Ex-post answers

Here, I shall provide answers to two issues I have raised two years ago.

First, in my Dec 2007 book review, I have asked given the similarity of subprime crisis to the 1907 bank crisis, would the subprime crisis lead to liquidity crisis?

The answer, as we all know, is yes. And to add, I do not know the answer at Dec 2007, and I did not expect that the subprime crisis will lead to a global economic contraction.

I suppose that the lesson here is that one should not be fully invested if one is suspecting an incoming crisis.

Next, in my Mar 2008 post, I have mentioned about investing the first 20K of CPFOA in 3 possible stocks: Orchard Parade, Singapore Land and Hotel Grand Central

And, I have done what I have written at that time. I have bought Orchard Parade at around $1.05 using CPFOA funds. Well, if you look at the price Orchard Parade on Friday, you can derive my returns (around 13%).

This return is higher than CPFOA two years' return. However, on hindsight, I have invested at the worst possible time, such that I have to endured a capital loss of 50% during this two years. (This incident is an example of higher returns in exchange for higher risks)

Even though I have to suffer the temporary capital loss of 50%, I always felt that I will beat CPFOA returns in the long run (i.e. 5-10 years). To me, as I have bought Orchard Parade at 0.5 P/B, my margin of safety was a pretty high margin of around 50%, assuming that fair value was at 1x book.

While it may be debatable whether my investment in Orchard Parade in 2008 is correct in process, I believe that I am likely to make the same investment if the same circumstances happen in future.

This is because I do not know the future (or whether there will be a severe stock market contraction), and given the margin of safety, this investment is most likely to beat CPFOA in 5 - 10 years' time.

PS This post is written for personal preference only.


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