I did not intend to make this topic as a series despite I have made four posts about it already. However, since I have also written another related post regarding probability on trading and it is closely related to what I term it probability trading so it is good to supplement some more info about this idea in this post.
Every short side option trader knows that option trading boils down into three key estimations prior to position building,
1. Direction of index movement, ie., above or below the rollover point at the settlement day
2. Range of volatility and the peak and valley of the month
3. settlement point
Naturally there are also concern on position size, strike picking, time of position building and long or short which are more on the risk management and trade strategy which varies from one person to another.
In my first post I mentioned that as long as one believes the index movement is the manifestation of the combat between bearish and bullish master players so it follows a structured pattern which history will repeat in somewhat similarity. Therefore probability from the past statistic could be a good reference for the inference of the future. This is the basis of my idea of probability trading, ie., decision based on the likelihood on what things will/will not happen.
The application of probability on the above mentioned three key aspects does not share equal weighing. In fact probability shows little implication on the first aspect, ie., direction of movement, because whether the spot month index will end up higher or lower than the rollover point is indeed random and is affected by the key events happen in that month which probability data fails to predict. Having said so, statistic does reveal that for HSI when the previous month has experienced a more than 10% fall then there is a 0.78 probability that the spot month will see a higher than rollover point settlement.
Probability does it job best on the second aspect, ie., the prediction on the monthly volatility and peak/valley. Statistic shows that 0.87 probability monthly volatility is below 3000 points and 0.73 probability below 2000 points respectively in the past 18 years. Naturally how accurate the probability data for a particular month can be depends on the design of the database which I mentioned in my first post. A sophisticated database which incorporates well designed sorting parameters does reveal a reliable probability of the volatility of a month for a given pattern.
Although probability data cannot predict the exact settlement point for a particular month but just like what it does for the volatility, it can show the probability of the how many points deviation from the rollover point. For example, it is 0.05 probability that any given month the settlement is more than 1800 points above the rollover point.
In my post "is a trade worthwhile?", I raised the concept of odds and probability for the basis of whether a trade should be made at all. A well structured database can provide probability for the volatility and settlement point. The information of odds for index option trading for short side trader is even easier. Basically the profit for a short position is known when it is built. The potential loss depends on how the hedging is or what strike the protective long is put. The odds is just a simple maths.
As Charlie Munger puts it, value investing is all about looking for bets with 0.5 probability but with 3:1 odds. Through the use of database and the application of probability, index option trading can be more secured. The risk (probability of settlement beyond the strike of position) is foreseen and how much the profit is also known right at the time of position building. No more torture from the fear and greed. This is the essence of my idea of probability trading.
Good luck in trading!
2018年12月19日 星期三
2018年12月9日 星期日
Artificial Intelligence, a destructive goodie(2)
In my earlier post with the same subject I raised the concern on AI from the perspective of common folks. Not long ago I came across an article from a knowledgeable scholar on the topic on whether AI and robots can overtake human being. Contrary to my view, he is quite optimistic that AI will not surpass human despite of the former's ever expanding capability. His argument is that AI is silicon based while life on earth, in all forms including human's, is carbon based. While carbon based life has evolved into a stage that it has so many complexity of senses and feelings but AI even cannot perceive the feeling of hurt, so AI does not has the mental capacity like sensation, emotions and imagination that are needed to develop into the higher form of intelligence just like what human being has, let alone the development of self-consciousness that could turn out to be rivalry against human being.
In his view, even if silicon based AI can be evolved into life but it will be of no match with the carbon based life. His argument is that the existence of the millions species of carbon based life on earth now is the evidence that it is the best manifestation of natural selection should there ever had been any life-forming competition between the two chemical elements. That scholar is one of the respected persons in my life but I can't agree with him on this aspect.
Carbon based life is no doubt flourishing on this planet now but if we view the history on earth and also that of the universe, a million or even billion years is not more than just a blink of an eye. Dinosaur has once ruled the planet for 180 millions year but it is human being which is in control now. Considering the shear size of dinosaur, they would not think, if they ever did, this tiny primate can make such an achievement. Existing dominance might not and most probably cannot persist forever when the time line is long enough.
AI is still in its very infancy. Although we have seen much progress on its development but it is just like an embryo comparing to a fully grown adult if we put it to the metaphor of silicon based life to carbon based life. I am not sure whether AI will finally develop to has senses resemble to that of human's but I am pretty sure when AI's self learning runs long enough it will eventually has the awareness of self-consciousness. It is just like the process that a baby's brain will go through.
When AI is aware of self and external then it will unavoidably start thinking of the well-being of self. Silicon based life is then at the brink of emergence, cogito ergo sum (I think, therefore I am), if this philosophy applies. When there is life in a bacteria which does not think at all then we just cannot deny it is not life when silicon based AI can really think but not just playing algorithm. Naturally this form of life is quite different from that of the counterpart especially the way of reproduction.
I would say the relationship between the carbon-based life and the coming silicon based life is that the former develops a platform for the emergence of the latter. The essence of the existence of silicon based life is electricity. Without it no computer can ever run. Electricity was discovered not more than two centuries ago and it is human being ,ie carbon based life whom invented it. It is also human being who invented and nurtures AI to become a monster. Some may say AI is still under the control of human's hands but is it? Image one day Google, banking system, transport system, telecommunication system do not work simply we try to disconnect AI then what type of living will it become? Let alone AI at this stage is only in its primitive application. Can someone image how AI affects human's living 50 years or a century later? It is not difficult to think who is going to control whom.
The fact and reality are that it is a path of no return when the box of Pandora was opened. Human will rely on AI more than ever in the future. The point is that at certain point the race between carbon based life and silicon based life will become unequaled. The information processing capability of silicon based life is much much much much way stronger than its counterpart and unfortunately we are on the info/data highway which we build on our own. On the other hand, most of the human's knowledge and experiences vanish after death but AI is immortal and it learns and evolves in much faster rate than that of human's. Human replaced dinosaur to be the ruler of the world and then our civilization is replaced by that of the AI's whom dwarfs us because of the limitation on the design and structure of carbon based. It is just about evolution of history, in term of light year.
Our existence is for the preparation and to give rise to AI civilization. Human discovered electricity that flourishes us and it is just electricity undoing us.
In his view, even if silicon based AI can be evolved into life but it will be of no match with the carbon based life. His argument is that the existence of the millions species of carbon based life on earth now is the evidence that it is the best manifestation of natural selection should there ever had been any life-forming competition between the two chemical elements. That scholar is one of the respected persons in my life but I can't agree with him on this aspect.
Carbon based life is no doubt flourishing on this planet now but if we view the history on earth and also that of the universe, a million or even billion years is not more than just a blink of an eye. Dinosaur has once ruled the planet for 180 millions year but it is human being which is in control now. Considering the shear size of dinosaur, they would not think, if they ever did, this tiny primate can make such an achievement. Existing dominance might not and most probably cannot persist forever when the time line is long enough.
AI is still in its very infancy. Although we have seen much progress on its development but it is just like an embryo comparing to a fully grown adult if we put it to the metaphor of silicon based life to carbon based life. I am not sure whether AI will finally develop to has senses resemble to that of human's but I am pretty sure when AI's self learning runs long enough it will eventually has the awareness of self-consciousness. It is just like the process that a baby's brain will go through.
When AI is aware of self and external then it will unavoidably start thinking of the well-being of self. Silicon based life is then at the brink of emergence, cogito ergo sum (I think, therefore I am), if this philosophy applies. When there is life in a bacteria which does not think at all then we just cannot deny it is not life when silicon based AI can really think but not just playing algorithm. Naturally this form of life is quite different from that of the counterpart especially the way of reproduction.
I would say the relationship between the carbon-based life and the coming silicon based life is that the former develops a platform for the emergence of the latter. The essence of the existence of silicon based life is electricity. Without it no computer can ever run. Electricity was discovered not more than two centuries ago and it is human being ,ie carbon based life whom invented it. It is also human being who invented and nurtures AI to become a monster. Some may say AI is still under the control of human's hands but is it? Image one day Google, banking system, transport system, telecommunication system do not work simply we try to disconnect AI then what type of living will it become? Let alone AI at this stage is only in its primitive application. Can someone image how AI affects human's living 50 years or a century later? It is not difficult to think who is going to control whom.
The fact and reality are that it is a path of no return when the box of Pandora was opened. Human will rely on AI more than ever in the future. The point is that at certain point the race between carbon based life and silicon based life will become unequaled. The information processing capability of silicon based life is much much much much way stronger than its counterpart and unfortunately we are on the info/data highway which we build on our own. On the other hand, most of the human's knowledge and experiences vanish after death but AI is immortal and it learns and evolves in much faster rate than that of human's. Human replaced dinosaur to be the ruler of the world and then our civilization is replaced by that of the AI's whom dwarfs us because of the limitation on the design and structure of carbon based. It is just about evolution of history, in term of light year.
Our existence is for the preparation and to give rise to AI civilization. Human discovered electricity that flourishes us and it is just electricity undoing us.
2018年12月7日 星期五
Cornered
Soon after the long awaited meeting between the leaders of the U.S. and China after the G20 summit, there came the news that the CFO of Huawei, China's leading telecom equipment and services provider, was detained in Canada under the request of the U.S. and then many countries like Australia, Japan and New Zealand, following the U.S., have announced blocking on the purchase from Huawei. Apparently this is a concerted action among these countries and the purpose is also obvious. As mentioned in my first post about the trade war between China and the U.S. in this July that trade conflict is merely an excuse but the underlying issue lies on the combat on the global affairs leadership between the two nations.
This Huawei incident is for sure another battle in fighting for the say on the 5G telecommunication standard between the two countries so it is very clear why the U.S. prohibits the purchase on Huawei's equipments for any governmental agencies but why Australia, New Zealand and Japan follow suit? Indeed Europe, led by Germany, is also about to pull the welcome mat out from China's telecom companies. These countries are no match with China's strength on this aspect anyway so it appears to be weird. Some may suspect they are pressurized by the U.S. but except Japan, it is unlikely that these countries followed suit just because of the U.S.'s pressure. There must be some other reasons behind the concerted action.
The reason announced about the blockage is for the concern on national security so despite no explicit allegation on spying through the telecom equipment from China's companies but it was spoken between the lines. Apparently for outsiders it is only a Rashomon and China naturally denies. In fact unless either side can produce obvious evidence on their claims it will remain rashomon and the truth is not really the key issue. Anyone who has read some elementary psychology book know the concept of perception is truth. You are if I perceive you are no matter whether or not are you. This perspective holds true in international affairs as well. Despite of its open door policy 40 years ago till now, China remains suspicious to the West. After the collapse of the USSR she is the only communist country in the world that can post threat to the counterpart western world when Russia has already departed from the camp.
China's economic success made in the past 40 years is out of question a legend in human's history. The transformation from a laid back farming country to a manufacturing giant in such a short period has surprised the world. Her dark side is that she remains an authoritarian nation despite of her economic triumph. It is the main hindrance for China integrating into the world's main stream. Some Chinese die hard communism fans may still be suffered from the delusional disorder that the western world's wish to conquer us has never died so there is a resistant mindset against the modern mainstream values deep inside their subconsciousness. It is this kind of mentality that stops China having friend in the international community. Germany and Japan were once enemies to the U.S. but now they are allies. Many European countries had wars among each others for centuries but now they formed the EU. Why only China has got no true ally and is it the reason why she is cornered now? It is a billion dollars question.
Ideology is still a barrage and the East has never met the West.
This Huawei incident is for sure another battle in fighting for the say on the 5G telecommunication standard between the two countries so it is very clear why the U.S. prohibits the purchase on Huawei's equipments for any governmental agencies but why Australia, New Zealand and Japan follow suit? Indeed Europe, led by Germany, is also about to pull the welcome mat out from China's telecom companies. These countries are no match with China's strength on this aspect anyway so it appears to be weird. Some may suspect they are pressurized by the U.S. but except Japan, it is unlikely that these countries followed suit just because of the U.S.'s pressure. There must be some other reasons behind the concerted action.
The reason announced about the blockage is for the concern on national security so despite no explicit allegation on spying through the telecom equipment from China's companies but it was spoken between the lines. Apparently for outsiders it is only a Rashomon and China naturally denies. In fact unless either side can produce obvious evidence on their claims it will remain rashomon and the truth is not really the key issue. Anyone who has read some elementary psychology book know the concept of perception is truth. You are if I perceive you are no matter whether or not are you. This perspective holds true in international affairs as well. Despite of its open door policy 40 years ago till now, China remains suspicious to the West. After the collapse of the USSR she is the only communist country in the world that can post threat to the counterpart western world when Russia has already departed from the camp.
China's economic success made in the past 40 years is out of question a legend in human's history. The transformation from a laid back farming country to a manufacturing giant in such a short period has surprised the world. Her dark side is that she remains an authoritarian nation despite of her economic triumph. It is the main hindrance for China integrating into the world's main stream. Some Chinese die hard communism fans may still be suffered from the delusional disorder that the western world's wish to conquer us has never died so there is a resistant mindset against the modern mainstream values deep inside their subconsciousness. It is this kind of mentality that stops China having friend in the international community. Germany and Japan were once enemies to the U.S. but now they are allies. Many European countries had wars among each others for centuries but now they formed the EU. Why only China has got no true ally and is it the reason why she is cornered now? It is a billion dollars question.
Ideology is still a barrage and the East has never met the West.
2018年12月3日 星期一
Is a trade worthwhile?
A money gamer is constantly swinging between fear and greed. Greed is the primary drive for making a trade while fear always tortures the trader after making the trade especially when leverage is involved. As greed, ie., the desire to making profit, is the motivation of the trade while the fear comes from a loss resulting from that trade. After all, it is all about risk management.
There are many aspects in terms of risk management like the evaluation on macro economic situation eyes on the interest rate development, world economy and the fundamentals involving the outlook of the related asset or down to the trading strategy like the entry price, size of position, gearing and hedging etc. All these things are meant to deal with how a trade is executed. However, the most important point is still not yet addressed. It is whether or not the trade is worthwhile at all or should the trade be made at all.
There are some articles addressing how worthwhile a trade is by the concept of expected value (EV). Simply speaking, EV= (Probability of Gain) x (Take Profit Gain) ] + [ (Probability of Loss) x (Stop Loss Loss). According to those articles, higher the value better the trade is. However, it seems EV is good in comparing two or more alternatives of trade yet it still has not addressed to the point whether the trade is worthwhile or not unless the result is negative. To explain, below are two EVs with similar value but quite different scenario of winning/losing probability and the amount of gain/loss.
EV1=(0.1*$1000)+(0.9*-$10)=91.9
EV2=(0.9*$213)+(0.1*-$1000)=91.8
The two EVs are in similar value but do they give the punter similar risk and return? Apparently no! The scenario in EV1 resembles betting in lottery while EV2, as a local vivid metaphor puts it, win a candy but lose a factory (贏粒糖輸間廠). In EV1, the chance to win is slim (0.1 prob) but the reward is $1000 while a very high chance (0.9 prob) to lose but the loss is $10 only. The opposite is the EV2, despite of a high chance (0.9 prob) of winning however the reward is only $213 but as long as it loses then the loss is $1000 despite there is only 0.1 probability. In EV1, one risks his $10 to bet on a potential return of $1000 while in EV2 one is risking to lose $1000 in the hope to win $213 yet the EV value for the two cases are almost the same. Perhaps there is argument on the probability of the winning and losing in the two equations.
Probability is only the summary of the history of how likely the happening of something based on past record while history will not necessarily repeat in the future in the exact same fashion as it was in the past for a particular event. 0.1 probability of losing in EV2 means statistically there was one failure out from the 10 occasions in the past but it does not mean there must be one failure in every 10 occasions. For example 10 failures could scatter randomly throughout 100 occasions. There could be 2 failures in the first 10 occasions but none in the next 10 occasions yet the probability is still 0.1. If the failure just happened to fall onto the one the punter places his betting, so sad then. One must remember probability is good for the long run but absolutely not effective as what it suggests in any one particular occasion. Apart from this nature of probability but there is also black swan that makes probability is not so effective in term of reliability.
While it is good to win the jackpot in the lottery but we must avoid the scenario of winning a candy but to lose a factory when in failure. So when evaluating a trade(or a bet), the odds probably should be reviewed first. In EV1, the odds is 1000:10 while it is 213:1000 for EV2 or 100 vs 0.213 respectively. Judging from the odds alone then apparently EV1 is more favourable but there is only 10% chance to win the $1000 and 90% chance losing $10 in EV1 while it is 90% chance winning $213 and 10% chance losing $1000 in EV2. So what are the justified odds for these two sets of probabilities?
The formula to obtain odds from probability is O=1/(1-P) so the justified odds are 10 and 1.11 for EV1 and EV2 respectively. By comparing the offered odds of 100 and 0.213 for the two scenarios so it is clear that the trade(or bet) of wagering $10 in the hope of winning $1000 with just 0.1 probability is still a good deal and thus worthwhile. Simply speaking, only when the offered odds is greater than that derived from the winning probability then the trade (or bet) is worthwhile. In fact this is the underlying principle of value investing as remarked by Charlie Munger that value investing is looking for a bet with 0.5 winning probability but odds at 3:1 and hoping to find this misquoted odds. I think many of the so-called value investors do not even know this principle so resorting in nagging at the intrinsic value of a stock.
By considering the odds and probability altogether perhaps can give a better evaluation on how worthwhile a trade(or bet) is than can the Expected Value.
There are many aspects in terms of risk management like the evaluation on macro economic situation eyes on the interest rate development, world economy and the fundamentals involving the outlook of the related asset or down to the trading strategy like the entry price, size of position, gearing and hedging etc. All these things are meant to deal with how a trade is executed. However, the most important point is still not yet addressed. It is whether or not the trade is worthwhile at all or should the trade be made at all.
There are some articles addressing how worthwhile a trade is by the concept of expected value (EV). Simply speaking, EV= (Probability of Gain) x (Take Profit Gain) ] + [ (Probability of Loss) x (Stop Loss Loss). According to those articles, higher the value better the trade is. However, it seems EV is good in comparing two or more alternatives of trade yet it still has not addressed to the point whether the trade is worthwhile or not unless the result is negative. To explain, below are two EVs with similar value but quite different scenario of winning/losing probability and the amount of gain/loss.
EV1=(0.1*$1000)+(0.9*-$10)=91.9
EV2=(0.9*$213)+(0.1*-$1000)=91.8
The two EVs are in similar value but do they give the punter similar risk and return? Apparently no! The scenario in EV1 resembles betting in lottery while EV2, as a local vivid metaphor puts it, win a candy but lose a factory (贏粒糖輸間廠). In EV1, the chance to win is slim (0.1 prob) but the reward is $1000 while a very high chance (0.9 prob) to lose but the loss is $10 only. The opposite is the EV2, despite of a high chance (0.9 prob) of winning however the reward is only $213 but as long as it loses then the loss is $1000 despite there is only 0.1 probability. In EV1, one risks his $10 to bet on a potential return of $1000 while in EV2 one is risking to lose $1000 in the hope to win $213 yet the EV value for the two cases are almost the same. Perhaps there is argument on the probability of the winning and losing in the two equations.
Probability is only the summary of the history of how likely the happening of something based on past record while history will not necessarily repeat in the future in the exact same fashion as it was in the past for a particular event. 0.1 probability of losing in EV2 means statistically there was one failure out from the 10 occasions in the past but it does not mean there must be one failure in every 10 occasions. For example 10 failures could scatter randomly throughout 100 occasions. There could be 2 failures in the first 10 occasions but none in the next 10 occasions yet the probability is still 0.1. If the failure just happened to fall onto the one the punter places his betting, so sad then. One must remember probability is good for the long run but absolutely not effective as what it suggests in any one particular occasion. Apart from this nature of probability but there is also black swan that makes probability is not so effective in term of reliability.
While it is good to win the jackpot in the lottery but we must avoid the scenario of winning a candy but to lose a factory when in failure. So when evaluating a trade(or a bet), the odds probably should be reviewed first. In EV1, the odds is 1000:10 while it is 213:1000 for EV2 or 100 vs 0.213 respectively. Judging from the odds alone then apparently EV1 is more favourable but there is only 10% chance to win the $1000 and 90% chance losing $10 in EV1 while it is 90% chance winning $213 and 10% chance losing $1000 in EV2. So what are the justified odds for these two sets of probabilities?
The formula to obtain odds from probability is O=1/(1-P) so the justified odds are 10 and 1.11 for EV1 and EV2 respectively. By comparing the offered odds of 100 and 0.213 for the two scenarios so it is clear that the trade(or bet) of wagering $10 in the hope of winning $1000 with just 0.1 probability is still a good deal and thus worthwhile. Simply speaking, only when the offered odds is greater than that derived from the winning probability then the trade (or bet) is worthwhile. In fact this is the underlying principle of value investing as remarked by Charlie Munger that value investing is looking for a bet with 0.5 winning probability but odds at 3:1 and hoping to find this misquoted odds. I think many of the so-called value investors do not even know this principle so resorting in nagging at the intrinsic value of a stock.
By considering the odds and probability altogether perhaps can give a better evaluation on how worthwhile a trade(or bet) is than can the Expected Value.
2018年11月19日 星期一
Hemophilic value investors
It is not meant to be an offense to value investors in the first place despite of the topic. If you happen to be an value investor then perhaps you may agree on my point after reading my post later on.
Although I am not a fan of value investing but as I mentioned in my earlier post that I do like some of the concepts advocated by value investing. One of the them is that (be greedy) to buy when the public is in fear. It is also because of this concept that I came up the subject of this post. Usually when people faces catastrophe then they will fall in fear. For investors to be in fear there must be something really bad happened. It could be a super natural disaster just like when tsunami hit Japan in 2011 or a financial catastrophe like the subprime mortgage incident in 2008. SARS outbreak in Hong Kong in 2003 is still an unforgettable scene. Naturally large scale terrorist attack like the 9.11 in 2001 also brought fear to the public. Let alone if there is trace of military confrontation between nuclear nations.
No matter what the nature of the incidents are, be it political, financial or natural, all these incidents brought huge damage to the people affected. The damages could be big economic losses or even a long death toll. However, this is the moment that the public is in fear and this is the moment that gives value investors a very good chance to buy in stocks, at price well below intrinsic value. So this is exactly the moment value investors are waiting, if not longing, for.
Maybe most of the value investors are peace-loving guys. However, on the other hand they know well that the golden chance that they can buy stocks at well below intrinsic value is the moment when the market is in panic which leads to irrational sell off. They may argue that their golden chance is just the outcome of someone's mistake to sell stocks at wrong price and in wrong timing. They should buy instead of selling. Their argument sounds perfectly reasonable. True is it value investors do not press the panic sellers to do irrational sell off. They just grab the chance when it arises. Nor do they cause the catastrophe that drives the public panic as well. They are just patiently waiting for catastrophe and expecting someones to make mistake. However, let's be frank value investors, while you guys are waiting didn't you ever have the thought that how nice it will be if there is a chance to let me buy my favourite stocks at price below their intrinsic value? Have you never thought that what makes that moment to come? Come on, you know well what it means when you can successfully achieve your target. Yet, you are expecting that moment. So ain't you deserve the description of the title of this post?
Don't worry, I am not blaming you. I am with you. We are just two of a kind!
Although I am not a fan of value investing but as I mentioned in my earlier post that I do like some of the concepts advocated by value investing. One of the them is that (be greedy) to buy when the public is in fear. It is also because of this concept that I came up the subject of this post. Usually when people faces catastrophe then they will fall in fear. For investors to be in fear there must be something really bad happened. It could be a super natural disaster just like when tsunami hit Japan in 2011 or a financial catastrophe like the subprime mortgage incident in 2008. SARS outbreak in Hong Kong in 2003 is still an unforgettable scene. Naturally large scale terrorist attack like the 9.11 in 2001 also brought fear to the public. Let alone if there is trace of military confrontation between nuclear nations.
No matter what the nature of the incidents are, be it political, financial or natural, all these incidents brought huge damage to the people affected. The damages could be big economic losses or even a long death toll. However, this is the moment that the public is in fear and this is the moment that gives value investors a very good chance to buy in stocks, at price well below intrinsic value. So this is exactly the moment value investors are waiting, if not longing, for.
Maybe most of the value investors are peace-loving guys. However, on the other hand they know well that the golden chance that they can buy stocks at well below intrinsic value is the moment when the market is in panic which leads to irrational sell off. They may argue that their golden chance is just the outcome of someone's mistake to sell stocks at wrong price and in wrong timing. They should buy instead of selling. Their argument sounds perfectly reasonable. True is it value investors do not press the panic sellers to do irrational sell off. They just grab the chance when it arises. Nor do they cause the catastrophe that drives the public panic as well. They are just patiently waiting for catastrophe and expecting someones to make mistake. However, let's be frank value investors, while you guys are waiting didn't you ever have the thought that how nice it will be if there is a chance to let me buy my favourite stocks at price below their intrinsic value? Have you never thought that what makes that moment to come? Come on, you know well what it means when you can successfully achieve your target. Yet, you are expecting that moment. So ain't you deserve the description of the title of this post?
Don't worry, I am not blaming you. I am with you. We are just two of a kind!
2018年11月8日 星期四
Be a little compassionate to Chinese corrupted officials
Not long ago there came a news about the death of a Chinese official whom committed suicide in Xinjiang, China. This was the second one within these couple of weeks following the case of the chief in the China Liaison Office in Macao. it is widely believed they were under investigation on corruption. These two men were not junior officials so their death were made known in the news. However there should have been some more cases in the lower ranking ones without our knowledge. Being government officials in China is a rather risky business.
Apart from having to end their own lives, the danger of being government officials was that there were even more Chinese government officials put behind bars due to the crimes of corruption or the related ones especially after Xi came into power. While the public welcome the crack down on the corrupted official gangs, this move became a nightmare of the officials within the opposition camp against Xi. They are under the risk of being eradicated from their current positions in the name of anti-corruption campaign. After all, the accusation is literally applicable to everyone in the government. Which official dares to say he/she is free from such practice through his/her way up in the ranking promotion? Higher the ranking greater the engagement would be, actively or passively.
When it is a norm that everyone must comply in order to survive in the muddy water. Who can escape anyway? This was fine when the power balance was in equilibrium state that everybody knows whom used to has some dirty business so nobody would uncover it for the sake of mutual safety. However storm began when one side gained the dominance in power and decided to eradicate the opposition. No more calm days since then.
People usually blame how evil the corrupted officials are when their cases were brought to the court hearing. Naturally people think these corrupted officials deserve their sentences. True is it that they have committed crime in the first place so they deserve penalty. However, considering that corruption is indeed institutional and a connate flaw due to the nature of mono-party ruling. As Lord Acton puts it "power corrupts and absolute power corrupts absolutely". Are theses officials really the ones to be blamed?
Just imagine when the officials were still in small potatoes, giving bribe is the only way to get promoted as that is the norm if they want to survive. When they get to the middle level ranking, naturally bribe will find its way to these officials when the junior follow these middle ranking's foot step while the latter also need money to buy their further way up. On the other hand, a probity officials is deemed to be a threat by those whom are not. Bad money drives out good. It developed into a vicious cycle that no one in the ruling party can be exempted.
What makes the cycle more severe is that due to the ferocious power struggle within the party, the officials do not know how much longer they can remain in office even if they are in power today. Perhaps next morning when they wake up they will find that people from the central investigation bureau is knocking their doors. These guys are really on edge and that prompts them to extort as much money as they can while they are still in power. It is because when the judgment day comes, they will not only lose their office but perhaps their lives as well. Their suicides are for the sake of closing the file to avoid expanded investigation on their families and the other officials. They are indeed engaging in a dangerous game that could cost them their lives. In the human resources field there is a term "compensation" used to describe it as the total package that one can get for performing a job. So isn't fair enough for the Chinese officials be "a little" greedy on the compensation for the danger in their jobs?
Please show a little mercy to the Chinese corrupted officials. After all they will probably pay the price with their lives. Amen.
Apart from having to end their own lives, the danger of being government officials was that there were even more Chinese government officials put behind bars due to the crimes of corruption or the related ones especially after Xi came into power. While the public welcome the crack down on the corrupted official gangs, this move became a nightmare of the officials within the opposition camp against Xi. They are under the risk of being eradicated from their current positions in the name of anti-corruption campaign. After all, the accusation is literally applicable to everyone in the government. Which official dares to say he/she is free from such practice through his/her way up in the ranking promotion? Higher the ranking greater the engagement would be, actively or passively.
When it is a norm that everyone must comply in order to survive in the muddy water. Who can escape anyway? This was fine when the power balance was in equilibrium state that everybody knows whom used to has some dirty business so nobody would uncover it for the sake of mutual safety. However storm began when one side gained the dominance in power and decided to eradicate the opposition. No more calm days since then.
People usually blame how evil the corrupted officials are when their cases were brought to the court hearing. Naturally people think these corrupted officials deserve their sentences. True is it that they have committed crime in the first place so they deserve penalty. However, considering that corruption is indeed institutional and a connate flaw due to the nature of mono-party ruling. As Lord Acton puts it "power corrupts and absolute power corrupts absolutely". Are theses officials really the ones to be blamed?
Just imagine when the officials were still in small potatoes, giving bribe is the only way to get promoted as that is the norm if they want to survive. When they get to the middle level ranking, naturally bribe will find its way to these officials when the junior follow these middle ranking's foot step while the latter also need money to buy their further way up. On the other hand, a probity officials is deemed to be a threat by those whom are not. Bad money drives out good. It developed into a vicious cycle that no one in the ruling party can be exempted.
What makes the cycle more severe is that due to the ferocious power struggle within the party, the officials do not know how much longer they can remain in office even if they are in power today. Perhaps next morning when they wake up they will find that people from the central investigation bureau is knocking their doors. These guys are really on edge and that prompts them to extort as much money as they can while they are still in power. It is because when the judgment day comes, they will not only lose their office but perhaps their lives as well. Their suicides are for the sake of closing the file to avoid expanded investigation on their families and the other officials. They are indeed engaging in a dangerous game that could cost them their lives. In the human resources field there is a term "compensation" used to describe it as the total package that one can get for performing a job. So isn't fair enough for the Chinese officials be "a little" greedy on the compensation for the danger in their jobs?
Please show a little mercy to the Chinese corrupted officials. After all they will probably pay the price with their lives. Amen.
2018年11月1日 星期四
Stock picking made easy
The HSI has fallen more than 10% in last Oct and despite today it has risen 400+ points but it is still far from the bottom yet because there is no blood in the street. One very good indicator I use very often is to listen to the radio programmes featured with stock commentators. When there are still many housewives like or old aunties like audiences phoning in asking if it is good timing to buy then the bottom is most likely yet to come.
Despite I am not a fan of value investing but I do like the idea of margin of safety and to buy when the general masses is panic. Apparently this is not the timing to buy yet when considering these two criteria. Perhaps it is good time to do homework now. Homework on what to buy when the right timing comes.
Apart from the above two ideas, in fact I also like the fundamental analysis of value investing like economic franchise and economic moat. However, the key point lies on that in reality not many stocks in the world truly meet all the traits that described by these criteria. On the other hand, it is also very time consuming to scrutinize each and every stock with these criteria considering we are not professional stock analysts whom are paid to do such job. So a faster yet effective way in stock picking is sought after especially for amateurs.
Before I move on further on the stock picking make easy, perhaps making clear what sort of stocks I am looking for is crucial because the targeted type of stock could has an impact on the way to pick stocks. I am in particular obsession in income type of stocks because they provide income stream that gives me bread and butter. So primarily my ideal stocks have to be with relative high dividend yield like above 5%. This is the primary criteria of stocks to be shortlisted in the radar. Having said 5% dividend yield is the primary criteria means this is not the essential requirement of my ideal stocks but this is the least only.
Having screened a pool of candidates but there is still a lot of work if they are to be scrutinized according to the fundamental analysis criteria so this is the time my made easy version of stock picking comes in play. Actually this made easy methodology is just the reversion of the normal screening process. In traditional screening process, candidate stocks are filtered through sets of criteria then see which ones meet the requirements layer by layer and at the end of the day narrows down to a few winners that fully meet the requirements. So the reversion is that I do not start from a pool of candidates but just set up my two must-meet requirements then to see which stocks can match with them.
Apart from the 5% dividend yield, one thing I do request is that the stock price maintains a steady growth over a long period, say at least 15 years. The remaining requirement is that the absolute amount of dividend paid out also exhibits a steady growth along the period. The rationale behind is that I assume a stock that with a steady price growth and with the ability to give out a steady growing dividend at the same time over a very long extended period is actually the manifestation of the fulfillment of the requirements of being a good stock that laid down by economic franchise and economic moat. When we require a stock with economic franchise, economic moat, ROE, honest and capable management....etc are actually the means only. The end is what we really want and the bottom line is while we can gain from price appreciation and also be benefited from the dividend income. This is the end we are looking for. People spend much time on the screening process but at the end of day they are just looking for stocks with these two attributes. So just make it simple, stupid. Just start from the end to look for our beauties and why waste time on doing the back-breaking and time consuming screening process?
I also hold the believe that it is easy for a stock to pretend to be performing for two three years, or even five years but it is literally impossible to cheat over 15, 20 or even more years consecutively. When the stock price grew steadily and consecutively over 20 years, it is the recognition from Mr. Market whom could be wrong in a given time period but he is always right in the long run. While giving out growing dividend steadily and consistently over 20 years is the prove that the company has been doing its business very well thus it is in financial good shape to reward its shareholders continuously. Having said so constant review on such stocks is still needed to ensure they are moving on the right track as what they did.
My idea is that buying such stocks resembles buying a rental property. At one end you want the property price goes up and on the other other hand you also want the rental income can increase every year. It is just as simple as this. It is not scientific nor serious enough but it is just good enough.
Simple, stupid but works.
Despite I am not a fan of value investing but I do like the idea of margin of safety and to buy when the general masses is panic. Apparently this is not the timing to buy yet when considering these two criteria. Perhaps it is good time to do homework now. Homework on what to buy when the right timing comes.
Apart from the above two ideas, in fact I also like the fundamental analysis of value investing like economic franchise and economic moat. However, the key point lies on that in reality not many stocks in the world truly meet all the traits that described by these criteria. On the other hand, it is also very time consuming to scrutinize each and every stock with these criteria considering we are not professional stock analysts whom are paid to do such job. So a faster yet effective way in stock picking is sought after especially for amateurs.
Before I move on further on the stock picking make easy, perhaps making clear what sort of stocks I am looking for is crucial because the targeted type of stock could has an impact on the way to pick stocks. I am in particular obsession in income type of stocks because they provide income stream that gives me bread and butter. So primarily my ideal stocks have to be with relative high dividend yield like above 5%. This is the primary criteria of stocks to be shortlisted in the radar. Having said 5% dividend yield is the primary criteria means this is not the essential requirement of my ideal stocks but this is the least only.
Having screened a pool of candidates but there is still a lot of work if they are to be scrutinized according to the fundamental analysis criteria so this is the time my made easy version of stock picking comes in play. Actually this made easy methodology is just the reversion of the normal screening process. In traditional screening process, candidate stocks are filtered through sets of criteria then see which ones meet the requirements layer by layer and at the end of the day narrows down to a few winners that fully meet the requirements. So the reversion is that I do not start from a pool of candidates but just set up my two must-meet requirements then to see which stocks can match with them.
Apart from the 5% dividend yield, one thing I do request is that the stock price maintains a steady growth over a long period, say at least 15 years. The remaining requirement is that the absolute amount of dividend paid out also exhibits a steady growth along the period. The rationale behind is that I assume a stock that with a steady price growth and with the ability to give out a steady growing dividend at the same time over a very long extended period is actually the manifestation of the fulfillment of the requirements of being a good stock that laid down by economic franchise and economic moat. When we require a stock with economic franchise, economic moat, ROE, honest and capable management....etc are actually the means only. The end is what we really want and the bottom line is while we can gain from price appreciation and also be benefited from the dividend income. This is the end we are looking for. People spend much time on the screening process but at the end of day they are just looking for stocks with these two attributes. So just make it simple, stupid. Just start from the end to look for our beauties and why waste time on doing the back-breaking and time consuming screening process?
I also hold the believe that it is easy for a stock to pretend to be performing for two three years, or even five years but it is literally impossible to cheat over 15, 20 or even more years consecutively. When the stock price grew steadily and consecutively over 20 years, it is the recognition from Mr. Market whom could be wrong in a given time period but he is always right in the long run. While giving out growing dividend steadily and consistently over 20 years is the prove that the company has been doing its business very well thus it is in financial good shape to reward its shareholders continuously. Having said so constant review on such stocks is still needed to ensure they are moving on the right track as what they did.
My idea is that buying such stocks resembles buying a rental property. At one end you want the property price goes up and on the other other hand you also want the rental income can increase every year. It is just as simple as this. It is not scientific nor serious enough but it is just good enough.
Simple, stupid but works.
2018年10月20日 星期六
Trade war, again? come on!
I first wrote about this topic three months ago saying trade war is merely an excuse which at that time almost none of the local commentators talked about it. They all focused on the what they saw as bullying from the U.S. side on China's export and the right of free trade. I just saw the so-called trade war just a deterrence on China's uprising thus becoming a threat to the U.S. and this view has gained more and more popularity from the local commentators now.
Yet the concern on the trade war is still brewing. People started to understand it actually has nothing to do with trade imbalance between the U.S. and China. It is just about the perceived threat from China by the U.S. and it has always been a U.S. culture to beat the challengers at their infancy and it is just part of the extension of western cowboys' character. There is no right or wrong on this mentality as it depends on one's stance. Obviously and naturally American and Chinese nationals hold different views upon the issue.
In fact it is just quite natural for America to treat China in the way it is now. America just needs an enemy! An enemy that pulls the country together. It is about America's history and its gene. Long before America's independence, the then European migrants fought with the British Empire to get rid of the control from the latter. After its independence, America has a long term plan to replace the Empire to be the number one because the former was still suffered from the global trading system that was established and controlled by the latter. There has been a long time the newly born America was struggling for survival as it was suffocated by such trading system. At that time the U.K. was really an empire, on which the sun never set. With its strong naval force and its cluster of colonies, the U.K. dominated the global trading and the Sterling Pound was the only acceptable currency.
Not until the WWI the young eagle found its opportunity and it was WWII that America finally forged its status of global leader. Prior to that the U.K. has been America's "enemy" for almost two centuries but it was WWII that made America succeeded to replace it. The Kingdom was badly hit during the WWII due to a couple of reasons. Before the WWII the U.K. was benefited from its dominance of the global trading system and earned a huge wealth from it. Manufacturing industries were just too back-breaking comparing to the easy money from trading. Many of the Kingdom's manufacturing function has shifted overseas so when WWII started to damage its homeland the Kingdom just did not has enough manufacturing capacity to cope with the military demand. The America was the only country not affected by the War yet has the ability to provide weapon. As such the Kingdom's wealth was drained much to the America. There was a conspiracy that Hitler was actually financed by the American bankers to defeat the U.K. Be it true or not, the America did replace the Kingdom!
Soon after the WWII, America found its new enemy, the USSR thus leading to the Cold War. With the collapse of the USSR the America virtually has no compatible rival and it enjoyed the dominance on global affairs for decades. Backed with its military superiority and the U.S. dollar empire, the America is literally ruling the world. However the uprising of China changes the scenario a little bit. With Xi's advocate on the Industrial 2025 in high profile, the U.S. just cannot tolerate the challenge from China as it knows well this was the way how it came all the way through to where it is now.
For decades China has practiced Deng's National Policy to develop the nation in low profile but Xi, in order to fortify his status in the Party, changed it somehow. It is yet to say if it is a wise move but judging from the U.S.'s reaction, it is determined to curb this threat. In fact China's recent rise would not has succeeded without the blessing from the U.S. over the past decades. Despite it seems China is getting stronger now and seems to be rich in opportunities over there, it is far too early be capable to piss off the giant yet. China should really learn from the lesson which Japan has had for the price of "Japan can say no". Naturally China is different from Japan whom does not has the last resort that the former has, ie., nuclear weapon and a huge population. Take a look of how troublesome the Europe is with the Syrian refugees. It could bring a big trouble to the world if China release just a fraction of its 1.4 billion population should the U.S. dare to destroy China's economy.
China knows this trump card well when playing with Trump!
Yet the concern on the trade war is still brewing. People started to understand it actually has nothing to do with trade imbalance between the U.S. and China. It is just about the perceived threat from China by the U.S. and it has always been a U.S. culture to beat the challengers at their infancy and it is just part of the extension of western cowboys' character. There is no right or wrong on this mentality as it depends on one's stance. Obviously and naturally American and Chinese nationals hold different views upon the issue.
In fact it is just quite natural for America to treat China in the way it is now. America just needs an enemy! An enemy that pulls the country together. It is about America's history and its gene. Long before America's independence, the then European migrants fought with the British Empire to get rid of the control from the latter. After its independence, America has a long term plan to replace the Empire to be the number one because the former was still suffered from the global trading system that was established and controlled by the latter. There has been a long time the newly born America was struggling for survival as it was suffocated by such trading system. At that time the U.K. was really an empire, on which the sun never set. With its strong naval force and its cluster of colonies, the U.K. dominated the global trading and the Sterling Pound was the only acceptable currency.
Not until the WWI the young eagle found its opportunity and it was WWII that America finally forged its status of global leader. Prior to that the U.K. has been America's "enemy" for almost two centuries but it was WWII that made America succeeded to replace it. The Kingdom was badly hit during the WWII due to a couple of reasons. Before the WWII the U.K. was benefited from its dominance of the global trading system and earned a huge wealth from it. Manufacturing industries were just too back-breaking comparing to the easy money from trading. Many of the Kingdom's manufacturing function has shifted overseas so when WWII started to damage its homeland the Kingdom just did not has enough manufacturing capacity to cope with the military demand. The America was the only country not affected by the War yet has the ability to provide weapon. As such the Kingdom's wealth was drained much to the America. There was a conspiracy that Hitler was actually financed by the American bankers to defeat the U.K. Be it true or not, the America did replace the Kingdom!
Soon after the WWII, America found its new enemy, the USSR thus leading to the Cold War. With the collapse of the USSR the America virtually has no compatible rival and it enjoyed the dominance on global affairs for decades. Backed with its military superiority and the U.S. dollar empire, the America is literally ruling the world. However the uprising of China changes the scenario a little bit. With Xi's advocate on the Industrial 2025 in high profile, the U.S. just cannot tolerate the challenge from China as it knows well this was the way how it came all the way through to where it is now.
For decades China has practiced Deng's National Policy to develop the nation in low profile but Xi, in order to fortify his status in the Party, changed it somehow. It is yet to say if it is a wise move but judging from the U.S.'s reaction, it is determined to curb this threat. In fact China's recent rise would not has succeeded without the blessing from the U.S. over the past decades. Despite it seems China is getting stronger now and seems to be rich in opportunities over there, it is far too early be capable to piss off the giant yet. China should really learn from the lesson which Japan has had for the price of "Japan can say no". Naturally China is different from Japan whom does not has the last resort that the former has, ie., nuclear weapon and a huge population. Take a look of how troublesome the Europe is with the Syrian refugees. It could bring a big trouble to the world if China release just a fraction of its 1.4 billion population should the U.S. dare to destroy China's economy.
China knows this trump card well when playing with Trump!
2018年10月14日 星期日
Financial crisis, a black swan. Or is it?
Black swan is defined as something with very slim chance yet happened. In financial market a crash is usually attributed by black swan. It seems most, if not all, crashes were unexpected. but were they?
There is a conspiracy(?) that nowadays the few super rich families like the Rockefellers and the Rothschilds are actually the rulers of the world. With their super dominant financial strength they influence, if not manipulate, the world affairs just like balls juggling. Not only do they apparently control the business world but in fact they are the mastermind behind the curtain on many government policies, the nomination of key officials or even the result of the elections in most of the western countries.
With their men implanted into different governmental bodies and their own control on the banking system and the clearing function, money flow and investment positions are all under their monitoring. Just imagine the whole world's economy is shrunk into a gambling table, the banker know all the positions because all the bets are visible on the table.
The U.S. stock market has just experienced the second largest plunge in this year and DJIA has rebounced 287 points (1.15%). The coming Friday is the settlement day in this month so it is still too early to say a further fall is yet to come. However, disregard what the market situation will be like in this Friday the U.S. stock market will not have problem before the election in this November. Trump or the Republican need a good market sentiment to win the election anyway.
Having said so I am not so confident after the election. Most of the major stock markets in the world have seen significant adjustment from their peak but the U.S. market keeps staying at its record high level making it to be the only choice for most of the fund managers whom are bound to invest despite they all know investing in the U.S. market is just a musical chair game. After all, fund managers' bonus relies on the performance of the funds under their management. The U.S. market is the only promising place that they can invest to beat the benchmark.
According to the conspiracy theory Fleecing the Flock, it seems a perfect storm is on its way. The Theory suggests that the big master players deliberately drive a market up to lure the money from the general masses then at the high level these predators slaughter their prey by releasing a black swan to create panic in the market leading to irrational sell off. A massive wealth transfer is thus perfectly achieved.
Along with the FED's interest hike action, currencies fell against the U.S. dollar. Economy in the countries which used to be benefited by the low interest rate massive amount of U.S. dollar loan are now hit badly. New emerging markets are among these victims. Compounded with the liquidity squeeze following the FED's shrinkage on its balance sheet, low cost hot money is draining. Pressure on most of the stock markets are mounting so driving all bets on the U.S. market. All it needs is just a black swan.....
There is a conspiracy(?) that nowadays the few super rich families like the Rockefellers and the Rothschilds are actually the rulers of the world. With their super dominant financial strength they influence, if not manipulate, the world affairs just like balls juggling. Not only do they apparently control the business world but in fact they are the mastermind behind the curtain on many government policies, the nomination of key officials or even the result of the elections in most of the western countries.
With their men implanted into different governmental bodies and their own control on the banking system and the clearing function, money flow and investment positions are all under their monitoring. Just imagine the whole world's economy is shrunk into a gambling table, the banker know all the positions because all the bets are visible on the table.
The U.S. stock market has just experienced the second largest plunge in this year and DJIA has rebounced 287 points (1.15%). The coming Friday is the settlement day in this month so it is still too early to say a further fall is yet to come. However, disregard what the market situation will be like in this Friday the U.S. stock market will not have problem before the election in this November. Trump or the Republican need a good market sentiment to win the election anyway.
Having said so I am not so confident after the election. Most of the major stock markets in the world have seen significant adjustment from their peak but the U.S. market keeps staying at its record high level making it to be the only choice for most of the fund managers whom are bound to invest despite they all know investing in the U.S. market is just a musical chair game. After all, fund managers' bonus relies on the performance of the funds under their management. The U.S. market is the only promising place that they can invest to beat the benchmark.
According to the conspiracy theory Fleecing the Flock, it seems a perfect storm is on its way. The Theory suggests that the big master players deliberately drive a market up to lure the money from the general masses then at the high level these predators slaughter their prey by releasing a black swan to create panic in the market leading to irrational sell off. A massive wealth transfer is thus perfectly achieved.
Along with the FED's interest hike action, currencies fell against the U.S. dollar. Economy in the countries which used to be benefited by the low interest rate massive amount of U.S. dollar loan are now hit badly. New emerging markets are among these victims. Compounded with the liquidity squeeze following the FED's shrinkage on its balance sheet, low cost hot money is draining. Pressure on most of the stock markets are mounting so driving all bets on the U.S. market. All it needs is just a black swan.....
2018年10月7日 星期日
Correction or crash?
The below is the chart of HSI in the past 40+ years.
Hong Kong stock market has experienced 10 crashes over the past 40 years since 1969. The below is the detailed summary of each boom and bust.
From the summary, one can see the booms took from 1.5 to 6.5 years while the bust lasted from 1 month to 3 years. The shortest adjustments happened in 1989 due to the massacre in Beijing followed by the Black Monday in Wall Street in 1987 which lasted for 2 months. So far the HSI has fallen 8+ months and with about 47% adjustment for the boom magnitude from the last valley 18534 in 2016 to 33484 in this January. The duration and adjustment resemble the crash in 2011 caused by the Euro debt crisis which is the mildest one in the ten crashes in Hong Kong history. However, personally I do not see the two debt crisis were crashes despite the Greece crisis has an adjustment of 92% because the peaks before the happening of these two crashes have never exceeded their previous peak 31958 in 2007. They were merely correction, big ones only.
According to Elliot Wave Theory the HSI current cycle started in 1998 August at 6544 with wave 1 ended in 2000 March the burst of dot.com bubble followed by wave 2 ended in 2003 April. Wave 3 topped in 2007 October the suspension of HK stock connect followed by wave 4 ended in 2009 Mar so the peak in this Jan could be the top the wave 5 and this 8+ months plunge is wave A accordingly. If this cycle is established then HSI is going to be the downward trend of the existing cycle so even if there will be a rise in the future but it is merely the wave B only. The final plunge wave C is still inevitable.
Judging from the past record, a true crash usually lasted a year or so and with adjustment of around 80%. If the current fall turns out to be a correction then according to the previous ones then it should finish very soon and there will be even higher level than 33484 as well. However, the reality is that the trade war between the U.S. and China is going to be worsen. On the other hand, a global liquidity squeeze is on its way in the years to come. Despite the DJIA keeps breaking its record but chances are more likely to fall than further hike. When the fundamentals are turning sour then the probability of HSI is heading to a true crash is rising. If it is going to a crash then the past record revealed that the usual adjustment is around 80%, meaning a fall of 12,000 points from 33,484. It means there are still 5000 points to go till the 19,000 level.
However, if base on my view that the two debt crisis are big correction only then the departure point should be the valley after the suspension of HK stock through train followed by Lehman Brothers at 11345 in 2009 when QE began. Therefore the total hike is 22,139 points. With usual 80% adjustment it means a fall of 17,700 points so the valley of this crash, if really it is one, will be around 15700 level!
Hold tight, man!
2018年10月1日 星期一
Value investing, how practicable can it be?
Warren Buffett, a renowned investor, is almost the icon of value investing. There are many investors who claim they are the fans of value investing. With the success of Buffett's investing performance, it seems there is a halo on those people when they claim they are practicing value investing. There are many bloggers in the local community claiming they are big fans of value investing as well. I buy most of the ideas of value investing but I cannot say I am one of them because I hold a couple of disagreement toward the concept of value investing.
Value investing, by the term per se, puts it very clear that investment on a particular stock should be made only when the stock price is at best below its intrinsic value. Therefore understanding the value of a stock is most fundamental of this investing. In other words, without the knowledge of the value of stocks it is only empty words when one says he/she is practicing value investing. The point is that, however, buying stocks below their value is a very good concept, determination on their value is another story though.
There are many ways of valuation out there and some of them are more applicable for some industries. This is fine as long as investors can pick the most appropriate valuation tools for a particular stock. However, except those very straight forward tools like P/E and P/B which are based on audited financial reports, the other tools like PEG, DCF, DDM....etc are rather artistic meaning that it appears to be very scientific but indeed many personal judgment or estimation is needed when doing so. A slight deviation on the judgment could lead to significant difference on the outcome, ie., a stock's intrinsic value which is the cornerstone of the methodology of value investing.
As I said I like most of the ideas of value investing such as margin of safety (literally the essence of value investing), buy when others in fear and stock selection based on fundamental analysis. They are not only conceptual in theory but also practicable in real life. People may see confusion and contradictory statements in this post because at one point I questioned the effectiveness of valuation methodologies which is the cornerstone of value investing but on the other hand I said its ideas are practicable. True is it appears to be. Indeed the concept of intrinsic value is the major disagreement that I have on value investing. Let me put it this way. When one says, after using the most appropriate valuation tools for a particular stock, the intrinsic value is $X based on the personal judgment on factors A, B & C in the calculation and the data in the past financial reports. However the $X could vary in a big extent along with the different estimation on the factors A, B & C yet a purchase decision is based on, $X, the outcome of the calculation. On the other hand, many of us know that financial reports are tricky business. Apart from those management boards deliberately cheating, presentation of figures and entries of items in the financial reports are largely a drama especially for those companies with declining performance. However, data in the financial reports also play a significant part in the valuation calculation.
The concept of value investing is to buy when price is below value or to sell when value fell below price. However as I said before the value of the $X is so difficult to be determined. Peter may gets $10 while Jack and John may get $9 and $11 respectively when they use different evaluation tools and different personal judgments on the factors yet they all claim they are practicing value investing. When the figure of the value per se is so unreliable so how sensible can the decision be?
The other disagreement I hold against value investing is that the latter advocates that unless there is change on the fundamentals of a good stock, the holding is for good. We have experienced a few global stock market crashes over the past decades or more often big plunge of individual stocks. In the bad times good stocks would also be suffered from irrational selling. It was a good timing to buy though but for those whom has already heavily invested might suffer from mental stress especially when stock price hit below the margin of safety. Despite such those value investors did not panic but would not feel great neither unless they have a deep pocket to buy more. Although timing the exact moment when the market would crash is only the privilege of God but indeed there were always traces of something has gone wrong before the crash. Isn't it better to dispose the holding when the market is about to plunge to avoid the mental stress, even if just a little bit? The best of all is that one can buy more with the same amount after the crash or enjoy a higher dividend yield.
Indeed one only needs to make a few right decisions throughout his life then it is good enough to have a decent living. Do nothing between decisions and doing nothing is doing something. Boring? As Soros puts it, good investing is boring.
Value investing, by the term per se, puts it very clear that investment on a particular stock should be made only when the stock price is at best below its intrinsic value. Therefore understanding the value of a stock is most fundamental of this investing. In other words, without the knowledge of the value of stocks it is only empty words when one says he/she is practicing value investing. The point is that, however, buying stocks below their value is a very good concept, determination on their value is another story though.
There are many ways of valuation out there and some of them are more applicable for some industries. This is fine as long as investors can pick the most appropriate valuation tools for a particular stock. However, except those very straight forward tools like P/E and P/B which are based on audited financial reports, the other tools like PEG, DCF, DDM....etc are rather artistic meaning that it appears to be very scientific but indeed many personal judgment or estimation is needed when doing so. A slight deviation on the judgment could lead to significant difference on the outcome, ie., a stock's intrinsic value which is the cornerstone of the methodology of value investing.
As I said I like most of the ideas of value investing such as margin of safety (literally the essence of value investing), buy when others in fear and stock selection based on fundamental analysis. They are not only conceptual in theory but also practicable in real life. People may see confusion and contradictory statements in this post because at one point I questioned the effectiveness of valuation methodologies which is the cornerstone of value investing but on the other hand I said its ideas are practicable. True is it appears to be. Indeed the concept of intrinsic value is the major disagreement that I have on value investing. Let me put it this way. When one says, after using the most appropriate valuation tools for a particular stock, the intrinsic value is $X based on the personal judgment on factors A, B & C in the calculation and the data in the past financial reports. However the $X could vary in a big extent along with the different estimation on the factors A, B & C yet a purchase decision is based on, $X, the outcome of the calculation. On the other hand, many of us know that financial reports are tricky business. Apart from those management boards deliberately cheating, presentation of figures and entries of items in the financial reports are largely a drama especially for those companies with declining performance. However, data in the financial reports also play a significant part in the valuation calculation.
The concept of value investing is to buy when price is below value or to sell when value fell below price. However as I said before the value of the $X is so difficult to be determined. Peter may gets $10 while Jack and John may get $9 and $11 respectively when they use different evaluation tools and different personal judgments on the factors yet they all claim they are practicing value investing. When the figure of the value per se is so unreliable so how sensible can the decision be?
The other disagreement I hold against value investing is that the latter advocates that unless there is change on the fundamentals of a good stock, the holding is for good. We have experienced a few global stock market crashes over the past decades or more often big plunge of individual stocks. In the bad times good stocks would also be suffered from irrational selling. It was a good timing to buy though but for those whom has already heavily invested might suffer from mental stress especially when stock price hit below the margin of safety. Despite such those value investors did not panic but would not feel great neither unless they have a deep pocket to buy more. Although timing the exact moment when the market would crash is only the privilege of God but indeed there were always traces of something has gone wrong before the crash. Isn't it better to dispose the holding when the market is about to plunge to avoid the mental stress, even if just a little bit? The best of all is that one can buy more with the same amount after the crash or enjoy a higher dividend yield.
Indeed one only needs to make a few right decisions throughout his life then it is good enough to have a decent living. Do nothing between decisions and doing nothing is doing something. Boring? As Soros puts it, good investing is boring.
2018年9月29日 星期六
The impact of interest rate hike on property market
Yesterday Hong Kong just saw the first interest rate hike in 12 years finally despite it is the 8th hike in the U.S already. This first hike did not put much impact on the local stock market but there are more concern on the property market though.
Many experts related to the property market commented that the impact is minimal because the hike is merely 0.125% so the installment increment is just HK$60+ per every million dollar mortgage. That will translate into absolute dollars for an averaged size property around $300 per month and that should be well within the affordability. Therefore it will not bring much pressure on the property market even if a few more hikes are expected in the coming two years.
It is true that the increment on the installment amount does not and will not apply too much financial burden to existing flat owners especially to those whom became owners more than five years ago because the price of their properties have risen much already while on the other hand the outstanding loan reduced. Perhaps new owners are those most concerned.
However, the above opinion is one sided perspective only. The majority of property market, in term of quantity, is residential ones while this segment is also divided into two categories, in terms of purchase purpose, ie,, dwelling and investment. The above mentioned opinion is applicable mainly on the property owners with the former purchase purpose. Since their properties, most of the case the only one, are for own consumption and they need dwelling anyway disregard the rise of interest rate on their mortgage. They don't seem to be likely to sell their own dwellings even if there is a rather big hike in the interest rate in the future. The most possible extent of the impact is only on the people whom are currently thinking to buy their home and the increment on interest payment could likely make their purchase to be put aside. Yet there will not be a price pressure arising from a massive selling.
I think this is the rationale behind the opinion that those experts advocated the impact will be minimal. Nevertheless they ignored the view from the other category of residential owners with purchase purpose as investing. Their properties is for investment only and most likely it is only part of their investment portfolio which is constantly under review to see whether risk and return are in proper ratio. Hong Kong property market has an high degree of internationalization meaning apart from local people whom bought for own consumption as well as investment but there are also overseas owners purchased Hong Kong properties just for investment. Despite local buyers outnumbered overseas counterparts but the movement of the latter should not be underestimated especially in the luxury segment of the market.
The return of Hong Kong property investment sits around 2-3% only which is not particularly attractive especially after a consecutive 28 months upward on the price index. Investor owners, both local and overseas, mainly eye on the future appreciation on their properties rather than relying on the rental income due to the low return. Despite the forecast on continuous interest rate hike will not lead to a major correction but if the steam of the price appreciation is expected to lose somehow. The investment on Hong Kong property is no longer attractive considering the low return it can provide.
When the hope of further price appreciation becomes slimmer while the return is just 2-3%, it might trigger the smart money to look for safer place to put their investment on. Recently the yield of the 10Y U.S. Treasury Bill is 3.06% which is considered as a risk-free investment. The return of Hong Kong property investment is really unattractive considering the potential downward movement in case the Sino-U.S. trade conflict worsen in the future. Furthermore, the U.S. interest rate hike is yet at the end so the comparison starts to become against Hong Kong property.
In an highly open economy like Hong Kong, price of different investments is driven not only by local factors so being an investor in Hong Kong market should review the situation with international perspective. Local investors should put them into their overseas counterparts' shoe to see what they think and how they want to allocate their assets globally. Local investors should have a view on when there is a change in their existing allocation in Hong Kong market then what likely the outcome is.
The impact on interest rate hike could mean far more affection than just installment increment.
Many experts related to the property market commented that the impact is minimal because the hike is merely 0.125% so the installment increment is just HK$60+ per every million dollar mortgage. That will translate into absolute dollars for an averaged size property around $300 per month and that should be well within the affordability. Therefore it will not bring much pressure on the property market even if a few more hikes are expected in the coming two years.
It is true that the increment on the installment amount does not and will not apply too much financial burden to existing flat owners especially to those whom became owners more than five years ago because the price of their properties have risen much already while on the other hand the outstanding loan reduced. Perhaps new owners are those most concerned.
However, the above opinion is one sided perspective only. The majority of property market, in term of quantity, is residential ones while this segment is also divided into two categories, in terms of purchase purpose, ie,, dwelling and investment. The above mentioned opinion is applicable mainly on the property owners with the former purchase purpose. Since their properties, most of the case the only one, are for own consumption and they need dwelling anyway disregard the rise of interest rate on their mortgage. They don't seem to be likely to sell their own dwellings even if there is a rather big hike in the interest rate in the future. The most possible extent of the impact is only on the people whom are currently thinking to buy their home and the increment on interest payment could likely make their purchase to be put aside. Yet there will not be a price pressure arising from a massive selling.
I think this is the rationale behind the opinion that those experts advocated the impact will be minimal. Nevertheless they ignored the view from the other category of residential owners with purchase purpose as investing. Their properties is for investment only and most likely it is only part of their investment portfolio which is constantly under review to see whether risk and return are in proper ratio. Hong Kong property market has an high degree of internationalization meaning apart from local people whom bought for own consumption as well as investment but there are also overseas owners purchased Hong Kong properties just for investment. Despite local buyers outnumbered overseas counterparts but the movement of the latter should not be underestimated especially in the luxury segment of the market.
The return of Hong Kong property investment sits around 2-3% only which is not particularly attractive especially after a consecutive 28 months upward on the price index. Investor owners, both local and overseas, mainly eye on the future appreciation on their properties rather than relying on the rental income due to the low return. Despite the forecast on continuous interest rate hike will not lead to a major correction but if the steam of the price appreciation is expected to lose somehow. The investment on Hong Kong property is no longer attractive considering the low return it can provide.
When the hope of further price appreciation becomes slimmer while the return is just 2-3%, it might trigger the smart money to look for safer place to put their investment on. Recently the yield of the 10Y U.S. Treasury Bill is 3.06% which is considered as a risk-free investment. The return of Hong Kong property investment is really unattractive considering the potential downward movement in case the Sino-U.S. trade conflict worsen in the future. Furthermore, the U.S. interest rate hike is yet at the end so the comparison starts to become against Hong Kong property.
In an highly open economy like Hong Kong, price of different investments is driven not only by local factors so being an investor in Hong Kong market should review the situation with international perspective. Local investors should put them into their overseas counterparts' shoe to see what they think and how they want to allocate their assets globally. Local investors should have a view on when there is a change in their existing allocation in Hong Kong market then what likely the outcome is.
The impact on interest rate hike could mean far more affection than just installment increment.
2018年9月20日 星期四
Artificial intelligence, a destructive goodie?
A.I. has immersed in our everyday life with or without our awareness. Many jobs used to be done by human is now handled by computers. People see a more efficient way doing things. For example, auto spell check corrects typos and even anticipates the next words that greatly increases typing efficiency. The success of search engines are largely attributed to the employment of this technology. Most of the people, except those their jobs were replaced by A.I., embraces the convenience provided by this goodie.
However, in my earlier post myth on A.I. I am quite skeptical on this technology in the long run. It is true A.I. did bring us a lot of benefits that basically one is impossible to live without it now. The immediate drawback is jobs replaced while the ultimate concern is whether A.I., when combined with robots, will eventually become the master of human being. However, it seems there is an intermediate threat to the common folks as well.
If one agrees the concept in my post salarymen slaves that the world is factually governed by the few super rich families and most of the people in this world is only free ranged slaves to create wealth for these Families. When A.I. and robotic technology are so sophisticated that it can do most jobs at present done by people then do these super rich families still need to keep so many slaves? In their eyes slaves are nothing but tool only. Their existence serves only one purpose, ie., to work and produce value for them because so far most of the productive functions must still be carried out by human. It is something like why farmers rear milk cows but if one day milk can be manufactured without cows at all in more economical way then there is no reason to waste resources to keep them.
Just imagine in the days when doctors, composers, cooks, pilots...etc are no longer necessary. Let alone those less skillful workers. 90% of the world population becomes dispensable. There are only two categories of people still find their places in the world. The first one is of course the super rich families who are the true governors of the world while the another one is the super smart brains in my post new class of illiteracy whom are needed to maintain or further develop the A.I./robotic technology. The rest of the world population will become burden rather than assets (for wealth production). After all they still need to be fed even when they are of no value any more. Meanwhile the huge world population is one of the reasons attributed to the world pollution. On the other hand the super rich families and these smart brains can enjoy much more per capita natural resources when the dispensable population is eliminated. Isn't it a big temptation on such move?
Watch out! folks!
However, in my earlier post myth on A.I. I am quite skeptical on this technology in the long run. It is true A.I. did bring us a lot of benefits that basically one is impossible to live without it now. The immediate drawback is jobs replaced while the ultimate concern is whether A.I., when combined with robots, will eventually become the master of human being. However, it seems there is an intermediate threat to the common folks as well.
If one agrees the concept in my post salarymen slaves that the world is factually governed by the few super rich families and most of the people in this world is only free ranged slaves to create wealth for these Families. When A.I. and robotic technology are so sophisticated that it can do most jobs at present done by people then do these super rich families still need to keep so many slaves? In their eyes slaves are nothing but tool only. Their existence serves only one purpose, ie., to work and produce value for them because so far most of the productive functions must still be carried out by human. It is something like why farmers rear milk cows but if one day milk can be manufactured without cows at all in more economical way then there is no reason to waste resources to keep them.
Just imagine in the days when doctors, composers, cooks, pilots...etc are no longer necessary. Let alone those less skillful workers. 90% of the world population becomes dispensable. There are only two categories of people still find their places in the world. The first one is of course the super rich families who are the true governors of the world while the another one is the super smart brains in my post new class of illiteracy whom are needed to maintain or further develop the A.I./robotic technology. The rest of the world population will become burden rather than assets (for wealth production). After all they still need to be fed even when they are of no value any more. Meanwhile the huge world population is one of the reasons attributed to the world pollution. On the other hand the super rich families and these smart brains can enjoy much more per capita natural resources when the dispensable population is eliminated. Isn't it a big temptation on such move?
Watch out! folks!
2018年9月2日 星期日
Who are you?
We perceive the world through cognitive function in our brain. Cognition lies largely on our memory. A baby was taught that was a mug when he first saw it then this memory stayed in his brain. When he sees the same object that matches the cognition in his brain via pulling out the same image from the memory, he knows he is seeing a mug again.
In our daily interactions with the outside world, people form cognition on the outside world as well as themselves. One thinks he is a good person because he remembers he has done many good things like he is nice to people, he works hard, he cares about the people he knows....etc. All these favourable behaviour are stored as memories in his brain so he perceives himself as a good person.
Therefore memory is a cornerstone on the formation of how one perceives self, ie., who he is. This appears quite alright because memory is a very private and personal belonging that one owns one's memory and it is just stored in one's own brain and no other one has access to it so as possible to manipulate it. Or does it?
Many of us knows hypnotism can reach the subconsciousness in our mind and even manipulates it for therapy on mental issues. This is good but it could be bad as well. A reconstructed subconsciousness means a change of perception. When ill-done, the change of perception could be manipulated in favour of some ill-minded purposes.
As science advances, neuro-technologies is capable in altering one's memory or implanting segment of memory that even not exist at all. Likewise removal of some memories from the human hard drive is also feasible. Our brains appear like computer hard drives more than ever in front of those whom control these technologies. Naturally such researches need heavy funding so none of them are autonomous without any governmental sponsorship. The risk to the common folks is that "trouble markers" in the eyes of government can possibly be re-engineered to be sheeps. Salaried slaves can also be produced in mass production for a constant supply on cheap labour force while the society will be in more harmony ensuring easy ruling. With the memory manipulation technology the authorities has the access to more easily programming a person's character in order to have him/her to perform a specific task for the government.
Some may argue that how the masses will be receptive to the manipulation on their memories. Naturally like all conspiracies the project will be operated in the dark. A gadget something like the flashlight in the scientific movie "Man in Black" will erase the segment of the memory regarding the process of the manipulation so the victims are totally unaware of what has done on them.
We take it for granted that we know who we are but if your memory has actually altered. You in fact did not do something which you think you did while the memory of what you have done was removed. Are you still the actual one that you think who you are? Is what I am talking about only the episodes in scientific fiction movies? I am not really sure. I just hope that I am day-dreaming only.
In our daily interactions with the outside world, people form cognition on the outside world as well as themselves. One thinks he is a good person because he remembers he has done many good things like he is nice to people, he works hard, he cares about the people he knows....etc. All these favourable behaviour are stored as memories in his brain so he perceives himself as a good person.
Therefore memory is a cornerstone on the formation of how one perceives self, ie., who he is. This appears quite alright because memory is a very private and personal belonging that one owns one's memory and it is just stored in one's own brain and no other one has access to it so as possible to manipulate it. Or does it?
Many of us knows hypnotism can reach the subconsciousness in our mind and even manipulates it for therapy on mental issues. This is good but it could be bad as well. A reconstructed subconsciousness means a change of perception. When ill-done, the change of perception could be manipulated in favour of some ill-minded purposes.
As science advances, neuro-technologies is capable in altering one's memory or implanting segment of memory that even not exist at all. Likewise removal of some memories from the human hard drive is also feasible. Our brains appear like computer hard drives more than ever in front of those whom control these technologies. Naturally such researches need heavy funding so none of them are autonomous without any governmental sponsorship. The risk to the common folks is that "trouble markers" in the eyes of government can possibly be re-engineered to be sheeps. Salaried slaves can also be produced in mass production for a constant supply on cheap labour force while the society will be in more harmony ensuring easy ruling. With the memory manipulation technology the authorities has the access to more easily programming a person's character in order to have him/her to perform a specific task for the government.
Some may argue that how the masses will be receptive to the manipulation on their memories. Naturally like all conspiracies the project will be operated in the dark. A gadget something like the flashlight in the scientific movie "Man in Black" will erase the segment of the memory regarding the process of the manipulation so the victims are totally unaware of what has done on them.
We take it for granted that we know who we are but if your memory has actually altered. You in fact did not do something which you think you did while the memory of what you have done was removed. Are you still the actual one that you think who you are? Is what I am talking about only the episodes in scientific fiction movies? I am not really sure. I just hope that I am day-dreaming only.
2018年8月23日 星期四
New class of illiteracy
Just merely a century ago almost 80% of the world population was totally or very much illiterate. Not until the idea of universal education was introduced just several decades ago then the general masses was given the chance of receiving education. Before that, studying was the privilege for certain social classes like the priests, members of royal families, nobles or the riches in the ancient time. Almost all common folks were not capable to write or read a single word at all, let alone studying with books. All their knowledge at that time was either the experiences passed down by their ancestors or learning by doing.
Over the centuries books are the condensation and carriers of knowledge from generation to generation. Due to illiteracy the general masses was deprived for centuries from this valuable heritage which was the drive of the technological and cultural progress. Also because of the lack of education, the mind of the general masses was muddled. They were not capable to comprehend the phenomenons happened around them because of their very weak reasoning ability. Therefore the general masses appeared to be foolish and stupid or even uncivilized. On the contrary those privileged were benefited by the nutrient from books so they were knowledgeable and intelligent. That made a huge difference between the knows and the don't knows thus fostered and strengthened the relationship between the ruling and the be ruled.
Things started to change only when universal eduction was promoted to the public as the result of the industrialization which demanded a lot of skilled workers whom needed at least basic education to be skillful. Driven by the democracy thinking sprung decades ago education is considered as a human right nowadays so illiteracy basically became history of the past in most parts of the world now except those suffered from poverty, civil wars or because of religious reason.
Since the universalization of eduction to the general public, the gap between the knows and the don't knows is shrinking. Knowledge is even seen as a turn around for the poors because education allows the kids from the poor families to climb up along the social ladder to improve living. This thinking holds true with the emergence of more and more middle class throughout the world nowadays. They were largely attributed by the higher education received comparing to their parents.
While literacy and education improved people's living since decades ago, there seems a new class of illiteracy is emerging especially in the past few years. I am not talking about those less fortunate people whom are deprived from education as I mentioned earlier. After all they are not new. What I am saying is technology illiterate. Science is advancing in an unprecedented rate day after day. New theories and new technologies are discovered everyday in all different science fields particularly in supercomputing, bio/genetics, neuroscience and artificial intelligence/robotic...etc. The pace is so fast that not only the experts in the related fields have to struggle to keep up with the latest development in order not to be left behind. To the general public the hot topics in the science world nowadays is really something happening in another planet. How many of the common folks understand what quantum physics, dwarf galaxy, superconductor, CRISPR are all about? Let alone to understand their principles and how these science are working. The general public is literally technological illiterate when facing these cutting edge sciences.
The polarization between the knows and don't knows on the fast developing science gave rise of this new class of illiteracy. People who are engaged in these cutting edge scientific researches are the smartest brains in the world. They are at the foremost positions in the front line of researches and the rest of the world is just chasing after them. Among these majorities, some can barely keep up with these smartest brains but most of the majority is not only left behind but just literally are not able to understand at all even just the principle of these advanced researches. A huge gap is emerging.
The gap in the past was attributed by the social ranking system but this new gap is the result of IQ differences. The old gap can be reduced by the provision of education to the general public but this new gap is about the inherent intellectual quality in each and every person and it is difficult, if not unable at all, to change. The old gap brought up the relationship of ruling and be ruled. What is this new gap going to create when the smartest brains keep leaping forward while the general masses not even has a chance to follow the bandwagon?
Homo sapiens is the systematic name to describe modern human being. The key difference between Homo sapiens and its ancestor Apes is the degree of intelligence owned by these two species so as the things they are able to do under their respective intelligence. Those smartest scientists engaging in the most advanced scientific researches have much higher IQ than do the common folks in the first place. Due to their high IQ their learning curve is steeper and requires much less time to pick up new knowledge than the common folks. The result is that these smartest brains not only keep excel than common folks but in an much faster progress rate than the counterpart. Will there be one day these smartest brains evolute into the super Homo sapiens which dwarfs the existing human being in similar way in which we, as homo sapiens, to look at apes?
Over the centuries books are the condensation and carriers of knowledge from generation to generation. Due to illiteracy the general masses was deprived for centuries from this valuable heritage which was the drive of the technological and cultural progress. Also because of the lack of education, the mind of the general masses was muddled. They were not capable to comprehend the phenomenons happened around them because of their very weak reasoning ability. Therefore the general masses appeared to be foolish and stupid or even uncivilized. On the contrary those privileged were benefited by the nutrient from books so they were knowledgeable and intelligent. That made a huge difference between the knows and the don't knows thus fostered and strengthened the relationship between the ruling and the be ruled.
Things started to change only when universal eduction was promoted to the public as the result of the industrialization which demanded a lot of skilled workers whom needed at least basic education to be skillful. Driven by the democracy thinking sprung decades ago education is considered as a human right nowadays so illiteracy basically became history of the past in most parts of the world now except those suffered from poverty, civil wars or because of religious reason.
Since the universalization of eduction to the general public, the gap between the knows and the don't knows is shrinking. Knowledge is even seen as a turn around for the poors because education allows the kids from the poor families to climb up along the social ladder to improve living. This thinking holds true with the emergence of more and more middle class throughout the world nowadays. They were largely attributed by the higher education received comparing to their parents.
While literacy and education improved people's living since decades ago, there seems a new class of illiteracy is emerging especially in the past few years. I am not talking about those less fortunate people whom are deprived from education as I mentioned earlier. After all they are not new. What I am saying is technology illiterate. Science is advancing in an unprecedented rate day after day. New theories and new technologies are discovered everyday in all different science fields particularly in supercomputing, bio/genetics, neuroscience and artificial intelligence/robotic...etc. The pace is so fast that not only the experts in the related fields have to struggle to keep up with the latest development in order not to be left behind. To the general public the hot topics in the science world nowadays is really something happening in another planet. How many of the common folks understand what quantum physics, dwarf galaxy, superconductor, CRISPR are all about? Let alone to understand their principles and how these science are working. The general public is literally technological illiterate when facing these cutting edge sciences.
The polarization between the knows and don't knows on the fast developing science gave rise of this new class of illiteracy. People who are engaged in these cutting edge scientific researches are the smartest brains in the world. They are at the foremost positions in the front line of researches and the rest of the world is just chasing after them. Among these majorities, some can barely keep up with these smartest brains but most of the majority is not only left behind but just literally are not able to understand at all even just the principle of these advanced researches. A huge gap is emerging.
The gap in the past was attributed by the social ranking system but this new gap is the result of IQ differences. The old gap can be reduced by the provision of education to the general public but this new gap is about the inherent intellectual quality in each and every person and it is difficult, if not unable at all, to change. The old gap brought up the relationship of ruling and be ruled. What is this new gap going to create when the smartest brains keep leaping forward while the general masses not even has a chance to follow the bandwagon?
Homo sapiens is the systematic name to describe modern human being. The key difference between Homo sapiens and its ancestor Apes is the degree of intelligence owned by these two species so as the things they are able to do under their respective intelligence. Those smartest scientists engaging in the most advanced scientific researches have much higher IQ than do the common folks in the first place. Due to their high IQ their learning curve is steeper and requires much less time to pick up new knowledge than the common folks. The result is that these smartest brains not only keep excel than common folks but in an much faster progress rate than the counterpart. Will there be one day these smartest brains evolute into the super Homo sapiens which dwarfs the existing human being in similar way in which we, as homo sapiens, to look at apes?
2018年8月16日 星期四
Index option trading with statistic (4)
In my third post regarding the same topic, I mentioned that the settlement point for this August should rest between 306 and 266 according to the 0.95 probability shown by my database. This probability comes from the statistic of the past 215 months. Despite these 215 months have seen up and down trends over the 18 years but after all there is no consideration is associated with the market trend at the prevailing moment so the settlement point indicated by the database is only for a preliminary idea on where the settlement point will probably be like at the beginning of each month.
After the first phase of August has lapsed, according to the pattern of the first phase, my database reveals that there are 0.6 probability of 1L3H or 0.2 probability of 1H3L for this month. Again these indications are from the past statistic with the same pattern in phase one of a month disregard the current market sentiment. Although past statistic indicated a higher probability of ascending pattern for this month but judging from the reality I tend to neglect this forecast but prefer the 0.2 probability of descending pattern. Of course apart from 1H3L there could be another possibility of 1H2L as well which my database did not show any probability according to the past statistic. I said so because I assume the highest point of the month has already existed on August 1 at 28773 and with the day low of today at 26871 so the chance of the index will go further than the current month high is very slim in the remaining days. As such the possibility of 2L3H is ruled out. Therefore literally there are only 2 possibilities in this month, ie., 1H3L or 1H2L.
With the assumption that the month's high has already existed so this can be used as an anchor for sorting. Meanwhile with the possibilities of 1H3L or 1H2L in mind I did sorting in my database to find the statistic on the deviation between settlement point and month's high. It revealed a 0.9 probability at 1716 points for 1H2L and at 3072 points for 1H3L. It means if it turns out to be 1H2L then the possible settlement point with 0.9 probability will not be lower than the 270 level while for the another possibility of 1H3L then it will not be lower the 257 level. These two settlement point estimations has taken into account the current market situation. Up to this moment the choice of the strike largely depends on how one assesses whether this month will end up into 1H3L or 1H2L. On the other hand so far this month's volatility is only 1902 points which seems too small considering the market tension resulting from quite a number of negative issues in this month. It seems more downward movement is yet to come so it is more likely to be 1H3L in this month.
This is the example on the elaboration of how Probability Trading could be helpful on the strike picking.
After the first phase of August has lapsed, according to the pattern of the first phase, my database reveals that there are 0.6 probability of 1L3H or 0.2 probability of 1H3L for this month. Again these indications are from the past statistic with the same pattern in phase one of a month disregard the current market sentiment. Although past statistic indicated a higher probability of ascending pattern for this month but judging from the reality I tend to neglect this forecast but prefer the 0.2 probability of descending pattern. Of course apart from 1H3L there could be another possibility of 1H2L as well which my database did not show any probability according to the past statistic. I said so because I assume the highest point of the month has already existed on August 1 at 28773 and with the day low of today at 26871 so the chance of the index will go further than the current month high is very slim in the remaining days. As such the possibility of 2L3H is ruled out. Therefore literally there are only 2 possibilities in this month, ie., 1H3L or 1H2L.
With the assumption that the month's high has already existed so this can be used as an anchor for sorting. Meanwhile with the possibilities of 1H3L or 1H2L in mind I did sorting in my database to find the statistic on the deviation between settlement point and month's high. It revealed a 0.9 probability at 1716 points for 1H2L and at 3072 points for 1H3L. It means if it turns out to be 1H2L then the possible settlement point with 0.9 probability will not be lower than the 270 level while for the another possibility of 1H3L then it will not be lower the 257 level. These two settlement point estimations has taken into account the current market situation. Up to this moment the choice of the strike largely depends on how one assesses whether this month will end up into 1H3L or 1H2L. On the other hand so far this month's volatility is only 1902 points which seems too small considering the market tension resulting from quite a number of negative issues in this month. It seems more downward movement is yet to come so it is more likely to be 1H3L in this month.
This is the example on the elaboration of how Probability Trading could be helpful on the strike picking.
2018年8月3日 星期五
Index option trading with statistic (3)
In my previous post with the same heading I mentioned an idea of trading index option based on the probability as a result of a database. I called it Probability Trading because trading decisions refer to the probability of relevant event regarding a particular sorting result.
In the last post I said one could reasonably expect the July HSI option settlement point to rest between304 and 264. The exact settlement point was 28644, just 44 points above the rollover point. This is a very small deviation from the rollover point. With the same principle, the expected settlement point should lie between 306 and 266 for this month August. August should see a bigger volatility because the trade war tension intensifies.
In the first post of this topic I mentioned that a database is good for strike picking as well as the timing of position building. Every option traders know that apart from picking a suitable strike timing also plays a crucial element in option trading. Indeed it could be the key factor of profitability or even between the make or break due to the time value decay property of option.
When we talk about timing in option trading, there are mainly two key aspects, ie., which type of position, ie., long or short, is more appropriate for the different phases in a particular month if we break it into three phases namely the beginning, middle and the end of a month. The other aspect of the timing is about exactly when the position should be built. All seasoned option traders know that generally speaking long position is better built in the beginning of a month then to close it before the middle of the month when time value starts to shrink rapidly in an accelerated rate day after day while the short side position contrarily can be benefited from this phenomenon. We do not need a database to know this.
For the second aspect, ie., the exact timing to build a position, is mainly for the short side because short position, once built, is always exposed to the index movement that goes against the position which leads the position subjected to a heavy increase on the margin requirement. So the effort in the attempt to build the short position after the intra month's peak or bottom is highly desirable. This is when a database could provide some insight over the past records.
If we break down a month into three phases, the first 10 days as phase 1, 11th-20th day as phase 2 and the remaining days as phase 3. Depending on the sequence of the month's high and low, there are 1H3L, 1H2L, 2H3L which are mainly a descending pattern and 1L3H, 1L2H, 2L3H which are in ascending pattern. What a short side trader does not want to see is at any time after building the position but then finds out the peak or bottom is yet to come but will fall into the phase 3, especially when the index will rise above his short call position or will drop below his short put position.
Apparently an early identification of whether a particular month is in descending or ascending pattern is helpful to avoid this situation. On the other hand, a high success rate of guess on which phases the month's H and L will land in could further minimize the chance to fall into the above situation. For example, if a particular month is identified with pattern of 2L3H, short put position is safe to be built only in phase 2 when the month's L has already existed while short call position is always not suitable in that month. Knowing the HL pattern in a month in advance helps a lot on the timing of the short side position building.
However, one will know when the month's H & L happen only when the month finishes so how to identify the pattern before the month ends is vital. This is the time a database can help. By sorting with some parameters, past record reveals the probability of different patterns in a month. Sorted with the parameter of the pattern of the 1st phase, my database can reveal the probability as high as 0.6 for the pattern of 1L3H. That means when one sees that particular signal appears in a particular month, there will be 60% of chance that that particular month could be 1L3H. In such case, the trader has a relatively higher confidence to build his short put position in an earlier stage to enjoy the more time value given. The probability info helps on trading decision so that's why I called this trading method as Probability Trading.
Having said so, the success of probability trading lies on how one builds his own database. The key point is whether or not the database is incorporated with the meaningful parameters that can lead to the reveal of the pattern of a month when sorting. My post on this topic is merely an inspiration on the method but how probability trading is beneficial to any trader largely depends on how one designs his own database which can give the greatest benefit out of it.
In the last post I said one could reasonably expect the July HSI option settlement point to rest between304 and 264. The exact settlement point was 28644, just 44 points above the rollover point. This is a very small deviation from the rollover point. With the same principle, the expected settlement point should lie between 306 and 266 for this month August. August should see a bigger volatility because the trade war tension intensifies.
In the first post of this topic I mentioned that a database is good for strike picking as well as the timing of position building. Every option traders know that apart from picking a suitable strike timing also plays a crucial element in option trading. Indeed it could be the key factor of profitability or even between the make or break due to the time value decay property of option.
When we talk about timing in option trading, there are mainly two key aspects, ie., which type of position, ie., long or short, is more appropriate for the different phases in a particular month if we break it into three phases namely the beginning, middle and the end of a month. The other aspect of the timing is about exactly when the position should be built. All seasoned option traders know that generally speaking long position is better built in the beginning of a month then to close it before the middle of the month when time value starts to shrink rapidly in an accelerated rate day after day while the short side position contrarily can be benefited from this phenomenon. We do not need a database to know this.
For the second aspect, ie., the exact timing to build a position, is mainly for the short side because short position, once built, is always exposed to the index movement that goes against the position which leads the position subjected to a heavy increase on the margin requirement. So the effort in the attempt to build the short position after the intra month's peak or bottom is highly desirable. This is when a database could provide some insight over the past records.
If we break down a month into three phases, the first 10 days as phase 1, 11th-20th day as phase 2 and the remaining days as phase 3. Depending on the sequence of the month's high and low, there are 1H3L, 1H2L, 2H3L which are mainly a descending pattern and 1L3H, 1L2H, 2L3H which are in ascending pattern. What a short side trader does not want to see is at any time after building the position but then finds out the peak or bottom is yet to come but will fall into the phase 3, especially when the index will rise above his short call position or will drop below his short put position.
Apparently an early identification of whether a particular month is in descending or ascending pattern is helpful to avoid this situation. On the other hand, a high success rate of guess on which phases the month's H and L will land in could further minimize the chance to fall into the above situation. For example, if a particular month is identified with pattern of 2L3H, short put position is safe to be built only in phase 2 when the month's L has already existed while short call position is always not suitable in that month. Knowing the HL pattern in a month in advance helps a lot on the timing of the short side position building.
However, one will know when the month's H & L happen only when the month finishes so how to identify the pattern before the month ends is vital. This is the time a database can help. By sorting with some parameters, past record reveals the probability of different patterns in a month. Sorted with the parameter of the pattern of the 1st phase, my database can reveal the probability as high as 0.6 for the pattern of 1L3H. That means when one sees that particular signal appears in a particular month, there will be 60% of chance that that particular month could be 1L3H. In such case, the trader has a relatively higher confidence to build his short put position in an earlier stage to enjoy the more time value given. The probability info helps on trading decision so that's why I called this trading method as Probability Trading.
Having said so, the success of probability trading lies on how one builds his own database. The key point is whether or not the database is incorporated with the meaningful parameters that can lead to the reveal of the pattern of a month when sorting. My post on this topic is merely an inspiration on the method but how probability trading is beneficial to any trader largely depends on how one designs his own database which can give the greatest benefit out of it.
2018年7月24日 星期二
The tip of an iceburg
Recently a fraudulent case happened in China and it triggered much anger throughout the nation. Well actually fraudulence happened in this country everyday and everywhere so it should be no new thing at all. In fact if there is no fraudulence in a particular day in anywhere of the country then it is really a big news. This fraudulent case did arouse the concern of the whole nation though because it affected 210 thousands families altogether and the victims are children. It's sad to hear children again became victims.
The case is about a pharmaceutical company which produced vaccine which does not meet the standard. It also fabricated the GMP production record to forge a compliance. So apparently this is an organized crime throughout the whole organization from top management to floor workers. It is really as what the ex national president Jiang put it "too simple and sometimes naive" if one believes this is an isolated case in China's pharmaceutical industry. Or even the whole country?
There are many big problems in China now like corruption, suppressed human rights, pollution, huge gap between the riches and the poors but among them a common problem interwoven with all these problems, ie., lack of integrity in the society as a whole.
Ironically there was an ancient Chinese saying that a man without integrity is no difference from a cart with no wheels. In fact the Chinese business communities in the old times saw integrity and creditability were more important than their lives. Many big deals were conducted just based on trust. This was one of the great Chinese traditions carried down generation to generation since thousands of years. However, gone were the days when the nation was traumatized by the so called Cultural Revolution which lasted for 10 years in the 1960s'.
During that ten awful years there was literally no law and order. Gangs fighting overrode rules. What's more, traditions were criticized as bad things that must be removed. Formal eduction was halt because authorities were challenged. This affected the then young generations whom not only received no eduction but also were influenced by propaganda that outlawry was just revolutionary. Over the years these generations became parents and grandparents and they passed down this new tradition to their offspring. Now those then young generations or their children became the masterminds of businesses and those outlawry practices were deeply rooted in their minds.
Then later in 1980s' the theory of "be it white or black, it is a good cat as long as it catches rats" by the then national chief, Deng, promoted a rush on the nation-wide money making. The original meaning of this theory was meant to end the debate on the superiority between communism and capitalism but to focus on the productivity. However, with the lack of the ethical guidance throughout the nation this theory quickly translated into the version of "who cares as long as I made money? " and spurred a round of money-making storm without integrity since then. Compounded with the monopolized party ruling that prone to breed corruption, nowadays shameless became the norm in the whole country disregard whichever areas or sectors are.
When trust in a country became a luxury then it could lead to an even more serious issue, ie., how long the regime can last? Nowadays fraudulence in China is not limited in private sector or businesses only but throughout the government as well. However, China is so big and the economy scale is also huge so reliable information is crucial on the monitoring of the development on various activities followed by suitable and timely adjustment on the related policies to address the issues. The point is that accuracy of these information is not guaranteed as fraudulence became a norm and practice no matter in the public or private sector. Statistic could be just fabricated figures failing to tell the truth then how the central government can really see the problems and where they lie? Let alone the needed follow-up actions. This undermines the governance and puts the ruling in danger.
As China's economic strength is on the rise, it demands more say on the global affairs. To back this change on status quo China is flexing its muscle in high profile in this decade. Its huge market potential attracts many businesses around the world. People see a powerful and opportunities rich country is uprising. Or is it?
The North Sea Fleet in the Qing Dynasty was also seen as an invincible fleet that the dynasty was very proud of because all the warships were so powerful and were supposed to be best equipped with state of art technologies. However the fact was that because of corruption and fraudulence the fleet was only a shit. Many ships of the fleet were destroyed and some were captured when it broke into combat with the Japanese fleet in 1894-95. The whole world then finally realized that the once giant was nothing but actually an empty shell only. The fall of Qing Dynasty was attributed by many factors but corruption and fraudulence were no doubt among the key ones.
Now China displayed its military muscle to claim how powerful their army is. Could it be the modern version of the North Sea Fleet? The hardware of an army is no doubt important but what if the core is rotten with corruption and fraudulence which is already a known secret?( Thus Xi could capitalize this phenominon to remove Jiang's allies from the army). How much fighting spirit does it has when morale has gone? Let alone the army has never engaged in large scale real life combat for 40 years since the war with Vietnam in 1979. On the other hand its most probable rival, the U.S. army are involved in different battles openly or secretly from time to time to drill their tactics and competency.
Vaccine is only a tip, where does the iceburg lie?
The case is about a pharmaceutical company which produced vaccine which does not meet the standard. It also fabricated the GMP production record to forge a compliance. So apparently this is an organized crime throughout the whole organization from top management to floor workers. It is really as what the ex national president Jiang put it "too simple and sometimes naive" if one believes this is an isolated case in China's pharmaceutical industry. Or even the whole country?
There are many big problems in China now like corruption, suppressed human rights, pollution, huge gap between the riches and the poors but among them a common problem interwoven with all these problems, ie., lack of integrity in the society as a whole.
Ironically there was an ancient Chinese saying that a man without integrity is no difference from a cart with no wheels. In fact the Chinese business communities in the old times saw integrity and creditability were more important than their lives. Many big deals were conducted just based on trust. This was one of the great Chinese traditions carried down generation to generation since thousands of years. However, gone were the days when the nation was traumatized by the so called Cultural Revolution which lasted for 10 years in the 1960s'.
During that ten awful years there was literally no law and order. Gangs fighting overrode rules. What's more, traditions were criticized as bad things that must be removed. Formal eduction was halt because authorities were challenged. This affected the then young generations whom not only received no eduction but also were influenced by propaganda that outlawry was just revolutionary. Over the years these generations became parents and grandparents and they passed down this new tradition to their offspring. Now those then young generations or their children became the masterminds of businesses and those outlawry practices were deeply rooted in their minds.
Then later in 1980s' the theory of "be it white or black, it is a good cat as long as it catches rats" by the then national chief, Deng, promoted a rush on the nation-wide money making. The original meaning of this theory was meant to end the debate on the superiority between communism and capitalism but to focus on the productivity. However, with the lack of the ethical guidance throughout the nation this theory quickly translated into the version of "who cares as long as I made money? " and spurred a round of money-making storm without integrity since then. Compounded with the monopolized party ruling that prone to breed corruption, nowadays shameless became the norm in the whole country disregard whichever areas or sectors are.
When trust in a country became a luxury then it could lead to an even more serious issue, ie., how long the regime can last? Nowadays fraudulence in China is not limited in private sector or businesses only but throughout the government as well. However, China is so big and the economy scale is also huge so reliable information is crucial on the monitoring of the development on various activities followed by suitable and timely adjustment on the related policies to address the issues. The point is that accuracy of these information is not guaranteed as fraudulence became a norm and practice no matter in the public or private sector. Statistic could be just fabricated figures failing to tell the truth then how the central government can really see the problems and where they lie? Let alone the needed follow-up actions. This undermines the governance and puts the ruling in danger.
As China's economic strength is on the rise, it demands more say on the global affairs. To back this change on status quo China is flexing its muscle in high profile in this decade. Its huge market potential attracts many businesses around the world. People see a powerful and opportunities rich country is uprising. Or is it?
The North Sea Fleet in the Qing Dynasty was also seen as an invincible fleet that the dynasty was very proud of because all the warships were so powerful and were supposed to be best equipped with state of art technologies. However the fact was that because of corruption and fraudulence the fleet was only a shit. Many ships of the fleet were destroyed and some were captured when it broke into combat with the Japanese fleet in 1894-95. The whole world then finally realized that the once giant was nothing but actually an empty shell only. The fall of Qing Dynasty was attributed by many factors but corruption and fraudulence were no doubt among the key ones.
Now China displayed its military muscle to claim how powerful their army is. Could it be the modern version of the North Sea Fleet? The hardware of an army is no doubt important but what if the core is rotten with corruption and fraudulence which is already a known secret?( Thus Xi could capitalize this phenominon to remove Jiang's allies from the army). How much fighting spirit does it has when morale has gone? Let alone the army has never engaged in large scale real life combat for 40 years since the war with Vietnam in 1979. On the other hand its most probable rival, the U.S. army are involved in different battles openly or secretly from time to time to drill their tactics and competency.
Vaccine is only a tip, where does the iceburg lie?
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