The Warren Buffett Portfolio

 



When you have reached the millions in net worth, or when you hit the big 55, you will need to read this book eventually. When you used to scoff at 10% annual returns ( because you think you can do 100% in that forex market) , you may now find it a bit difficult to even get 6% ( after taxes and fees!) if you want to get a good night sleep on a safe portfolio.

His main focus is FOCUS INVESTING...

(1) Find that 10 good stocks
(2) Put 10% of your net worth into them
(3) Hold for at least 5 years

And how to find the 10 good stocks?
(1) Profit companies ( BUSINESS Tenet )
(2) Good management ( MANAGEMENT Tenet )
(3) Focus on ROE ( not just EPS) 
(4) Buy at a discount   ( MARKET Tenet)

And forget about the Modern portfolio Theory and Efficent market hyphothesis!

Use :
(1)  Multiple Models,
(2) reduce risk by finding all you need to know about that 10 companies,
(3)  forget diversifation, focus on 10
(4) the market is NOT efficient

More ideas in the page on Maths and Psychology:

(1) Prime vs Action bets
    Place small amount if you need action bets. But make sure you bet big enough when the odds are staked in your favour.

(2) The Kelly optimisation model
    2P-1=x whereby p=probability of the event happening and x=% of bet to make

(3) Sum of probabilities
      E(win) ( win amount + E(loss) ( loss amount)= the E ( positive/ negative outcome)

(4) Behavioural finance ( Thaler )
     (i) Overconfidence
    (ii) Over reaction
    (iii) Aversion for loss
     (iv) Mental Accounting

(5) PAMP
    (i) Proability of event happening
    (ii) Adjust P in event of new information
     (iii) Margin of safety
     (iv) Percentage of bets

(6) Probability from Card counting
     Assign +1 to small cards, and -1 to big cards. After the appearance of many small cards in succession ( the total goes to a big positive number), it is time to place a big bet on the blackjack hand. The banker has to take the cards at 16 and below, whilst staying at 17. So he needs to get either 1,2,3,4 to stay in the game.... whilst others5,6,7,8,10, jack, queen, king is more likely to appear after a series of small cards ( the sum gets bigger).

Higher level of card counting systems assigns neutral figures to 7,8,9...
"... For instance, the Hi-Lo system subtracts one for each dealt ten, Jack, Queen, King or Ace, and adds one for any value 2-6. Values 7-9 are assigned a value of zero and therefore do not affect the count..."

 http://en.wikipedia.org/wiki/Card_counting

The Wizard of Lies

 


















A Ponzi scheme worth USD65 billion?  Wow!

The lesson.... Y, R, S, S...

There is no yield without taking risk, and sacrificing safety and sleep.
The Madoff investors were looking for yields with safety, and Bernie Madoff gave them both. Imagine getting 10% to 12% every year for 40 years? ( The magic word...let's pay them interest!)

Greed...

Never trust a scheme that pays more than 5% without taking the risk of capital loss... remember Lehman Bonds? That pays 10% annually and yet rated AAA?

Madoff probably started the seeds of Ponzi in 1962 when the mini crash happen. The 1987 crash resulted in redemptions, and Bernie had no choice but to rob Peter to pay Paul.

The rich can also be suckered, eh? With all the private and exclusive bankers and advisors working for them....

Popular Chinese Fables

It is always easier to read comics than wordy books!

There are 70 sayings/ words of wisdom/ idioms / quotes contained in this book .

I am sure you can find one that you like ...

Here are a few that I like...
 
(1) han dan xue bu : learning to walk the Handan way
                     ( lesson : don't lose yourself in the course of imitating others )
(2) ba miao zhu zhang : pulling up shoots to help them grow
                     ( lesson  : too much interference will only hinder growth )
(3) ge rou xiang dan : cut off one's own flesh and eat it
                    ( lesson : death comes to those who perform blind heroics )
(4) dong shi xiao pin : Dongshi imitates Xishi
                   ( lesson : look at yourself before attempting to emulate others )
(5) yi she bu zhong : Yi misses the target
                  ( lesson : have no undue concern about personal gains and losses)
(6) zhen ren mai xie : The man from Zheng buys shoes
                 ( lesson : be flexible or risk wasting time and energy )

Our Customs and Traditions - The Origins

It is quite to common to see various religious ceremonies being performed at major events of the Chinese family : birth, marriages, festivities, death.

Many view it as mere superstitions or old traditions.

This book analyses the rituals from the Taoist and Buddhist view.

Most are well known, but some is relatively unknown but very important :
(1) like informing the Gods when you are divorced
(2) do not pray to both the paternal and maternal Gods at the same alter without defining the boundaries
(3) placement on dieties is from the view of the dieties, male on the left, female on the right of the dieties. Humans will view it from the opposite side. The dieties left is our right!
(4) Heaven, human, earth is the correct sequence.Hence, heavenly Gods must be place on a higher plane than the ancestral tablets.

It is always good to be informed of other peoples beliefs so as to seek better understanding of our fellow human being. This way, many misunderstandings will not arise!

The Value of Nothing

And I thought that this verse was from Warren Buffett...

"... Nowadays people know the price of everything and the value of nothing"...

... but it is actually from Oscar Wilde, The Picture of Dorian Gray.

Now , I know why economists and researches spend so much time in the library to regurgitate old facts. So that the truths can be presented in a easier form for the masses to understand.

Hers are so news facts that I have learned ...

(1)  fake alpha : bets that appeared to produce consistently good returns despite having a small built-in chance of catastrophic loss
(2) if war is God's way of teaching Americans geography, recession is His way of teaching everyone a little economics
(3) Anton's blindness : sufferers are blind, but possessed of a fervent belief that they can see ( unaware of their inability? )
(4) Private Profit, Socialised risk : Goldman Sach's USD13 billion investment in AIG was repaid in full at face value whereas investors in Chrysler was paid 25 cents to the dollar.
(5) $7.2 million per life ( actuarial figure )  : Iraq war costs $3 trillion
(6) Homo economicus  : the economic man
(7) Games : Public Goods, Ultimatum, Inequity Aversion
(8) Easterlin paradox : the pursuit of wealth doesn't create happiness
(9) Psychological well being is a source  for both generosity and happiness
(10) The corporation is a psychopath!

TheTimeline History of China

This is the kind of Book that I like...plenty of pictures, very little words.


Informative, yet easily digestible.

The part on :

(1) The Dynasties
(2) The Convergence of Taoism, Confucianism, Buddhisim
(3) The Book of Divination and Years

is very illuminating!