Saturday, July 24, 2010

Property Prices and Investment Decisions

With reference to a discussion on the suitability of property as an asset class in investment. Someone quoted the Bubble decade and slump of property prices in Japan which have not recovered yet while I find that property is a suitable investment vehicle for long-term.

Yes, when you do investing, you are pitching your judgement call against or with the market.

We make our judgement call using data we obtained and sometimes extrapolate to see what we want to see.

I could also extrapolate similarly by looking at the chart below. For me, I am looking at the chart and see a similar pattern of the blue line and the purple line (since you also using pattern recognition for your jap bubble chart). When I look at the chart, I think we are at the start of a great bull run again (similar to 1990).

But for someone else, he is probably looking at the chart and see us at the start of the 1997 Peak which took 10yrs (in 2007) to retake its peak and subsequently overtook it in July 2010. So for that person, his pattern recognition is that of 1997 peak and so he stay out of the market.

That's why there is buyer willing to take from the seller. People see different things from the same chart. When doing investing, you cannot be right all the time. Whenever you made a judgement call on the market and take action, you must have figured out the downside invovled and how to mitigate it or whether you can survive it. If you have taken care of the downside, the upside will take care of itself.

And by the way, if you think we have a property market about to go into a 10yrs slump. Then probably stock market is not going to do any better.

Chart Source : The religion of Propertism as preached by a property guru in a property forum

Disclaimer : we are using charts pattern only.. but property prices and movement have a lot more to do with :-
1) The strength of the global & local economy
2) The power of inflation/deflation
3) The tightening/easing of monetary policy
4) The demand/supply

So when making property investment decision, remember to make your judgement call on the above factors and then deduce where property prices are headed.

Short-term (<10yrs) - we might be at 1997 peak.
Long-term (>20yrs) - we might be at the start of the 1990 bull run.
It's your perspective and time horizon and your faith in the religion of propertism.

Sunday, July 18, 2010

My own opinion on funds

The "bell curve"—the probability den...Image via Wikipedia
[QUOTE=sXXX]whoa.. .. i read ur blog too... i learnt in sch from my lecturers that only extremely sophiscated investors can invest in hedge funds... as the fund managers are really tip top in the investment arena and hedge funds will almost definitely provide absolute returns year on year... so from ur experience, not that true after all, rite?[/QUOTE]

Why hedge funds have so much allure to people? :)

Most get-rich course will tell you that they invest in hedge funds and get absolute returns so that the trainer built their credibility with you. You think they are very sophiscated investors since they have access to things you cannot invest. Human nature.. When you cannot have it, you will yearn for it.

Most rich people want to invest in hedge funds coz it sounds good to tell people I put my money in hedge funds or private funds. Again, coz most retail investors cannot do that, they think it's good.

Then ..there's the people who have not invest in hedge funds or private funds but are educated or trained by their managers to tell you hedge funds returns are good etc etc. So when your lecturer tell you that, maybe he is just reading it from the literature or he could have really good access? I don't know. You have to ask him.

Ok, on to the hedge funds...
Absolute returns ? That is the allure of hedge funds, they promised absolute returns 'coz they explained they can short market/securities or long market or can hedge etc etc. But go do some research and see whether they really have absolute returns every year. Or why not you look at a chart of a hedge fund and see if you had invested in a high point, how long would you break even. Again, I think entry price is very important to your investing success. Then look at the chart of some blue-chips stocks and see whether you can get the break-even point earlier or later than the hedge funds. If both are around the same break-even period, are the hedge fund managers really giving you the "Alpha" you are paying 2/20(2% mgmt, 20% profit sharing) for?

I am not saying there is no such hedge funds around, but really, like all things, the bell curve in statistics applies. There are really bad hedge fund managers and there are really in-between managers and there will be very good hedge fund managers. You need to go find out the cream of the crop where you can get your money's worth. If not, why are you paying so much fees for? I think the rest you can do better by investing in your own stock portfolio which generates income too :)

A few good ones I know of are mainly in the US. The John Paulson funds, The Seth Klarman fund, The Bruce Berkowitz fund. But most are already closed and only open to institutional investors, the family offices and the super rich. It's not for the peasants millionaires, myself included :p

But if you die die want to be in a hedge fund, there are local and overseas offerings that goes for a lot less as they are just starting up or could be they are lousy as hell. Example, in singapore, you can start a hedge fund but can only accept money from max of 30 accreditated investors and most probably you can get away with even a $150k investment(or even less since the pre-requsite is accreditated investors but nothing is said of the investment amount) for each investor for a $4.5mil seed capital. I manage more than that and I can call myself a hedge fund manager if I wanted to :)

For the not so rich, there are funds of hedge funds that you can invest in as long as you are an accreditated investor. The rules for accreditated investor again differs from country to country. For example, in HK, retail investors can invest in fund of hedge funds for a minimum starting of USD$10,000. In singapore, I believe those financial planners can help you get started in a fund of hedge funds for SGD$20,000. But fund of hedge funds are not so good as it adds another additional layer of charges on top. This is because the fund of hedge funds(fof) managers will invest into individual hedge funds and his value-add is he is adept at picking the performing hedge funds (or so they want to lead you to believe:).

Then there's the managed funds from private banks. That one goes for a lot more and minimum entry is USD$250K per fund. Again, I have shared my experience of that. I am sure there are good funds out there. I just don't know about it. So I can only say probably the bell curve applies here as with in everything in life. :)

Private equity funds? For the private banks, you can go in for USD$500K with liquidity only when certain events occurred or min. with 5yrs holding period or . That's what I've been told and I was not interested since it is really too illiquid for my liking. This one probably could yield good results for those very high networth individuals. I'm not one of them.

Or you can be involved in those investors grouping together to buy a smallish company and they say they are doing private equity deals (which is true no doubt). I've come across people boasting of being involved in private equity investments and the company they acquired is less <$200k. So if got 5 investor, each one pay only $50k. But of course, does not mean the returns will be lousy. It could be a good deal if you can find $200k business that generates income(not revenue) of $100k per year.

Ok, to conclude my off the cuff entry, I would say not all funds are bad, not all deals are bad. If you do find one good hedge fund, congrats to you and do let me know :) It's with everything in life that bell curve applies and due diligence and critical thinking is needed in every investment you do. Just look at how many people sign up for those "millionaire" workshops or investments scheme that promised you guaranteed returns and yet people are signing up blindly to find out later on they are all duds.

Disclaimer : One man's meat is another man's poison. Just like property investing, some say mass market is good, some say prime is the only way to go, some say buy 999/Freehold only, others say 99LH near MRT is good.

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Friday, July 2, 2010

Bold Call - Doug Kass Called the Bottom!

Douglas Kass (DougKass) on Twitter

1. death cross is b.s. indicator.. more on that tomorrow morning $ about 12 hours ago via TweetDeck
2. Emotional Abuse! $ about 13 hours ago via TweetDeck
3. i beleive today will mark a classic bottom $ about 14 hours ago via TweetDeck

He was also the one who called the bottom in 2009. Two times lucky? Hopefully .... for the benefit of my portfolio :)

Thursday, July 1, 2010

Portfolio Update June 2010

2010 Year to date (YTD) Return
Equity(Include Funds) 
Direct Shareholding
Dividend/Coupon/Interest received 2010 YTD

Absolute Return Since Nov 2007
Portfolio -1.96%
Equity(Include Funds) 12.70%
Direct shareholding13.15%

Another month of uncertainty and zero returns. My performance have been dismal as I have basically not earned anything (after taking dividends into account) after 3 years in the market.

The purpose of tracking your returns is to see how you fare against the benchmark. In this case, if we benchmark to the indices(mine is a weighted composite of HSI, STI, ASX, DOW), I might have outperformed them relatively (like almost all fund managers who tell you they outperform the market). However, investors should go for absolute returns, not relative returns. That is we compare our returns to what you would have gotten if you had put your money into almost risk-free investments like Deposits and govt/investment grade bonds.  On that count, I've failed thus far with a portfolio return of -1.96%.

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