This post is a review on Trade with Passion and Purpose by Mark Whistler. The book is recently published in 2007. Mark Whistler, as he mentioned in the book, is a staitisical arbitrage trader.
Basically, the book belongs to trader psychology literature. However, it brings about a slightly different dimension when compared to other trader psychology's psychology book as its chapters are arranged by charactor traits: Honesty, Humble, Courageous, Fear, Adversity and Anxiety; and followed by EQ, gratitute, relaxation and a last section on developing a game plan. Developing a game plan touches on trading plan and risk understanding.
Some interesting points:
1) The book starts by having a mission statement and using Morita therapy: acknowledging and accepting your own feelings as they arise. For example, if you feel worried about a trade, you should acknowledge and accept your feeling. Personally, I do find that acknowledge and accept my own feelings would help me in investing as well as other matters.
2) The book does encourage one to express gratitute often. It even cites an academic study that suggest the act of frequently find things to thank for in life would help a person to be more happy.
3) Surprisingly, the book also covers a few breathing technique to help a trader or person to relax. For example, a breathing technique is to breathe in while counting to 10. Hold the breath for 15 seconds. After that, breathe out until you are out of air. Then repeat.
4) Interesting, the author puts up a list of items he is willing to risk in terms of trading and writing under the "Understanding Risk" section. When you are at a bookshop browsing through, you may want to look for this book and go through the author's list of riskable items. Maybe it would remind you, as I am being reminded, that it is not easy to be a competent full-time trader (or for me, a part-time investor).
All in all, the book will be useful for people who actually puts their money in the market. I cannot speak for traders as I do not really trade. However, if you are wondering why you are feeling this and that during market downturn or how you can better manage your emotions, you may wish to take a look at this book and see if it helps.
Sunday, September 16, 2007
Saturday, September 8, 2007
Book Review: SuperMoney
This post is a review on SuperMoney by Adam Smith. The book is first published in 1972 and re-introduced in 2006. The NLB does not seem to have the book.
The book is a description of financial markets in the period roughly around 1965-1975. Supermoney is interesting to me in a few aspects.
1) Supermoney has a chapter on Benjamin Graham and Warren Buffett, even before Warren Buffett becomes famous. The author conducts his interview at around the time where Buffett no longer manages money (somewhere after 1969) but rather working as an owner of Bershire. And it seems that Buffet's famous Rule of 'Don't lose money' comes from Benjamin Graham. I shan't say much here, since it will spoil the joy of reading that chapter.
2) Another interesting event is the Penn Central bankruptcy. The event is a bit similar to the subprime fallout now. I shall briefly describe what happen from my understanding from the book.
At that point of time, Penn Central files for bankruptcy and its commercial paper (or bonds) naturally will become worthless. And at that time, not only Penn Central but also other corporations with similar credit-worthiness are having the commercial papers out in the market too.
The financial circle become worried that the Penn Central incident would spread to other commercial papers from similar corporations. People may become scared to own commercial papers due to Penn Central incident. Corporations may not be able to sell their commercial papers or they have to issue their commercial papers at a much lower price. And when price becomes lower, the yield becomes higher. Note that this may indirectly affect the stock market as money may flow from stock market to purchase higher yielding commercial papers.
To cut the story short, Penn Central incident's final impact is reduced due to actions by the Fed. The corporations who are unable to sell their commercial papers go to the banks. The banks then go to the Fed and borrow money to lend to the corporations. A potential large fallout was averted.
In conclusion, Super Money is interesting to read, especially if you are interested in US financial history.
The book is a description of financial markets in the period roughly around 1965-1975. Supermoney is interesting to me in a few aspects.
1) Supermoney has a chapter on Benjamin Graham and Warren Buffett, even before Warren Buffett becomes famous. The author conducts his interview at around the time where Buffett no longer manages money (somewhere after 1969) but rather working as an owner of Bershire. And it seems that Buffet's famous Rule of 'Don't lose money' comes from Benjamin Graham. I shan't say much here, since it will spoil the joy of reading that chapter.
2) Another interesting event is the Penn Central bankruptcy. The event is a bit similar to the subprime fallout now. I shall briefly describe what happen from my understanding from the book.
At that point of time, Penn Central files for bankruptcy and its commercial paper (or bonds) naturally will become worthless. And at that time, not only Penn Central but also other corporations with similar credit-worthiness are having the commercial papers out in the market too.
The financial circle become worried that the Penn Central incident would spread to other commercial papers from similar corporations. People may become scared to own commercial papers due to Penn Central incident. Corporations may not be able to sell their commercial papers or they have to issue their commercial papers at a much lower price. And when price becomes lower, the yield becomes higher. Note that this may indirectly affect the stock market as money may flow from stock market to purchase higher yielding commercial papers.
To cut the story short, Penn Central incident's final impact is reduced due to actions by the Fed. The corporations who are unable to sell their commercial papers go to the banks. The banks then go to the Fed and borrow money to lend to the corporations. A potential large fallout was averted.
In conclusion, Super Money is interesting to read, especially if you are interested in US financial history.
Sunday, September 2, 2007
Book Review: A Demon Of Our Own Design
This post is a review on A Demon Of Our Own Design: Markets, Hedge Funds, And The Perils Of Financial Innovation' by Richard Bookstaber. Website: http://rick.bookstaber.com/
I have bought this book during the recent subprime Credit Debt Obligations (CDOs) meltdown, so as to better understand how the subprime leads to market meltdown. Essentially, from what I understand from the book, the recent market meltdown is due to liquidity crunch, wherely hedge funds simultatneously sold their equities position and the market is not able to absorb. This transpire to lower prices for the equities and with the momentum traders further shorting action to pre-empt and in the process profiting from the selldown, the market meltdown was exacerberated.
Other interesting points from the book are:
1) Correlation of different assets is likely to converge to 1 during liquidity crunch.
2) There are liquidity demanders and liquidity providers in the market. Interestingly, value investors tend to be liquidity providers, while technical traders tend to be liquidity demanders.
3) A cockroach with its simple strategy of fleeing when uncertain is able to survive in different environments. However,the fugu fish which has evolve to many different fishes with different kinds of survival techniques become extinct when a new type of fish (predator) was introduced to their environment.
... The book contains other points besides the above.
Overall, the book is quite a good read, especially for those who have studied economics. Or if you have enjoyed books like 'Fooled like Randomness', you would enjoy this book too.
I have bought this book during the recent subprime Credit Debt Obligations (CDOs) meltdown, so as to better understand how the subprime leads to market meltdown. Essentially, from what I understand from the book, the recent market meltdown is due to liquidity crunch, wherely hedge funds simultatneously sold their equities position and the market is not able to absorb. This transpire to lower prices for the equities and with the momentum traders further shorting action to pre-empt and in the process profiting from the selldown, the market meltdown was exacerberated.
Other interesting points from the book are:
1) Correlation of different assets is likely to converge to 1 during liquidity crunch.
2) There are liquidity demanders and liquidity providers in the market. Interestingly, value investors tend to be liquidity providers, while technical traders tend to be liquidity demanders.
3) A cockroach with its simple strategy of fleeing when uncertain is able to survive in different environments. However,the fugu fish which has evolve to many different fishes with different kinds of survival techniques become extinct when a new type of fish (predator) was introduced to their environment.
... The book contains other points besides the above.
Overall, the book is quite a good read, especially for those who have studied economics. Or if you have enjoyed books like 'Fooled like Randomness', you would enjoy this book too.
Friday, August 24, 2007
Not Much Activity
I did not have much activity this week given that I have expended most of my funds. What I have done is to add a bit more to one of my position and to wait for a lower price in China Precision.
In the last post, I have expressed that Hongwei is my best pick now. Let me explain why.
First, it has low price to conservative valuation. Assuming no growth, a discount rate of 10%, lifteime annual profits per share at 2x of its HY07 EPS, Hongwei's valuation will be at 52 cents.
Second, Hongwei is likely to worth much more than 52cents as its EPS is growing. Hongwei's new synthetic cotten factory would be completed in 3Q2007,which will double its synthetic cotten production from 8000 to 16000.
Hence, at the currect price, you are getting below no-growth valuation, a freebie onlikely growth in eps. There may be possible future expansion and interesting R&D results. It seems low-risk and high reward pick in my view. Of course, I may be wrong. But it is a good value bet to me, just like CG Tech in June 2006.
In the last post, I have expressed that Hongwei is my best pick now. Let me explain why.
First, it has low price to conservative valuation. Assuming no growth, a discount rate of 10%, lifteime annual profits per share at 2x of its HY07 EPS, Hongwei's valuation will be at 52 cents.
Second, Hongwei is likely to worth much more than 52cents as its EPS is growing. Hongwei's new synthetic cotten factory would be completed in 3Q2007,which will double its synthetic cotten production from 8000 to 16000.
Hence, at the currect price, you are getting below no-growth valuation, a freebie onlikely growth in eps. There may be possible future expansion and interesting R&D results. It seems low-risk and high reward pick in my view. Of course, I may be wrong. But it is a good value bet to me, just like CG Tech in June 2006.
Friday, August 17, 2007
Well, well, an underestimation of market panic
I conceded defeat. I have underestimated the extent of selling panic, so much so that I keep buying and buying. Yes, I have somehow reached my target of being more than 100% invested. Probably in the weeks to come, I will put my tiny bit of savings year-to-date into this lowly valued market.
It is interesting to note that my portfolio has fallen around 33% from its highest point in mid-Jul. And this is worse than the 25% fall I suffered last year. However, emotionally wise, I seem to feel less pain compared to last yaer. Is this a form of adaption to extreme volatility or am I not out of dreamland of thinking that the stocks will recover? Or perhaps I do not see money as important as before despite my portfolio having grown larger. As usual, I do not know.
Anyway, my portfolio has 30% in Hongwei. And none of the 30% is bought at the current low price of $0.305. I think that Hongwei is my best pick of this correction, similar to my pick of CG Tech in the 2006 June correction. However, as always, my views may be wrong (or dead wrong). Its really up to you to decide what you want.
In closing, I shall recall Graham's Mr Market analogy. That one should treat the market as an offerer of prices and ignore him until you wish to trade with Mr Market. And for the past two weeks, I am happy to buy from the pessimistic Mr Market. I suppose that extreme volatility is bread and butter (or even honey) to a value investor.
Note: Mr Market analogy may harm you if you are playing with excessive short-term leverage.
It is interesting to note that my portfolio has fallen around 33% from its highest point in mid-Jul. And this is worse than the 25% fall I suffered last year. However, emotionally wise, I seem to feel less pain compared to last yaer. Is this a form of adaption to extreme volatility or am I not out of dreamland of thinking that the stocks will recover? Or perhaps I do not see money as important as before despite my portfolio having grown larger. As usual, I do not know.
Anyway, my portfolio has 30% in Hongwei. And none of the 30% is bought at the current low price of $0.305. I think that Hongwei is my best pick of this correction, similar to my pick of CG Tech in the 2006 June correction. However, as always, my views may be wrong (or dead wrong). Its really up to you to decide what you want.
In closing, I shall recall Graham's Mr Market analogy. That one should treat the market as an offerer of prices and ignore him until you wish to trade with Mr Market. And for the past two weeks, I am happy to buy from the pessimistic Mr Market. I suppose that extreme volatility is bread and butter (or even honey) to a value investor.
Note: Mr Market analogy may harm you if you are playing with excessive short-term leverage.
Thursday, August 9, 2007
Costly Mistake
I have discovered that I have made a blunder in my valuation of Hongwei and Contel. That is, I did not take into account of their newly issued shares. Newly issued shares would lower eps and lead to lower valuation. The blunder is due to not reading or taking into account of every announcement carefully.
Given that I prefer less uncertainty, I may feel that the growth achieved from the equity raised by issuing of shares may not make up for the eps fall.
I have sold off all my Contel and one-third of my position in Hongwei. This may be regardless of valuation. It may be more to smooth my nerves and reduce possible negative consequences later. I do not really understand Contel's rationale in doling out convertible bonds continuously. Do they need the money for expansion or is it because it is due to cashflow problems? I can't tell, so I have to sell.
The Contel and Hongwei mistake seems rather severe as it has at least contributed to half of the losses (-17.35% from the highest point). A costly lesson.
Meanwhile, I have added on to my position in China Printing & Dye. I have also bought back or re-initiate positions in C&G Industrial, China Precision, Star Pharm and one more stock.
If you are a reader of my blog or my post in other forums, please note that my post is only indicative of my thoughts at that moment. My thinking may change or reverse (as in the case of Contel from bullish to bearish) anytime after my post. And I may not post any reversal of my earlier decisions. Therefore, do your own research and do not follow me.
Given that I prefer less uncertainty, I may feel that the growth achieved from the equity raised by issuing of shares may not make up for the eps fall.
I have sold off all my Contel and one-third of my position in Hongwei. This may be regardless of valuation. It may be more to smooth my nerves and reduce possible negative consequences later. I do not really understand Contel's rationale in doling out convertible bonds continuously. Do they need the money for expansion or is it because it is due to cashflow problems? I can't tell, so I have to sell.
The Contel and Hongwei mistake seems rather severe as it has at least contributed to half of the losses (-17.35% from the highest point). A costly lesson.
Meanwhile, I have added on to my position in China Printing & Dye. I have also bought back or re-initiate positions in C&G Industrial, China Precision, Star Pharm and one more stock.
If you are a reader of my blog or my post in other forums, please note that my post is only indicative of my thoughts at that moment. My thinking may change or reverse (as in the case of Contel from bullish to bearish) anytime after my post. And I may not post any reversal of my earlier decisions. Therefore, do your own research and do not follow me.
Wednesday, August 1, 2007
A great time to buy stocks
This is a great time to buy small caps. To buy when people are selling without any view with respect to the fundamentals. This is a high probability for long term gains but with high uncertainty and high probability for short term losses.
Despite seeing some pessimism around the forums, I am feeling quite optimistic or happy. I guess this is because my opportunities for bargain hunting may increase considerably from now on. This is also despite my 13% losses in my overall portfolio. Maybe it may accumulate to 25% losses as in June last year. I don't know.
However, I will buy more as stocks become cheaper. I have bought more of Hongwei and Contel today. Sadly I have also disposed my position in Techcomp, my last saleable stock to raise cash. My remaining holdings, besides Hongwei and Contel, are China Print & Dye, GMG, a HK stock anda newly initiated position today. They are most likely to remain unsaleable unless their incoming results contain unpleasant surprises.
I still have some cash left, which will come in handy from now onwards. Let see whether Mr Market will turn more pessimistic and offer me more bargains.
Despite seeing some pessimism around the forums, I am feeling quite optimistic or happy. I guess this is because my opportunities for bargain hunting may increase considerably from now on. This is also despite my 13% losses in my overall portfolio. Maybe it may accumulate to 25% losses as in June last year. I don't know.
However, I will buy more as stocks become cheaper. I have bought more of Hongwei and Contel today. Sadly I have also disposed my position in Techcomp, my last saleable stock to raise cash. My remaining holdings, besides Hongwei and Contel, are China Print & Dye, GMG, a HK stock anda newly initiated position today. They are most likely to remain unsaleable unless their incoming results contain unpleasant surprises.
I still have some cash left, which will come in handy from now onwards. Let see whether Mr Market will turn more pessimistic and offer me more bargains.
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