Monday, September 29, 2008

Buffett's Battery Bet

Forbes.com

Buffett's Battery Bet
Paul Maidment 09.28.08, 10:02 AM ET

Warren Buffett is buying batteries.

Through MidAmerican Energy Holdings Co. he is paying $230 million for a 10% stake in BYD, China's largest maker of rechargeable batteries.

BYD batteries are principally used in mobile phones, for which it also makes handset components. But it has aspirations to use its rechargeable lithium battery technology to become a green car company.

BYD plans to start selling its first all-electric car in China next year and to start selling gasoline-electric hybrids in the U.S. and Europe by 2010. BYD short circuited the difficult process of getting government permission to build cars by buying bankrupt state-owned automaker Qinchuan in 2003 to be the basis of its car-making division, BYD Auto.

The deal with MidAmerican will be unveiled in Hong Kong, where BYD is listed, on Monday. Details became known late Friday.

BYD is based in Shenzhen and has 130,000 employees worldwide. It had sales of $1.8 billion in the six months to June, up 44% for the same period a year earlier. Profit after tax was up 15% at $108 million, as raw material costs surged for both its battery and handset components businesses.

Two-thirds of BYD's sales are in China. The company's chairman, Wang Chuanfu, said in a statement that the investment from MidAmerican will help give BYD further access to global markets, particularly for its new electric vehicles and environmental protection products.

Buffett is getting his BYD stake at a tiny discount to Friday's closing price of HK$8.40. The stock hit a 52-week low of HK$6 on July 24 in the wake of Hong Kong's High Court dismissing in late June a request to halt a lawsuit filed by Foxconn International Holdings, the world's biggest contract maker of mobile phones, for allegedly stealing trade secrets.

Buffett's BYD stake isn't on the scale of the $5 billion he invested in Goldman Sachs earlier in the week, but he has a record of savvy China deals. He invested $488 million in PetroChina stock in 2002 and 2003. In 2007, he sold his stake for $4 billion.

Speculation - Two Edge Sword

In a turbulent market, you can make big money. But by the same token, you can also get yourself into deep trouble if the market turned against you.

The following is an extract from Business Times on what will happen if you short and failed to cover your position.

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Business Times - 23 Sep 2008

Unknown short-seller hit by $1m loss

SGX initiates buy-in for shares against short-seller who fails to cover his position
By VEN SREENIVASAN

Someone out there is licking his wounds after taking an almost $1 million hit after a naked short-selling adventure that went badly wrong.

The Singapore Exchange (SGX) yesterday initiated a buy-in for a huge chunk of China Hongxing shares against a short-seller who had dumped the stock last Friday but failed to cover his position before the close of the session.

In all, the SGX yesterday bought-in some 13 million shares of the mainboard-listed Chinese sports shoes and accessories maker at around 35.5 cents per share.

This was to cover the short sale of an equal amount of shares at around 25 to 27 cents per share during last Friday's session.

Besides taking a loss on the price difference, the short-seller also took a hit on the transaction fee of $40 per block transacted, and a higher brokerage rate of 0.75 per cent on the deal.

Market insiders reckon the loss could stack up to around $1 million.
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And what if you still stubbornly short the market without covering your position? Well in that case, this is what’s going to happen to you. The following is an extract from Business Times.

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Business Times - 27 Sep 2008

SGX will not penalise naked shorts caused by 'honest mistakes'

By LYNETTE KHOO

…….Starting Thursday, SGX imposed a penalty of 5 per cent of the value of a failed trade subject to a minimum of $1,000, on top of the current processing fee of $30 per contract. A broker who fails to deliver the shares in the buying-in market may also be liable to a penalty of $50,000 and/or barred from participating in the buying-in market.

The penalty is to be paid within five business days of notification. But SGX clarified that there are provisions to appeal against penalties. While a decision on an appeal is pending, the dealer does not have to pay a fine. The result of the appeal will be known within 10 business days of the date of notification. 'We will consider factors such as the intent of the investor who opens the sale, profile of the investor and trades, and whether the trade has any potential adverse impact on the integrity of the settlement system,' said SGX head of markets Gan Seow Ann.

The fines will go towards investor education initiatives.

Mr Gan also said that the primary intent of the new rules is not to curb short-selling per se but to deter failed share delivery - which threatens to compromise the settlement system. 'It was never meant to be a response similar to what you see in other environments, where regulators have banned short-selling,' he said, though it was easy to make such an association as the measures came just after regulators imposed short-selling curbs elsewhere. Mr Gan stressed that the measures are largely pre-emptive. 'Despite the market turbulence and all these uncertainties, trading continues to be orderly and there was no pressure on the system as far as settlement is concerned.'

On the Hong Kong bourse, naked short-selling is illegal and subject to jail terms and/or fines. The Hong Kong stock exchange (HKEx) said yesterday it also plans to increase the penalty fee for securities settlement failure……

Saturday, September 27, 2008

Changing Mindset, Changing Life

Since I started blogging, I’ve been sharing on investment strategy, financial planning, market/company updates etc. There is one other thing that I talked about frequently in my blog – positive mindset. Today, I will share with you living testimonies.

My career, since the day I quited the Army has been rough and bumpy. Although I am not a scholar or scorer in my grades, my career development at this age has been less than satisfactory. I used to say that it was the fault of the economy, the timing, god and many more. But about five years ago, I was fortunate to meet this man in my job. He was the one who changed my perception, introduced to me a new approach to life and success, altered the way I look at things and helped me to overcome many difficulties. I think it’s about time I give full credit to him and give good account of what he had done for himself.

A Living Testimony

Now, if you are my colleague and are reading this article, please keep it to yourself. Having said that, I will try to be diplomatic and political in my words.

Cayden Chang, an extraordinary man with a passion for success, a man of action, highly focus and highly motivated. Most importantly, he always expects result and nothing less. You must be thinking that naturally everybody wants to be successful. If that’s what you are thinking now, you missed the whole point. Everybody wants to be successful; you can hear that especially when people start talking about it. But when comes to action, most people (probably including myself) are not determined. In other words, to many people success is not a MUST, it’s just a WANT, i.e. success is optional. You must be thinking that I am talking shit. Let me illustrate:

About two years ago, I had a chat with one of my ex-colleagues who was unhappy with his work and pay, as usual. He wanted more; he wanted to be successful. We were having a coffee break, just two of us. So I tried to be “kaypoh” and shared with him that our greatest obstacle is not chance, it’s our mindset or determination. He replied that he is very determined. So I told him that I have friend who is a very successful property agent. He is my secondary school classmate and only has GCE “O-Level” but he is doing very well in property line. So I offer this ex-colleague a chance to be trained by this successful agent. He replied that he also heard of successful property agent earning more than $10k per month. However, he doesn’t really like to be a property agent (see what I mean?). I just return with a smile.

My First Encounter

I came to know Cayden when he was posted to my office as my Manager (Executive rank). We worked for a listed company. I was also new in the office then, joining the company for less than four months. So I had the chance to learn from him from scratch. I remember that Cayden reviewed all our work and procedures and was shocked to know that everything wasn’t done properly before. He then personally trained us and put everything in order again. It was already a tough job just to put the foundation right again.

After working with him for few months, I started to understand his style and felt the pressure. In short, he spend lots of time training us up, making sure we are fully competence and then he went on to take up projects at highly level. He always volunteered for challenging task at higher management when many will keep their head low. He was not scheming, in case you are thinking on the negative side. The price - we worked together for long hour daily and I was always back to office during weekends. To most employees, and perhaps including yourself as you are reading, this must be a typical “suck up” superior. But this is how Cayden convinced me: “James, how you want me to fight for your promotion and highest bonus? By telling management that you work hard, reported to office on time, completed your job diligently? But who aren’t? Or by telling management that you can run the whole office yourself without my supervision and completed additional task that everybody shunned away? Your peers, there are so many of them but only a few will move up. And as a new staff, you already loss out compare to the rest. If you want to excel, you must achieve positive result in black and white. Do you want to be successful?

Recently there is a movie (Singapore Production) – Kallang Roar. I didn’t watch it but I remember a part of the script which says something like “if you are not a winner, you are nothing”.

Anyway, that was the first time someone say this kind of things to me. None of my ex-highly-paid-officer has ever says this to me. And honestly, although I understood Cayden’s teaching, but it wasn’t easy to absorb initially. He took his time to continue to change my mindset. He reviewed our work frequently, goes through with us on how to achieve the target he set for us and explained to us why he has done that. Together we groomed and motivated subordinates and “chopped off” the incorrigible one. It was hugely difficult when comes to managing people. And believe or not, our office’s KPI for that year shot up from bottom to top three! Come to think of it now, it was a little bit like Romance of Three Kingdoms, when Liu Bei led small troops against enemy in huge numbers.

Before I move on, let me clarify that the above is a summary of the things he told me, not exactly word-for-word but something along the lines. Moving on, Cayden was promoted that year to Senior Executive. Unfortunately, before I get the chance to harvest my fruit, I resigned to pursue higher studies. Cayden persuaded me to stay but I have different plan. Knowing that he couldn’t change my mind, he bought a book for me. Initially I thought it was another book on Management and so I put it on my bookshelf. We still keep in touch after I left. About half a year later, something happened.

Another Living Testimony

Half year later, I came to know a man (a Warrant Officer) in the Army during my in-camp training (ICT). This man had achieved so much in many areas (career, studies, physical fitness etc) although he is just a specialist. The most amazing thing is that at age of 40 plus, he continues to maintain below 9min record for 2.4km run and had been training young officers and specialists for marathon. I couldn’t run below 9min at the age of 22 as a Guardsman (vocation just below Commando). On the last day of our ICT, many of us met at the Mess for a drink. And when he shared with us on his “secret to success”, he gave all credit to “changing mindset”. He specially recommended a book titled “Master Your Mind, Design Your Destiny”. None of my Army friends heard of this book but I got one right on my bookshelf, a gift from Cayden! Back home, I immediately picked up the book to read and also wrote an email to Cayden to express my most sincere appreciation.

Few months later, I rejoined Cayden’s company again but in different department. By now, I had been equipped with different mindset and Cayden was already a Manager by corporate rank. And one year later, he was further promoted to Assistant Vice President. This is really amasing. He started low and humble, but he was simply “2 Fast, 2 Furious”.

Cayden didn’t stop pursuing for his happiness. He resigned and moved on to coach people on positive mindset. He set up his own training company known as Mind Kinesis.

Conclusion

Cayden’s road to success didn’t come easy. He started from scratch but skyrocketed. In his pursue for happiness, he met more extraordinary leaders but also adversaries. I had heard of other colleagues criticising him as “market spoiler”. But in my heart, I can see clearly and objectively who is the real champion. So did you ever claim someone as spoiling market? If yes, then you are very guilty. And Cayden has also influenced many. By adopting his teaching, I am also earmarked as market spoiler by others now. I didn’t bother to explain but take it as a complement instead. And now that I had a new colleague, I used the same mindset while training her in her work. My only worry is that I am not sure if she is ready for this powerful teaching.

Lastly, about that Warrant Officer, he probably forgotten about me since we met two years ago. In fact, I also couldn’t even remember his name. We are just acquaintance. During recent ICT, I met him again along the corridor. I recognized him and called out for him:“Encik, thank you for your sharing on positive mindset two years ago”. He stunned for a second but immediately recalled the incident.

As for me, the story continues…….

Tuesday, September 23, 2008

What To Do With My AIA Policy Now?

Lately I bumped into two friends in a shopping mall. We chat a bit and the next question they asked me was about their AIA insurance policy. They wanted to know my opinion on next course of action - cancel or otherwise. I don't really want to share my opinion as I don't want to be responsible of negative outcome. In fact, some of my ex-colleagues in the Army were asking me what to do with their policies. Should they follow the crowd?
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So before I share my opinion, I would like to disclaim my liability (like all funds or investment products). Make no mistake please, that I'm not a professional, qualified or track-recorded financial expert. Yes I may have experience in equity investment, studied investment management but that's about all. But I have addition skill - commonsense. Like my ACCA lecture used to say: "commonsense is the least common human attirbutes".
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Anyway, if you want to cancel your policy, there are a few things you must understand. Firstly, does your policy comes with cash value? Does it comes with returns? For example, a living policy carries cash value at the end of the policy assuming the policyholder never claims it. It therefore, form part of that policyholder's retirement plan. If you cancel by monkey-see-monkey-do, most probably you'll incur a loss as the policy takes a long time to breakeven and to eventually make a positive returns. Usually it takes more than 10 years. In addition, if you want to switch to another insurance company, you'll also suffer one or both of these:
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1) Due to age and medical history, you may not be able to get the same protection with the same costs.
2) Investment in insurance products such as a living policy requires considerable amount of time to breakeven and to turn into positive contribution. The benefit of a living policy is the protection for critical illnesses and that it form part of a policyholder's retirement, if the policyholder never make a claim on it. And time is needed for it to grow into a big retirement savings. This is the power of compound interest - time is of essence. Well, if you're already 40 or 50 plus.... you certainly running out of time to see your new living policy turned into significant retirement savings at the same costs.
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AIA recently publish in the paper to calm all policyholders by assuring that they have sufficient assets to meet their obligations. Under normal circumstances, I would not take their words and will cancel the policy right away, if I have one. Simply because I don't trust the management's statement. BUT, MAS has also assured Singaporean on AIA's asset to meet obligation. I trust our government. I trust our financial system, and all the rules and regulations governing the financial industry.
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So my ultimate conclusion? Don't cancel your policy with AIA - this is what I told my friends (with disclaimers, as usual). In any case, the damage will be bad if a policyholder cancel it right away - may not get much out of many years of premiums. In that case, might as well trust the MAS and bet on it, that everything will be fine. Lastly, of course if your policy doesn't carry a cash value (no return) such as the term policy, then it doesn't matter if you want to cancel, assuming you are as healthy as before.

Wednesday, September 17, 2008

At The Verge of Recession

As the financial crisis dominates the headline, my friends have been asking for my opinion on stock investment. One of my colleagues asked me the same question two weeks ago. She told me that her ex-colleague encouraged her to “anyhow whack” since “stocks are really cheap now". This was my reply to her:

“How do you define cheap or low?”

I told her that if she buys, her savings would be gone. That was my opinion. In fact, that was my opinion since the start of this year. Checking through my blog you’ll find plenty of it. I don’t have to brag about it.

I was servicing my in-camp training lately. A few ex-colleagues in the forces are also interested in making money. I told them to wait for that opportunity; to wait for my call. Frankly speaking, I have totally lost track of the stock market. In fact, I hardly log into my trading account to check my portfolio. I’m sure I’m sitting on huge losses at this time but my life hasn’t change a bit. The main reason is because I never gamble, and that’s my first principal in investment. I have stop reading financial news, browsing SGX website. So during my in-camp training, I brought Business Times to read and truth be told, all penny stock and mid-cap stock plunged severely from its peak in end 2007.

Following the news on the collapse of Lehman Brothers and takeover of Merrill Lynch, global stock took another plunge. This just to prove my view early this year that US financial crisis has not ended yet. And until US solved their financial crisis, stock market will continue to be highly volatile. In addition, I still strongly believe that we have already crossed the peak of the business cycle somewhere end of last year. We are on the downturn now. There will still be fluctuation and many more “bear traps”, but in the longer term, it’s still going down. Therefore, no matter what you do, if you try to invest now, you’ll have to kiss your money away. Unless you speculate, which I will never encourage, you will never make it. What we need now is to wait for all dust to settle, whether there is going to be a recession or not, and then re-assess the economic movement.

In sum, do not follow amateur’s motherhood statement like “stock price is low”. Keep your money in the bank at this point, although bank will give you peanut rate. What goes up must come down. By the same token, what comes down must go up. The only challenge is – when is the right time. And that is a million dollar question.

2009 F1 Singtel Singapore Grand Prix - 27 Sep

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