Volume 4 Issue 8: Intelligent Investing

DC Metro Violinist - People Don't Appreciate Beauty? Or Have You Fallen Victim to Fallacies?

When I saw a bunch of people shared this on Facebook, my initial reaction was to agree with the passage. I was about to shake my head in dismay with the rest of the world when I realized that the passage was utter hogwash. Those of you who felt that people these days no longer stop and smell the roses have fallen prey to the tricks of journalism.

I am not saying that the story is a lie, but the scenario was twisted to demonstrate "a fact" when in fact, it actually shows nothing. It is actually a fallacy, as I will soon show.

But first, for those of you who have not read the passage, here it is below:

 A man sat at a metro station in Washington DC and started to play the violin; it was a cold January morning. He played six Bach pieces for about 45 minutes. During that time, since it was rush hour, it was calculated that 1,100 people went through the station, most of them on their way to work. 

Three minutes went by, and a middle aged man noticed there was musician playing. He slowed his pace, and stopped for a few seconds, and then hurried up to meet his schedule.
A minute later, the violinist received his first dollar tip: a woman threw the money in the till and without stopping, and continued to walk. 

A few minutes later, someone leaned against the wall to listen to him, but the man looked at his watch and started to walk again. Clearly he was late for work. 

The one who paid the most attention was a 3 year old boy. His mother tagged him along, hurried, but the kid stopped to look at the violinist. Finally, the mother pushed hard, and the child continued to walk, turning his head all the time. This action was repeated by several other children. All the parents, without exception, forced them to move on. 

In the 45 minutes the musician played, only 6 people stopped and stayed for a while. About 20 gave him money, but continued to walk their normal pace. He collected $32. When he finished playing and silence took over, no one noticed it. No one applauded, nor was there any recognition. 

No one knew this, but the violinist was Joshua Bell, one of the most talented musicians in the world. He had just played one of the most intricate pieces ever written, on a violin worth $3.5 million dollars. 

Two days before his playing in the subway, Joshua Bell sold out at a theater in Boston where the seats averaged $100. 

This is a real story. Joshua Bell playing incognito in the metro station was organized by the Washington Post as part of a social experiment about perception, taste, and priorities of people. The outlines were: in a commonplace environment at an inappropriate hour: Do we perceive beauty? Do we stop to appreciate it? Do we recognize the talent in an unexpected context? 

One of the possible conclusions from this experience could be:
If we do not have a moment to stop and listen to one of the best musicians in the world playing the best music ever written, how many other things are we missing? 

By: Kristof Burm

Now, how many of us know Joshua Bell? Not many, I am sure. He sold out at a theater in Boston at an average ticket price of US$100. Now, every one knows that paying US$100 for a performance is a luxury many of us cannot afford. Would you pay US$100 to listen to a musician you don't really know? Perhaps it is my ignorance, but it is more likely that a performance by Joshua Bell is a luxury good.

Imagine the following scenario. If all the rich people in the world decided to buy up all the caviare in the world and open a stand in Africa and start giving it out for free. Do you think that the starving people in Africa would appreciate the luxurious food that is caviare? They would not even know what it is. Some may not even like it. Anyone with half a brain would argue that the Africans would most certainly appreciate it more if all that money was used to buy them rice instead.

Let us return to the Joshua Bell scenario. The passers-by at the DC Metro are average Joe's from the main street. They wouldn't be able to tell the difference between Joshua Bell and a Grade 12 violinist (I don't even know if there is such a thing). Heck, I would not even know what Bach's music sounds like. Is it because I am ignorant? Perhaps. But I think it is because classical music is no longer main stream. People's tastes and preferences have evolved. People who pay a tonne of money to see someone perform classical music are not very different from those who are willing to pay a lot of money for antique tables. To a normal person, an antique table is just a really old table. It is a luxury that an average Joe like you and me would not care for.

I'd much rather spend 10 times less and get a hyper-modern looking desk from Ikea. The reason people did not stop for Joshua Bell was because the music that he is playing is not main stream enough for the main streeters.

Now, imagine another scenario. Let us say that instead of Joshua Bell, there was a flame eater who was performing at the DC Metro. I would bet you a nickel that he would probably end up collecting more money than Joshua Bell playing the violin. Why? Simply because it is something people from the main street would appreciate a lot more. People would stop and watch. They would appreciate the talent of a flame eater a lot more than the talents of Joshua Bell.

Perhaps the people from the good paper of the Washington Post should conduct a control experiment as well. Place a flame eater on the same corner. OK, maybe it is not so practical due to safety concerns. Then measure the number of people who donate money and the number of people to stop and watch. It is safe to say that a lot more people would stop and appreciate that talent.

To push the argument a bit further. Imagine if Taylor Swift, or worse, Justin Bieber was singing at that corner. I think the amount of floor space at that station would not be able to cater for the crowd that would gather around that performance. This is simply because their music is a lot more main stream.

So next time, before you jump to any conclusions about a news article, pay attention to the slants of the journalist. Don't fall prey to dirty journalism tactics. Good information is so hard to come by.

Worth Every Penny: Ben Mee

This is the kind of commitment that marks a true professional. Doing whatever it takes for his team:

If you have doubts, watch 0:15.

Volume 4 Issue 7: Intelligent Investing

Civil Service Wages - One Step Forward, Two Steps Back

Another way to put this is that the government is not only shooting itself in the foot. It is also shooting Malaysia in the face. 

In the guise of "raising" public sector wages, the government had once again served the interests of the people in the top echelons of public service:

The Malaysian Insider understands that Putrajaya wants to completely overhaul the scheme which only seemed to benefit top civil servants but many of an estimated 2,000 senior civil servants have already signed and consented to the new scheme, which guarantees a pay rise of some RM5,000 a month.

Can you believe that some of the civil servants are guaranteed a pay rise of RM5,000 per month? The increase alone is more than most of our monthly incomes. Get this:

The proposal, which sees the highest pay at RM60,000 a month for the Chief Secretary to the Government while those in lower pay grades would receive an increment as low as RM1.70, has ignited anger and disapproval in the 1.4 million-strong civil service — a key vote bank for the ruling Barisan Nasional (BN) coalition — ahead of a general election that must be called by May 2013.

 I don't know how RM1.70 is going to make any difference in a person's life. Clearly the plan was well-thought out. So not only are the "rich" rewarded, but the poor are being marginalized yet again. As if the problem of inequality isn't bad enough.

Long ago, I had already recommended a "wage policy" that was simple and transparent:

It is now rampant that local graduates these days can barely qualify for a job at an MNC, even with the current wage level. I have been taught by graduates with engineering degrees in my secondary school. That was almost eight years ago. The situation is that bad. If you increase the minimum wages in sectors with positive externalities, you could possibly create a productivity multiplier. More people would want to be in these areas. For example, if a teacher's salary were to be increased significantly, more people would want to become teachers. Of course the buck must not stop there. The pay for the people who actually train these teachers have to increase as well. This will result in two things. First, too many people will want to become teachers. Now, this may seem like a bad thing at first. But this is the most fundamental concept of life. Just think about how you were born. Millions of sperm going after one ova. The fittest will survive. In this case, only the best people will get to be teachers. I mean, look at doctors. When you talk to parents, they stereotypically want their children to grow up to be doctors, lawyers and whatever. Why? Because it is a high paying job and not many people get to become doctors.

This competition for survival will push for the selectivity of the people who actually qualify for the profession. Even with the failed-notion of meritocracy in our country (by that, I mean, not all the best people will be selected because of our quota system) there will be an invisible force to select the better few to perform an important job function. The majority of the people who want to become teachers would be sufficiently qualified and so would their trainers.

Now, the second result is where the positive externality comes in. I pause to make an assumption here. I assert that good teachers will increase the number of good students. With more good students who eventually become useful graduates and consequently productive workers in all industries, the economy of our country will be thriving. Think first world thriving.

This proposal also signals to the general public about what jobs does the government think is important. In my opinion, doctors and teachers should come first in order to maintain long-term growth sustainability. We need to keep our population healthy, and we need to keep our population competitive intelectually.

But it goes without saying that any wage increase has to come with proportionate improvement in productivity. And to do this,  the government or the statistics department has to come up with a proper way to measure productivity and collect data on it, just like the US. As I have shared before, one of Bob Parson's 16 rules of success is:

Measure anything of significance

When you start measuring anything and everything that you deem as important, then only can you measure your improvements. If you merely wish to "improve productivity", it does not make sense if you have no way to measure productivity.

All these are just preliminary steps that need to be taken to even come close to reforming the Malaysian economy and society in its path towards high income. All we are hearing now is just lip-service and half-hearted attempts (I also wrote about them in recently, here, here and here) at appeasing the public before the impending elections.

Staying Positive In A Negative Environment

I think this is an important skill to acquire, more important for some than for others. Long ago, the Main Streeter published a post on how dwelling on mistakes can create a mountain out of a mole hill:

Now Eve is beginning to get really frustrated. "What is Adam really doing? Why hasn't he replied my message? Why didn't he pick up my call? He must be playing computer games with his friends again. Is he out with another girl? I guess that's quite unlikely. He's not the cheating type. If only I could see him. I made sure I left my schedule open this weekend just to see him. I even decided not to go to Jenny's birthday party because it was the premier weekend for Saw V. What is he doing? Where could he be? Maybe he is watching the movie with his friends. Why didn't he invite me along? Is he embarassed about me? Does he think I am too clingy? Am I too clingy? Should I give him more space? Why am I so frustrated? He probably just didn't see my message. But why would someone own a cellphone and not be reachable? Might as well not own a cellphone". 

As you can see, this thought process can go on and on and on. This is called "dwelling". To the unsuspecting guy (I guess he may or may not be innocent, but he would in no way suspect he was doing something very wrong), he will wonder what he really did wrong. All he did was just being late in replying an sms. Besides, his girlfriend has been late in replying his messages before too.

On the other end of things, Eve is all worked up, decides to give Adam a cold shoulder and demands to herself that she deserves to be treated better. So now, what is seemingly a small situation had been blown out of proportions because of an innocent mistake. Eve continues to give Adam the cold shoulder for a few days. Adam still wonders why can't Eve forgive him for replying an sms late. Eve has replied more texts late than he has, as far as he remembers. But of course Eve's reasons were "completely valid".

The Business Insider offers some useful advice on how to circumvent this:

You can choose to think about your business's best qualities, not the worst; things to praise your employees about, not things to curse them for; the beautiful way in which your customers buy your products and use your services, not the ugly few who demand a refund. 

For example, it is so easy for us to fill our minds with what we can't do. That's a never-ending list for me. 

Right now, I could say to myself, "There's always something I can't do. Now that I think about it, there's no reason in the world I should ever think that anyone anywhere on this planet would want to read a book about working positively. I don't know why I wrote it. I wasted all this time, energy and money on a book that was supposed to bring me speaking engagements and coaching opportunities so I can transform business people's negative lives into work positive lifestyles." 

See what I mean? Of course it's not just you and me who choose to focus on that "can't do" list. We all do at times. Since your mind focuses on something, anything, it will go to that never-ending list, especially in times of frustration or perceived failure. 

It's so much more empowering to focus your mind on what you can do. No, you might not be able to do correctly what you're attempting on the first try. However, finding something you can do related to the task and focusing on that accomplishment creates a positive perception in your mind. That positive perception then becomes the jet fuel that releases your imagination to work on the rest of the task that presents such a challenge. With that high-octane fuel, your imagination soars to new heights of accomplishment in your business. 

By exercising the positive muscle group of your mind and focusing on profit-enriching activities, pretty soon that which seemed impossible about your business becomes not only doable, but you say to yourself, "I can see my business this way all the time!"

Source: Business Insider

Happy Valentine's Day

Here are 14 ways an economist says "I love you".

Warning: It is probably funnier if you have had some course in Economics before

Roubini Revisited

Just the other day, we showed again how wrong Roubini was. Here is the depiction again but in chart form:

Source: Brazilian Bubble and Nomura

Western Media Biased Against China?

Not too long ago, I shared a post that claimed that the Western media tend to be biased against China. I was referring to bias in an economic sense i.e. predicting a hard landing for the Chinese economy:

For about a year now, many people are hyping up the supposed property bubble in China. Many people have been waiting on the sidelines for China's property market to fall, and then condemn the Chinese economy for "over-investing".

Personally, I think the people above have been over-exposed to the Western media. They read from Bloomberg, the Wall Street Journal, Reuters and what not. How many of those reporters actually know what they are talking about China? To really understand what is going on in China, we should consult the experts on China. Also, to avoid the Asian bias, we should not immediately take the word of a Chinese economist.

Here is another portrayal of how the Western media is biased against China. Do read through the full article:

Accusing “Flowers” of being anti-Japanese propaganda or “one-dimensional” is but the latest manifestation of mainstream western media’s propensity to criticize China when covering the history of China’s fraught relations with Japan. Often, reports on Chinese protests over perceived Japanese attempts to whitewash its militaristic past are turned into warnings about rising Chinese nationalism deliberately fostered and manipulated by the Chinese government. Stories about new Japanese history textbooks that gloss over Japan’s wartime aggression become discussions of problems with China’s own history textbooks. 

For example, in April 2005, after protests broke out in China following the approval of new Japanese textbooks that whitewashed Japan’s wartime atrocities, AFP’s coverage contained the following: 

While learning materials in [Chinese] mainland high schools take special pains to outline Japanese aggression beginning with the 1874 invasion of Taiwan, China’s involvement in the 1950-53 Korean war is dismissed in one sentence. 

The Los Angeles Times said: 

China has criticized Japan in recent weeks for whitewashing its militarist history, focusing in particular on a junior high school textbook recently approved by Tokyo. 

“Yes, what Japan did in World War II is horrible,” said Sam Crane, Asian studies professor at Williams College in Massachusetts. “But the embarrassing fact for the Communist Party, and one that is not taught in Chinese schools, is that the party itself is responsible for many more deaths of Chinese people than those caused by Japanese militarism.” 

And the Financial Times offered its readers the following: 

For those seeking graphic if not necessarily balanced accounts of Japanese infamy, there is no better place to look than China… 

But China’s schoolbooks, carefully edited to ensure they do not contradict the official historical verdicts of the ruling Communist party, have their own conspicuous absences. Texts for middle and upper school students give great detail about the party’s resistance against Japanese oppression, but gloss over or ignore most of its less glorious moments. The brutal 1989 suppression of pro-democracy protests centred on Beijing’s Tiananmen Square is ignored. 

It is not that Chinese history textbooks do not have their own problems, or that western media do not have the right to discuss those problems. But there is an appropriate time and place for such discussions. To attack Chinese schoolbooks in the middle of reports about Japanese attempts to whitewash its history of invasion and occupation of other countries is morally dubious to say the least. 

Suppose, when discussing Nazi Germany’s treatment of Jews, western media reports were to say: “Yes, the Jewish people suffered a great deal during World War II, but Israel has also occupied Palestinian territories and killed innocent Palestinian civilians.” They would cause public outrage and may even be accused of trying to make excuses for the Holocaust. Yet, it has been perfectly acceptable for western media to effectively say “Yes, Japan did horrible things to the Chinese, but the Chinese government did horrible things to its own people too.” 

Do we take this to mean Japan’s wartime atrocities in China are insignificant? Do the Chinese have no right to criticize Japanese textbooks? 

It is one thing for western media to be critical of the Chinese government and the Chinese Communist Party. It’s quite another to let their views of the CCP color their reports on the history row between China and Japan. Using criticisms of the CCP to divert attention away from the suffering of the Chinese people at the hands of Japanese militarists during World War II — and the refusal of some Japanese to fully acknowledge the past — and to do so consistently, this is what I would call biased media coverage.

Source: China Real Time Report

JPA Epic Fail

This should have been obvious a long time ago:

While the reports of civil servants not following a Cabinet directive to grant JPA scholarships to those scoring eight A+ and above in the SPM are worrying, the bigger question which we as taxpayers and voters should be asking our politicians is whether the returns we are getting from our expenditure on these scholarships can be justified. 

If the answer to this question is negative, then even if the JPA somehow manages to “perfect” the application process, these scholarships will still be a waste of taxpayers’ funds. Rather than getting worked up over the JPA scholarship allocation process, we should take a step back and ask two fundamental questions. 

First, do our top SPM scorers have an inalienable right to pursue an overseas education at the taxpayers’ expense? Second, do these JPA scholars “pay back” sufficient “returns” to justify the billions of ringgit spent on them? My response would be a resounding “No” to both these questions. 

 ...

Even if one can make the case that the country as a whole can benefit from the experience and expertise these JPA scholars will have as a result of their overseas education, the fact is that many JPA scholars do not return to Malaysia to work upon completion of their studies and most of those who do return never get the opportunity to pay back their scholarship bonds by working in the civil service. 

Ask any JPA overseas scholar who did not pursue a medical degree and the story will go something like this. They will report back to the JPA on completion of their studies and sit around for a few months waiting for the JPA to contact them. Many of them would seek employment, mostly in the private sector, during this waiting period. Upon the expiry of this waiting period, the JPA would either “lose” their file or send a letter to them stating that a suitable place of employment could not be found, thereby releasing these scholars from their bond. It would not surprise me to find that fewer than 5% of JPA overseas scholars actually fulfil the terms of their bond by working for the civil service.

In fact, I know a fair number who have skipped out on their bonds. What a sham.

Volume 4 Issue 6: Intelligent Investing

EPF Housing Idiocy

In many ways, I have begun to feel tired whenever I hear people preach to me that investing in property is the way to go. They tell me that house prices will never come down. I wish I could carry this blog post around with me and smack it into their faces every time they tell me that house prices will never come down.

But today's post is about something bigger than this. Recently, we are hearing all about the government trying to boost home ownership by borrowing money from the EPF and then grant loans to people who ordinarily would not be able to get loans from commercial banks. The immediate response by the public was to shudder in fear for the loss of their EPF money. What an insane and reckless move by the EPF to effectively lend to borrowers who are "subprime". So, the EPF had to come up with a clarification that the money is actually only loaned to the government, not to the subprime borrowers. As if this would make the whole issue OK.

There are so many things wrong with this proposal.

Default Rate

According to this article, this is what Raja Nong Chik, the Federal Territory Minister said:

Raja Nong Chik had said the loan was secure as it is guaranteed by DBKL, a government agency, and the EPF will earn 5.5 per cent interest per annum in repayments made by the 20,000 new homeowners. 

The Umno senator had said he expects “not more than 10 per cent will default”. 

He added: “The loans are backed by City Hall which has RM1 billion in reserve. You cannot doubt City Hall.”

A 10% default rate is insane. It is like a slap in the face, and then some. No bank will accept a 10% default rate on its books.

Interest Rate

Why is EPF earning a 5.5% interest? The government can go into the market and issue bonds at 4+%. Here is a chart showing the indicative yields as of December 2011:

A 20-year bond currently yields about 4.1% per year in the market. That is a difference of about 1.4 percentage points. Bear in mind that this is a 20-year bond. So if the government borrows RM300 million at 5.5% for 20 years, it will have to repay RM875 million (assuming its zero-coupon) in December 2031. If the government were to issue a 20-year zero-coupon bond at the current market rate of 4.1%, it will ONLY have to repay RM670 million, a huge difference of RM205 million. Of course it is not zero-coupon but using the difference in yields to maturity, you get a rough idea of how much money the government is actually wasting unnecessarily by tapping on the EPF funds.

Effectively, this is actually just subsidizing the EPF contributors. It is basically taking the money from the government's pockets and then putting it into EPF's. While the goal was to "help" the poor buy houses, the government is actually only helping the "not so poor" (which are the EPF contributors). Most of the hardcore poor people do not even contribute to EPF. So who is this actually helping?

And it doesn't help that Raja Nong Chik keeps mum about the rationale of the scheme:

Raja Nong Chik however declined to comment about this as well as why the government did not just use federal funds to finance the loan scheme. 

“Direct that question to the EPF,” the minister told The Malaysian Insider. 

The EPF clarified on Thursday it is in talks with a government agency to provide loans to city renters to buy homes but that the deal has not been inked. 

It also said that the terms involve lending an initial sum of RM300 million to the federal government through a special purpose vehicle linked to the Federal Territories Foundation (SPV FT Foundation), and that the firm will act as the middleman to grant the home loans to potential home buyers. 

Prime Minister Datuk Seri Najib Razak said last week the use of RM1.5 billion of EPF funds in the home loan scheme will not be detrimental to EPF contributors. 

This, he said, was because the amount needed to finance the loan scheme was not big compared to EPF’s funds. 

Raja Nong Chik gave a guarantee earlier that the government would safeguard workers’ interests, saying the deal ensured 5.5 per cent annual returns for the EPF.

Now it just appears more and more like the government is subsidizing the EPF. I think the EPF is running out of investment ideas and is simply unable to generate the "high" returns that it once did. If the EPF is unable to generate any meaningful returns to beat inflation, then it just means that it won't be able to pay out to the increasing number of retirees in the years to come.

This could mean that the government will have to keep pushing up the retirement age further and further, not that that is a bad thing.


House Prices


Another worrying thing that Raja Nong Chik said was this:

“The fact is that the low-cost property value, which Raja Nong Chik claims to be worth double or triple the selling price, has nothing to do with the issue of ‘sub-prime’,” the trio said in a statement today.

In case that was misquoted, here is another source, but this time, said by Najib:

“If at all there are loan defaulters, the houses can be sold for a much higher price,” he told reporters after a meet-the-rakyat session in Rhu Rendang yesterday.

Something clearly does not make sense here. First of all, the houses are supposedly worth two to three times more than what is being sold to these people. Who is subsidizing that? Even after the subsidy, why can't these people afford the houses? Or is it because the actual selling price is over-inflated?

Why are these so-called low-cost houses worth so much more than what they are being sold for? What will stop these people from actually selling off these houses at market prices after they are bought? Of course, you can put a 5-10 year moratorium on the deal, but still it is not that long.

What about the allocation mechanism of this scheme? Since only 20,000 people are going to be awarded this subsidy, what happens to all the other people who are left out? Is it the most effective way to allocate RM300 million?

On top of that, the math does not make sense. On average, each person would only receive about RM15,000 of loans if RM300 million is allocated to 20,000 people. What is one supposed to do with that kind of money? You can barely buy a car, let alone buy a house.

There are really so many things wrong with this deal that it is probably doomed to fail even before it begins. I have only skimmed the surface of the problems and I am sure that when the full details are released, there will certainly be more worms in the can.

Krugman Takes A Shot At Paris Hilton

Just had to post this:

But this argument applies just as much to the rich as to the poor. And strange to say, you never do find conservatives arguing that we shouldn’t worry about higher tax rates on the rich, because they’ll just work harder to be able to afford those luxury goods; or that a higher inheritance tax probably expands work effort, because it would force the Paris Hiltons of this world to go out and get real jobs.

Source: Paul Krugman

Nursing Nurses? Outrageous!

Just a few days ago, I could not help but shake my head when I read this news:

THE latest government statistics show that in 2010, more than 54% of private nursing diploma graduates were not able to find work three to four months after graduating, compared to only 21.7% in 2008. 

In that same year, there were 37,702 students enrolled in nursing diploma courses in 61 private institutions of higher learning (IPTS). Each year, some 12,000 will exit into the marketplace but the demand for new nurses in the private sector is only about 1,500 a year. 

And if you think it is easier for them to get a job in the public sector, the Health Ministry only hired 438 of these diploma holders in 2010, as it draws its bulk of nurses from public institutions of higher learning. 

When it comes to passing the Nursing Board examination, the private sector candidates, though more in numbers, have a lower passing rate. 

The conclusion one arrives at from these statistics is that there is a gross mismatch between supply and demand. But that is not the complete picture.

Guess what the ingenious government has come up with to solve such a problem?

PUTRAJAYA: The Health Ministry is working on creating vacancies at government hospitals to absorb the large number of unemployed graduate nurses. 

Health Minister Datuk Seri Liow Tiong Lai said a special committee, led by Health director-general Datuk Seri Dr Hasan Abdul Rahman, had been set up to find a solution to the issue. 

“We are working on a programme to promote those who are already in the system and the vacancies can then be filled up by the graduates,” he said yesterday. 

Liow pointed out that the proposed programme aimed to train the current crop of nurses to specialise in one of the many fields in government hospitals and in the process, create vacancies in lower-level positions.

This basically means that you and I (at least, those of us who pay Malaysian taxes) are paying for their lack of employability. One has got to ask, why do so many people want to become nurses, when they should know that the demand for nurses is not there? Somewhere, somehow, the incentive structure has gone wrong. By no means do nurses earn a high pay. So the only possible explanation is that it is easy to obtain a nursing degree. I am not saying that it is easy to be a nurse. I am just saying that it is way too easy to get a degree in nursing.

Why? Well, the question to ask is, why don't these people want to become actuaries? I believe actuaries sure as heck earn a lot more than nurses. There is probably excess demand for actuaries compared with the supply. The question is of course, rhetorical. Graduating with a degree in actuarial science is hard.

In contrast, graduating with a nursing degree, most likely, not as difficult. So why should regular Malaysian taxpayers like you and me be paying for these people who have chosen the "easy" way out. They should have probably worked harder to get more useful and employable skills in order to earn a proper living instead of having to rely on handouts by the Ministry of Health, which are actually Malaysian taxpayers' hard earned money. This is simply another example of the shameless attitude among Malaysians that demonstrate the impracticality of the ETP in "transforming" the country. For more examples, read here and here and here and here.

This is simply an outrage!

The Inverse Roubini ETF?

Roubini, the master forecaster, is at it again. Roubini is currently bullish in the short term. I call him the master forecaster not because he was accurate in forecasting the 2008 financial crisis, but because he simply comes up with an amazing number of forecasts. Probably more so than a typical forecaster.

I have written about his forecasting abilities before, so I will not go on a Roubini-bashing spree again. But what caught my attention was this snarky comment on Roubini's bullishness:

We were caught up by surprise when we read a headline that said "Dr. Doom thinks rally has legs...". So, considering his awful stock market timing (he told everyone to stay "short" in 2009 and 2010, two of the largest rallies in history!), we thought perhaps it is time to consider our "Inverse-Roubini ETF" strategy.

Shorting Roubini?

Source: Brazilian Bubble

Volume 4 Issue 5: Intelligent Investing

The Malaysian Disease?

Just the other day, the Malaysian Insider referred to the Economist's article on Najib's half-hearted reform attempts: 

As well as being right and proper, such reform makes political sense too. A younger generation of Malaysians resents the ethnic divisiveness practised by the ruling establishment and yearns for more political and social freedoms. It means that the centre ground of politics, on which the next general election will be fought, has shifted away from the politics of Malay supremacy. 

The trouble is that though Mr Najib believes in change, much of his party clearly does not. UMNO was founded specifically to protect Malay privileges and has ruled Malaysia without interruption since independence. Mr Najib came to power in 2009 not through an electoral mandate for change, but in an internal coup. As a consequence, he lacks the clout and possibly the will to impose his agenda on UMNO. And the longer he postpones an election, the more his personal authority will ebb.

...

Obstructionism from within the governing system to Mr Najib’s reforms has become brazen. Take the Peaceful Assembly Bill, awaiting signing into law. This legislation, from the attorney-general’s office, seems to go directly against much of Mr Najib’s earlier declarations about the need for greater civic freedoms. To many, the bill, regulating the right to protest, seems to be even more restrictive than what went before. Najibistas in the cabinet claim that they fought back bravely, watering down some of the more draconian provisions. Nonetheless, the new law has come in for condemnation, including by UN human-rights people. 

So much for the great reform programme. The pity of Mr Najib is that a well-intentioned man has reformed just enough to alienate his own party and too little to convince the centre ground. He may be courting electoral disaster.

Subsequently, our friendly neighborhood MCA president "took the initiative" to defend Najib:

“Everybody talked about abolishing the ISA but it was Najib who removed the ISA,” he told reporters at SMJK Chong Hwa here this afternoon. 

“And that effectively removed his authority to detain people without trial. It’s not easy for a leader to give power away like that.”

I think the obvious retort to the above example would be the implementation of the Peaceful Assembly Bill that was passed in December 2011. It is not that different from the ISA that was abolished. Anyone who has not lived under a coconut shell should know that.

But I think the Economist has hit home in the sense that the attempts are very half-baked and half-hearted. The ETP is merely window-dressing in the government's attempt to reinvigorate the "feel-good" atmosphere reminiscent of the Mahathir era. It does not solve the root causes of Malaysia's problems.

Perhaps the goal of becoming a high-income nation is high and mighty, but as every one knows, you cannot construct a tall building when your foundation is built with a deck of cards. Talent and hard work is still not being appropriately recognized in Malaysia. The belief of self-entitlement is still rampant, and is clearly exemplified in the following videos:

This is probably one of the all-time bests:

Bear in mind that these are members of parliament. They are the ones who are in charge of "law-making" in this country. And then there is also the issue of corruption. To list out the examples of reported corruption cases would be too depressing.

So, I don't care if it is the GTP, or the ETP, or the NEM, or the 10MP, or the NKEAs, or the SRIs, or the PEMANDU, or the PEMUDA, or whatever other acronyms that the government can come up with to pull a wool over the people's eyes. The government cannot just reform for the sake of wanting to reform. This is not a "sandiwara" (performance). It cannot be for show.

Reforms are meant to improve the country and its people. You cannot just throw money and people and expect them to build better lives. You cannot build a rich nation when it is still filled with lousy attitude. You cannot imagine what you see below happen in a KFC anywhere else:

It is simply appalling that a worker handling food would do such a thing without care for his fellow Malaysians who are going to eat that piece of chicken. Where is the sense of responsibility and pride in their work?

While it is not meant to be a generalization of the attitudes of all Malaysians, but it should be a worrying sign. Last year, I wrote about my visit to Ayamas and how my experience was extremely disheartening:

Walking up to the shop, I saw three of the staff who were standing at the entrance, chit-chatting away with one of their friends who brought along a baby in a stroller. They completely blocked the entrance and did not care less if a customer was trying to purchase something in the shop. After making eye contact with them, they decided to reluctantly step aside to allow me to enter to buy myself some Ayamas chicken.

...

So here I am, walking into the shop, looking forward to my "Perchik Chicken" and I saw another two employees sitting behind the counter chatting away. The first question that came to my mind was, "Why do they need 5 people working when the entire shop was empty?".

So I walked up to the counter and I asked for my Perchik Chicken and to my dismay, the staff told me that it was out of stock. Mind you that this was only 6.30 pm, which is dinner time for most people. They simply never cooked any. So after some deliberation, I decided to buy some of the original roasted chicken anyway and when I inquired about purchasing a bottle of chilli sauce that my family needed, the staff again replied with an air of arrogance that it was also out of stock.

By the way, coincidentally, or otherwise, both KFC and Ayamas are owned by the same company. Is this due to the lack of staff training? Or does it speak more about the general attitude of Malaysians these days?

I simply do not see how the ETP and whatnot can solve the social ills that is clearly seen and demonstrated in the everyday walks of life. The poor attitude descends from the high echelons of mighty politicians all the way down to food servers in the kitchens of KFCs. And as everyone knows, attitudes are hard to change and it will require a lot more self-reflection and soul-searching (which is often painful) before Malaysia can transform itself into a first world country.

Being An Investment Banker - Part 3

Just a follow up post on being an investment banker. More life experiences on the fast lane:

I soon discovered that I did not land myself a job but a 24/7 personality referred to as the investment banker. I was like a doctor on call. 

My day would typically start by waking up early morning to chat with a client in Hong Kong. And I ended the day staying up really late to chat with the one from US.
In between, my life was interspersed with mundane tasks of presentations and photocopying, with miniscule doses of financial engineering and power games. 

Let me explain. 

Investment bankers are experts at calculating what a business is worth.
To arrive at this figure, they use something known as the Discounted Cash Flow method.  

For the uninitiated, this is a valuation method used to estimate the attractiveness of an investment opportunity. It is such a sensitive tool that, by just changing a variable or assumption, you would be able to get a completely different figure. You could value a company at Rs 100 crore or Rs 1,000 crore. 

It actually was up to me!

This made me feel supremely important, despite the fact that I had to pore over coma-inducing spread sheets. 

And, of course, when you discuss mergers and acquisitions, you only meet with the big brass. Getting a handshake from these guys and having them listen to my every word and detailed analysis would set my adrenaline soaring. 

Our job also entailed raising capital (money) for companies. This was not much fun. I had to dress up a company and then present it to private equity investors or venture capitalists and even the public, if we were floating Initial Public Offerings. 

Basically, we had to sell a company, whether we truly believed in it or not. Often, I found myself pushing deals with clients that I knew would not work. I became a salesman to the core.

Investment bankers also excel in paperwork. Whether it was a prospectus for an IPO or whatever deal, we had to ensure that the figures were accurate and the language legally perfect. We had to scrutinise every word and then make hundreds of photocopies (alright, I am exaggerating, but only slightly). 

And, if it was merger or acquisition that we were working on, the paperwork assumed such gigantic proportions that a room had to be hired -- called the data room -- whose sole purpose was to store the photocopies.

There were periods when I managed to catch just four hours of sleep daily. 

Whoever said that investment banking is not about money but about the game of acquiring it (a popular saying among investment bankers) was lying through his teeth.

It makes you wonder how you sleep at night. Well, if you are an investment banker, you don't have time to worry about such things. You are basically too tired to think about moral hazard. Whenever you leave work, you can only think about sleep. And the year-end bonus.

What I loved about the job was the money. 

The salaries and bonuses were obscenely luring. (A fresh MBA, with absolutely no job experience, could earn between Rs 3,00,000-Rs 6,00,000 per annum (the latter if you are from a top-notch business school like the IIMs).) 

The salaries gave purpose to my life and the bonuses (which could go up to three to five times the annual salary) made up for the crap I had to put up with. And, yes, believe me, there was lots of crap. 

Let me tell you something about the bonuses. 

Like I mentioned earlier, it can be breathtakingly inflated figure. To get it, you have to do two things. 

The first: Work like a dog to contribute to the profits. 

If you are passionate about teamwork, investment banking is certainly not the place for you. It is more of a dog-eat-dog culture. You are on your own. Since you are paid according to the deals you cut, it works out to be a very individualistic environment with everyone jockeying for a large slice of the bonus cake. 

The second: Suck up to your boss. 

That's right. Be a sycophant, even if he is insufferable. 

Smile at him. 

Say the right things. 

Nod when he makes a good point. 

Don't disagree too much when he does not. 

Grovel at his feet. 

Your bonus is not going to be calculated according to some predetermined formula. It is solely dependent on your boss' whims and fancies.

Seriously, go read the whole article.

HT: Melvin Ang

Volume 4 Issue 4: Intelligent Investing

Why Be An Investment Banker - Part 2

Back in the day when I was growing you, everybody who was somebody wanted to grow up to be an actuary. We were all told that being an actuary was like going to the promised land. The pay is amazing, and it is pretty much the most challenging job in the world. What better way than this to tell other people how smart you were.

Just say "I am an actuary", and pretty much every one who could understand what the word meant would go gaga over it. But that was back in the day. In our world today, at least before the 2008 financial crisis, being an investment banker was the new actuary.

When you think about an investment banker, you think about a suave gentleman/lady in a suit on weekdays, and sipping margaritas (or whatever) in Iceland on weekends.

Here's a chart showing why so many people want to become an investment banker, courtesy of THEiBanker.com:

It's a little small to fit into the column but you can click on the chart to enlarge it.

Of course, life is not all good as an investment banker. Well, certainly it is not for everyone. As the iBanker article depicts it:

Some people know they want to work in finance from a young age. True, it’s rare but when you meet them in a bank you’ll recognize it. More often than not they’re very sharp. Everyone in the team will either love or hate them. There is no in between. At a junior level (i.e. analyst / associate) they are typically the guys who make far fewer mistakes in presentations and models, digest information and data the quickest and generally appear to feel most at home in the building. It is almost a given that they’ve breezed through their finance studies in university. Some of them probably could have joined a bank straight from school rather than attend university. 

When these worshippers of finance walk across the trading floor or past the Head of M&A’s office they’ll fight hard to keep a stupid smile from manifesting itself. They cannot help it…the trading floor is like a playground for them…the Head of M&A’s office like a throne. And if receive a nod of acknowledgement from the man inside that office they may rush to the bathroom, lock themselves in a stall and cry out of joy for the job they consider a blessing. They probably hear Vivaldi’s Four Seasons (Spring!) in their heads when they walk around the bank on a busy Monday morning. Or perhaps Beethoven’s Ode to Joy – the part where the entire ensemble comes together in joyous harmony. 

For these special souls, the enjoyment they derive from reading the Financial Times on a Friday morning is tantamount to a sustained mini ejaculation.

Emphasis mine. However, sometimes, the price they pay is huge:

The people in this group are those who’ve planned the mission from day 1. They have given themselves two or three years to immerse themselves in that world, work like a horse, learn as much as possible about finance, hone their presentation and Excel skills, add some eyebrow-raising bullet points in the resume / cv and get out before it’s too late.   

Once the tour of duty comes to an end they tend to head back to university for graduate studies, launch a start-up, spend a year backpacking around Latin America flirting with locals and smoking some good shit, set about writing an ebook they’ll make available for download on a personal blog for $39.99, move into an Ashram in Uttar Pradesh and massage each other thinking it will lead to enlightenment and practice minimalism, etc.
Sadly, only some of the people who swear an oath to the tour of duty on that very first day fulfill their mission. Everybody reading knows what I’m talking about. To those in the business: how many times have you told yourself, ‘just one more year…just one more bonus’? To those who have friends in the business: how many times have you heard them insist they’ll soon leave their job? Most end up MIA (missing in action). Once behind enemy lines and captured people slowly forget the original plan, easily overshadowed by the perks of the job. That is precisely what happened to Carlos, a friend of a friend. 

He was on a two year plan. So he said. Six years later – though you’d think it more like 15 years looking at his face and what’s left of his hair – he still insists departure is imminent. A few months ago I ran into him in a lounge in New York. Rihanna’s What’s My Name started to play and he began to dance. You could call it that…if you were looking through a kaleidoscope. In some parts of the world he’d get violently beaten with a dead monkey and have his head shaved with a butter knife for looking that bad. 

He used to dance with a modicum of style. But after sitting on a chair crunched over a computer 12+ hours per day modelling on Excel for six years a few screws go loose.

Economists very often say that interest rate is the "price" of money. Reading all this would make you think otherwise. Why are we after money so badly? What would we do to get money? Just recently, I watched an interesting movie called "In Time". It is very hard to spoil the movie for you, especially since the elements are not entirely unpredictable for an ardent movie buff, but the concept was pretty interesting nonetheless.

It is set in a future where time has become the currency and not money. Every single person has a nano-chip embedded in them which shows how much time they have to live. And that is the currency for any transaction they wish to make. Check out the trailer:

It kind of begs the question, why do they have to try so hard to live? Is it just pure instinct? Or is there a higher purpose? What would you do if you had all the time in the world? Or all the money in the world?