Friday, July 31, 2009

1Malaysia Fund

50% for Malay
30% for Chinese
15% for Indian ...

Huh ? What is ONE Malaysia again ?

Tuesday, July 28, 2009

Tick Size Weightage, should it be lower or higher ?

Unlike MOTS which is pretty much factual, tick size effect on the other hand has many disputable intrepretations.

Tick size is the smallest gap one investment vehicle can move its price to. For example, RM 1.01 with a tick size of RM 0.01 can make its next smallest movement to either RM 1.00 or RM 1.02. It can NEVER be RM 1.005 nor RM 1.015 for example.

Tick size is usually defined within a range of price. For example, from RM 1.00 to RM 9.99, the tick size is RM 0.01.

Tick size weightage is the tick size over the price. For example, RM 0.01 over RM 1 is 1%.

Because the tick size is definied with a range of price, the tick size weightage will differ from one price to another. For example, RM 0.01 over RM 2 is only 0.5% in relation to 1% for the RM1 example.

Some people treats tick size as an investment cost. Because if you buy and sell immediately, the buy sell spread is usually 1 tick size away (only apply to liquid investment vehicles). So you will always be selling one stick size lower than your buying price. For example, if you have just buy a share price at RM 1.01 and you want to sell it immediately, the highest buyer price would most probably be at RM 1.00, hence you may lost an additional1% of your investment by selling immediately.

For this reason some people prefer smaller tick size. The smaller it is, the lowest cost it is.

Some other people want to sell stocks to make profit as soon as possible, ie. in one tick away. However, there are always some cost associate to investment. For example in stock investment, there are brokerage fee, stamp duty and clearing fee. Assume it is 1.68% excluding the tick size effect following this example. If you sell at next up tick size which would earn you 1%, minusing the cost you still lost 0.68%.

In this scenario, one would want the tick size to be bigger than its transaction cost. In above example, the tick size should be more than 1.68%. That way, one could earn money with just one tick away - Fast and Furious !

So as you may see, sometimes we want to tick size to be as small as possible, some other times we want the tick size to be larger than our transactional cost.

Some may have spotted the problematic argument above that if tick size is bigger than transactional cost, no doubt one can 'earn' when the tick goes up, but he will lose 'MORE' when the tick goes down. Hence he is taking a big risk to expect a small reward. Although that is true, but in order to earn money the 'fastest' way, you will need this big tick size. In other words, its a risk you will have to take if you want fast profit.

Therefore, people who want bigger tick size are usually speculators. Their aims are to earn money quick. Even in a falling market, it is still possible for speculator to earn from small up trend at a particular time.

On the other hand, people who want smaller tick size are usually longer term investor. They usually have a target price and such a target is usually quite many ticks away. Hence, the size of ONE tick doest NOT bother them that much. Except that if the tick size is small, they can earn more in long run by paying lower cost.

So Long Term Investors
wants smaller tick size
Speculators wants bigger tick size

Do you like smaller or bigger tick size ?

Monday, July 27, 2009

KLSE New Tick Size Impact

this is a follow up post ...

This is the current tick size in KLSE. It means if you buy a stock at RM 0.900 the next up price is 0.905 and the next down price is 0.895. Like wise, if you buy a stock at RM 1.01, the next prices are RM 1.00 and RM 1.02

If we plot a graph across a range of prices, we can observe that the tick size may imply a different percentage to each price, also known as having different weightage.

For example, if we buy at RM 1.00, the tick size is RM 0.01, so the weightage is 1%. If we buy at RM 2.00, the tick size is the same but the weightage is 0.5% <== ( 0.01 / 2 * 100 )

Y axis : tick size weightage
X asix : stock price

From above chart, we can see that the tick size effect is broadly cap at 1% except when the prices are lower than RM 0.50. So buying stocks at RM1, RM5, RM10 and RM 25 have similar effect, percentage wise.

Below is the latest tick size starting from 3 Aug 2009.

And this is the associated graph.

When you put both graph together, the current / old tick size vs the future / new ones, you get below graphs ...

There are no changes for stock prices below RM 3.00

However, all stock prices at and above RM 3.00 have significantly changes ! In short, starting on RM 3 onward, the tick size weightage is moving toward Zero as the stock price increases. With an exception at RM10+.

This brings to 2 recommendations when the new tick size is implemented;
1. Long term investors can now accumulate expensive stocks with much cheaper cost, especially those between RM 3 and RM 10.

2. The only speculatable ground is now reduced to below RM 0.50 arena only.
In short, this is great for both long term investors and speculators. Generally more expensive stocks ( above RM 3 ) are running business at larger scale. Reducing speculation on these businesses and attracting more long term investors generally allow them to grow steadily and improve health on the play ground.

However Malaysia shares buyers don't really know much about Minimum Optimized Trading Size and Tick Size Weightage anyway. Most do NOT trade strategically. Hence we will most probably NOT see any BIG change in trading habits especially for retail investors.

On the other hands, fund managers are not that ignorant on this aspect. If the mutual fund you are holding also invest mostly into RM3 to RM10 stocks, like those capital growth fund. The average fund's transactional cost could save as much as 75% simply by doing nothing after 3 Aug.

Take RM10 stock for example, one tick size changes from RM0.10 to RM 0.02, that is a 80% discount!

Although this saving is actually a strategical cost saving, not a real and direct cost saving. But nevertheless this will still leave a positive impact on a fund's portfolio. So theoritically, your mutual fund should start giving you better return after 3 Aug. Fund managers who choose not to report about this cost saving in their next annual report, are fund managers you should consider challenging on their transparency, honesty and their true interest with your money.

I can finally buy more BAT ... :)

A Short Break

I want to work on Vol. 4, but they pull me back!

So, the woman who made the 911 call which led to the arrest of Skip Gates – this is the neighbor at Harvard Magazine I wrote about – is denying she is a racist on account of her color. Her lawyer – no doubt retained to negotiate a book deal or a TV appearance – says that “the fact is, she’s olive-skinned and of Portuguese descent”. That is the same as being “tobacco colored”, in the less neutral phrasing of another American of Portuguese descent. “You wouldn’t look at her and say, necessarily, ‘Oh, there’s a white woman’. You might think she was Hispanic,” says the lawyer.

Personally, whenever I see a white woman pass by, I say to myself: ‘Oh, there’s a white woman.’ I also say, ‘Oh, there’s a black woman’, when I see a black woman pass by. Until recently, I also said to myself, ‘Oh, there’s a Chinese woman’ whenever I thought I saw a Chinese woman. But sometimes I got confused or had second thoughts: ‘Oh, maybe that was not a Chinese woman. Maybe that was a Korean woman.’ So now I lump together Chinese, Korean and Japanese women, together with Malaysian, Singaporean, Thai, Filipino, Burmese and Vietnamese women and throw in Sri Lankan and even Indian women for good measure and just say to myself, ‘Oh, there’s an Asian woman.’ That is what I do in post race America when I walk down 5th Avenue.

The caller’s lawyer categorically rejected that her client ever spoke to the arresting Officer Crowley, although that is precisely what Officer Crowley has written in his report. “She went on to tell me that she observed what appeared to be two black males with backpacks on the porch of Ware Street,” his report says.

So of the two main characters involved in Gates arrest, at least one is a liar. Or all three, if you count the lawyer. Of course, this is no Rashomon. We see through these characters as if looking at a glass menagerie.

Finally, the caller’s lawyer finishes with this gem: “All she reported was behavior, not the skin color.”

MLK’s dream is coming close to realization. Blacks are judged not by the color of their skin but the nature of their activities on their front porch. Now that is not the same as the “content of their character”, but patience.

At times like these, I pity the poor souls who do not live in the U.S.; to think how much entertainment – incessant, polymorphous and free entertainment – they miss.

Now I really must get back to work.

Sunday, July 26, 2009

update EPF nominees when any one of them dies

I haven't confirmed this with EPF yet but drom my past 15 years of experience dealing with them, I am not surprise if this is true. Please exercise caution with this info and take good care of your EPF savings.

Info Sharing.

If ONE (1) of our Nominee in the EPF Nominees list deceased, automatically the whole arrangement (EPF Nominees list) is VOID. Meaning if, you only put in One (1) name & unfortunately he/she dies before you – automatically EPF will channel your EPF money to trustee of AMANAH RAYA upon your death.

Thou if, you DO have few names in the EPF Nominees list still - the whole arrangement is VOID & none of the individual balance name in the EPF Nominees list will get their potion & automatically EPF will channel your EPF money to trustee of AMANAH RAYA upon your death.

Piece of advice - if any of the your Nominee in the EPF Nominees list decease, please do immediately approach the nearest EPF counter & present the Death Certificate of the individual & re-instate you NEW / LATEST Nominee in the EPF Nominees list + NEW / LATEST percentage

If, you & the other party (maybe spouse) involved in the same misfortune (accident / illness) that caused death to both yourself / spouse please, please, please alert your siblings / relatives / parents to immediately approach the nearest EPF counter & share the information within 3 days to AVOID all EPF money to be surrender to trustee of AMANAH RAYA.

Upon surrender to trustee of AMANAH RAYA, your children will have to battle the money thru 3 channels;

Majlis Agama

Pejabat Tanah


The normal period via above 3 channels usually takes 2-3 years (except if you have inside/tip top connection) at Amanah Raya.

The Way Markets Work (in the age of speculative capital)

This past Friday, the New York Times had a front page article on “high frequency trading”. Under the heading “Stock Traders Find Speed Pays, In Milliseconds”, it said that “powerful computers, some housed next to the machines that drive marketplaces like New York Stock Exchange, enable high frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense.”

The paper went on to explain how high frequency trading works. You can read the full article here. But you don’t have to. In high frequency trading, large orders by the institutional traders are shown – “flashed” – to equally large trading houses a few milliseconds before they are made public. The trading houses then exploit this information by getting ahead of the market.

Flash trades are available to anyone for a fee, in the same manner that live price quotes are available to anyone for a fee. The rest have to live with the “delayed” prices. So pompous posturing of Schumer notwithstanding, there is nothing unusual or unethical about it, certainly not with the prevailing standards in capital markets. In fact, the concept is the evolution of the “day trading” that attracted quite a following in the early 1990s.

The destruction of capital that took place in the recent crisis eliminated the possibility of creating “equivalent positions”, so speculative capital has had to return to its roots of buying and selling the same security. That is what day traders did in the early 1990s, only now the size of capital must be much larger. Gone forever are the days where a few street smart kids with $50,000 in capital and their “level II” machines could earn a living. It is this wholesale nature of the markets that creates perception of “unfairness”. The real unfairness though, lies in the fact that some folks have money, others don’t.

The Times had the good sense to focus on buying. Intercepting a sell order from an institutional investor is trickier because it might – and probably would – run afoul of rules designed to prevent short sales. But I am sure no institution that has allocated billion of dollars to trading and has placed its machines next to NYSE computers – to minimize the distance traveled by electrical signals – would contemplate any improper conduct.

High frequency trading is the “natural” way markets operate in the age of speculative capital. Whether you have a problem with it or not, I suggest you get used to it.

One Thing I Know About the Systemic Rot

If you are not familiar with Jean Luc Godard and his approach to film making, chances are that you will not “get” his movies. Godard believes that the “bourgeois society”, as he calls it, is so corrupt that no matter how serious and worthy a message may be, it will be corrupted by the fact of its transmission in, and to, a corrupt environment. (A Far Side cartoon had a group of clowns throwing pies in one another’s face and one of them saying, ‘But seriously, folks!’)

Godard’s way of fighting this condition is willfully corrupting the message, so that the extremity of the illogic would shock the audience and awaken them to what takes place around them.

I can see his point. Every one can see his point; just turn on the TV! There have been many studies about the control of media by a handful of organizations and the impact of such concentrations. A recent study on the influence of the Internet found that while blogs play an important role in the dissipation of the news, the agenda, what blogs discuss and write about, is set by the major news organizations. Viacom, Walt Disney, Bertelsmann, Time Warner, Vivendi and Murdach's News Corp decide virtually everything that you hear and read. After the agenda is thus set and the boundaries of discussion delineated, bloggers are left to yap to their heart’s content – within the already set boundaries. Yes, Godard does have a point.

But his response is nihilistic. It is the adult’s version of throwing a tantrum, which ultimately becomes a cop out. Frankly, I have no problem with the control of the news by a few. The reason for my insouciance? I know that no matter how partially and one-sidedly the agenda is set and how tightly the wording and the narrative of a text is controlled, a reader who is paying attention will always be able to see through the issues. That is because, to strip the matter into its elemental formulation, it is impossible to say something without revealing something about the objective reality outside us. That follows from the nature of words and discourse and is true even when there is a conscious effort to misrepresent. Hence Kissinger’s comment that no one could lie completely, and the philosopher’s observation that he learned politeness from the rude people. That was also the premise of the Hollywood movie The Usual Suspects .

So I comfortably, confidently and conveniently rely on the mainstream media for information. Needless to say, I do not stop there. Read, for example, the Destruction of Fannie Mae and Freddie Mac, which was 100 percent based on the mainstream media reports but showed something that no media outlet had ever mentioned – or ever will.

What, then, is my take on the main story of the past week about the arrest of Henry Louis Gates Jr. at his home by a uniformed member of the Cambridge Police Dept?

Let us set aside what we know about the role of authority, the kind of people who are drawn to it, the makeup of the police department in major cities of the U.S., the role that movies and TV cop shows play in shaping the conduct of police officers and the conditioning of citizens to accept that conduct, the right of citizens to live peacefully at their home (to the point of defending it with deadly force!), et, etc.

Why was Officer Crowley at Gates’ doorsteps?

Answer: Because someone had called reporting a possible break-in, no doubt by “two black men.” (The other man was the limo driver helping Gates to open the jammed lock.)

Q: Who was the caller?

A: A neighbor.

Q: Professor Gates’ house is Harvard property, given to Harvard employees only. Is it safe to assume that the neighbor was also a Harvard employee?

A: Yes, she was.

Q: The house given to Professor Gates must have been in an upscale neighborhood on account of his high position. Is it safe to assume that the neighbor had an equally high position? Surely, she could not have been a low ranking clerk, right?

A: No, she is not a low ranking clerk. In fact, she works at Harvard Magazine.

A neighbor who works at Harvard Magazine.

There you have it. Henry Louis Gates Jr.’s neighbor who works at Harvard Magazine – I would not be surprised if she had a PhD in social relations – does not recognize him in the broad daylight of a July afternoon. Never mind that she does not stop to say hello or chat or inquire about his trip to China, from which he had just returned after a grueling 16 hr flight. She absolutely does not recognize him. Consequently, naturally, the solid citizen that she is, she picks up the phone and reports a break-in.

That no one mentioned this point means that it was not considered worthy of mention by virtue of its ordinariness.

It is from this population that the arresting officer Crowley is recruited.

Everything you need to know about the significance of the story and the social background against which it took place is now at hand. From day one, then, you could have surmised – called, really – everything that unfolded, including the officer’s self-righteous rage for being criticized, the predictable defense of his act by police chiefs and radio talk shows, and even the President’s foray into the “controversy” and his subsequent backing off.

Had the event taken place in some Mississippi backwater town, the case would be dismissed as a stupid act of a county sheriff and the ignorance of the local populace. In short, it would have been the “bad apples” defense.

I never believed that Southern hillbillies are more ignorant than Massachusetts intellectuals. Furthermore, facts are not isolated events. What is real is rational. This problem certainly transcends locality, which is another way of saying that it is universal, i.e., system-wide.

By a long detour we have finally arrived at this blog’s main focus!

The most critical attribute of a systemic flaw – whether a systemic risk or a systemic rot – is its ordinariness which, by virtue of being ingrained within the “system”, renders it invisible to those inside the system. There is no uber regulator that can detect, much less prevent, a systemic collapse of the financial markets because the collapse is the end point of markets’ normal operations. That is a terrible fact, but that is the way things are, which is why despite constant urgings, I am not in a hurry to get out Vol. 4 to “capitalize” on the current crisis. We are merely in the beginning.

One question remains: How can one learn politeness from rude people without having a frame of reference, without knowing what is rude and what is polite? How would you detect the true part in the narrative of someone who is bent on telling complete lies?

I will take up these topics in Vols. 4 and 5 of Speculative Capital.

Friday, July 24, 2009


Tick size is the smallest movement allowed of a stock price in a share market. By having smaller tick size, the cost of trading reduced. It was hinted before Tick Size is the most critical information and yet many stock investors ignored it. It is especially important for speculators, which most investors are today.

It was mentioned before, the cost of buying stocks in Malaysia can actually be as high as 2.31% as opposed to what most thought off as less than 1%

One article which never got published due to lack of participation actually said that RM 3 stocks are the worst stocks to speculate in and sub Rinngit stocks are the best choices, investment strategy wise. But there are really not many good choices in sub Ringgit arena.

I haven't run my numbers on this yet but intuitively I think ...

With this tick size reduction, the cost of trading becomes lower, bigger companies become more tradable and fund managers should get immediate HUGE savings so investors should expect higher return even if they don't invest in stocks directly.

This is one of the BEST announcements I have ever witness from our beloved Malaysia ...

I will run some numbers to quantify this change and come back here to share exactly how much will change and what we can do about it. Both for stock investors and mutual fund buyers.

Table 1: Current and New Tick Sizes on Bursa Malaysia

Securities PriceCurrent Tick SizeNew Tick Size
Below RM1.00
0.5 sen(1/2 sen)
0.5 sen (1/2 sen)
RM1.00 to RM2.99
1 sen
1 sen
RM3.00 to RM4.99 2 sen
RM5.00 to RM9.99 5 sen
RM10.00 to RM24.99 10 sen2 sen
RM25.00 to RM99.9825 sen
RM100.00 and above50 sen10 sen

full info

Thursday, July 23, 2009

RM92 S Dali's talk on Career in Financial Markets

Dali is one of the few bloggers who talks deep in finance market, mainly on stock investment topics. His blog is branded as always have a beautiful girl at the very front, hence some haters called him "ham sap lou". I was once very tempted to follow his path but soon realize his methods are not really a repeatable success but merely good opionions.

I don't know him personally other than just his blog reader. My varies attempt to get in touch only ends with despairation. I guess I am indeed a much "lower level" person that he doesn't want to waste his time on.
Finance is a big complicated topic, Personal Finance on the other hand is really simple where the dumpest guy on the world can easily get 'everything' he wants. The 2 topics are hugely different.
Anyway, the reason I blog about Dali now is that he is organizing a talk. Suposingly an interesting one. He has many followers and fans including international fund managers. I personally pay close attention to all the stocks he has his eyes on. Although almost everytime my analysis diagree with his choices but it just mean that his choices are not suitable for passive stock investors. But then again, active investors who take more risk can earn so much more especially when done right, ie. like his followers ?

Anyway, to sum all up. I still think it is a good thing he is sharing his thoughts in public speaking. I am sure a lot of people already know this event. But just in case you don't know Dali yet, here is a chance. Especially if you are interested to invest in stocks more than just Personal Finance, ie. to make it an Active Income or a lot of incomes. I think this talk may be good for you.

I was planning to go but the RM92 put me off. My feeling is that he has planned this talk for the students. Looking through his topics, there is only one that I am interested in "things not taught in bussiness classes". All others may just end with a neither nor conclusion.

If you are going, please help me ask this question,

"The fact that you quit as a fund manager,
does that mean you couldn't cope with the work
or is the environment limiting you from exercising your investment strategies?"

If any of you did go, please do comment here.

Date: 22nd August 2009, Saturday
Time: 10am-1pm
Venue: Sime Darby Convention Center, Bukit Kiara, Sri Hartamas
Price: RM 92 pp
RM 80 pp when purchasing 4 or more tickets

Tickets sold by Ticketcharge: 03-2241-9999

Enquiry: 012-3239192

(click on image to enlarge)

Do you aim to be:
- a Fund Manager
- an Equity Analyst
- a Forex Trader
- a Private Equity player
- an Investment Banker
- a Corporate Finance executive
- an equity Dealer
- a Bond Trader
- a Hedge Fund analyst

The talk is by S Dali of Investing Scents weekly business column in The Star. He is an ex fund manager and head of research, for local and foreign investment houses, having worked in Sydney, HK, Tokyo, Singapore and KL.

Topics covered:
- the right degrees for the right careers
- ranked universities vs local universities vs second tier foreign universities
- specific subjects and majors
- is CFA the passport to success
- are you suited for the financial markets or do you just want to get rich quick
- getting through the front door, reworking your resume
- indirect passages to sound financial markets' careers
- what if your degree consisted of poor grades
- critical success factors to have for viable financial markets career
- remuneration scale for financial markets
- command of English, essential or unnecessary
- things financial markets employers look for
- is financial markets for you
- things they don't teach at business classes

Wednesday, July 22, 2009

Why does a Perfect Trading turn South ?

I was truly inspired by an article posted by Champdog that explain how trading can create values ie. 1 + 1 >= 3. The story goes like this;
At first the Farmer can make 4 meats in 4 hours and 16 potatoes in another 4 hours. The Rancher can make 24 meats and 48 potatoes like wise.

Then when they started trading, Farmer concentrates on making 32 potatoes in 8 hours while Rancher makes 18 meats in 6 hours and 12 potatoes in the rest of 2 hours. Farmer gives Rancher 15 potatoes, Rancher give Farmer 5 meats.

After trading, Farmer has 5 meats and 17 potatoes vs previously 4 and 16. Now Farmer has more ! Rancher has 13 meats and 27 potatoes, Rancher has even more than Farmer's more!
If this is confusing, please read the full article here.

Well, indeed it was how trading world could have started. It is indeed perfect for both parties as well. Then why do we have so much problem today ? What has happened since then ? Let's continue the story ...

Farmer uses 4 hours to make 4 meats, so Farmer is making 1 meat per hour. Like wise, Farmer's proficiency on making 1 potatoe is 1/4 hour

Rancher on the other hand use 1/3 hour to make 1 meat and 1/6 hour to make 1 potato.

So when Farmer gives 15 potatoes to the Rancher, the Farmer is giving away 4 1/4 ... 3 3/4 hours of his work away. Rancher on the other hand is exchanging it with 1 2/3 hours = 5 meats.

Things are still ok up to this point. Rancher out performs Farmer in all angles, Rancher makes more items relatively and due to his talent, he can use less time to make more things. Farmer gets more anyway during the trade, Farmer shouldn't complain neither. As long as they are mutually respective, this is still an honor deal.

Now, what happen when we assign value into effort ? As in salary paying as per hours worked, as per over time payment etc. Lets say 1 hour is equivalent to $1. And to be fair, both of Farmer and the Rancher are valued the same.

During the exchange, Farmer is giving away $4.25 ... $3.75 of his potatoes while Rancher is giving away $1.33 of meats. Rancher is buying $4.25 ... $3.75 with $1.33

Remember Farmer takes 1 hour to make 1 meat ? So Farmer's meat is $1. Rancher's meat is $0.33. Since both of them are working together, they will determine the market price of meat should be the average between the 2 ie. (1 + 0.33) / 2 = $0.665 = meat's market price.

Like wise potatoe's average market price is $0.21

What does the Farmer have after the trades ? 5 meats and 17 potatoes, equivalent to $6.87
Rancher has 13 meats and 27 potatoes or a market value of $14.315

Farmer started with $8 and ends with a market value less than $8.
Rancher also started with $8 but ends with a market value more than $8.

This Capitalism. This is why the Rich gets Richer and the Poor gest Poorer.

Remember what the Rancher said? "Its Magic!" ( in the original post )

Monday, July 20, 2009

How to passively choose a mutual fund

Soon after this site claims that mutual fund is one of the PASSIVE personal finance tools, it turns around and shows a past performance analysis where some of the best performed funds are choosen base on their prvious good returns. Looking at those numbers and charts, it doesn't seem PASSIVE at all !

What is going on ? What is the Right way to decide which fund to buy the passive way ?

The FIRST mutual fund article on this site had already mentioned the answer actually,

Choose Fund Manager,
Not the Fund !

Despite many justification of the high fee on mutual fund (general, vs stock fee), one must admit that Its FREE to save money in Fix Deposit and buying shares in stock market is cheaper. Mutual fund could be the MOST expensive personal finance vehicle.

So what are you paying for ? Why do you want to pay 5-6% UP FRONT in order to earn more money ?
Are you sure you want to pay the extra fee just because they did good in the past ?
Do you pay more just because you agree with the investment objective of the fund ?
How about just because a certain fund has some of the stocks you want to buy anyway ?
The agent is your friend, she did a great sale talk ?
Lets see what happen when you pay extra in other scenarios;
Sometimes I like to shop in a particular grocery store more than another even if some items are slightly more expensive. That is because the store owner is really friendly and knowledgable. He can answer most of my questions and I really don't mind letting him earn the extra cents.
If your ultimate goal in mutual fund is to earn more money passively without understanding the whole mechanism, then what you are really buying is your belief that the fund manager can do well with your money.

Choose Fund Manager,
Not the Fund !

The fund itself is pretty much a fix element, the objective is hard cast on stone. Past performance tells a lot but is really irrelevant to the future but future income is what you really care about. The environment could repeat itself or it may change. Either way, there is only one element that we can hope for to address all future unknown issues - the Fund Manager.

If the objective of a fund is met, its because the Fund Manager did a good job. If the good past performance continue, its because the fund manager is keeping it. If the bad past performance turns good in future, it is because the fund manager improves.

Without the trust on the Fund Manager, all other aspects carry less or almost no weight at all.

So that is it! Find out who the Fund Manager is, ask for a lunch date or read their reports to determine if this is the type of guys or companies you would trust your money with.

After you have found a fund manager you can rely on, just look through all the fund objectives and pick one that you understand most or have the highest hope for.

Thursday, July 16, 2009

Why so many hates & loves with mutual fund ?

When the series of mutual fund articles were initiated, a lot of contradictions are raised. Some are intended and some are not. Here are a list of them in respond to Mutual Fund is the Highest return Passive finance tool, Don't Buy Low Sell High in mutual fund ?
  1. Fund managers are incompetent
  2. The only people who gest Rich are those agents, not the investors!
  3. mutual fund fee 5-6% are terribly HIGH!
  4. mutual fund returns are LOW!
  5. mutual fund is NOT a PASSIVE investment, you may as well buy stocks!
  6. Buy Low Sell High is applicable in mutual fund, why should I keep the fund knowing the price will drop?
  7. Mutual fund cannot be compared with FD, their risks are different!
It is no surprise why many will hate mutual fund as well as some loving it. Lets revise the wealth pyramid again.

Fix Deposit / Bond are generally acceptable as a worry free saving while stock investment is generally understood as risk is involved. Guess what, Mutual Fund sits in between them and actually is the only personal finance vehicle that transition from one to another. So by its nature, there will always be some confusion and conflicts in mutual fund. What FD people likes about mutual fund is usually what derivative investor hates about, what a stock investor likes about mutual fund is usually something a FD guy would not agree.

At one end, mutual fund is like a FD, on another end its like a stock investment but actually it is Neither of them. So you cann't compare mutual fund with FD and yet you could, like wise with stock investment.

There will be some articles addressing some of the concerns raised above, but below are the short answers.
  1. If you look at the world's best investors of all time, in average they out perform the market by 6.46%. This includes Warren Buffet, Benjamin etc. Most of the fund managers may not be as good as the Gurus, but their past historical performance is not that far apart.

    Most people who curse at fund manager's competency are due to their unrealistic expectation. Some ofcourse is due to their own unhappy experience. Either ways, generally fund managers' performance is at par but definitely has room to improve.

  2. Let's face some factual figures. The most a mutual fund business can squeeze out of the investors are the 5-6% no matter how they distribute among their agency force. Insurance can be up to 40% while MLM structure usually allocate more than 55% in similar distribution.

    So if one is worry his agent gets richer just because he invest, mutual fund is probably NOT the first and major concern relatively.

  3. The 5-6% High Fee is VALID but may not be as bad as it was described. For example, a comparable stock investment with 0.7% fee could have an effective rate of 2.31% vs the mutual fund's 5.5%. So buying one mutual fund is as if buying 2 stock counters.

  4. See 1). Get the expectation right. No one becomes rich because they buy mutual fund. But when done right, many retire wealtheir than they initially thought of.

  5. Yes, mutual fund CAN BE an active invesment like in 6). But MalPF preaches not to use it that way, one should use mutual fund the PASSIVE ways.

  6. If you know the timing of a market trend, mutual fund and dollar cost averaging concepts is NOT something for you. Buying a stock can give you exercise your timing concept with lower fee. This is an example of how to.

    Are you sure you are not an agent earning commission when you encourage people to speculate using mutual fund ? Are you sure there is no conflict of interest with your clients portfolio ?

  7. As mentioned above, the top part of mutual fund ie. equity fund cannot be compared with FD but the lower part of mutual fund ie. capital guarantee fund, money market fund etc. CAN.
Do you hate or do you love mutual fund ?

OCBC uses Mortgage Lending Rate instead of BLR

Its not new actually, CIMB has been using Base Finance Rate instead of Base Lending Rate (BLR) as well. OCBC starts to use MLR as in Mortgage Lending Rate (MLR) instead of BLR.

The concepts put forward is really interesting. BLR consists of cost consideration of the whole banking industry and operations. While MLR is calculated for mortgage related costs only. Hence MLR is usually lower than BLR.

But if you really put the numbers together, you may realize its just another looks-good but pratically almost everything stays the same. For example, the typical BLR in the market now is 5.5% and the common offer is BLR - 2.2% so
BLR 5.5% - 2.2% = 3.3%
While MLR is lower at 4.7%, their offer is MLR - 1.3%
MLR 4.7% - 1.3% = 3.4%
Doesn't look like there is a whole lot of difference isn't it ? Not to mention the lowest BLR at 5.25% and the best offer of BLR - 2.3%

OCBC folks or anyone more well verse in housing loans please do leave comment if this is not entirely true.

Wednesday, July 15, 2009

How Malaysian would die ?

Out of the 24 million people in Malaysia, this is the list of how we would most probably be dying ...

#1 30% chance you would die of Cardiovascular diseases ie. Heart problems. or 35,700 people
#2 16.7% you may die of cancer Malignant neoplasms ( 19,900 people )
#3 11.7% Infectious and parasitic diseases ( including Tuberculosis (lung?) 2.85% and AIDS 1.8% )
#4 6% Respiratory infections, mostly lower infections rather than upper
#5 5.5% Accidents

In short, either your Heart or Lung will fail you. Then may be your cell will mutate and lastly if you have Health on your side, then you may be crashed on a road accident.

Full data below, data dated 2002, report 2004

Travelling : 2nd biggest personal finance killer ?

The 2nd personal finance killer, however, is NOT as hard cast in stone as the 1st. Travelling basically involves paying a sum of money before and during the trip. Then it usually ends with no financial return and a tired body.

The biggest return of Travelling is qualitative like gaining experience, widen the horizon, refresh the mind etc. None is easily quantifiable into financial return. So valuing a trip is slightly different than just analysing numbers.

If you have something in mind BEFORE travelling and FOCUS on what you REALLY need during the trip, then it should be relatively safe to say you have GAINed what you pay for. Such a travelling desires are usually very personal. For example, "I want to rest", "get out of current environment", "see Dubai with my own eyes", "take some pictures", "see someone", "look for something" etc.

If you have such clear consense, then you should focus on that during the trip. For example, if all you want is to get away. Then all the hinderance of flight delay, annoying tour guide shouldn't matter. On the other hand, if your purpose is to see something, then you may want to study a bit more on the weather, culture, latest political situation or any other factors that can increase the chances of you seeing what you want to see.

Unfortunately, quite a lot of people travel for the sake of travelling. The number 1 thing that comes to their minds when planning a trip is 3 days 2 nights or 4 days 3 nights etc. Without even considering if those travel time would allow them to enjoy the way they expected.

Some others may carry unrealistic expectation, want to be treated like a King, want to do 'Everything', want to know ALL about a place during a trip etc. In some cases, watching Discovery and National Geography channels are much better suited instead of travelling in person.

On another angle, if you know what you want in a trip and you planned ahead including saving for it. Then its a worth while travel. On the other hand, if the trip is un-organized and ad-hoc, you would most probably ends with a bad investment, both financially and your time.

Travelling is an expense that is paid once and usually quite a sum; And you will NOT get anything back in return (financially and meterial wise). If you still don't handle your own expectation or any qualitative return in values ... basically you are just wasting all your hard earn money.

Tuesday, July 14, 2009

Getting Rich is NOT part of Personal Finance

One of the hottest topics in personal finance is to get rich, and usually to get rich fast! Its human nature that we pay attention to what other pay attention to. Some love to follow blindly on get rich fast scheme, some make big money out of it and some others hate it. Either ways, get rich fast scheme is part of our lives now.

The only thing MalPF asked everyone to do is to setup an automated saving system. On the other hand a hot sexy attractive person asked you to follow the 'method' and you shall be RICH. There is no doubt which choice is more appealing to make; a dull saving idea vs an exciting venture.

The fact is that no matter how rich you become, it has NOTHING to do with your personal finance. Getting Rich is to increase Income substancially. And Income is a Pre-requisite of Personal Finance but NOT a part in it. This understanding may not bring much difference to most but for some who spend their whole life pursuing richness, it may just be a live and dead switch; As showcase in Why the Rich suicide.

There is nothing wrong with wanting to get rich. It is even OK to get rich FAST! After all, in income generation, the key factors are creativity and innovations, where no rules apply except your own. But if you think getting rich will solve all the other problems, then the problem starts to root in you. All effort put into getting rich is ONLY to increase income. Without a system on how to use it and retain it at a personal level, you haven't achieve your optimum yet.

Getting Rich itself may carry this deadly inherited problem, however Getting Rich has a superb by product - Positive Attitude and Self Confidence. Even after a long haul journey and ended with no success, people who focus on these by products rather than the money itself, will always stay happy and content. Which eventually give them energy to do the whole cycle again. Until they get what they want. These by products, however, do not exsit in get rich FAST.

It is BEST if a person has a solid personal finance while she is pursuing the Rich. Each of the success and failure add values to her personal finance. The journey to become Rich and stay Rich is usually the most steady for this kind of people.

However, the good thing is, you don't have to have personal finance before acquiring your Richness. You just need it right before you lose your Richness. Acquiring personal finance while you are Rich is, honestly, faster and easier. The only contradiction is if you have acquired rich without personal finance in mind, it is most likely you wouldn't emphasize on it while you are enjoying your rich.

Monday, July 13, 2009

On the Destruction of Capital

The European Commission’s recently issued report on member states says that “the crisis is the equivalent of capital destruction, reducing – at least for a time –the productive potential of the economy.”

Capital is a social thing. It has no equivalent any more than art or religion has equivalents. Its destruction, likewise, is a very particular phenomenon. So it is nonsense to speak of the “equivalent of capital destruction”. What we have in this crisis is the destruction of capital, period.

Why did the authors of the report insert the word equivalent where it does not belong?

The answer is that it tones down what is being said. To the delicate ears (or eyes) of bureaucrats in Brussels, “destruction” would be too strong, so their minions diluted the word the best they could.

But surely these authors must know what capital destruction is, otherwise it would be impossible to speak of something “equivalent” to it.

The truth is that they do not. They merely have an inkling about it, the way Bernanke has an inkling about systemic risk. If pushed to explain exactly how capital is destroyed or what the “system” is in systemic risk, they would have nothing to add except reguritating what they have already said.

The pussyfooting and hesitant writing is the by-product of unclarity of thought. At the same time, it works to maintain the unclarity and, in doing so, creates a going concern of ignorance.

I have written about the destruction that is going on around us. See, for example, here and here and here.

When capital is destroyed, its various forms shrink. Speculative capital is hit particularly hard because of its reliance on leverage. Arbitrage opportunities turn exoskeletal and cannot be exploited quickly – or at all. That is the story behind the closing of Meriwether’s “relative value” fund. The man is no doubt a good trader but like all traders understands nothing about the real theory of finance.

How exactly is capital destroyed? What are the mechanics and dynamics of the destruction – and its consequences?

These are the main questions tackled in Vol. 4 of Speculative Capital. If you are interested in the subject, stay tuned.

Tuesday, July 7, 2009

A Curious Statement (worth pursuing further)

It was the main business news of the day that “Ex-Worker Said to Steal Goldman Code”, as the New York Times put it.

The story involved one Sergey Aleynikov, an ex-Goldman employee, who allegedly downloaded the firm’s proprietary trading software to his computer before leaving for greener pastures.

The story was jazzed up for maximum effect, with code words such as “sophisticated high-speed trading”, “a server based in Germany”, “a memory device” and, of course, “Sergey”! But it had too many holes in it and I didn’t buy it for a second. Apparently, neither did the judge, who released the said individual on a $750,000 bond.

If Sergey Aleynikov did what he is alleged to have done, he must have been a geek who learned nothing about finance while at Goldman. The superiority and, therefore, the value, of Goldman’s trading software does not come from some special insight into how markets work. It is, rather, due to the firm’s capital; Goldman could throw hundreds of millions of dollars into the market in order to create, and simultaneously profit, from an arbitrage position. The arbitrage opportunities are available at the wholesale level only. There is no opportunity in these markets for poverty-stricken geniuses. Fools with money will trump them every time.

What grabbed my attention, though, was the argument of the assistant United States attorney handling the case who told the federal judge that “Mr Aleynikov’s supposed theft posed a risk to United States financial markets”. He went on to add that “the bank” – that would be Goldman – “raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.”

That is a very curious statement. Now, if I were a systemic risk regulator, of the kind the Federal Reserve is soon to become under Obama administration’s proposals, I would approach Goldman and insist on getting answers to the following questions:

1. How and in what way could this program pose a danger to the U.S. financial markets?

2. How and when did you become aware of this potential danger of the program – at the planning stage, after it was coded, after it was put into use?

3. When and what were the circumstances in which you became aware of the potential danger of the software to the financial system?

4. What actions were taken after the potential danger to the financial markets was discovered? Who was the highest ranking officer to be informed of the potential threat?

5. What department was responsible for developing the program?

6. What department is responsible for maintaining the program?

7. Who wrote the technical specifications (the “specs”) for the program?

8. How long has the program been in use?

9. Who has used the program since it was put in production?

10. Is there a flag in the program that alerts the user to a “red line” beyond which the normal use would turn into a danger to the financial systems?

11. If Yes, explain how. What would happen if the red flag were ignored?

12. If No, how would the user know that he/she was crossing a red line?

13. Provide a detailed history of how Goldman used the program since it was installed.

14. Provide a detailed “what if” scenario of how someone bent on harming financial markets would have used the program since it was installed.

These are questions I would ask Goldman if I were a systemic risk regulator.

Finding Best Rates FD, BLR, House and Car Loan etc

Have you noticed there is a little orange box to the top right corner of this site ?

It shows some of the best rates available in Malaysia including highest Fix Deposit, lowest Base Lending Rate, good offers on house and car loans etc.

However, it is usually updated only twice a month. So if you are hoping to get the latest info real time or you just don't want to rely on this site or the widget, you probably want to search for the info yourself. Here is how ...

Go to, on the top middle part of the page, next to the Search button, there is a little "c" ...

Click on that will bring you to BankInfo web site, from there you can compare all kinds of rates in Malaysia. Below is a How To Video.

Monday, July 6, 2009

A Rather Egregious Case of Confusing Cause and Effect

You have heard all the talk about correlation not being causation. About the perils of research: researchers finding what they (unconsciously) planted in the evidence; about being factually accurate about the observations and yet totally wrong on the conclusion; about the epistemology of science. Etc.

All those abstract issues were beautifully rendered in a real life and easily comprehensible example thanks to the research of Professor Mark Garmaise of UCLA’s business school. The Financial Times reported the results of the professor’s iconoclastic research in which he showed that “before crisis, US mortgage brokers fed loans of deteriorating quality to the banks they did most business with.” This, the professor concluded, proved that brokers abused the trust of the banks and in doing so, planted the seeds of the crisis which, everyone remembers, began in the subprime mortgage area:
”At the beginning of a relationship, the bank’s natural intuition is to avoid fly-by-night brokers they barely know,” said Professor Garmaise, who likened bank-broker dynamics to a marriage. “The broker knows this, so they are on their best behavior, but over time the broker gains credibility and each additional mortgage matters less.”

Such breached of trust accounted for a staggering 22 per cent of late mortgage payments and 28 per cent of foreclosures in the nearly five years covered by the study.
That brokers initiated progressively lower quality mortgages is a matter of record. Very little by way of research is needed to confirm this well-documented race to the bottom. But just about everything else in the research is wrong. Far from being hapless victims, banks were the instigators of the problem. They pressured the brokers to keep the mortgage supply chain going no matter what the quality.

In the two-part series on the destruction of Fannie Mae and Freddie Mac I documented this pressure and explained the reasons for it. In Part 2, I quoted the following telling passage from a New York Times story:
[William D. Dallas, the founder of a mortgage brokerage] recalls being asked to make more “stated income” loans, in which lender do not verify the information provided by borrowers and brokers with tax returns, pay stubs or other documentations. The message, he said, was simple: You are leaving money on the table – do more of them.
Rewriting history is a favorite sport among the powerful who stand exposed by the light of the past. (A Soviet era politician once quipped that “nothing is more unpredictable than the past.”)

That is where the role of true scholarship, i.e., disinterested scholarship, comes in: to filter the noise injected into past events by the self-serving spin of interested parties.

But there are no disinterested scholars in the U.S. universities. A finance professor in a major business school simply cannot function without constantly bringing in grant money. And when you take the king’s shilling, you play his tune. More: you dance to his tune.

This is the academic cadre that is expected to find a way out of the crisis.

NextView seminar that may have 70% matches to MalPF ?

NextView has been quite aggresive conducting seminars and trainings. The reason they can attract my attention out of thousands other promotional materials is that NextView's flyer usually catch on some of the key points. The last I talked about them is when they said, "How to Pick the Right Value Stock" with a follow up post on "Why Experts are ALWAYS wrong!"

There are a lot of things on the flyer but below is what caught my attention:

First it implies there are 2 steps of analysis, primary and secondary.

The Primary analysis includes Drawing Lines, Japanese Candlesticks, Some signals are more reliable than others (they will show you 2 most reliable ones, they said), concepts on real time charts ie. x-axis or duration/time is important etc. ...

Then only followed by second stage where Technical Indicators are used including Moving Average and MACD.

This is actually Not that significant unless you also agree with most of what MalPF has been preaching. This FREE seminar seems like having 70% matches with MalPF's teaching on technical analysis topics. So it is my impression that the speakers may be trying to share what goes behind Technical Analysis and how to make them useful. Not like others which are just asking you to follow them.

Seeing that it MAY bring values in some of your investment journey, I thought I would just share it out here. Its one of those events that I wouldn't mind to go.

The seminar is on this Saturday 11 July 9am-4:30pm in Menara Hap Seng, Kuala Lumpur which I will not be able to make it. So if any of you did attend and do not mind spending some time to share your experience, do submit your write up here, that way, others can find out more about this NextView if they have just pull yet another marketing tricks or have some meats afterall.

Bear in mind this is a FREE seminar, so naturally do expect tons of marketing talks. As long as there are some real juices in this preview, then it should be considered as PASS. We cann't expect EVERY and ALL things from a one day FREE seminar, can we ?

Technical Analysis is Rubbish !?

When Technical Analysis first get popular, people would make comments like "Fundamentals are Rubbish". Tons of seminars and training sessions were conducted. 30% of the students haven't even used a computer before, another 50% have NEVER trade in stock market.

Its been a while now, a small group of active traders start to make comments like Technical Analysis is Rubbish now. Usually the smarter traders may find out sooner reality is not exactly as taught in course. However, their smartness stops when they continue to fuss without finding ways to overcome TA, recycle and make use of the 'rubbish'.

Some of the comments also proves how ignorant we still are with regard to Technical Analysis, perhaps also explain why some fail to apply correctly to earn profit.

"If it works here, it should work there too."
"It should work in all conditions or NOT at all!"

Well, that is because most of us HAVE NOT truly understand the topic yet. Here is some reviews ...

First of all, Technial Analysis or short as TA, is a way trying to make senses out of some numbers without the help of any other qualitative information. The most primitif origin of TA is actually gambling. Or TA is basically the science of gambling.

As in any and all forms of gambling, the game is all about finding a win-lost ratio higher than 50%. Through out human history until now, there is no such thing as proven formula where the win ratio is more than 50%. At least not consistently for a period of time. This shouldn't be too hard to comprehend as ALL gamblings are created by man. Man made games like this to earn money as a business, if any game's win ratio is more than 50%, it is NOT a business that will earn.

Different TA techniques have different strength and reliability. It has to do with how the technique comes into existence at the first place. The originator may be expert on some specific topics, made some assumptions and therefore the technique they come up with may or may not apply to a particular specific market condition. Here are some of the reliable patterns used in candle sticks.

TA has parameters. By using different parameters, different signals will come out. At one instance, it may ask you to buy, on another it may give you a sell signal. Not only the parameters, even simple changes on the X-axis which usually show the duration information, may give opposite signals too. As described in this example

Lets look at 3 examples, Moving Average, MACD and Stochastic.

If you already know how to analyse trends without any tools by connecting the low and high points of a price chart, you are basically making the assumption that the price should come back up from the low points and the price may goes down after reaching the high points. This is called psychological barriers. Moving Average is exactly the same thing but it is drawing the trend systematically without any opinion. It does, however, has ONE parameter called period. Shorter period means higher sensitivity.

Because it is a psychological barrier, it works better when more people are using it. If you are the ONLY ONE using Moving Average then you are forming your own psychological barrier and that may not have much effect to the price movement. On the other hand, if most of the people share the same 'barriers' then chances are they may buy and sell at the same time, causing an effect on the price movement.

A good example is Moving Average 200 days. Almost the whole world is using it to determine if the start/end of bull/bear run has happened, as if it is a definition. This also explains the up swing since May.

The other 2 indicators are meant to track the big guys' movement. MACD signals when the big guys are slowly moving in or out of the market. Stochastic signals when there is an oversell or overbuy condition, ie. when the big guys start selling and causing others to sell too.

A whole book can be written on each indicator. But the key message here is, what do you do when you see such a signal ? Do you just buy and sell as the signal tells you to ? Do you agree that it is an oversell condition now ? Do you buy when the big guys start to move in or should you wait until it is also confirmed by psychological barrier break through ?

What parameters were you using on each indicator ? Are these parameters suitable for this market, this industry and this stock ? Have these parameters been proven in your investment condition ?

Answering above may or may not help you gain some advantages in your investment but understand true TA and apply them correctly definitely help you avoid mistakes caused by ignorance, worst still, without realizing it nor learn anything from it.

2 persons attend the same TA course but may bring out totally different result at the end, here is why.

Related Topics