The Death Of Buy & Hold Strategy

We know of the stories, heck we may even know the grand uncles and grand aunties who bought and kept Public Bank, Genting, BAT, IOI Corp ... for 20 years and now has a wonderful sum to retire on. Can we still do this kind of investing now with a 10-20 year view? The answer is probably not.

What has changed? Globalisation. Globalisation of markets and the end of localised long term sustained performance. Look at the four cited companies above, it was largely a localised play, which is to mean that it can really carry on its normal business with minimal shocks outside of the country - they couldn't care less. However, if you examine their business models now, each of them has a significant regional or overseas exposure, probably with the exception of BAT (so, BAT can still buy and hold I guess).


Buy-and-hold doesn't work anymore as the game has changed. The volatility is too significant. Almost any asset can suddenly become much more risky. Buying into just a few good stocks and holding it for 10 years is no longer going to deliver the same kind of expected return that we saw over the course of the last seven decades, simply because of the nature of financial markets and how complex it's gotten.


Think of two or three stocks you would want to buy and hold for 10 years. Now assess how badly would they be susceptible to the "new risks". Examples of market risk factor exposures include the following:


liquidity risk - liquidity suddenly drying up making it inefficient to get out at a fair market price
sovereign risk - the inherent credit rating of the country, plus the way they manages their capital flows, not to mention their deficit funding per GDP, reliance on short and long term funding, leakages and other inefficient market practices, dramatic change in government and economic policies, likelihood of inciting dissension with other countries


interest rate risk - the ringgit is still lumped as part of Asia's emerging markets currency, like it or not, if one of our neighbours' currency gets whacked, we could suffer collateral damage


credit risk - as above, in particular when the country cannot borrow funds internationally unless we pay exorbitant rates


equity market risk - this is inherent but has multiplied owing to the globalisation of markets and the inter-connectedness


stock-specific risk - no matter how good your company may look now, there are inherent Black Swans within that specific stock, what if Genting Higland's local casino license is revoked, what if there is now a new product can substitute for palm oil at just 30% of the cost and presents more benefits, what if a very very big listed group in Malaysia suddenly fails and all local banks have to write down massively

You can see that the stock market game has changed. The most obvious is volatility. Imagine a big fund with $20bn in US and Europe equities, $10bn in Asia and another $10bn in South America. If a big crisis comes a calling like the subprime, the fund may suddenly face massive withdrawals, as the subprime mess is in the US, prices of stocks there may have suddenly plunged 30%. To cater for the withdrawals, they will sell down their Asia and South American portfolio even though they are doing well and have little impact from the crisis. Thats inter-connectedness.


Already, you don't even need funds to actually sell, investors everywhere are already anticipating and expecting such events, so much so that when any big crisis occurs somewhere, they will sell their local stocks before waiting to hear what the business experts and funds are going to do. Its a self fulfilling thing that rocks the markets.


You can buy and hold but must be wary and you need to be in cash in times of big uncertainty. You can always go back in at lower prices. 

Empathy Exemplified

Bitching About The Olympics

Malaysia has never won a gold medal before as I am writing this though Chong Wei will be trying to go against the odds to beat the formidable Great Wall of Lin Dan. Its surprising we have never won gold I mean WHY is squash NOT an Olympic sport but bloody Beach Volleyball is??? Malaysia, for a small population and people of medium built, and minimal support from the government, have actually done very well if you consider that we have atheletes right at the very top in games such as squash, badminton and bowling. While we are at that, why is Bowling not an Olympic sports as well???


Michael Phelps is fantastic but he is certainly not the greatest Olympian. You cannot and should not count by the number of medal you win cause the entire Games is tilted to certain sports. If you are very good in swimming or gymnastics, you could win multiple medals. You can be the very best long jumper or boxer, and you will only win ONE. Great Olympians must generate the kind of indefatigable spirit, that something special, I think I would rank Carl Lewis way above Phelps.


None of the Olympics city planning committee can budget properly. I mean, do we understand what budgeting is? The average budget over runs for the past 17 summer and winter games is 179%. I mean, the next time we do a budget for the next Olympics, YOU MUST multiply that figure by 2 so as to get to a real sense of the real figure at the end. Budgets must take into account of exigencies, if you don't know how after so many games, don't think you qualify to run and plan any games. These IOC planning committees are sooo like Malaysian GLC projects, always massive cost over runs, I can understand if it was 10%-20% variance but to be so out of the budgeted figure means you have been:
- over optimistic
- don't know how what the exigencies are
- poor adherence to budget in implementation and execution
- the knowledge that the country will always be there to pick up the extra tab


London is almost ten times the original budget at 24 billion pounds. Great financial management.

The Glorious Decadence

I have this long standing craving for Auntie Annie's Cinnamon Sugar Stix, so much that you would find me munching on a pack every time I get near one of their outlets, ... One U, Mid Valley, Bangsar Village .... Its incredibly delicious, especially if you like cinnamon sugar and pillowy fried dough. Its not good for you and its loaded with carbs and sugar, oh but it tastes so damn good. 



I don't even know why Cinnabon even bother to stay open. You see the two stalls, and there would a queue at Auntie Annie's and almost none at Cinnabon, doesn't that tell you something. Anyway, I have managed to stop eating the Cinnamon Sugar Stix for more than 6 months now, can't let myself fall into that addiction again.

Thought For The Week

IQ Test For The Deranged

Mathematical equations and symbols always look beautiful to me. Just like the women to me, great to admire but near impossible to fathom and work out. Below are some of the most important mathematical equations that changed the way we look at the world. See how many you can guess right. Assign the alphabets to the numbers. Answers tomorrow.

a) Schrodinger

b) Second law of thermodynamics

c) Black Scholes model


d) Wave equation

e) Shannon's information theory

f) Maxwell's equations (this is a freebie, note the plural)

g) Fourier's transform

1) Schrodinger's Equation  - Models matter as a wave, rather than a particle.


2) Second Law Of Thermodynamics -  Energy and heat dissipate over time. 


 3) The Wave Equation -   A differential equation that describes the behavior of waves, originally the behavior of a vibrating violin string.  


4) Shannon's Information Theory - Estimates the amount of data in a piece of code by the probabilities of its component symbols. 

5) Maxwell's Equations - Maps out the relationship between electric and magnetic fields.

6) The Fourier's Transform - Describes patterns in time as a function of frequency. 

7) Black Scholes Model -  Prices a derivative based on the assumption that it is riskless and that there is no arbitrage opportunity when it is priced correctly. 

Get 5 or 6 correctly, you should be a Phd student in maths. Get all correct, you should have an IQ above 200 or be in a mental ward. Get 3-4 right, aren't you a bombastic know it all bastard. Get 0-2 correct, hey you are normal.

The Two Most Debilitating "Neuro-Programming" In A Person

I cannot think of a better term because I am no expert. So I chose "neurological-programming". Why I chose to post on this is a long held opinion of mine on the two main "thought programming" issues affecting most people, to the extent that it limits their ability to fully self-actualise, be the great and wonderful person that they can be. None of these are scientifically proven or back tested but I am sure it resides in us in some manner or form. If we are able to negate and rationalise away them properly, we have a better chance to succeed as a person in all aspects.


The first is fate. In particular if a person is aligned closely with most religion, fate is a concept that seeps into our conciousness. I am not saying that there is no such thing as fate. The bad thing about fate is our resignation to fate. In Malay, there is a powerful word, yet debilitating so, its called "rezeki". In Islam its got a wonderful higher meaning, God's Providence. That is all well and good. It gets negative when we use the word fate/rezeki to explain our dire circumstances or under achievement as a person. 


If there is such a thing called fate, and all things are resigned to our fate, then we might as well close shop and do nothing. Some even get into the self defeating attitude that it is not holy or no use to fight against fate. I think if you are religious, they would all teach us to be the best person we can be, not one resigned to fate. 


When bad things or not so pleasant things happen to us, it is how we react and behave to those dire situations that maketh a person. I do not believe any God in any religion is there to condemn us to the worst atrocities and situations deliberately to put us there forever. It is there to test our resolve, to re-measure our worth as a person, to hone and refine our determination to be a better person all the time.


There is a big difference in accepting and appreciating your situation, and acknowledging your situation and trying to make it better. Don't wallow, don't get overly indulgent in self-pity.


The second most debilitating "neurological programming" issue is the thought that "I hope nobody finds out how average I am". Even when we secure good, well paying positions, deep inside we sometimes tell ourselves that we are not worthy, that we are really not that good at all. 


This does not affect just careers but relationships as well. Too many people have that deep seated apprehension and it affects and cloud the way they avail themselves to the rest of the world. In some cases, it can be so debilitating that they do not think they are deserving of the care, love and attention of another. 


The often quoted phrase, "love yourself first so that you can love others" has been diluted thanks to over repetition. The negative reel playing in our minds every now and then causes us to doubt ourselves over and over again. When something good happens, you dare not take it up because you fear that its all going to blow up later when they discover that you are just "average".


Its not a matter of intellect, we deserve to be as best the person we are just because ... we are. Life is too short to make a mess of it. Live well, live strong .... bloom where you are planted.