1 Detroit pleads poverty - in style
Detroit execs were initially hoping for $25 billion - and a quick getaway. Like someone arriving at a food bank in a limousine, the chief executives of the three major U.S. automakers spark outrage when they fly their corporate jets to Washington D.C. to beg Congress for a multi-billion dollar bailout. Yes, we know that corporate jets are often a cost-effective way for the heads of far-flung corporations to get around. But someone should have known this wasn't going to look good (and, sure enough, Congress sent the auto chiefs away empty-handed). At the very least, couldn't they have shared a ride?
2 Lamest road trip ever
Let's see...corporate jets are a no-no...the subway doesn't go that far...A bike ride might just kill us...I know! Let's drive the 10 hours from Detroit to D.C. - in one of our cool hybrid cars! Given a second chance after the private-jet fiasco to plead their case before Congress, the Detroit 3 take to the road (separately, of course) in a company fuel-sipper. In the case of Chrysler's Robert Nardelli, the exercise in overkill is particularly awkward: The Chrysler Aspen Hybrid he drove will soon be discontinued.
3 Paulson's 3-page plea for $700B
Treasury Secretary Henry Paulson learns how not to reach for $700 billion. In September, days after Lehman Brothers collapses and two other giants teeter on the abyss, Paulson submits his "break the glass" plan for saving the U.S. financial system. All of three pages, the proposal seeks carte-blanche access to $700 billion in government funding to buy up troubled mortgage assets at the root of the financial crisis - with scant details on how or where the money will be spent. Just as galling, Paulson includes a provision in the bill that will exempt his spending from court challenges. Congress axes the legal cloak, prompting Rep. Barney Frank to quip, "We have disexempted him." But the damage is done, and the proposal fails in the House Sept. 29 - triggering another massive market sell-off.
4 Bloating up the bailout
Maybe three pages wasn't such a bad idea after all...When Congress is done with it, Paulson's proposal for saving the U.S. financial system balloons to 451 pages and is loaded with pork barrel spending - including, unbelievably, a cut in taxes on toy arrows and an extended tax break on "wool products." Backers of the arrow tax exemption - section 503, for the record - say it reverses a wrongheaded 2004 law that sharply increased tax rates on cheap kids' arrows.
5 Mozilo's 'disgusting' reply-all
If you thought the former Countrywide CEO couldn't sink any lower, think again. Already under attack as the overpaid, over-tanned and over-zealous pioneer of subprime mortgages, Angelo Mozilo doesn't do himself any favors in May after reading a customer's e-mailed plea for help with his home loan. Intending to forward the missive to a colleague, Mozilo instead hits "reply all" and sends a response calling the beleaguered homeowner's request "unbelievable" and "disgusting." "Most of letters now have the same wording," grouses Mozilo. "Obviously they are being counseled by some other person or by the internet." Mozilo's heartfelt reply makes its way onto the Internet - and the onetime real estate king finds himself out of a job after Bank of America acquires Countrywide in July.
6 An iPhone app for just $999.99
Nobody would pay nearly a thousand bucks for a screen-saver, right? The release of the new Apple iPhone in July introduces to the masses the world of mobile video games and other time-sucking applications designed by non-Apple software developers - most of them available for less than $10. But one application sneaks past Apple's gatekeepers and onto the company's new App Store: "I Am Rich," a $999.99 screen-saver whose sole feature is a glowing red jewel. Apple gets blasted for making the application available for sale and then quietly removing it, but the real losers? The eight suckers who bought it.
7 Paulson's 'bazooka' backfires
Actions speak louder than words, Mr. Paulson. As shares of Fannie Mae and Freddie Mac plunge in mid-July on worries about their viability, Treasury Secretary Henry Paulson assures Congress that merely promising to give the beleaguered mortgage lenders access to Treasury funding would calm market fears - at no cost to Uncle Sam. "If you've got a squirt gun in your pocket, you may have to take it out," Paulson tells legislators. "If you've got a bazooka and people know you've got it, you may not have to take it out." Congress delivers the bazooka, but investors aren't buying it. Two months later, Treasury takes over both companies in a move that could cost taxpayers billions of dollars.
8 Fannie's delusions of grandeur
Fannie Mae CEO Dan Mudd proves once again that his crystal ball is malfunctioning. In May, Mudd predicts that the government-sponsored mortgage lender will "feast" on weakened competition in the mortgage market - even as its own prospects dim amid mounting credit losses and asset writedowns. By September, on the brink of collapse, Fannie gets a new owner - Uncle Sam - and Mudd loses a job.
9 Sex for oil
This fall, the division of the Department of Interior responsible for granting leases for energy exploration and production in federal waters is caught with its pants down. The agency's Inspector General finds that staffers were taking gifts, having sex and engaging in illegal drug use with employees of some of the oil companies they oversee. As the report detailing the ethical abuses puts it: "We...discovered a culture of substance abuse and promiscuity in the...program."
10 Global warming? What a 'crock'
The General Motors exec behind the Chevrolet Volt electric car hands environmentalists another twig to beat GM with when he reportedly calls global warming "a crock of sh-t." Bob Lutz, GM's vice chairman for product development, later addresses the uproar on his own blog: "General Motors is dedicated to the removal of cars and trucks from the environmental equation, period. And, believe it or don't: So am I!"
11 Housing rescue comes up short
Remember Hope for Homeowners? We didn't think so. In July, Congress passes the only housing rescue to date: a plan to guarantee up to $300 billion worth of mortgages and prevent more than 300,000 foreclosures. But to participate, banks must take steep losses -- and doing so is voluntary. The anti-climactic upshot: A piddling 321 applications have been filed since the program's Oct. 1 launch - and not one loan workout has been completed, according to the U.S. Department of Housing and Urban Development.
12 Cox's short-selling ban
Careful what you wish for. Under attack for not doing more to stop the market plunge, SEC chief Christopher Cox finally institutes a temporary ban on shorting, or betting against, 799 financial stocks. "The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets," Cox promises. But shares in banks, brokerages and insurance companies continue to plunge, losing a quarter of their value during the three weeks the mid-September order was effective. Some investors say the short ban hastened the flight of capital from stock and bond markets, by showing the government could intervene in markets in unexpected and troublesome ways.
13 McCain's economic denial
At least he warned us: On the morning of Sept. 15, as Lehman Brothers declares bankruptcy, Republican presidential candidate John McCain declares "the fundamentals of this economy are strong." By day's end, the Dow falls more than 500 points, the date becomes known as Black Monday, and McCain starts backpedaling fast. Maybe we should have seen this coming: In late 2007, McCain admits "the issue of economics is not something I've understood as well as I should," adding, "I've got Greenspan's book."
14 Obama's tough talk on NAFTA
In a rare off-message moment for Barack Obama's presidential campaign, a top economic adviser privately assures Canadian officials in February that his candidate didn't really mean it when he threatened to renegotiate the North American Free Trade Agreement, which U.S. blue-collar workers complain has shifted jobs to Canada and Mexico. "Political maneuvering" was how Austan Goolsbee described Obama's protectionist rhetoric to Canadian authorities. Smart politics - until a Canadian government memo of Goolsbee's meeting leaks out and Goolsbee is banished to no-media-allowed shed for the remainder of the election.
15 Microsoft overbids for Yahoo
The headlines seem so quaint now: Microsoft makes a $44.6 billion play for Yahoo in yet another bid to catch up to Google. The $31-per-share offer represents a 61% premium over Yahoo's price at the time of the February overture. Microsoft's strategy makes some sense, but CEO Steve Ballmer fails to anticipate Yahoo chief Jerry Yang's intransigence, which ultimately scuttles any chance of a deal. Nor does Ballmer foresee the economic crisis that, by year end, is dragging down the tech sector. With Yahoo shares trading at $12 apiece, the company is now worth $17 billion. Ballmer, however, gets the last laugh: by year end, he's still calling the shots at Microsoft. At Yahoo, Yang isn't.
16 Yahoo turns down payday
If Microsoft's offer for Yahoo was wrong-headed, Yahoo's opposition to it was downright bone-headed. It took until July, when Microsoft finally throws up its hands and walks away, for Yahoo CEO Jerry Yang to fumble a deal that would have rewarded shareholders with a payday that was three times what Yahoo shares were fetching at year-end. Along the way, Yahoo flirts with Google - only to see any potential deal scuttled by antitrust regulators. As 2009 approaches, Yahoo's chances of turning itself around look slim.
17 SEC's Madoff miss
Leave it to the markets to do the SEC's job for it. It took plunging stocks to bring to light the largest Ponzi scheme in U.S. history - an estimated $50 billion fraud orchestrated by Bernard L. Madoff, one of Wall Street's best-known money managers. The scheme - in which money from new investors is disguised as market returns for early investors - allegedly goes on for decades before Madoff effectively turns himself in in early December. As news reports reveal that the Securities and Exchange Commission had probed Madoff and his New York City investment firm over the years, chief Christopher Cox cops to the embarrassing screw-up: "I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations."
18 Rage against oil speculators
With oil prices skyrocketing toward their $147-a-barrel high in July, people smell a rat. Oil traders, hedge funds, Wall Street types...they're all to blame for artificially inflating the price of crude and reaping huge profits at the expense of drivers everywhere. Or so the thinking (and Congressional hearings) goes until prices suddenly collapse throughout the fall, bringing oil down to about $37 a barrel. The culprit this time? Softening demand amid a reeling global economy. So much for thinking fundamentals don't matter.
19 Jobs' 'greatly exaggerated' death
Newspapers prepare obituaries of famous people before they die, but few publish them while the subjects are still alive. In August, Bloomberg News accidentally releases an obit for Apple CEO Steve Jobs, who - despite a well-publicized brush with pancreatic cancer - is still alive and kicking. As if that wasn't enough, in October a post on CNN's user-generated site, iReport, claims that Jobs has suffered a heart attack. The erroneous report sends Apple's stock down 10% in just 10 minutes. At his next media appearance, Jobs appears in front of a giant screen with the message, "The reports of my death are greatly exaggerated."
20 Phil Gramm's 'mental recession'
In early July, as the financial crisis spreads to Main Street, McCain campaign co-chair and former senator Phil Gramm appeals to voters and their economic anxieties by calling them a "nation of whiners" and dismisses a troubled economy as a "mental recession." McCain denounces his words and Gramm steps down, but the damage is done.
21 Bill Miller's bad bets
The Legg Mason manager famously beat the market 15 years in a row, but now the market is returning the favor - with a vengeance. Miller's Legg Mason Value Trust was down 59% this year through Dec. 2, posting a far worse showing than the S&P 500, which was down "only" 38%. Miller's problems stem mostly from big bets on beaten-down financial companies earlier this year, many of which then got even more beaten down. Among the biggest losers for Miller were Bear Stearns, AIG and Freddie Mac - in which Miller had amassed an 8% stake on the eve of its government takeover in September.
Monday, 29 December 2008
Wednesday, 24 December 2008
Hope - breakfast? Or supper?
Greetings,
It's the time of the year that I try to recall notable events of the past 12 months, goor or bad and how we've responded to them as a race and add my own take to these events.
We're nearing the end of another year, one precipitated by turmoil in so many areas of our lives that we begin to wonder what we did wrong. Two decades ago, we welcomed the end of the Cold War and hailed the fall of the Berlin wall as victory of democracy and capitalism over communism. “It made the most sense,” we all said. Capitalism is the reason we're stuck in mud today. No, make that quicksand.
Early in the year, I watched “Juno” on the plane and later learned that it won several awards. It also won several followers and it suddenly became fashionable for teens to become pregnant, most notably Bristol Palin and Jaime Lynn Spears, whose sister was her role model. The sister lost custody of her 2 kids to her ex-husabnd this year because she was judged unable to take care of even herself.
Still on celebrities, I was teaching my son on electricity and we discussed the workings of a light bulb. As encouragement for his independence, I asked him to google Thomas Alva Edison and do some research. Big mistake -- a different Edison showed up, more popular than the inventor of the light bulb and a thousand other stuff. Why would people keep naked pictures of themselves and others as collection?
A number of celebrities left us this year. The earliest movie I can recall watching was Ben Hur starred by Charlton Heston. And many mourned the passing of Paul Newman. In Singapore, the original Mr Opposition, JBJ left behind an idelible legacy of his brand of politics, fighting until almost his last day.
Earlier on, we were captured by the tenacity of Randy Pausch, who literally delivered the “last lecture” as faculty of Carnegie Mellon. Following that great fight against his terminal illness was the profound message of living his childhood dreams -- you must want it badly enough. His lecture was all over YouTube and many social network sites. Go watch and be amazed and learn.
Some deaths are fated, some masterminded. Simultaneous attacks in Mumbai reminded us the threat of terror recognises no limit, individual, geography or timing. A reminder that Singaporeans will scarcely forget when thousands of hours were spent on trying to find and recapture a wayward detainee who purportedly went to take a leak. For someone who drives to Malaysia frequently, I've been fingerprinted more times than a petty thief. “Selamat Datang Ke Malaysia” now has a new meaning.
We cringed while waiting to see what sort of havoc Ike and Gustav will wreak, it was a fortunate outcome. But in Myanmar, Nargis destroyed everything. Then came heartbreak in Sichuan for a country readying herself for the Olympics. As in most disasters, heroes emerged from the China earthquake. It shows the resilience of the human spirit and the grace of God working together.
Beijing Olympics marked many firsts -- Michael Phelps broke Mark Spitz's record haul, the opening ceremony captured 5,000 years of history in one presentation, China showed the world how well they have been practising with gunpowder since they invented it. Today, we can hardly remember who took the 100m sprint silver or who was third in 10m diving or who fell badly from the “horse”. That's what the Olympics has been reduced to.
This year can also be known as the year of water-shed elections. Notably in Malaysia and Thailand, stranger things could not have happened. While Thailand just elected her fifth PM in 6 months, Malaysia is reeling from internet-driven awakening that removed the ruling coalition's 2/3 majority in the Mar 8 elections. The soap opera didn't end there as Anwar Ibrahim resurrected his political fortunes and one RPK was detained without trial, all around one murdered Mongolian lady. But those in Zimbabwe will think all these are child's play. Good ol' Robert.
But the biggest milestone of them all is the election of an African American to the highest office of USA, by default the most powerful position on earth. While Americans wait to shoo Obama into Amercian history, Bush ducked a farewell shoe into ignominity. Based on the former's acceptance speech, I'm keenly awaiting his inaugration speech early next year. Yes we can, boleh?
Like a dark storm cloud threatening to rain all of last year, financial turmoil poured and devastated everything and everywhere. Perhaps it's God's way of redistributing economic power and with it, real power. $1.2tr of US's bonds are owned by 2 Asian countries, the Arabs rejoiced when oil reached $147.27 a barrel, then on Sep 29, Dow tanked 8.8% - biggest ever single day drop. The Feds responded with a rate cut down to 0.25%.
Familiar names became fish bait -- Lehman Brothers are no more, Merill Lynch now belong to Bank of America. Bear Sterns were swallowed whole. Then the worms began crawling out of the woodworks. When Nick Leeson bled Barings of $1.4b, it was big news a decade ago. Societe Generale's $7b rogue trade made him look like pussy-cat. Then came grand-daddy Bernard Madoff's $50b fraud. I guess I've seen everything now.
In the thick of all these, scientists tried to replicate the birth of the universe by building the LHC (large hadron collider). It took 20 years and $10b and gave fears that we might create a black hole on earth with catastrophic consequences. Thanks to faulty magnets, the machine was shut down until next year. God was not about to reveal certain parts of history, not yet.
Personally, the year was a big milestone for me too.... I parted from the only company I worked for and the ensuing freedom was initially unsettling. But it worked out fine, only to show that when you know that Someone is in charge, let Him be in charge; things will work out. So in spite of what is happening, I want to bring a message of hope. Francis Bacon said that hope is a good breakfast but a bad supper.
Well, it's an attitude thing and it's your lifestyle too. Where do you place your faith? Yourself? The World? We've let ourselves down many times, so has the world. Won't you try something different this time? Over 2,000 years ago, Hope was sent to us and we ignored, rejected and persecuted Him. The gracious Hope still waits for us today. “.... but you received the Spirit of sonship. And by him we cry, Abba, Father.” Romans 8:15b
As I walk off in a new direction, I look not at paths before me that I should take but rather I would choose to create a trail that others could follow. Is it my time already? Have a hopeful Christmas and a blessed New Year.
the quiXote
It's the time of the year that I try to recall notable events of the past 12 months, goor or bad and how we've responded to them as a race and add my own take to these events.
We're nearing the end of another year, one precipitated by turmoil in so many areas of our lives that we begin to wonder what we did wrong. Two decades ago, we welcomed the end of the Cold War and hailed the fall of the Berlin wall as victory of democracy and capitalism over communism. “It made the most sense,” we all said. Capitalism is the reason we're stuck in mud today. No, make that quicksand.
Early in the year, I watched “Juno” on the plane and later learned that it won several awards. It also won several followers and it suddenly became fashionable for teens to become pregnant, most notably Bristol Palin and Jaime Lynn Spears, whose sister was her role model. The sister lost custody of her 2 kids to her ex-husabnd this year because she was judged unable to take care of even herself.
Still on celebrities, I was teaching my son on electricity and we discussed the workings of a light bulb. As encouragement for his independence, I asked him to google Thomas Alva Edison and do some research. Big mistake -- a different Edison showed up, more popular than the inventor of the light bulb and a thousand other stuff. Why would people keep naked pictures of themselves and others as collection?
A number of celebrities left us this year. The earliest movie I can recall watching was Ben Hur starred by Charlton Heston. And many mourned the passing of Paul Newman. In Singapore, the original Mr Opposition, JBJ left behind an idelible legacy of his brand of politics, fighting until almost his last day.
Earlier on, we were captured by the tenacity of Randy Pausch, who literally delivered the “last lecture” as faculty of Carnegie Mellon. Following that great fight against his terminal illness was the profound message of living his childhood dreams -- you must want it badly enough. His lecture was all over YouTube and many social network sites. Go watch and be amazed and learn.
Some deaths are fated, some masterminded. Simultaneous attacks in Mumbai reminded us the threat of terror recognises no limit, individual, geography or timing. A reminder that Singaporeans will scarcely forget when thousands of hours were spent on trying to find and recapture a wayward detainee who purportedly went to take a leak. For someone who drives to Malaysia frequently, I've been fingerprinted more times than a petty thief. “Selamat Datang Ke Malaysia” now has a new meaning.
We cringed while waiting to see what sort of havoc Ike and Gustav will wreak, it was a fortunate outcome. But in Myanmar, Nargis destroyed everything. Then came heartbreak in Sichuan for a country readying herself for the Olympics. As in most disasters, heroes emerged from the China earthquake. It shows the resilience of the human spirit and the grace of God working together.
Beijing Olympics marked many firsts -- Michael Phelps broke Mark Spitz's record haul, the opening ceremony captured 5,000 years of history in one presentation, China showed the world how well they have been practising with gunpowder since they invented it. Today, we can hardly remember who took the 100m sprint silver or who was third in 10m diving or who fell badly from the “horse”. That's what the Olympics has been reduced to.
This year can also be known as the year of water-shed elections. Notably in Malaysia and Thailand, stranger things could not have happened. While Thailand just elected her fifth PM in 6 months, Malaysia is reeling from internet-driven awakening that removed the ruling coalition's 2/3 majority in the Mar 8 elections. The soap opera didn't end there as Anwar Ibrahim resurrected his political fortunes and one RPK was detained without trial, all around one murdered Mongolian lady. But those in Zimbabwe will think all these are child's play. Good ol' Robert.
But the biggest milestone of them all is the election of an African American to the highest office of USA, by default the most powerful position on earth. While Americans wait to shoo Obama into Amercian history, Bush ducked a farewell shoe into ignominity. Based on the former's acceptance speech, I'm keenly awaiting his inaugration speech early next year. Yes we can, boleh?
Like a dark storm cloud threatening to rain all of last year, financial turmoil poured and devastated everything and everywhere. Perhaps it's God's way of redistributing economic power and with it, real power. $1.2tr of US's bonds are owned by 2 Asian countries, the Arabs rejoiced when oil reached $147.27 a barrel, then on Sep 29, Dow tanked 8.8% - biggest ever single day drop. The Feds responded with a rate cut down to 0.25%.
Familiar names became fish bait -- Lehman Brothers are no more, Merill Lynch now belong to Bank of America. Bear Sterns were swallowed whole. Then the worms began crawling out of the woodworks. When Nick Leeson bled Barings of $1.4b, it was big news a decade ago. Societe Generale's $7b rogue trade made him look like pussy-cat. Then came grand-daddy Bernard Madoff's $50b fraud. I guess I've seen everything now.
In the thick of all these, scientists tried to replicate the birth of the universe by building the LHC (large hadron collider). It took 20 years and $10b and gave fears that we might create a black hole on earth with catastrophic consequences. Thanks to faulty magnets, the machine was shut down until next year. God was not about to reveal certain parts of history, not yet.
Personally, the year was a big milestone for me too.... I parted from the only company I worked for and the ensuing freedom was initially unsettling. But it worked out fine, only to show that when you know that Someone is in charge, let Him be in charge; things will work out. So in spite of what is happening, I want to bring a message of hope. Francis Bacon said that hope is a good breakfast but a bad supper.
Well, it's an attitude thing and it's your lifestyle too. Where do you place your faith? Yourself? The World? We've let ourselves down many times, so has the world. Won't you try something different this time? Over 2,000 years ago, Hope was sent to us and we ignored, rejected and persecuted Him. The gracious Hope still waits for us today. “.... but you received the Spirit of sonship. And by him we cry, Abba, Father.” Romans 8:15b
As I walk off in a new direction, I look not at paths before me that I should take but rather I would choose to create a trail that others could follow. Is it my time already? Have a hopeful Christmas and a blessed New Year.
the quiXote
Wednesday, 17 December 2008
Don't Sell This Stock. Ever.
Don't Sell This Stock. Ever.
By Nick Kapur November 16, 2008 The Motley Fool
Legendary investor Philip Fisher bought a little radio company called Motorola in 1955 and pioneered a revolution. The guy did his homework, exercised a good deal of discipline, and found himself with a stock that multiplied many, many times -- all while sitting on his butt. Sounds pretty nice, eh?
In today's volatile and troubled market, taking your hands off the wheel is probably the last thing you want to do. And just like you, I fight that same fear. But we're looking at a historically discounted market. And that's precisely why right now is the best time to find a great company, invest in it, and then sit on your butt -- instead of fretting, trading, and losing sleep.
Good story, but how? I've written before about the decision to chuck your stocks into the wastebasket. But that advice may not be entirely helpful -- what you really need is to avoid the kinds of stocks that put you in that situation in the first place. After all, if you're in a situation where you have to sell a stock because it has problems, it's too late. To get around that problem, you need to get to know a man buried in an obscure cemetery in the Kreuzberg section of Berlin, Germany.
Man muss invertiren, immer invertiren
In case your German is a bit rusty, the expression translates to "One must invert, always invert." It's credited to the mathematician Carl Gustav Jacob Jacobi, who taught us to make a habit of reversing difficult equations to arrive at the solutions behind them. Let's take Jacobi's idea and apply it to our current situation.
Instead of thinking about when to sell, perhaps the more intelligent question to ask is the inverted one: When should we never sell? The answer leads us to the "sit on your butt" philosophy that has worked so well for many of history's finest investors. If we can identify a few businesses that investors should have never sold, we can work backward to extract a few salient characteristics and then use them in our search for the next never-sell investment.
History's lessons
Case No. 1: Berkshire Hathaway
Overall return, 1964-2007: 400,863%
Lesson: Top-flight management
Of all of the advantages that Berkshire Hathaway has going for it, the most important begins with two men: Warren Buffett and Charlie Munger. Without them, Berkshire would probably be a now-defunct textile mill. Instead, the pair have made prescient investments into long-lasting businesses like Proctor and Gamble -- that have paid off handsomely. Managers needn't be Buffett-like, either, to be great. I think Jim Senegal of Costco is a great example of a unique leader that has built a fantastic business over the years. Investors should absolutely demand fantastic management.
Case No. 2: Altria
Return, 1970-present (including dividends): 103,800%
Lesson: Undeniable consumer-facing trends
Regardless of how you feel about Big Tobacco, you have to admit that Altria is so successful because it runs a business built on a fundamentally consumer-driven -- and highly addictive -- product. Plenty of other great companies display similar characteristics -- for example, Dell was well prepared 15 years ago to serve a generation demanding personal computing solutions; meanwhile, today, Research In Motion is creating means by which these same people can be completely mobile. As investors, we definitely want a business that appeals to consumers' most basic interests and can benefit from that tailwind.
Case No. 3: IBM
Return, 1962-present (including dividends): 2,832%
Lesson: Agility
Not all companies need to innovate to be great, but the vast majority need to be able to read the market, react, and be ahead of long-term trends. Having been many different things over the course of its life, IBM definitely has an ability to adapt going for it; I'd venture to say that Apple displays a similar ability. Let's invest with companies that can zig and zag, when others have cement feet.
Case No. 4: Microsoft
Return since going public in 1986: 26,463%
Lesson: Scalability
We want businesses that can take on new customers without needing to seriously build out their existing operations. Microsoft is a perfect example. Reinvestment is costly -- so, identify businesses that don't require much of it to ramp up the top line.
If you combine these four qualities and find even a few stocks that fit the mold, you're probably onto something seriously good. I'd argue it's most likely a company to buy early, buy often, and never sell.
So what now?
We can do two things with this information:
1 Use it as a further tool to understand what stocks we need to sell now. (Talk about inverting!)
2 Use these principles to buy stocks that we'll never, ever need to sell. That's where sitting on our butts comes in.
It's not mere coincidence that most of the world's best investments fall within one of these four categories (many of them share more than one). Nor is it a coincidence that great investors constantly search for these combinations -- as you should, too, especially in these turbulent markets.
By Nick Kapur November 16, 2008 The Motley Fool
Legendary investor Philip Fisher bought a little radio company called Motorola in 1955 and pioneered a revolution. The guy did his homework, exercised a good deal of discipline, and found himself with a stock that multiplied many, many times -- all while sitting on his butt. Sounds pretty nice, eh?
In today's volatile and troubled market, taking your hands off the wheel is probably the last thing you want to do. And just like you, I fight that same fear. But we're looking at a historically discounted market. And that's precisely why right now is the best time to find a great company, invest in it, and then sit on your butt -- instead of fretting, trading, and losing sleep.
Good story, but how? I've written before about the decision to chuck your stocks into the wastebasket. But that advice may not be entirely helpful -- what you really need is to avoid the kinds of stocks that put you in that situation in the first place. After all, if you're in a situation where you have to sell a stock because it has problems, it's too late. To get around that problem, you need to get to know a man buried in an obscure cemetery in the Kreuzberg section of Berlin, Germany.
Man muss invertiren, immer invertiren
In case your German is a bit rusty, the expression translates to "One must invert, always invert." It's credited to the mathematician Carl Gustav Jacob Jacobi, who taught us to make a habit of reversing difficult equations to arrive at the solutions behind them. Let's take Jacobi's idea and apply it to our current situation.
Instead of thinking about when to sell, perhaps the more intelligent question to ask is the inverted one: When should we never sell? The answer leads us to the "sit on your butt" philosophy that has worked so well for many of history's finest investors. If we can identify a few businesses that investors should have never sold, we can work backward to extract a few salient characteristics and then use them in our search for the next never-sell investment.
History's lessons
Case No. 1: Berkshire Hathaway
Overall return, 1964-2007: 400,863%
Lesson: Top-flight management
Of all of the advantages that Berkshire Hathaway has going for it, the most important begins with two men: Warren Buffett and Charlie Munger. Without them, Berkshire would probably be a now-defunct textile mill. Instead, the pair have made prescient investments into long-lasting businesses like Proctor and Gamble -- that have paid off handsomely. Managers needn't be Buffett-like, either, to be great. I think Jim Senegal of Costco is a great example of a unique leader that has built a fantastic business over the years. Investors should absolutely demand fantastic management.
Case No. 2: Altria
Return, 1970-present (including dividends): 103,800%
Lesson: Undeniable consumer-facing trends
Regardless of how you feel about Big Tobacco, you have to admit that Altria is so successful because it runs a business built on a fundamentally consumer-driven -- and highly addictive -- product. Plenty of other great companies display similar characteristics -- for example, Dell was well prepared 15 years ago to serve a generation demanding personal computing solutions; meanwhile, today, Research In Motion is creating means by which these same people can be completely mobile. As investors, we definitely want a business that appeals to consumers' most basic interests and can benefit from that tailwind.
Case No. 3: IBM
Return, 1962-present (including dividends): 2,832%
Lesson: Agility
Not all companies need to innovate to be great, but the vast majority need to be able to read the market, react, and be ahead of long-term trends. Having been many different things over the course of its life, IBM definitely has an ability to adapt going for it; I'd venture to say that Apple displays a similar ability. Let's invest with companies that can zig and zag, when others have cement feet.
Case No. 4: Microsoft
Return since going public in 1986: 26,463%
Lesson: Scalability
We want businesses that can take on new customers without needing to seriously build out their existing operations. Microsoft is a perfect example. Reinvestment is costly -- so, identify businesses that don't require much of it to ramp up the top line.
If you combine these four qualities and find even a few stocks that fit the mold, you're probably onto something seriously good. I'd argue it's most likely a company to buy early, buy often, and never sell.
So what now?
We can do two things with this information:
1 Use it as a further tool to understand what stocks we need to sell now. (Talk about inverting!)
2 Use these principles to buy stocks that we'll never, ever need to sell. That's where sitting on our butts comes in.
It's not mere coincidence that most of the world's best investments fall within one of these four categories (many of them share more than one). Nor is it a coincidence that great investors constantly search for these combinations -- as you should, too, especially in these turbulent markets.
Motorola to freeze pension plans, cut exec pay
Motorola to freeze pension plans, cut executive pay, stop 401(k) matching plans
Wednesday December 17, 2008, 11:33 am EST
SCHAUMBURG, Ill. (AP) -- Motorola Inc., which has been struggling to revive its business in recent years, is freezing its pension plans and reducing executive pay in another set of cost-cutting measures. The company, which blamed the recession for the moves disclosed Wednesday, will permanently freeze its U.S. pension plans, temporarily suspend matching 401(k) contributions and reduce the base salary of its two co-chief executives. Motorola had already announced an $800 million cost-saving plan in October, but spokeswoman Jennifer Erickson would not elaborate on how much additional money the company expects to save with the latest steps.
Motorola plans to freeze the salaries of an unspecified number of other employees in many of its markets in 2009. Erickson said the company will raise salaries in countries where it is "legally required or a competitive necessity; however, in most cases, these increases will be below 2008 levels." She did not specify the countries or how many employees would be affected by the pay freeze.
Motorola earlier this fall said it will cut 3,000 jobs by April, with about 2,000 coming from its struggling cell phone unit, as part of the $800 million cost-reduction plan.
Now Motorola says Co-CEOs Greg Brown and Sanjay Jha will take a 25 percent cut in their base salary of $1.2 million in 2009. Brown will also forgo any 2008 cash bonus earned under the company's incentive plan. For Jha, whose employment contract provides for a guaranteed cash bonus for 2008, the bonus will be voluntarily reduced and the rest taken as restricted stock units. Motorola said it is taking these measures to address the global economic turmoil. But the company has been under pressure to follow the runaway success of its Razr cell phone, which came out in 2005.
Earlier this year, the company announced plans to separate its struggling handset business from other operations, forming two separate, publicly traded companies. But in October Motorola said it will postpone the spinoff, citing the economic downturn and the financial market turmoil. Thomas Weisel Partners analyst Matthew Sheerin said the new cost-cutting announcements signal that things are getting worse for Motorola, and he called the lack of updated guidance "curious."
But he praised the company's efforts to reduce expenses and stay profitable despite the troubles in its mobile device unit, saying it's done an "admirable job." Motorola shares fell 10 cents, or 2.3 percent, to $4.31 in morning trading. The stock has lost nearly three-quarters of its value since the beginning of the year.
Wednesday December 17, 2008, 11:33 am EST
SCHAUMBURG, Ill. (AP) -- Motorola Inc., which has been struggling to revive its business in recent years, is freezing its pension plans and reducing executive pay in another set of cost-cutting measures. The company, which blamed the recession for the moves disclosed Wednesday, will permanently freeze its U.S. pension plans, temporarily suspend matching 401(k) contributions and reduce the base salary of its two co-chief executives. Motorola had already announced an $800 million cost-saving plan in October, but spokeswoman Jennifer Erickson would not elaborate on how much additional money the company expects to save with the latest steps.
Motorola plans to freeze the salaries of an unspecified number of other employees in many of its markets in 2009. Erickson said the company will raise salaries in countries where it is "legally required or a competitive necessity; however, in most cases, these increases will be below 2008 levels." She did not specify the countries or how many employees would be affected by the pay freeze.
Motorola earlier this fall said it will cut 3,000 jobs by April, with about 2,000 coming from its struggling cell phone unit, as part of the $800 million cost-reduction plan.
Now Motorola says Co-CEOs Greg Brown and Sanjay Jha will take a 25 percent cut in their base salary of $1.2 million in 2009. Brown will also forgo any 2008 cash bonus earned under the company's incentive plan. For Jha, whose employment contract provides for a guaranteed cash bonus for 2008, the bonus will be voluntarily reduced and the rest taken as restricted stock units. Motorola said it is taking these measures to address the global economic turmoil. But the company has been under pressure to follow the runaway success of its Razr cell phone, which came out in 2005.
Earlier this year, the company announced plans to separate its struggling handset business from other operations, forming two separate, publicly traded companies. But in October Motorola said it will postpone the spinoff, citing the economic downturn and the financial market turmoil. Thomas Weisel Partners analyst Matthew Sheerin said the new cost-cutting announcements signal that things are getting worse for Motorola, and he called the lack of updated guidance "curious."
But he praised the company's efforts to reduce expenses and stay profitable despite the troubles in its mobile device unit, saying it's done an "admirable job." Motorola shares fell 10 cents, or 2.3 percent, to $4.31 in morning trading. The stock has lost nearly three-quarters of its value since the beginning of the year.
Thursday, 4 December 2008
Interesting mathematics
Let's say the cost of producing electricity, A, is dependent upon only oil price and other non-fuel factors. And let's call them X and Y respectively. The Energy Market Authority announced that fuel price has come down by 40% and so next quarter, Singaporeans will pay 25% less for electricity. If my primary math serves me well (it better, my son is in primary school!):
X reduces by 40% while Y stays the same, so X + Y = A comes down by 25%
Then 40% of X = 25% of A or simply put, A = 1.6 X
We can now substitute some numbers (for the mathematically-challenged!)
If X = 100, then A = 160 and so Y is 60
Do you believe that operational cost (non-fuel factors) can command 60/160 or 37.5% of the electrical tarrif that you pay? If that were so, power producers will be happy for higher fuel prices as that will mask their operational costs. Now try using X = 60 since it has dropped 40%. Y stays at 60 and A now becomes 120 (25% drop). Now operational cost of 60/120 is a good 50%!
I wonder what was the % when oil price was at $25?
X reduces by 40% while Y stays the same, so X + Y = A comes down by 25%
Then 40% of X = 25% of A or simply put, A = 1.6 X
We can now substitute some numbers (for the mathematically-challenged!)
If X = 100, then A = 160 and so Y is 60
Do you believe that operational cost (non-fuel factors) can command 60/160 or 37.5% of the electrical tarrif that you pay? If that were so, power producers will be happy for higher fuel prices as that will mask their operational costs. Now try using X = 60 since it has dropped 40%. Y stays at 60 and A now becomes 120 (25% drop). Now operational cost of 60/120 is a good 50%!
I wonder what was the % when oil price was at $25?
Sad decline of a legend?
A story was told of a Japanese lad who read about a faraway land of opportunities and later brought his wife there for their honeymoon. There he saw an "iron horse" for the first time and quickly learned how it worked and how to take it apart and put it back together. He bought one and tried to check it in at Los Angeles airport. He was refused. He threw away his clothes, tore the bicycle apart and crammed all the pieces into his suitcase. Everyone at the airport laughed at him.
Pretty soon they laughed no more; the boy's name was Soichiro Honda. From mini moped to big bikes to velocious vehicles, they lived up to the "Power of Dreams".
Yesterday, Honda projected a dramatic drop in sales for 2009 and that they will be cutting back on production, and their stocks took a hit (so did the Nikkei). Today they are about to announce that Jenson Button and Reubens Barrichello will not be driving any F1 car next year. For a tier 1 car manufacturer, that is almost sacrilegious. Oh, how quickly the mighty has fallen.
It reminds me of another giant I am familiar with, whose decline was so quick I wondered how could anything have gone so horribly wrong. While packing last night, I stumbled upon a magazine-like book, "1995 Worldwide TCS Orlando, Florida". I thumbed through the pages reminiscently as I saw myself in an Indian garb and my friends in Thai, Vietnamese, Indonesian gears - the world was at our feet, there was no problem too big and Mickey Mouse was beside us.
Well, it's time to move on....
Pretty soon they laughed no more; the boy's name was Soichiro Honda. From mini moped to big bikes to velocious vehicles, they lived up to the "Power of Dreams".
Yesterday, Honda projected a dramatic drop in sales for 2009 and that they will be cutting back on production, and their stocks took a hit (so did the Nikkei). Today they are about to announce that Jenson Button and Reubens Barrichello will not be driving any F1 car next year. For a tier 1 car manufacturer, that is almost sacrilegious. Oh, how quickly the mighty has fallen.
It reminds me of another giant I am familiar with, whose decline was so quick I wondered how could anything have gone so horribly wrong. While packing last night, I stumbled upon a magazine-like book, "1995 Worldwide TCS Orlando, Florida". I thumbed through the pages reminiscently as I saw myself in an Indian garb and my friends in Thai, Vietnamese, Indonesian gears - the world was at our feet, there was no problem too big and Mickey Mouse was beside us.
Well, it's time to move on....
Much ado over US$4,700
Granted that in current times money is significant but this is for one of the highest positions in the country! Hillary Clinton may not get to be Secretary of State - just because President Bush signed the salary increase of that position while she was in office as senator. The intent of the constitution is to prevent anyone in position of power to lobby to fatten up a post before he or she takes it later.
In some countries, people in power publicly voted and approved the increases of their own salaries. Democracy has been around for a long time and so has capitalism and in most cases, the demarcation has blurred. I've always wondered why the English language has 2 words that mean the same thing - isn't that a waste of vocabulary? How would I answer my son if he asked?
True that the American way is not necessarily applicable to other countries but the basic tenets of democracy such as transparency, justice and freedom must exist for countries which claim to be democratic, otherwise the claim is a hollow one. Zimbabwe had elections, so it is democratic? Why would people riot and cause civil unrest - because they are bad people or were they manipulated?
Thailand had elections. They elected the parties and the parties elected a Prime Minister - onto a musical chair! They gave Darwinism a new image and 5 PMs later, they are still at it. No future visitors, no future moolah, no future economy. Now THAT is making a statement. Visions of Bangkok being a fashion centre for Asia and healing tourism hub of the region, now suffer from astigmatism.
Somehow, now that I'm spending more time listening to live feed than reading off the web, I begin to compare with policies and operations familiar to me.... and it is getting interesting. You should spend a whole day just watching the news as it develops, trust me, it's not boring!
In some countries, people in power publicly voted and approved the increases of their own salaries. Democracy has been around for a long time and so has capitalism and in most cases, the demarcation has blurred. I've always wondered why the English language has 2 words that mean the same thing - isn't that a waste of vocabulary? How would I answer my son if he asked?
True that the American way is not necessarily applicable to other countries but the basic tenets of democracy such as transparency, justice and freedom must exist for countries which claim to be democratic, otherwise the claim is a hollow one. Zimbabwe had elections, so it is democratic? Why would people riot and cause civil unrest - because they are bad people or were they manipulated?
Thailand had elections. They elected the parties and the parties elected a Prime Minister - onto a musical chair! They gave Darwinism a new image and 5 PMs later, they are still at it. No future visitors, no future moolah, no future economy. Now THAT is making a statement. Visions of Bangkok being a fashion centre for Asia and healing tourism hub of the region, now suffer from astigmatism.
Somehow, now that I'm spending more time listening to live feed than reading off the web, I begin to compare with policies and operations familiar to me.... and it is getting interesting. You should spend a whole day just watching the news as it develops, trust me, it's not boring!
Tuesday, 2 December 2008
Alphabet soup
Now that we've settled the dispute (if you're wondering, the dispute is whether the US is in a technical recession), let's accept that Singapore is in a recession as well. Rather than go through the reasons, we can discuss the ways the economy can recover - it's more optimistic and allows some fantasising. Lately, I've heard many alphabets thrown into the ring to describe the situation and you can wonder at some of them:
One analyst mentioned an F-shaped while MM at a Clinton event said that it will not be a V-shaped recovery but he's not saying it will be U-shaped either. An economist suggested today it will be W-shaped since there is little to support recovery at this stage. Someone from OCBC volunteered L-shaped! I can't spell anything with these letters so let's return to basics. If you love crunching numbers, read this, which is the appendix section of the MAS review.
It has numbers and trends that will make you sit up and perhaps concoct your own alphabet - roman, greek or martian :-)
Reading tables 13 and 15 together, you can understand what must happen for recovery:
1 Tax revenue is coming down - less income to tax, less GST with reduced consumption, so non-tax revenue has to go up. These are your fees and fines.
2 Contributions from investment income are not going to be stellar since investment climate is in the toilet, so there will be even greater special transfers required.
This speaks of triple or quadruple whammy, so while W describes a double bottom, the only character I can think of that has triple or quadruple bottom is found in the arabic language.
On a more serious note, I do feel concerned that my being in the current state of flux is not getting me anywhere but where do I really want to go? I serve a greater Master and have faith in Him to lead me wherever I should go. Perhaps a good advice is what I heard from Suze Orman - doing nothing is better than buying something you don't know.
One analyst mentioned an F-shaped while MM at a Clinton event said that it will not be a V-shaped recovery but he's not saying it will be U-shaped either. An economist suggested today it will be W-shaped since there is little to support recovery at this stage. Someone from OCBC volunteered L-shaped! I can't spell anything with these letters so let's return to basics. If you love crunching numbers, read this, which is the appendix section of the MAS review.
It has numbers and trends that will make you sit up and perhaps concoct your own alphabet - roman, greek or martian :-)
Reading tables 13 and 15 together, you can understand what must happen for recovery:
1 Tax revenue is coming down - less income to tax, less GST with reduced consumption, so non-tax revenue has to go up. These are your fees and fines.
2 Contributions from investment income are not going to be stellar since investment climate is in the toilet, so there will be even greater special transfers required.
This speaks of triple or quadruple whammy, so while W describes a double bottom, the only character I can think of that has triple or quadruple bottom is found in the arabic language.
On a more serious note, I do feel concerned that my being in the current state of flux is not getting me anywhere but where do I really want to go? I serve a greater Master and have faith in Him to lead me wherever I should go. Perhaps a good advice is what I heard from Suze Orman - doing nothing is better than buying something you don't know.
Monday, 1 December 2008
Recession - here, near or mere fear?
A typical recession lasts anything between 18-24 months. With news finally out that the US economy was in recession since Dec 2007, the dejavu experience is like one who is sentenced to a couple of years in prison but with the sentence being back-dated to a year ago. So we have about 6 months to a year to go before we see the end of all these. Really?
If you observe historical recessionary cycles, there are a few trends you can pick out:
1 Each subsequent recession went deeper and further into the doldrums
2 Each recovery picked up at a faster rate and went beyond previous high
Notice that we've plunged below the benchmark 1932 Great Depression. A few weeks ago, I posted that Dow was at the basement when it dipped below 8,000 points albeit momentarily. All the stars seem aligned.
Newspaper reports have changed their tack quite a bit. They used to be harbinger of bad news, and only bad news - because that can be sensationalised. Nobody reports about a plane landing safely at the airport and skills of the pilot and crew should be applauded. Should one crash, it will be all over the front pages. Similarly, peaceful demonstration in Singapore is not so "newsy" compared to a few deaths at Bangkok sit-ins. Now we only read optimistic reports; few are inclined to batter the battered economy.
Last night, the Dow was waltzing close to the 8,000 mark again. It's time to take a good look at some undervalued stocks. Oh there are so many of those! I'd like to start exploring myself. Getting closer to home, the SGX hasn't been very much wayward from the Dow in typical Singapore fashion - we follow. We don't blaze a trail ourselves and be the maverick we can be.
Regardless of your opinion or mine, recession is definitely here. How the stock indices behave will just promote the perception or real condition. Recession is not near and is not mere fear. Be brave. Be very brave....
If you observe historical recessionary cycles, there are a few trends you can pick out:
1 Each subsequent recession went deeper and further into the doldrums
2 Each recovery picked up at a faster rate and went beyond previous high
Notice that we've plunged below the benchmark 1932 Great Depression. A few weeks ago, I posted that Dow was at the basement when it dipped below 8,000 points albeit momentarily. All the stars seem aligned.
Newspaper reports have changed their tack quite a bit. They used to be harbinger of bad news, and only bad news - because that can be sensationalised. Nobody reports about a plane landing safely at the airport and skills of the pilot and crew should be applauded. Should one crash, it will be all over the front pages. Similarly, peaceful demonstration in Singapore is not so "newsy" compared to a few deaths at Bangkok sit-ins. Now we only read optimistic reports; few are inclined to batter the battered economy.
Last night, the Dow was waltzing close to the 8,000 mark again. It's time to take a good look at some undervalued stocks. Oh there are so many of those! I'd like to start exploring myself. Getting closer to home, the SGX hasn't been very much wayward from the Dow in typical Singapore fashion - we follow. We don't blaze a trail ourselves and be the maverick we can be.
Regardless of your opinion or mine, recession is definitely here. How the stock indices behave will just promote the perception or real condition. Recession is not near and is not mere fear. Be brave. Be very brave....
A Fresh Start
I sat up on my bed this morning with a strange feeling. Strange that my mind does not have to work, save for my early morning prayers. I am indeed thankful for this opportunity to be able to contemplate my own thing in my own time. Well, it's time to enjoy my family and for them, me. I'm not sure this enthusiasm at home will last but I certainly plan to work on it all the way. There's just so much to catch up on.
Not that life is a breeze or there is absolutely nothing to do. There are emails to clear, including those that promise a rewarding future. There are meetings to attend, including those that will well compensate me for my time. There are commitments to meet, including those words I have to keep to help a couple of friends. And there are projects that I want to start and complete, that will make mine a better soul.
Here I come world!
For all that I have, I am and I will become, I thank God for His continuous grace and unwavering faithfulness. The Lord has made my paths straight for I leaned not on my own understanding but trusted Him with all my heart and acknowledged Him all the way [Prov 3:5-6].
Not that life is a breeze or there is absolutely nothing to do. There are emails to clear, including those that promise a rewarding future. There are meetings to attend, including those that will well compensate me for my time. There are commitments to meet, including those words I have to keep to help a couple of friends. And there are projects that I want to start and complete, that will make mine a better soul.
Here I come world!
For all that I have, I am and I will become, I thank God for His continuous grace and unwavering faithfulness. The Lord has made my paths straight for I leaned not on my own understanding but trusted Him with all my heart and acknowledged Him all the way [Prov 3:5-6].
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