) -- Gold may ``easily'' rise to a record $1,000 an ounce next year as the dollar weakens and Asian central banks diversify their reserves, said Marc Faber, who advised investors to acquire the metal at the start of a six-year rally.

    A ``continued'' weakening of the U.S. currency may help gold to climb above its all-time high of $850 traded in January 1980, said Faber, managing director of Marc Faber Ltd. and publisher of the Gloom, Boom & Doom Report.

    ``That's baked in the cake in my opinion,'' he said today in an interview. ``Gold is still relatively cheap. It hasn't risen as much as nickel, or oil.''
Click here for the rest of the article:

About the current financial crisis..

Here is one good reading for the weekend.

  • What strikes me the most about the recent credit market crisis is how fast the world is trying to go hack to business as usual. In my view, the crisis wasn’t an accident. We didn’t get unlucky. The crisis came because there have been a lot of bad practices and a lot of had ideas. Securitization is a mediocre idea. Re-securitization of already securitized assets into a CDO is a bad idea. Re-securitization of CDOs into CDO-squared is a really bad idea. So is funding a pool of long-term illiquid assets with very short-term funding in the so called asset backed commercial paper market. And as I will get to in a moment, it is a horrendous idea to delegate most of the responsibility for assessing credit risk to a group of credit rating agencies paid for by the issuers rather than the buyers of bonds.

    This crisis came for exactly the right reason. There is a big flaw in the structure of our credit markets. The bad structure induced lenders to take imprudent risks and make imprudent loans, which, of course led to losses. What is unique about this crisis compared to others is that the losses are in illiquid, opaque structures scattered around the world. Why should anyone be surprised? We got what we deserved.

read the rest of this blog posting here

Every Breath Bernanke Takes

Many thanks to TK who send me this video link.

Saturday, November 10, 2007

How Now Brown Cow?

Well the markets aren't looking too hip. In fact, some reckon that it's rather scary. The US Market closed down another 223 points last night.

  • "People are more and more worried about recession," he said.

    For the week, the Dow lost 4.1 percent, while the S&P fell 3.7 percent. The Nasdaq was the biggest loser, dropping 6.9 percent

At times like this I do reckon that it's probably wise to keep everything in perspective. And sometimes the financial news network do tend to dramatise everything a little bit too much.

Some decent comments made by blogger Kirk

  • That lack of concern frankly concerns me. I realize that this market has preconditioned all of us to buy the dips, especially the very big ones. Anyone who has not bought dips this year has been crucified for doing so, so I understand why we're hearing these opinions. In fact, just looking back at this year, if you put money to work back in early March and August, you did quite well. As many of you may remember, I was one of those people telling you that it was time to put money to work in August when people were running away and thinking that cash sitting in their money market accounts were in dire jeopardy.

    But, I learned long ago that not every dip can or should be bought and that the market has a way of doing what people do not expect. Think back just two short weeks ago when so many counted on another rate cut on October 31st to start off the 4Q rally. That didn't work out very well, did it?

    I think the market sent us a message this week that not all is well. I'm not just talking about the rumors of more writedowns, high oil prices, consumer confidence, falling dollar, or the state of the housing market. Most of us have seen this coming for awhile. In fact, we've looked like idiots for thinking that these issues actually do matter. But, eventually all chickens come home to roost. This week we've only seen a small glimmer of what happens when they do. I personally think many more will come, which is why I'm staying patient and away from the fray until I think it is time to take aggressive action. That time will surely come, I just don't think it was this week.

    As always, I hope you're holding up well, staying defensive, and keeping everything in the right perspective. Better days and weeks are certainly ahead and we'll get there together.


I do realise that folks like CSFB and SP have been extremely bullish on our markets for 2008. ( See CSFB: Malaysia Boleh 2008! )

Have you evaluated your own portfolio and account for the present, current risks? Time for a serious rethink, yes?

And as blogger Kirk said "... keeping everything in the right perspective. Better days and weeks are certainly ahead and we'll get there together."

Saturday, November 03, 2007

Masteel diversification into BioTech

Just the other I was musing about KFC making a small investment into the tea business. I mean do chicken and the tea business mix? Would KFC be serving Lipton tea in their snack packs? But tea with fried chicken? That's just got to be a weird mix. Shouldn't KFC be sticking to what it knows best, which is the chicken business?

Then this morning, I saw an article posted on BTimes on about our fifth largest steel maker, Malaysia Steel Works (Masteel) is making a diversification into the biotech business, combining with Belgian company IBA Molecular to set up a local firm named Bio Molecular Industries Sdn Bhd to produce cancer-treatment drug.

No cost of investment was mentioned.

Here is the announcement posted on Bursa website:

And again, it makes you really wonder what's happening. Steel makers and biotech?

Firstly, steel makers are enjoying a change of fortune with the raise of steel prices. And Masteel is certainly enjoying better profits this year, however, as a company Masteel is still highly geared. A glance at its latest earnings would reveal that this company has nett debts of close to 200 million. Which begs the question, why is Masteel making such a diversification? How much does a steel maker know about producing a cancer-treatment drugs? Shouldn't it stick to what it knows best?

I really don't know what's happening with our companies.

**** Edit ****

Just realised that the Star Biz carried an article on it:
RM40mil investment in biotech project

  • KUALA LUMPUR: Bio Molecular Industries Sdn Bhd (BMI) will invest RM40mil in its maiden biotechnological project to set up the largest commercial radiopharmacy in Malaysia.

    The facility will specialise in the production of FDG, a diagnostic radiopharmaceutical used in PET (positron emission tomography) scans to detect and monitor the treatment of cancer.

    The facility, to be completed in the second half 2008, will be built on a two-acre site near the KL International Airport in Sepang.

    Chief medical director Dr Loh Poh Kooi said the facility, once operational, would manufacture FDG for use in hospitals and imaging centres in Malaysia and around the region.

    “Most radiopharmacies (in Malaysia) are of smaller scale and located in hospitals, where they cater to in-house and local needs rather than to regional demand,” Loh told a briefing yesterday....

A rm40 million investment!

My oh my!

  • BMI is a joint venture between main board-listed Malaysia Steel Works (KL) Bhd (Masteel) and Belgium's IBA Molecular, with the former holding a 90% majority stake in the venture.

    Masteel will manage the complex processes of producing the pharmaceuticals, while IBA Molecular will provide specialist equipment called Cyclotrons to produce a range of pharmaceuticals, including FDG.

    Masteel managing director Tai Hean Leng said the RM40mil investment comprised shareholder equity and debt financing. He said it was still too early to forecast the expected revenue from the venture.

    According to Tai, Masteel is venturing outside its core steel business because of the potential of biotechnology.

    “We are investing in the biotechnological sector because it has potential for high growth and high earnings.

    “The steel industry can be quite cyclical – up one year and down the next. This is a way for us to even out our earnings. We want to see steady growth all the time,” Tai said.