My Investment Philosophy

Intransic Value

Intransic value only concerns about the earning power of the business, not including the growth potential. Value investing is about buying at a bargin price (compared to intransic value) with enough margin of safety. Invest in certainty.

Investing in growth potential is speculation and add more factors on top of the intransic value and current price level (bargin or not). More factors, higher uncertainties.

Evaluation of An entities'ability to pay back debt

  1. The ability to service debt interest

EBIT/Interest Payment
Net Cash Inflow/Interest Payment
2. The ability to service debt principle

Net Income/Debt Principle

Maintaining a long-term short position should be avoided.

  1. As long-term short position does not offer possible dividend income and foregone the trend of long-term economic growth, it should be avoided.

Distinction Between Inflationary Debt Cycle and Deflationary Debt Cycle

Inflationary debt cycle and deflationary debt cycle diffes in the deleveraging phase. Inflationary debt cycle refers to a debt cycle with a deleveraging process that is inflationary. Deflationary debt cycle likewise.

做空的理由

做空的理由是股票价格被严重高估(相对于intransic value),而不是股价即将下跌。

Intransic Value

The discount rate of intransic valuation based on future free cash flow should be based on the risk-free interest rate.

About Short Term Prediction

In most times we do not predict the short-term movement of the price of a specific stock, because it is impossible to make it right in a realible way. Not mention the general market. However, in extreme cases, short-term price movement can be attempted, especially when the stock experience a tremendous price jump (50% upward overnight), or extremely good news was released to the market.

Aside of the conditions mentioned above, the return of speculation on short-term movement either by news or price fluctuation depends on the timing of buy/sale and calculated guess.

Short Term Investment

  1. Short-term investment out of margin of safety
    Short-term short sell = Event driven/News driven, it is very unlikely that the price will go upward in short term. = Margin of safety

  2. 利用市场的价格波动性来获利,即择时反向操作,利用价格波动的必然性,无论涨跌,股票价格的上下波动本身是一个恒定不变的模式。 对优质股来说,价格不会剧烈波动,从而保证了利用波动本身获利的交易策略具有一定的风险可控性。 ----> This is not a good strategy since both the timing and the amplitude of price movement cannot be reasonably assured.

Position Holding Term

  1. Penny Stock (Less Than $5)
    Very High Volatity, low average volume with sudden volume surge, Low Market Cap, Easy to manipulate.
    Holding Period Should Be 1D to 30D

  2. Normal Stock (More Than $15)
    Moderate Volatity, medium average volume, Mid-to-Large Market Cap,
    Wide-spread Shareholders
    Holding Period Should Be 1D to 60D

Short Sell on Penny Stock

It is dangous to short sell penny stock since the potentional loss is huge given that the possible gain is limited (Price cannot fall under 0 dollar while penny stocks are usually around $1). Loss can be tremendous when the price of a penny stock doubled or trippled in short-term, since the price of penny stocks are easy to manipulate (relatively small market cap).

The Key to Successful Investment Strategy

Sustainable long-term profit relies on realiable investment/speculation strategy. The success of a realiable stragegy does not depend on minority successful bets, but on "small" gains realized in the majority of investments, results in an overall progress of net assets.

No matter how confidence a strategy is, the possibility of loss in any single one investment remains. Thus, no single investment should take up more than half of the portfolio. The investment should be spread into a series of opportunities.

A-template-for-understanding-big-debt-crises读书笔记

债务周期的长期负面影响

  1. 债权人的损失
  2. 债务人的未来收入和支出削减

观测债务周期的关键指标

  1. Debt to Income Ratio
  2. Debt Service Payment to Income Ratio

Credit is "Money"

Most of what people think is money is really credit, and credit does appear out of thin air during good times and then disappear at bad times.

A big part of the deleveraging process is people discovering that much of what they thought of as their wealth was merely people's promises to give them money.

债务危机的根源

举债投资的边际效用减弱,收入增长不及债务成本增长

How to deleverage the Economy

Make income grow faster than debt, lowering the debt-to-income ratio. For the burdens from existing debt not to increase, nominal income growth must be higher than nominal interest rate.

Current U.S. federal Fund Rate:

2.25%
2.2% - 2.5%

The amount of national (gross) income is equal to GDP

The debt burden cannot growth faster than gross income.

The primary beneficiary of QE

  1. Raise the market price for financial assets, generate capital gains for financial asset holders.
    The process of QE creates a positive wealth effect.

2018年10月随笔

The limitation of Market Valuation

Market valuation by stock price * number of shares is misleading, because not all shares can be sold on the same quoted market price at the same time. Once large volume of dumping emerged, the stock price is definitely going to drop significantly.

An estimation can be made by multiplying market value by a factor, say 0.7.

The Nature of Equity Investment

  1. Source of Income (dividend, earnings)
  2. Marketable Security

The underlying substance of knowledge

  1. Facts
  2. Cause-and-effect relationship among events
  3. Distribution of possible outcomes on certain event

The underlying utility of knowledge

  1. Prediction
  2. Analysis of the past, revealing what happened.

Economic Downturn Periods

  1. Financial Crisis of 2007 - 2008 (2008 Financial Crisis, lead to the Great Recession)

Strong Foreigh Capital Inflow can help keep long-term interest rate low despect the Fed kept raising short-term rate.

The Inherent Inevitability of Crisis

If the danger of crisis was fully recognized by related party, it would never happen. Crisi usually happens when situation looks good, when the potential of crisis was not be foreseen by the authority. Therefore, crisis is very likely to happen even when authority claims everything will be fine (out of true heart or not).

Financial Crisis happens when Big Financial Giant cannot meet obligations (fulfill contracts). To meet these obligations, large amount of financial assets have to be sold, which drives down asset price.

When yield curve flatten, holding short-term assets becomes attractive since their yield increases.

The contagious of 2008 financial crisis

European banks invested in the U.S. subprime mortage market sufferred great losses. The tightening money market in U.S. crippled some European banks who rely on the U.S. financial market to raise short-term fund and maintain liquidity.

Structured Investment Vehicle

Borrowing short-term to invest long-term, by entities established off-shore to avoid regulations

Mezzanine Capital

Any subordinate debt or preferred equity instructment that represents a claim on a company's assets which is senior only to that of the common shares.

The U.S government saved U.S. auto industry by providing loans from government fund

The ultimate Loss

Government assistantace and the act of bail out will ultimately impose the loss on taxpayers, non the less the currency depreciation. Those suffers also includes foreign U.S. currency and bond holers

2009年3月18日,在美国政府宣布将加大量化宽松操作时,金价为何大涨

货币贬值 --> 金价大涨(保值)
预期驱动交易

货币走弱的两个表现

  1. 国内: 通货膨胀
  2. 国外: 大宗商品价格上涨(黄金、石油等),对一揽子货币贬值

做空的风格选择

  1. 短线为主,适合做空的股票往往波动性较大,大幅下跌后经常回撤上涨,短线宜以波动性即得收益为主。预期下跌后平仓等待股票回撤。待有合适回撤后继续做空。波段性操作。

The Underlying Cause of 2008-2011 financial crisis

  1. Tremendous misestimation and Ignorance of the Risk related to mortage related financial assets.
  2. Leveraged Investing

Classic Sign of Buble

New buyers flooded the market, many of them have no prior experience.

The Substance of Financial Crisis

The deveraging process is the process of contracting balance sheet for every participants in the credit market, as large scale credit defaults occuried.

As the overall capital in the economy stay unchanged, the real impack to the market is investor faith and the failure of systematically important institutions.

The collapse of faith is usually followed by a strain of liquidity, which spread the crisis to non-financial sectors.

Recording

It is organization, not medium of storage, that really matters in periodical recording of information.

Bonus Army Conflict

1932年7月28日,美国华盛顿武装驱离抗议人群,出动坦克