Tuesday, May 31, 2011
This posting was done 3 years ago, I think I have a bunch of new readers now. Good to rethink our "Door 2".
A fellow blogger put up the following choice: open Door 1 and get RM1,000 or try Door 2 for RM5,000. The thing is Door 2 has only a 50% chance of RM5,000. Hence opening Door 2 can give one of two outcomes: zero or RM5,000. Which door would you take? Are you a risk taker or risk averse? Or do you make your decisions professionally and mathematically? If it’s the latter, chances are you are likely to choose Door 2 because 0.5 x RM5,000 = RM2,500 which is, of higher value than RM1,000.
Let’s go further on this hypothesis. Now, let’s say Door 1 will get you RM500,000 for sure while Door 2 provides a 50% chance to pocket RM10mil. This is where it gets interesting. For many, RM500,000 can pay off your mortgage or send a couple of kids to a foreign university. Hence when faced with the same situation, the theoretically correct and risk-positive choice may not be taken by most. The Door 2 choice has a mathematical reward of 0.5 x RM10mil = RM5mil, but many will not choose that option.
It boils down then to a person’s net worth and their tolerance of risk. If your net worth is RM1mil or less, Door 2 would not even be a choice. However, if you are worth RM50mil, you probably would take Door 2. Hence, where is our mathematical evaluation of risk and reward? The things we study at business schools and MBAs. The stuff you learn for CFA ... all out the window.
This highlights where textbooks theory diverges from what happens in reality. We all make financial decisions based on things more than just pure mathematical models. We are not robots. Seemingly, if we look at each and every financial decision, it is based on more than just cold-blooded numbers.
Is it any wonder then that the markets cannot be understood just via numbers and valuations alone. Things we cannot explain, we call them sentiment or momentum or over-sold or over-bought ... you get the drift. You extrapolate the choices further and you will find investors, who usually start off with a proper well-researched decision on what stock to buy. The same person will make an illogical decision to cut-loss, or take profit too early because there were other factors that will come into the picture for them. Sadly, these “usually irrational” factors tend to play a much bigger role in determining an investor’s final decision. It will cloud and distort.
Models & Madness
A failure to properly evaluate the risk and pricing of collateralised debt obligations and other structured debt products was one of the problems that brought turmoil to the securitisation market last year. Industry experts are now saying market participants shouldn’t rely exclusively on mathematical models but should also use the social sciences to understand behaviours — of home owners, for instance. It seems that risk management is no longer a science but an art form. Although bubble behaviour looks stupid in retrospect, many intelligent people get caught up in it.
Did the models adequately take into account the cumulative human forces of optimism, gullibility, short-term focus, genuine belief in momentum, extrapolation of so-far-profitable speculations, group psychology, and increasing fraud? We need to allocate sophisticated numbers to these intangibles.
Values & Ethics
If we were to take this a step further, you can find risk-reward relationship in other more important areas. Intangibles such as a person’s values or ethics can even be measured. These supposedly absolutes are not really absolutes in reality.
Take corruption or insider trading. Most will say they are against both. However, no one can say with absolute certainty until they have actually been posed with a real choice. Door 1 gives you zero value, and Door 2 is doing some corruption, or acting on some insider information and being rewarded with RM10,000. How well do your values stack up? What if Door 2 is now worth RM1mil? How about RM10mil? Almost everyone has a “Door 2”, what is your “Door 2” value? Some will be a function of their net worth, what is that “x” value? 3x, 5x, 10x ?? Trouble is some also hold bargain basement sales.
Now, even graduate business schools everywhere is teaching ethics. That is quite pointless because they can't really be taught. You may learn why you need to be ethical but you cannot inculcate ethical behaviour unless it comes from introspection. The best we can hope for is regulation. Know the boundaries. A person can still score 100% in ethics class and still churn out Milkens and Boeskys.
That’s why when business, finance, politics mesh - values and ethics are, in most cases, fluid. Hence the comedic routine: “Ethics, I’m so poor I cannot afford to have ethics”.
Regulating risk taking
Hence most countries cannot rely on their people to behave in the appropriate manner all the time. That’s where regulation comes it. There must be punishment, rules and guidelines. For these rules and laws to be effective, there must be effective regulation and enforcement as well or else the rules and punishment will be as there were none at all. Sometimes a low corruption index does not mean the people are inherently “good”. It may just mean they have heavy-handed punitive measures and very effective regulatory processes. In the same vein, a high corruption index does not mean most of the citizens are evil. It may just mean lax regulation and enforcement.
What is your “Door 2”? Does it have a value? Do you know that figure even? Which is why one shouldn’t be overzealous in proclaiming that they are righteous or have a high ethical standard - it may only mean you haven’t been offered a proper “Door 2” yet.
Is it any wonder that monks lock themselves in monasteries, probably to avoid ever having to come face to face with their “Door 2”.
photos: Jolin Tsai
Sunday, May 29, 2011
Yes, its that expensive cause they ladle up tons of seafood and home made goodies. Its seafood noodles. The food is pretty good, the soup base itself is "sweet and refreshingly clear". The white ballish things are not your fishballs but delectable small fresh scallops. Go and pick your noodles, soup or dry version, and then your preferred accompaniments, or just campur-campur.
You should also order a side bowl of fish stomach and fish liver. The latter has the taste and consistency of uni/foie gras (though you must stand the fishy taste), they are very good.
Some rave about the chilli belacan sauce, its OK, could have done with better toasting of belacan and more calamansi, but still decent. The other side dish that a lot of customers would order is their home made fried fish cake, very springy.
Its the place with two restaurant signs, didn't bother to ask which is the correct one. Its located at Jalan SS4c/5. If you are travelling on LDP from Damansara to Federal Highway, once you see the big Cathoclic church on the right, veer left and you will see Caltex, turn left, go about 400 meters, left again and your are there.
Testimony, bill for 2!!! Had to be good, judging from the amount of fish, fish head and other seafood they go through ... you tend to get a very swift turnover and preserves the freshness of produce. I think they are open for early lunch around 11am till 3pm, but not much goodies left after 2pm.
Tuesday, May 24, 2011
Monday, May 16, 2011
Mixing business with social responsibility has always been the hallmark of wellknown philanthropist, educationist and Sunway Group founder and chairman, Tan Sri Jeffrey Cheah, AO. This trait is based on his firm belief that the key to a meaningful life and true personal satisfaction is when an individual gives back to society what he has reaped. And in the process, leave behind a lasting contribution that will make a huge difference.
So, when this soft-spoken, self-made and remarkable tycoon launched his latest and most serious philanthropic endeavour several months ago, he set a precedent that may be a hard act to match by anyone in the future. His initiative – the Jeffrey Cheah Foundation, the first of its kind in Malaysia, is modelled after the Harvard Foundation which governs one of the world’s oldest and renowned universities.
“I have always believed that the business of education is more than just ‘a business’ for successful and dedicated corporations like the Sunway Group. Education becomes meaningful when it acts as a tool to enrich and improve lives and contribute to the national agenda by raising the quality of human capital, which can then reap greater prosperity for the country,” he says of his foundation. “My dream and vision has been to share these very successes enjoyed by Sunway Group with those in need and who deserve it so that their lives may be changed forever.”
Tan Sri Jeffrey Cheah’s philanthropic quest has not gone unnoticed regionally and internationally. He was voted one of Forbes Asia’s Heroes of Philanthropy in 2009 and this kind of recognition is hard to come by indeed. His new foundation’s history actually dates back to more than three decades and is closely linked with the evolution of Sunway Group as a pioneer, innovator and catalyst in the field of private education in Malaysia. Sunway pioneered the now popular twinning programmes in Malaysia and also revolutionised the local education landscape via partnerships with top-ranking universities from around the globe.
The Sunway Education Trust Fund that was established in 1997 was the basis for the recently launched foundation. The Fund had in the past administered its share of proceeds from Sunway institutions for the benefit of present and future students through reinvestment into the institutions and for the disbursement of scholarships and research grants. Thousands of deserving Malaysian students in various fields have been awarded more than RM55 million in scholarships by the Fund thus far.
“With the advent of the Jeffrey Cheah Foundation, it will be the sole vehicle through which my life-long ambition, vision and dream to give back to society will be realised,” says Cheah. Cheah has transferred all his shares held in the Sunway Education Trust Fund to the foundation to be held into perpetuity. He has locked in shares worth RM700 million from the education arm of his Sunway business into the newly launched foundation. The foundation is enriched further with the transfer of the Sunway Group’s four educational institutions, the Sunway University College, Monash University Sunway Campus, Sunway International School and the Jeffrey Cheah School of Medicine and Health Sciences.
The foundation, governed by a distinguished board of trustees, will execute Cheah’s legacy of giving. Proceeds from the institutions will be disbursed through scholarships to future generations of needy and deserving students. And Cheah has not stopped at that. He has also invited other successful and like-minded corporations and individuals to join him in making this noble cause for education a roaring success in the years to come.
Royal recognition came from the Sultan of Selangor with whom Cheah is close. The Sultan had this to say of the educationist’s latest philanthropic act: “It takes a philanthropic and mmagnanimous man like Tan Sri Jeffrey Cheah to transfer the Sunway Group’s top four educational institutions into the foundation, so these assets can be held in perpetuity and they may be used to provide scholarships to future generations of deserving and needy students. “I am glad that Tan Sri Jeffrey Cheah, whom I installed as Foundation Chancellor of the Sunway University College in September 2006, has put the cause for education well ahead of the business of education.”By launching the foundation, Cheah has become a new partner of the Ministry of Higher Education and the government in providing financial assistance to needy students and thereby directly contributing to the building of knowledge-based human capital for the nation.
Notable among his other philanthropic initiatives was the launch of the Safe City concept in Bandar Sunway in 2001, an initiative in which he blazed the trail in Malaysia. In his capacity as Selangor Chapter chairman of the Malaysian Crime Prevention Foundation, he works closely with the police to combat crime and to ensure a safer and healthier environment for residents in the township.
The initiative, complete with donations of equipment to the police department and involvement of the auxiliary police from the Sunway Group, has ramped up good neighbourliness in the residential area. The concept is also now being emulated in other developments. Aiding needy schools has been another of Cheah’s passions. In 2008, his Sunway Group sponsored a RM1 million, 12-month project to restore the dilapidated 85-year-old SRK Convent in Klang to ensure safety at the school so that the teachers and students could study with peace of mind. “Although it is a missionary school, students of all ethnic groups study there. We were not hesitant to support a school which champions multiculturalism,” he said then.
More millions have also been spent aiding the SMK Bandar Sunway, SJK(C) Chee Wen in Subang Jaya, SMJK Yuk Choy in Ipoh, SK Convent Klang and the Gunung Hijau primary school in Pusing, Perak, where Cheah hails from. Life has indeed been a meaningful journey so far for Cheah. But the visionary is looking ahead. He is always on the lookout for new philanthropic causes that will meld with his lifelong desire to give back to society.
The Jeffrey Cheah Foundation is a unique, first-of-its-kind structure in Malaysia within the field of private higher education, modeled along the lines of some of the oldest and most eminent universities in the world; such as the Harvard University in the United States. It carries on the mandate of the Sunway Education Trust which has, since its inception in March 1997, given out more than RM50 million in scholarships to deserving and needy students.
The advent of the Jeffrey Cheah Foundation will see the transfer of equity ownership worth RM700 million of the not-for-profit Sunway Education Group, made up of Sunway University College, Monash University Sunway campus, Jeffrey Cheah School of Medicine and Sunway International School. Today, these education institutions account for over 16,000 students, of which 30% are from 80 different countries. Under the Jeffrey Cheah Foundation, operating surpluses from the Sunway Education Group will be reinvested into the universities and schools. The Foundation will continue to disburse scholarships and research grants to worthy individuals in various fields of study.
Saturday, May 14, 2011
You were changing managers like you a polygamist changing wives. You tried everything, at one stage a few years back judging by the type of player you took on, I thought you were going to change your club's name to Liverpool-Herzagovinia.
We long for some real competition from our old enemies. C'mon Rectalpool, do improve and give us a bit of a fight, its pretty boring at the top.
This is a long weekend, tons of cars going back to kampungs. Promised to buy the best 2-in-1 Kopi mix bag sachets from Ipoh for my partner and a good friend. You know, people from Ipoh probably never drink Old Town packages, even though its the most popular. It is very popular, here's why, a few of my friends working in Beijing and Shanghai, have to lug tens of packages of these 3-in-1 Old Town packages owing to incessant demand by the China friends.
That said, I was discussing the good 3-in-1 and good 2-in-one packages. I think genuine coffee drinkers would stay away from the 3-in-1 as the milk part is questionable. So, more often than not the best Kopi-O mixture seems to be made by Aik Cheong, which I usually buy as well if I cannot get my supply from Ipoh.
Now that I am at my hometown, will have to stock up a few of my favourite. Surprisingly, I have made the rounds in most supermarts in KL and still cannot locate them. The brand is called First Class Aroma. Its aromatic, thick and has a bit more body than the usual run of the mill. Though they also have the 3-in-1, stick to the Kopi-O version. Try it if you can get it.
Thursday, May 12, 2011
As everyone knows, the tsunami in Southeast Asia was devastating both in the loss of life and economically to the region. However now that the clean up is underway in the region, deep sea creatures that live too deep to be studied are being found scattered throughout the wreckage. These creatures were washed up on shore when the waves hit.
Wednesday, May 11, 2011
This was posted back in November 2008, and published in StarBiz as well. Well, they finally made a movie of the subprime mess. It was superbly done, I must say. Matt Damon was the narrator. I loved the many interviews, especially the ones fronting for the bad guys twitching and lying through their teeth ... Funny thing was, the bad guys are not just your usual suspects, they included many economist professors of high regard.
To watch the movie and to read my dated posting, I think I should have made the movie myself... lol.
I was watching the uncomfortable grilling by the US lawmakers on Ben Bernanke and Henry Paulson on the US rescue plan. Pity those two guys. They are trying to fix a problem which was inherited and they have to suffer the embarrassment of trying to persuade the lawmakers to approve the funds.
But who really are the culprits that brought about such a calamity? I shall try to ascribe blame to the relevant parties. But please note, it’s a highly subjective issue and everyone has a different opinion. Here’s my two cents worth (and rapidly diminishing two cents in value):
The blame game:
30% - Management of Investment Banks & Mortgage Lenders
They were greedy and overpaid. They had thrown risk management out the window. When the going is good, they pocket more than their fair share.
The worst punishment they got was to walk out the door with nary an apology. The vast amount of liquidity in the system and the thirst for mortgages prompted them to “invent” new fangled instruments to package these loans and resell them, with little regard to the leverage effect.
Lenders kept pushing adjustable-rate and subprime mortgages, while investment banks bundled millions of risky loans and resold them to investors.
It was when these investment banks started to buy these same instruments that they really decimated their capital.
15% - Alan Greenspan
He will continue to deny it was his doing, but since 2001, he advocated lowering interest rates and continued a strong money supply growth policy.
That prompted the public to buy properties and even speculate in them. Greenspan was well known for lowering rates aggressively to counter any crisis €“ the query was that by doing that markets were never allowed to adequately correct the imbalances.
This led to the credit explosion.
He must have noticed the deterioration in the credit market back in 2003 and 2004 or was just plain blind. But he hadn’t warned lenders of using the “non traditional mortgages” now seen as a precursor to the credit crisis which unravelled as early as December of 2005, shortly before Greenspan resigned.
The excessive liquidity in the system was not just owing to the Fed’s measures. Major central banks were guilty of pumping vast amount of money supply into the system. Back in 2004, Greenspan opposed tougher regulation of financial derivatives, and actually praised adjustable-rate mortgages and refinancing for homeowners.
35% - Ratings Agencies
They are the unwitting culprits. (I am being nice here). They rated loans and bonds based on these mortgages AAA status, which caused many buyers to believe in their assurance that they were buying solid AAA papers.
The ratings agencies again acted too late to downgrade these papers €“ long after the damage is done.
They had earlier accorded high ratings and analysis which fuelled interest in these instruments to be hawked to unsuspecting investors. It is also this that led the investment banks to boldly pile up these instruments.
What kind of value-added analysis are the issuers paying these rating agencies for? It’s obvious that the analysts knew that a bulk of the packaged loans consisted of subprime.
Were the fees too enticing? Were the ratings agencies trying to curry favour with the banks? If these agencies cannot do their jobs without fear or favour, then how can investors rely on these ratings?
Maybe the US should empower the government to rate bonds, especially if the government requires certain kinds of fund managers to own only officially-rated bonds.
15% - The Regulators
The financial markets and the various instruments have their respective regulatory units.
You may include the Fed, the CFTC (Commodity Futures Trading Commission), the SEC (Securities and Exchange Commission), FDIC (Federal Deposit Insurance Corp), even the FASB (Financial Accounting Standards Board) into the fold.
They are supposed to regulate and oversee the markets and the financial instruments.
But where was the voice of reason? The last six years’ housing and subprime mortgage bubble and bust had little to do with excessive government intervention.
Instead, they had all to do with the lack of any basic sensible government regulation of the mortgage market.
They should have instituted new guidelines and rules to govern these CDOs (collateralised debt obligation), credit default swaps, and the leverage aspect of financial firms and their capital at risk.
Even now, they are mainly silent.
5% - US Treasury chief Henry Paulson & Federal Reserve chief Ben Bernanke
They could have tried to reverse the damage in their early days as they basically inherited a huge problem.
But only now, they are talking about having proper mechanisms to regulate derivatives and new instruments. Sigh.
There were institutions and people appointed to do these jobs; it’s just that they did not do their jobs properly. I am still waiting for some of the culprits to be prosecuted for what they did or didn’t do.
At the end of the day, it appears that what some of them didn’t do would be more punishable.
“But what about the American borrowers/homeowners,” you ask? Shouldn’t they too shoulder some of the blame? I left them out of the above equation for various reasons listed below:
a) I do think there should be an element of “personal responsibility” but it seems to me that they are already paying the cost of their foibles. Many have had their homes foreclosed, they have lost their deposits and payments made on these loans.
It seems to me, they are THE ONLY group that has actually “really lost” materially and has been punished.
b) The bailouts do not really bailout the end borrowers. They simply extend the life of the companies.
Maybe the bailouts will allow the companies more time to foreclose these properties in an orderly manner. Very few of those will be able to renegotiate their existing loans on decent terms to allow them to continue to fund their mortgages.
Most of the loans were priced at a time when property values were at least 30%-40% higher than now. Perhaps, it’d be better to declare bankruptcy than to continue to reconfigure the loan?
c) The public are not equipped to regulate themselves. That is why there are agencies created with “capable people” to regulate and monitor the markets.
You cannot expect the majority of borrowers to understand in detail CDOs, credit default swaps, or whether the brokers are leveraging themselves to the hilt.
You instead get assurance from top ratings agencies that brand certain papers as top notch grade. Who will really pore over hundreds of pages in a report, examine if these debt papers/bonds consist of thousands of small mortgages spread out over the country or how to value the price trends and affordability ratios of borrowers?
d) The public often acts in herd-like mentality and like most people, they are driven by the pursuit of wealth.
They see people making 50% in two years from speculating in properties and they, too, want to be part of it. Then they apply for loans, and were probably even more shocked that mortgage lenders were more than willing to lend to them.
The markets are often characterised by bouts of insanity; if you stir them up with enough incentives and carrots, people will act irresponsibly.
The regulating agencies are there to ensure an orderly market and to quell excesses. The people cannot do it themselves.
The ones who got out early will think they are very smart. The ones who got hit will think they were unfortunate victims. Both are wrong in their perception of their actions, financial decision making and brain power.
Both groups are closer to each other in every aspect than they would care to admit. It’s like a game of financial musical chairs “ the winners and losers are those who act the fastest/slowest when the music stops“ not how smart you are.
PS: In case you haven’t figured the headline out: The bald, the beard & the ugly are Paulson, Bernanke & Greenspan.
p/s photos: Ema Fujisawa (my date in Tokyo)
Monday, May 09, 2011
1) Partner with the enemy
Can you imagine Pepsi and Coca-Cola getting together? Or Verizon and AT&T? That's how strange it was when Apple and Microsoft announced their partnership at the 1997 Macworld Expo. After 12 years of financial loss, Jobs needed to get Apple money, and quickly. So he turned to Bill Gates, who made a $150 million investment in Apple.
"The era of competition between Apple and Microsoft is over as far as I'm concerned," Jobs said. "This is about getting Apple healthy, this is about Apple being able to make incredibly great contributions to the industry and to prosper again.”
2) Put sex in products
A great salesman, Jobs knew the importance of aesthetics; he realized Apple's products looked dated. In 1998, Jobs called a meeting at Apple, sat everyone down and said, "You know what's wrong with this company? The products SUCK -- there's no sex in them."
Today, Apple is credited for creating the most beautiful technology, from colorful iMacs to sleek iPads.
3) Change the original vision and business plan
Apple began as a computer-only company, but Jobs knew it needed to broaden its approach if it wanted to become truly successful. Apple began expanding its products beyond just computers with the release of Final Cut Pro, followed by MP3 players, music, iPhones and iPads.
Jobs changed the company's name from Apple Computer, Inc. to Apple Inc. in 2007 to symbolize the new, broader vision.
4) Create solutions to impossible roadblocks
Other retailers were not giving Apple products adequate positioning. Jobs' solution? The Apple Store. Scattered throughout the world, these successful outlets are now the "darlings of the retail computer industry".Well, not every company can do that if they do not yet have a range of desirable products. Sometimes, we can still change the way we distribute our products, our channels, are we bound by old trusted relationships which may not be so effective now.
5) Tell customers what they want instead of asking for feedback
Jobs does not use focus groups. Instead, he tells customers what they want before they know they want it. "[Apple has] a great track record for making you want -- and buy -- things you thought you didn't need," says Carl Howe, director of consumer research for Yankee Group. Last year when the iPad was announced, people gawked. Nearly 20 million sales later, it's not so funny.
6) Connect dots
Apple releases products that are innovative in and of themselves, but they are also integrated visions. iPods mesh beautifully with iTunes; iPads and iPhones collaborate with the app store. According to Jobs, "creativity is just connecting things." Apple frequently shows how the sum is greater than all of the parts.
Ivy league graduates aren't the only people who can run companies. "Part of what made the Macintosh great was that the people working on it were musicians, and poets, and artists, and zoologists, and historians who also happened to be the best computer scientists in the world," Jobs said.
8) Encourage others to think differently
Jobs gets people hooked on a feeling. It's not the products his customers buy, it's what the products represent. Remember, people first and foremost care about themselves, so make products they can relate to.
11) Trust your gut
Steve Jobs said in his Stanford commencement speech: "Have the courage to follow your heart and your intuition. They somehow already know what you truly want to become."