Author: 8% Value Investhink

How to Fail in Portfolio Management

Portfolio managers as a group has not contributed anything to the society at large. I mean a barber helps to cut people’s hair, a doctor saves lives and a teacher educates our children. Lawyers, politicians, portfolio managers, as a whole, subtracted value from the society, if you ask me. The famous stats is this, and I must state again: more than 80% of all fund managers fail to beat market indices over long periods of time. Some of them do beat the index for like 1 or 2 yrs, only to falter in the 3rd or 4th. The market...

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Portfolio Management: The Job

So basically portfolio management boils down to over or underweighting some benchmark stocks. Now that doesn’t sound too difficult, why should they be paid exorbitant salaries? And despite getting paid so much, they FAIL to deliver the results? Well first we talk about the skills needed. The portfolio manager needs to know a lot to do his job. And I really do mean A LOT. If you think in terms of those 300 page university textbooks, it’s probably 30-40 of them (CFA has 18 for 3 levels). Plus, 10-20 years worth of global news material, that is maybe volume...

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Dividend Yield Stocks – 2010

This is a bonus post! Generated a list of stocks with high dividend on the SGX (more than 5% dividend yield) Sorted according to payout ratio, a high payout ratio means that there is increased likelihood that the firm cannot maintain its dividend if earnings don’t do well. Read...

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Portfolio Management

To be a portfolio manager is a much coveted goal for a lot of people struggling in the financial industry. This position is deemed as being at the top of the food chain. Everyone feeds information to the portfolio manager so that he can make the best investment decisions. The portfolio manager is THE Top Dog. However, the way that the industry had evolved makes the top dog’s job rather stupid. In fact the whole fund management industry doesn’t really make a lot of sense. Just look at the whole management fee issue. For most funds that it out...

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On Wikipedia and Markets

I was reading this book “The World Is Flat” and this small little story on Wikipedia caught my attention. Btw this is quite an old book and one can so obviously deduce I am so behind in my reading… I think the author has written like a gazillion updates and published sequels. There wasnt much of truly good insights but lots of small interesting stories which makes it an entertaining read and perhaps that’s why it’s selling million copies. Anyways the story on Wikipedia was that even though it was a free encyclopedia, things posted can be quite accurate....

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The Acme of Value Investing

I have been thinking about this for a while. Some time back, Warren Buffett started buying over mum-and-pop businesses that have grown tremendously over a long span of time from its original owners. These owners have painstakingly built their empires over the years, they are now old, they want to cash out some of the future earnings of their business, so they go to Buffett. But how do they determine price? Buffett being Buffett, is not going to undercut them by paying them just 10x earnings. But he definitely will not overpay as well. In the stock market, Mr...

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The Truth Shall Prevail

Value investing is based on an inherent fundamental assumption: that someday, an asset’s true value (or intrinsic value) would be realized. Hence buying a stock when it is trading significantly below intrinsic value would yield good return bcos they eventually trade back to its intrinsic value (albeit after a long time and only for a short while). But what happens if the stock never reverts to its intrinsic value? Is that likely? Well I don’t have a good answer to that, but let’s explore this topic a bit more broadly first. Analogous to this the concept that a stock...

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Wealth, innovation, hardwork and others

This post serves as clarifying some economics concepts for myself also. It has to do with wealth and how it links to being rich and famous and getting adored by the masses. Imagine that the world has only 2 pple: 1 farmer and 1 fisherman. The farmer harvests some rice every day and the fisherman catches some fishes. The farmer will sell some rice to the fisherman and vice versa. So the money supply in this world has maybe like $4, $2 with the farmer which he gets from selling 2 kg of rice and $2 for the fisherman...

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On Financial Freedom

Just some thoughts on this term “financial freedom” that has become a much coveted goal in life popularized by Robert Kiyosaki in Rich Dad Poor Dad. Btw apparently Kiyosaki was never as rich as he proclaimed. He got rich after selling his book. Well, some of his ideas are refreshing though. What is the definition of financial freedom? I guess to most people, it would be having enough money in your bank to last a lifetime living the same quality of life and thus having the freedom to choose not to work for money. In the first ever post...

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Concerns on ETFs

I love ETFs. They allow retail investors to invest in indices with low costs, liquidity, give dividends and even have a helpline that you can call everyday to ask about the ETF you bought. What else can we ask for? However, due to time constraint and limited resources, I haven’t been able to research and answer some thorny questions on them. If anybody reading this have answers, pls do comment and share the knowledge. 1. Forex risk Most ETFs on the SGX are listed in USD and as we know, the USD is being dragged to hell as Fed...

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The 7 Levels of Market Participants

This was inspired by the 7 Levels of Photographers by Ken Rockwell, which was perhaps inspired by religion. Well, in any case, here are 7 Levels of market participants, with One being the lowest and Seven being divine. Enjoy! Level One: The Tippee The Tippee is someone who receives a tip or some advice and wants to make a quick buck out of greed. This level of market participants usually never had a brokerage account and decided that they should make a some money from the stock market bcos everybody else is doing it. They are inevitably tipped to enter the...

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A Two Iteration Monte Carlo Simulation on Trading

This is something that I have posted in a comment some time back. I thought I would just expand it for discussion and see if it makes sense. First let’s work through some assumptions and no.s and see what’s the expected return for trading. 1. The capital base is $100,000 2. $10,000 is utilized per trade 3. 10 trades is done in 1 year 4. Take profit at 20% 5. Cut loss at -10% 6. Winning rate 60% 7. Transaction cost $20 Based on these: a. The 6 winning trades will bring in $12,000. b. The 4 losing trades...

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Management compensation

Needless to say, if the management team is paying themselves too well, pls avoid the company. Most annual reports of Singapore co.s these days have a section on management payout. I make it a point to find out how much they are paid. Just some rough no.s (since I can’t really remember all the figures), the CEO pay package is usually about $1mn for a few hundred million revenue firm. For smaller co.s, it is about $500k or so. Of course, as we all know, the record is a whopping S$20mn. What is a good sum to pay a...

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More on Dilution

Rights issue sucks! Let’s see how this works: Imagine you are the sole owner of Company ABC. It’s better to think as a sole owner, it makes things clear. So you put in $10mn capital to start the co. You list the co. and now own 1mn shares of $10 each. ie mkt cap of your co. is $10mn. Then you appointed a CEO to help you run the business. He lost $8mn, well partly bcos of the crisis, partly bcos he was not prudent and expanded to rapidly during the heydays of 2006-07, partly bcos he paid himself...

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Capital Prudence

One gauge for management which is often overlooked is how they manage the firm’s capital. Do they see the firm’s equity and cash on its balance sheet as valuable resources that belong to the shareholders and think twice about doing funny things with them? Well most management will do funny things when given the chance. We look at 4 aspects of what crappy management will do: 1. Dilution Most management couldn’t care less about diluting shareholders’ stake bcos they get the much coveted capital to cover up their mistakes. In Singapore, dumb retail investors actually rejoice when management wants to...

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