People of millions

How much would you pay for a bodyguard or sp?
It seems that corporate moguls answer 3 millions.

Recent Edgar filing shows that Mr. Dell (founder of Dell) is reimbursing 3 millions dollar of fee related to personal security to the company. While Mr. Dell's management has been widely regarded as honest and efficient, the big spending on security is baffling for investors. A close look at other companies top management spending shows that the average spending is 1 million.

Hey, average citizen spend zero dollar on security and will retire if we have 1 million. Is the gap of top income-earner and average earner widening too much?

Europe domino

While Greece can't shun the topic of restructuring of government debt by now, it still downplay the seriousness of the problem by proposing "soft-restructuring", ie. by asking investors or creditors to wait longer for debt repayment. Is it feasible?

One spark can cause great fire. One creditor opposes, others follow. 

Set aside the debt problem, how Greece are going to find sustainable revenue to fund its growth? Without income, everything is mere paper talk. 

Excluding Greece from Euro zone will signify the incompetence of management, this is by default not an option. Dissolving Euro? Citizens lose confidence in their countries. What else? That leaves us with one option, "real" restructuring. It is time to admit past squandering and correct the problem. Watch out Italy! 

What do you think of using of debt to fund growth? 

Short selling and Japan

Is it morally justified to profit from a natural disaster like Japan earthquake?

Lots of investors shun short selling stock, some even criticize as evil. Corporate CEO hate short seller. Regulators hates it too. But, the root of the problem lies in, is it morally justified to profit from other mischief, if it is not at his expense?

After March 11 earthquake in Japan, mutual fund shorting Japanese stocks tripled in volume. Suddenly, there is a source of profit. However, after watching the interview of the victims on TV, I can’t help but re-think my profits from the market. Even though my action in the market didn’t cause the tsunami, even though I lose all of my profits earned later in FX market due to the intervention of Bank of Japan in Yen market, I still regret.

I think myself don’t “deserve” those money. After all, if I am the victim of earthquake, I won’t be happy to know that someone profit from the earthquake while I lost all of my possession and my family. Do to others as you want done to you.

Later, I donated several times to the charity, 1,000 Yen each time. I decided, should the time reverse, I will donate all of my profits to charity, without hesitation.

Trailing P/E vs Forward P/E

It can't be denied that human being are prone to be over-optimistic over our future. And this is shown too in stock market. Recently, I run into a company in conducting online business in Latin America. It has been doing quite well over past few quarters and is being sold at more than 60 trailing P/E, and 40 forward P/E. Its P/B is 20 times and a large portion of its assets are recorded as goodwill, which means this company constantly overpaid to acquire other company. Sound expensive? Lots of investors don't think so. That explains the forward P/E is substantially lower than trailing P/E.

A glance at the analyst estimate showed us that analysts predict the company to grow around 32% this year (it had  grown 30 % this year).  Here is the problem. Is it OK to extrapolate past performance into the future to justify overpaying for a stock?

Past performance don't guarantee future performance. At a certain point, growing company will reach a plateau. The market will be saturated. Or new company will enter the market and drive down the overall price of the market. In short, a company won't grow infinitely. There is a point where management will find that they can't be the way they used to be. Organization restructuring, cost cutting, new product line, all eat into the company bottom line. We won't know what will happen or how the management will cope with it until it happened.

Thus, if we are naturally poor predictor of future, then what is the use of forward P/E and why are there so many people touting forward P/E?

Today S&P closed up 0.41% as "?"

As I look through the Yahoo finance section news, one thing catches my attention. It goes like this:

Stocks finished the week with modest gains, with the S&P 500 closing up 0.4% ..... Participants digested news that during April consumer spending increased by 0.4%...

I can't help but think that "how did they know the modest rally in S&P has to do with the April consumer spending release? Isn't that possible that there are other factors affecting the stock market? Or it may be just another drab trading day?"It is baffling that financial media today like to add "because" or "as" behind any stock market rally or sneeze, every trading day. 

Stock market is a complex animal. Tonnes of factors affect its price, ranging from economic output to weather situation. To add to the complexity, we are part of of the market. Our decision to buy or sell counts. And so are other participants. More, we are all created equal, so why try to outguess other participants every day?

Analysts may be able to show us our current position in economic cycle, but predicting short term stock market direction is nothing more than speculating. 

What do you think about day trading? Honey or venom? 

3 Rules to wealth

Enough for those get-rich-quick method. Here are 3 simple and yet practical rules to wealth.

1. Save at least 10% of your monthly income.
2. Invest those savings in sound investment.
3. Reinvest earned income in sound investment.


Example:

If you earn $5000 per month, you have to save $500 every month. Every year, you will have $6000 saving.
Invest those saving in an index fund, which gain roughly 10% on average, you will have $6600 after one year.
Repeat the process, you will have more than $100,000 in 10 years.

That is the power of compunding process.