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Sohn Investment Conference London Oct 2013 – Hedge Funds vs Pediatric Cancer

First Published in BBeyond Magazine 1/2014 – Download PDF


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Use your “gifts”

December 23, 2012 1 comment

It is the season where we receive Christmas presents and make New Year’s resolutions – a time where we hope to receive gifts that we secretly desire and make determinations to achieve new goals. Most of us hope to do things like pick up a new hobby, lose weight or sign up to the gym, obtain a new skill and learn or do something completely new. I’d like to share a story that had a profound impact on me.

When I was 10 years old, a friend of mine (I say a ‘friend of mine’ because my mum might read this one day) was looking forward to Christmas. As with all kids, he was filled with anticipation on Christmas morning. When he woke up, he ran downstairs towards the Christmas tree and started unwrapping all the Christmas gifts he received. He went to work on his first present and ripped the wrapping paper apart – “Hey, I received this present last year!!!” he thought to himself. He proceeded to unbox his second present, “Hey, I received this present last year too!!!” he said out loud. He went to the third one, “Hey, they gave me this last year too!” He opened the fourth one, “Hey, it’s the same gift I got last year!” He opened the fifth one, “Hey, these are all the gifts I got from last year!” He ran upstairs crying “Mommy, mommy, why did you give me the same gifts I got from last year? You simply took last year’s gifts, wrapped it up, and gave it to me all over again! Why? Why would you do that?” His mother replied “it’s because you haven’t used them yet! Use your gifts this year and you shall receive more next year.”

Now, I thought that was cruel. But it was the best lesson that I, (I meant he…) ever learnt. We should learn to appreciate what we have (or had). Life will not give you more if you do not make use of what you already have. Use your ‘gifts’ this year and you will receive more next year.

Merry Christmas & Happy New Year!

Best wishes,

David Wong

Career Advice

January 11, 2012 Leave a comment
Categories: Uncategorized

What role did Hedge Funds play in the credit crisis?

July 3, 2011 2 comments

I have been asked numerous times questions along the lines of “What was the role of hedge funds in precipitating the credit crisis?”

The short and simple answer is: They are NOT responsible for the credit crunch. (If anything, Hedge Funds as unregulated investment vehicles probably help keep the markets in check).

Below is the long answer I posted on a discussion forum which attracted recommendations and interests; as such, I am reposting here.

If you have to draw the line somewhere, like with all market cycles, then post-dot-com crash or 9-11 in 2001 would be a good arbitrary starting point. The key points to remember are:

1) Greenspan kept interest rates for far too low after 9-11 and the dot-com crash – fuelling a credit bubble.

2) This cheap credit meant a housing bubble, as low rates = low mortgage = let’s all buy a house! Happy days!

3) As house prices went up, banks ran out of people to loan money to, they went to subprime or Alt-A (alternative to A-paper).

4) From subprime/Alt-A, greed led us to NINJA loans. No income, no jobs and no asset. These people can’t even prove their income but they can get a mortgage. Happy days!

5) House prices were going up, banks kept lending at record low rates, paying themselves huge bonuses. Everyone was doing it. Can’t beat ’em join ’em mentality. Risk was perceived to be low as everyone believed this housing boom was going to continue. Therefore, banks can easily repossess and sell the houses on, fuelling predatory lending.

6) The loans were packaged up, sliced up and sold on worldwide (e.g. European/Japanese pension funds/institutions).

7) ‘Experts’ argue that never in the US history has there been a NATIONWIDE simultaneous fall in the housing market. (Blackswan event, God I hate that word.) This led to the belief that securitized mortgages are relatively ‘safe’.

8) Pension funds can only buy triple A or AAA rated investments. Investment banks got around that problem by mixing up subprime loans with top rated ones. Paid good money to Moodys and S&P to rate them triple A. The rationale was that not everyone is going to default at the same time (see no. 7). The CDOs (Collateralized Debt Obligations) spread the risk around…

9) Hedge funds act like vultures. They are like the market vigilante. Some of the top guys like Michael Burry, John Paulson, Andrew Lahde (my favorite because he knew when to call it quits) begin to explore ways to short housing.

10) This proved to be almost impossible. They could short firms like NATIONWIDE or homebuilders but naked short selling = their losses can be unlimited and the market can remain irrational then we can remain solvent. (Some managers who correctly foresaw the crash lost money because they bet too early and the market still kept going up.)

11) So smart guys like Paulson found a way to bet against housing by buying Credit Default Swaps (CDS). It is sort of like an insurance policy in case the loan goes bad. His line of reasoning is that, when the shit hits the fan, everyone will be scrambling to buy insurance because their loans will be worthless.

12) As Nouriel Roubini puts it: “It is weird that these CDSs (insurance policy) can be traded around freely. For example if you own a house, only YOU can buy fire insurance for it. But in the case of this credit crunch, I or anyone can buy insurance for your house insuring it multiple times, and then sell it on later, essentially betting on your house burning down.”

13) On a sideshow, Goldman Sachs got hauled up to Congress to explain the fact that they helped Paulson & co pick the worst tranches to bet against. GS later turned around and bet against housing themselves.

14) Those that did not bet against housing were geared and long – and as it turns out they were also ‘long and wrong’. Banks were highly leveraged: 30:1 for Lehman 42:1 in Bear Stearns’ case. It was a case of the sausage makers keeping all the sausages on their books despite knowing what went into them.

15) It was only a matter of time when homeowners started defaulting. It became a snowball effect. When half your neighbourhood is being foreclosed, the value of your home plummets. You bought your house for 500k, now it is worth 300k. You hand in the keys and walk away. So more defaults again!

16) Now all the banks are scrambling to buy CDS. House is on fire! CDS shot through the roof. Guess who is holding it? The hedge funds who correctly bet on them like Paulson.

17) AIG (yup, US taxpayers money bailed them out) wrote most of the CDS and sold it dirt cheap. In traders’ lingo – you have AIG making money paying huge bonuses selling insurance policy for houses built from flammable material next to a pyrotechnic factory located on an earthquake fault line. It was a case of ‘picking up nickels and dimes in front of a steamroller/freight train’.

18) No problem – when AIG was about to go down, we have TOO BIG TO FAIL. Lehman was Goldman Sachs’ number one competitor but they were allowed to fail. If AIG went down, Goldman Sachs was on the hook. But no problem, the then Secretary Hank Paulson was former CEO of Goldman Sachs (conflict of interest?). Hank played a key role in bailing out AIG. AIG straight away paid back Goldman.  Make of this what you will. “It is Government Sachs mate. GS is a branch of the US government.” (That was what a friend said to me.)

19) When the market tanked, a lot of institutions started pulling funds from hedge funds. Some of which were geared/leveraged. They then had to unload their positions in a thin market, causing a death spiral. The liquidity problem killed them.

20) So do hedge funds have a role in causing the crash? Answer = NO!  They were as much a casualty as a profiteer.

So what caused the credit crunch? Well, no simple answer. I tried to keep it to 20 sentences. I guess it is a case of pluralistic ignorance, greed, hubris and regulation (or the lack of it)?

“If I had known I was going to fall down, I would have sat down” old Polish proverb.

 

How to Boost your Work Efficiency

January 16, 2010 4 comments

Update: I have upgraded my system and am now using a Nvidia Quadro NVS 440 (quad display) video card driving 4 x 22in widescreen monitors.  *Depending on how far I sit from the screen, I sometimes feel like I am watching a game of tennis LIVE. Four 22-inch monitors (88 inches) placed side-by-side covers a 160-degree span (measured from the centre of my vision). I’d recommend 17-20-inch monitors instead, as the more displays you have, the smaller each individual screen should be. Unless of course you intend to sit so far away from the screens and use them as a video wall.

This is where it all happens.

Have you ever wondered what it would be like to improve your productivity by 25-30%? I realised that when I am producing a piece of work, researching or writing an article, almost 80% of my time is spent flicking through different windows. You know what I am talking about: you have four or five different documents opened at the same time, trying to juggle Internet Explorer, Word, PowerPoint, and Skype with the occasional Facebook as well – with iTunes playing music in the background. That is not a very productive setting and it slows down not just the PC, but your train of thought as well.

I have been working with a multi-screen set up for sometime now and it has improved my productivity by at least 25%. I would never go back to a single screen setup. ‘Once you go dual, you’ll never go back.’ With a multi-screen setup, there is no need to minimize and maximize windows and you can concentrate on being productive. I currently have a dual 22-inch widescreen LCD hooked up to my PC – supplemented by my MacBook and a laptop, making a quad display set up.

 

In case you are wondering, the poster says “PERSEVERANCE – What the mind can conceive and believe, it can achieve.” I believe the quote is by Napoleon Hill

If you are trading then it is a must, however traders usually prefer regular LCDs (4:3) aspect ratio as it is a more effective use of space, since with widescreen there is plenty of margin space at the left and right hand side of the screen which are often left unused as websites are generally not designed to fill them out.

Most new PCs are capable of powering dual display if your graphics card supports it. Most graphics cards now have a VGA and a DVI output, which is what I am using for my setup. Alternatively, you can use a USB to VGA/DVI output. It is simply plug and play and can support up to six monitors in Windows (provided your PC is fast enough). It is not for gaming though, but for normal word processing and email, it is more than adequate. Pick up the Rextron USB to DVI for £42, and an Acer 22” monitor with VGA/DVI for £127 pounds from Amazon. NOTE: I recommend that you get the same model/size monitor that you already have as it makes it a lot easier on the eyes.

Next, you might want to speed up your PC but may be on a budget. I’d recommend getting more RAM, it is dirt cheap nowadays – you can easily buy pretty decent 1GB x 2 RAM chips for less than £40. With windows Vista/XP running at 32-bit (your most likely configuration, unless you are a geek), it is worth noting that it only has enough address for 3.5GB of RAM. If you want to add more than that, you need to switch to a 64-bit operating system.

So I doubled my RAM from 2GB to 4GB, which also helped with the extra resources needed for the multi-screen setup as I have more windows opened constantly.

Lastly, I’d also recommend the Windows Wireless Desktop 3000. It is a wireless keyboard and mouse set that plugs into your USB port. It has plenty of programmable hotkeys, and you can open anything from pictures to email, and any programs you desire with a push of a button. This will further drive up your productivity when used with the multi-screen setup. The mouse uses the latest bluetrack technology and apparently it can be used on any surface! It is better than my old wired Microsoft optical mouse, despite the fact that this one is wireless. It does not suffer from interference, which is always the fear when you switch to a wireless input device. I hate using non-responsive mice or those that flicker. I have not had any problems with the Wireless Desktop 3000 and it only cost around £30. This is the one I’d recommend over the more expensive products (by Logitech) that go up to £80, which, in my opinion is no better. This is also designed for Windows 7, but it works perfectly on my Vista.

So here are my tips on how to improve your efficiency by at least 25%. Guaranteed.

  1. Get a second monitor; either upgrade your graphics card or use the Rextron USB to VGA/DVI
  2. Reduce clutter on your desk. Get the Windows Wireless Desktop 3000 and be free of unsightly and clumsy cables.
  3. Upgrade your RAM, remove all unwanted icons from your desktop, organise your files, defrag your hard drive, uninstall unwanted software. Keep your PC clutter free too!

Imagine getting 25% more work done in the same amount of time. I am already thinking of adding two more monitors to my current setup to bring the tally to six screens – command centre. I can watch a video/movie and do word processing at the same time. Or, I can check out social media sites while watching the latest news streamed live on the other screen. Talk about multi-tasking!

 

 

The Best of 2000s

December 17, 2009 Leave a comment

With only a few days left to the New Year, we are entering the second decade of the third millennium. Time surely flies. I clearly remember Y2k (and that was 10 years ago). I grew up in the 80s and 90s. Well, the 90s will be the new 80s. The 80s will be like the 70s, and the 70s will be like the 60s! Britney Spears, Backstreet boys and N’sync will be like old school. The phenomenal growth of the public uptake of the Internet will be like TWO decades ago (in the 90s). The 2000s will be a decade known for  WikipediaGoogleYahoo, AmazoneBayFacebookTwitterCraigslist, and YouTube.  And email became our preferred mode of communication.

Here’s my most notable list for the decade.

2000 – We survived the Y2K bug! And the Tech bubble burst!

2001 – Sept 11 led to war in Afghanistan, Enron Scandal led to largest Chapter 11 bankruptcy

2002 – WorldCom file for largest Chapter 11 bankruptcy (overshadowing Enron)

2003 – Bush invades Iraq to take out Saddam ‘Insane’

2004 – Asian tsunami

2005 – George Bush re-elected (everyone claims they didn’t vote for him, so how did he…?)

2006 – US house prices peaked

2007 – Subprime mortgage crisis sparked global financial meltdown

2008 – Clinton vs Obama campaign, Lehman brothers file for largest Chapter 11 bankruptcy (overshadowing WorldCom)

2009 – Obama becomes first ‘black’ President and Michael Jackson died.

TIME magazine calls this the decade from hell, with more than usual natural as well as man-made disasters. Global warming became a real issue.

DWTC says: This decade will be known for excessive consumption and as the worst decade in modern history. Will be looking forward to 2010s

 

 

Categories: Uncategorized Tags: , , ,

What you should know about the Facebook Juggernaut

November 8, 2009 3 comments

facebook-logoMark Zuckerberg, founder and CEO of Facebook, debuted on the Forbes billionaire list with a $1.5b net worth, then dropped off when the economy turned sour.

Zuckerberg was quickly dubbed the next Bill Gates. Apart from the obvious similarities that they both dropped out of Harvard, both are in the tech sector and they both had been accused of gaining initial success from software codes written by someone else (Microsoft with DOS, and Facebook with ConnectU), they both share a lot more less obvious similarities.

Both Gates and Zuckerberg enjoyed creating computer programs and playing computer games in school. Both had professional parents (Gates’ father is a lawyer; Zuckerberg’s father is a dentist). And, both attended exclusive, private secondary schools.

Now Zuckerberg is back on the Forbes list with a $2 billion valuation from his 20% stake of Facebook, as the company he founded accepts $200m from a Russian investment group.

With 300 million registered users (and millions joining every month), and the countless hours we spend on the site every day, Facebook’s monetisation programme might just prove highly successful.

Facebook has already overtaken YouTube as the third most popular site on the Web. It hit all the important milestones faster than any company before it. Facebook also launched a new real-time search engine, a clear jab at Google.

Facebook has always been in a position to take a lead in real-time and social search because of the sheer amount of data the site has collected about what people are doing, the things they’re interested in, and what their social graph looks like. Paul Buchheit, the founder of FriendFeed, said the human link data at sites like Facebook “could ultimately be more valuable than the link data from the web” that Google’s search engine is based on – someone just needs to mine it.

Zuckerberg, an uber-geek, has been described as being “oblivious” and a “boy in the bubble” by Rolling Stone magazine. Regardless of what has been said, anyone who has met venture capitalist luminaries in pyjamas just because he could, and had “I’m CEO, Bitch” written on his business card, commands respect.

One thing that bugs me is the question of “How did Google let this happen [Facebook get away with it]?”. Google is a company with the keys to the “library of Alexandria” and the ability to technically render “two Sat-Nav companies worthless” by providing its services for free.

If Google couldn’t stop Facebook, who can?

The smart money is already betting that he is the next Bill Gates. History will look back and say: Gates and Microsoft revolutionised the way we use computers, whilst Zuckerberg and Facebook revolutionised the way we social network. When Facebook goes public, it will be a big payday for a lot of employees.

Can Facebook unseat Google as the new darling of Silicon Valley?

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