overconnected

Key takeways from the book Overconnected by William H. Davidow :

• connectedivity created new business models (e.g. railroad, internet)
• overconnectivity can cause instability from positive feedback 
• overconnectivity can cause vulnerability from overspecialization
• complex systems are at risk of accidents and contagions
• overconnectivity was a factor in the collapse of Iceland and the subprime crisis
• need to reduce the positive feedback (e.g. through regulation), design more robust systems and restructure overconnected systems

ICAP AGM/Open Day 2016

Notes:

• not good outlook for O&G, property
• not keen on USD beneficiaries (short term)
• cash as call option
• clean energy and electric/driverless cars (Tony Seba)
• entrepreneurship is tough in Malaysia (different from independent business operator)
• use heart-mind to make decision (Mencius)
• opium trade benefited US (e.g. funded ivy league universities)
•  Trump to win elections (disastrous policies)

Ten Golden Rules of Equity Investing

Ten Golden Rules of Equity Investing

1. treatment of minority shareholders
2. Remember that companies are about peple not assets
3. Balance sheet strength is crucial
4. Understand what you are buying
5. Be wary of overambition
6. Think long term
7. Benchmarks are measuring devices not portfolio construction tools
8. Take advantage of irrational behaviour
9. Do your own research
10. Focus on growth industries in which it is possible to have a sustainable competitive advantage

Hugh Young, Aberdeen Asset Management

end of high returns?

For over 40 years, asset returns and alpha generation from penthouse investment managers have been materially aided by declines in interest rates, trade globalization, and an enormous expansion of credit – that is debt. Those trends are coming to an end if only because in some cases they can go no further. Those historic returns have been a function of leverage and the capture of “carry”, producing attractive income and capital gains. A repeat performance is not only unlikely, it is impossible unless you are a friend of Elon Musk and you’ve got the gumption to blast off for Mars. Planet Earth does not offer such opportunities.
-Bill Gross

undervalued and overvalued assets

undervalued asset classes  -  emerging market equity, Asia ex-Japan equities, emerging market debts, US and global high-yield bonds and European asset-backed securities.
overvalued assets - government bond asset classes such as those from Germany, Japan, the UK and the US.
-  HSBC Global Asset Management

Investment strategies in Asia if Trump triumphs

Nomura highlights some investment strategies to adopt if Trump makes it to the White House.

1) FX strategy

Direct risks to foreign exchange in Southeast and South Asia are likely to be less severe than in Northeast Asia, says Nomura.

In Asia, Nomura recommends being short Chinese yuan and Korean won, and long Indonesian rupiah and Malaysian ringgit.

“We believe the impact on IDR and MYR would be more contained, given robust growth, relatively favourable political and policy developments and bond inflows into both countries,” Nomura says.

2) Rates strategy

Nomura believes a Trump victory is likely to make central banks shift their bias further towards easier-for-longer policies.

“In such an environment we expect investors to focus on high-quality carry trades where an idiosyncratic domestic story is favourable for local rates,” Nomura says.

This would benefit rates market in Korea, India, Malaysia and Australia, while Hong Kong and Singapore are likely to underperform US rates.

“As far as trade recommendations are concerned, we believe receive 3yr MYR NDIRS; long 7yr MGS; long 7yr IGB; receive AUD 2yrfwd1yr IRS; receive KRW 3yr; and receive THB 5yr positions would perform,” says Nomura.

“We would express our view of HKD and SGD rate underperformance via pay HKD 5yr vs USD 5yr and pay SGD 2yr vs USD 2yr positions,” it adds.

3) Equity strategy

If Trump becomes president, Nomura says “an initial negative reaction in equities” is likely, but the longer term impact on equities beyond that is unclear.

China, Korea and the Philippines are likely to be most affected, followed by India, Singapore and Indonesia in the next group, and the least impact seen in Thailand and Malaysia.

“Specifically, we would expect our Asia Arms Race basket (rising risks of confrontation in the region), defensive stocks in Thailand and Malaysia (markets least impacted), and higher-yield stocks (to the extent that a Trump presidency contributes to lower global yields) to outperform,” says Nomura.

“Longer-term, downsides to growth and rising uncertainty in policy would imply a further flattening of our expected trend for Asian equities over the next 12-24 months,” Nomura adds.

8 market predictions for 2H2016

2H2016 in eight predictions by DBS Chief Investment Officer Lim Say Boon

1) Brexit will not break the EU but it will be negative for European stocks.
2) The global economy will continue to struggle and a corporate earnings recession will spread.
3) A decline in US corporate earnings will inevitably take the Standard and Poor’s 500 Index down with it.
4) The Bank of Japan will have to unleash further stimulus because a strengthening yen is bad for the economy and corporate earnings.
5) China will continue to ease.
6) Asia ex-Japan stocks will outperform global equities because their dividend yields are higher.
7) Lim is negative on the US dollar and believes that commodities and gold will rise, given the global central banks are in easing mode.
8) Bonds will continue to outperform equities.

On wealth inequality

Why do people complain about wealth inequality so much? The rich earned their money, the poor shouldn't take it just because they can't get a job.

Gary Leverich writes:

There’s a really valid question that’s the cornerstone of the real argument.

What is the responsibility of a wage earner earning an income, regardless of income?

The next question is:

What is the responsibility of an individual earning money based on the efforts of others?

Here’s the thing. NOBODY has ever gotten rich without the efforts of others.

So, when you’re rich, what is your responsibility to those that helped you get there?

It’s a simple question with a complex answer. An answer that I’m not sure about myself.

The United States fought a war in the 1860’s over the concept that those that work for your benefit should have rights and freedoms just like you.

In the 1980’s, Ronald Reagan introduced the idea of “Trickle Down Economics”.

The idea supposed that if you allowed those with the capacity to get rich, the ability to get richer, that money would trickle back down into the economy. The economy would be boosted, and everybody would benefit, from the poor to the middle class, back to the rich.

It doesn’t work. Not even a piece of it. All that happened was the rich got richer and the poor got poorer. We have 35 years of evidence that it absolutely doesn’t work. So why are we still doing it?

Enter political rhetoric now. If we tax the rich higher, and give that money to the poor, the rich will just take jobs overseas and America will suffer. Yet, all these things the rich say they’ll do if a redistribution of wealth is enacted has already happened. They did it under Trickle Down Economics despite having incentives not to do it.

They can’t have their slave labor in the U.S. anymore so they happily move those jobs to countries that do. I guess the child below should be happy the American billionaire is willing to pay them 10 cents an hour. While the child is not dangling from a tree, do you really care if he does? Not if you buy any of the brands of clothing that utilize child labor in it’s production.

We have a responsibility to ALL people of the world. Not just the rich. And those that have 99% of the world’s wealth DO have a duty to all those that helped get them to that 1%. That money does NOTHING to help the economies of the world as it sits in bank accounts accumulating more wealth, propped up by fuzzy math/numbers and flaky inflated markets with no real sense of true worth.

That money needs to be reinvested into the global community. Not just reinvested for the sake of making more money on top of the money that already exists by inflating markets, creating economic bubbles and destroying livelihoods while you’re considered “Too big to fail”.

When bad decisions hold no consequences for a certain segment of society, you have a really big problem with that society. Bad decisions allow for social, and economic mobility. When you bail out those that make bad decisions, you eliminate the ability of those that make good decisions to take their place. Then you have those “Too big to fail” giants creating legislation that keeps those with good ideas and good decisions from being able to succeed and fully flesh out those ideas.

The system is broken. Really broken.

The problem is the rich make the rules. It’s the Golden Rule - He who has the gold makes the rules. Then when their actions are questioned they devolve the argument into “We’re being attacked by the poor.”

But, the poor by their definition is anybody that’s trying to find access to their hordes of wealth. This includes other millionaires and even billionaires.

So, the real problem isn’t the poor. It’s the hoarding of wealth for the sake of hoarding wealth and to just have it. It’s about not giving back to those that have allowed you to ascend to that place.

Just giving money to the poor is a bad idea. It doesn’t work. It’s why I’m against minimum wage hikes. Throwing money at poverty doesn’t work. But reinvesting into local communities and economies so businesses, infrastructures, and most importantly great ideas can grow does work, and letting the best ideas, practices and decisions win shouldn’t seem like such an outlandish idea.

Yet, that’s exactly what the current wealthy are claiming.

Top Malaysia stock picks for 2H2016

Top Malaysia stock picks for 2H2016 from Public Invest:
Axiata Group Bhd, AMMB Holdings Bhd, Genting Plantations Bhd, SKP Resources Bhd, LBS Bina Group Bhd, Chin Hin Group Bhd, TDM Bhd, Uzma Bhd, Cypark Resources Bhd and Hock Seng Lee Bhd
Top 3 preferred sectors - power, property, plantations

Can human civilization now do away with competition?

Haven’t we reached a stage where competition among humans is detrimental to our quality of life and even existence?
We, as in all humans in all countries of the world, should now cooperate on distributing our abundant wealth and resources, rather than having it end up mostly in the hands of a few.

6 Criteria for Selecting Stocks

Dr. Tan Chong Koay's investment philosophy: Be fully invested near the bottom and trimmed near the peak. But should never be fully invested at all times.

Dr. Tan is one of Malaysia's eminent value investor, having managed several award winning funds under his company Pheim Asset Management.

He select stocks based on the following criteria:
1. focused management
2. high earnings growth potential
3. attractive profit margins
4. strong balance sheet with low gearing
5. market leadership in growth industries
6. reasonable valuation

His book Rising Above Financial Storms can be bought from local bookstores.

The Triumph of Democracy!

A Question on Quora: Isn't the Brexit a proof that democracy may not produce the best decisions? Does the Brexit vote illustrate the failings of direct democracy?

The answer by Ozgur Zeren:

Best decision for whom?

For the lucky minority middle and upper middle classes in London, its a horrible decision.

Its a horrible decision for the multinational financial interests who were using London as a backdoor to do whatever they want in EU free market without having to obey many of its regulations.

But for the working class in counties? Whose jobs were indeed being taken over by immigrant labor from EU free market as immigrants are willing to work for lower wages until they set up a family or bring their own? No argument of ‘doing your job better’ can be used in that case to argue against it.

Neoliberal free markets do not enable free roaming of labor just to provide variety in workforce. It is done to lower labor costs by attracting immigration. EU free roaming of labor is no different.

This could have been tolerable for the working class in Britain’s rural areas, if the same neoliberal governments who were bestowing the benefits of a 500 million people free roaming labor pool to their corporate backers weren’t also crippling, cutting, killing and privatizing social services, benefits, healthcare and education. These are the only things which can cushion the impact of frequent job loss waves in a neoliberal free market - for locals and immigrant alike. But all of these had been going away, to provide for tax breaks and benefits to very corporations that enjoy a big and cheap labor market - mainly a clique concentrated around Westminster.

So?

Lose your job, lose your benefits, your children lose their free education, they are even trying to cut pensions?

What is there to show for the working class in regard to benefits of EU?

Going to Paris every few years for a short vacation easily? Except they can’t since they don’t have the money.

Going to work abroad in Poland, Italy or Greece? Except there aren’t jobs there - they are coming to Britain or Germany.

EU rules and regulations protecting Britain from total destruction by multinational corporations? It’s already there, since Britain pushed so many exceptions and exemptions for itself.

Thus, working classes voted properly in accordance with their interests per democracy. That their interests do not overlap with the interests of the luckier segments which favored remain, does not make exiters’ choice any less valid.

Incidentally, Scotland voted to remain as well - but thanks to a strong social democratic political spectrum (mainly SNP) protecting Scots from most of the neoliberal disaster that Tories brought upon England and Wales as SNP protected Scotland’s NHS, social programs, social services, Scottish working class is not feeling the pain as much as the English working class.

…………

Arguments can be made regarding how Britain’s export market will shrink, economy will get a hit, pound will fall, and many things.

However, if you think realistically, few of these have any relevance to working class in the shires. They are unemployed, they are losing their social services, free education, benefits,anyway.

And the ~100 billion something pounds which was lost in financial markets in London has little relevance to them - they did not have any stake in that money, and that extremely-financialized virtual economy had little to do with actual jobs in the shires anyway.

………

So its the ages old neoliberal conundrum - implement free trade zones, free roaming labor to make use of cheap labor, provide tax breaks to your corporations by cutting social services, financialize the economy and make fast trillions while cutting actual investment in physical goods and services, turn a country into scorched land…

…then complain about democracy when people do not agree with what you are doing.

French aristocracy who were out of touch with their own nation just before French Revolution comes to mind. They were unable to understand why those rowdy, uneducated, ignorant masses were restless. It was so inexplicable. That the luxury and comforts they were enjoying were not a reality outside their minority circle escaped them to great extent, and they couldnt get into touch with the reality outside their world either.

And no, the percentage of educated, multilingual young population which is able to leave their own land and work abroad in Europe somewhere, having voted to remain does not make an argument. They constitute the lower recesses of the privileged class, the free education system which enabled them with that education despite their parents’ meager means is going away. And the fact that they have to go abroad to be able to find jobs instead of finding one in Britain tells volumes about the situation for the ordinary man in Britain a lot by itself.

……..

First thing to understand about democracy is that your reality, your experience, your situation may not be shared by others. And no amount of reinforcing of any bias by corporate media or established institutions changes that.

Investment ideas

👉Silver
👉Driverless cars as a disruptor
- Dominic Frisby

👉Japan -Rising buybacks, the promise of more money printing, and a market that’s widely disliked
- John Stepek

👉Positive on European equities
- Amundi

Solution for a better world

How much money does one person need to live comfortably? Let's assume it's $10m.
Once a person's assets has reached that amount it should be capped.
Any additional income should be given to the company's shareholders or kept as its reserves.
The income to the person should be given just enough to maintain his net worth at the capped value.
By limiting eveybody's assets to $10m, wealth can be distributed more equally to society, thus benefiting everyone.
No one gets to hoard massive amounts of wealth. Improvement in productivity should benefit the whole society not just to make a few filthy rich.

A manifesto against all forms of war

War where lives are lost by physical aggression and armed conflict is denounced these days, so the world has generally been peaceful this century, except for acts of terrorism.
But doesn't everyone realize that there are other forms of war- trade war, currency war, cyber war. Even competition can be seen as a form of war. The casualties suffer from a loss of quality in life (e.g. end up poorer), and it is not undamaging either to the winners. When competition is stiff, what does it take to become the winner? Blood, sweat and tears. More time spent at work instead of with one's family. How can work life balance be achieved then?
Why don't more people denounce all these forms of war instead of just the physical kind?

Investment ideas

👉Gold. Central banks put money in everyone's bank account so prices go up.
👉You do not want to hold long-term bonds when inflation expectations start to ramp up.
👉The last time people hated the banks this much, they went up for four years straight
- Jared Dillian

👉Oil long term 5 year trade with BHP Billiton as proxy tracking WTIC - - Dominic Frisby

👉until inflation reaches the point where the Fed can’t just ignore it or shrug it off, it’ll be happy to keep rates at a level where they don’t rattle markets. 
👉Continue favour Europe and Japan
👉 bets on a weaker dollar this yearwhich suggests that emerging markets, commodities and gold trades remain good bets for 2016.
- John Stepek

David and Goliath

David and Goliath - Malcolm Gladwell

- The advantages of disadvantages (and disadvantages of advantages)
- Inverted U-curve:

• first stage (linear rising) - doing/having more make things better
• second stage - diminshing returns
• third stage (flat) - doing more doesn't make much difference
• fourth stage (falling) - more resources are counterproductive

- Big fish-Little pond effect - it's better to be a big fish in a little pond
- Some difficulties are desirable - emerge stronger
- There are limits to what evil and misfortune can accomplish

investment metrics

Fong Siling @ ColdEye 5 Investment metrics:

1. Return on equity, ROE,
2. Cash flows
3. PE ratio
4. Dividend yield and
5. Net tangible asset backing per share, NTA