Notes on Peter Lynch

Growth stocks are better than nongrowth stocks. Growth stock are companies with sales really going up (in reasonable profit margin or loss). If focusing in earnings growth only, then turnaround and cyclicals are mixed into the consideration. Cyclical factors are not reliable drivers of the long-term growths of a business.

A investment grade turnaround energy should be those that are free of bankruptcy risk in the next 18 to 24 months, or it has no investing value.

Black Capitalism读书笔记

发改委权力范围

  1. 企业债的发行审核

监管机构

  1. 发改委NDRC -> 企业债
  2. 证监会CSRC -> 股票
  3. 人民银行PBOC -> 金融债
  4. 银行间市场协议NAFMII -> Medium Term Note
  5. 银监会CRBC
  6. 国资委SASAC
  7. 财政部MOF -> 地方债

金融简称

CP = Commerical Paper
MTN = Medium Term Note
CGB = China Government Bond

汇率政策

固定汇率制度限制利率政策的操作空间

A股IPO认筹锁定的资金通常是万亿人民币级别的

(500倍左右超额认购)

A股国企

国企的实控人和受益人均为国资委,并不以全体股东的利益为最优先考虑事项,这也解释了为什么上证指数10年未涨,上证,中证300等大盘指数的国企股票权重大,对大盘有决定性的影响。
国企在A股上市大都引入了大量的其他国企股东作为战略投资者,大型央企和国企交叉持股。
IPO的定价和配售机制决定了IPO价格低于市场公允价格,导致普遍的IPO后连续涨停板以及稀少的成交量。

国家的公司属性

中国的国家性质与西方商业公司有相似之处,都为追求股东利益最大化。中国的国家股东为CCP, 其根本的组织行动目的在于维持组织及组织核心成员在国内的政治、经济和文化等各领域的长期领导地位;以及分配社会资源的权力。

四大行和MOF

MOF -> 四大行 -> Corporate (Lending) -> GDP Growth
Corporate -> 四大行 -> MOF (Dividend)

2019年金融领域的解除管制

  1. 目的
    通过开放金融市场,吸引外资券商、保险等金融机构进入中国,从而达到扩大国外对内直接金融投资,为国内股权融资市场扩大资金来源,
    吸引外资进入中国金融市场,推动中国金融市场的效率提升,帮助降低国内杠杆。

举债发展的可行性

债务推动增长需要以GDP的高增长来保证债务可持续性,GDP增速下滑会导致社会财富增长低于利息支出,对债务人的偿债能力产生冲击。

央企、国企和券商银行对国债支持

国有企业和金融机构会被要求以资本金来购买国债和其他国有企业、地方企业债。

港交所

1949年内地的政权更替,导致了上海作为远东金融中心地位的消亡,资本、企业和人员大批迁移到香港,促进了香港金融市场往后50年的繁荣。

港币的地位问题

港币为何能成为一种能和美元等强势国际货币维持固定汇率的区域性货币

The Soros Lectures

Thesis

  1. Markets are always biased in one direction or another
  2. Markets can influence the events that they anticipate
    My Own: Market is always fluctuating.

Market price always distort the underlying fundamentals. The degree of distortion may range from negligible to significant.

Also, financial markets can affect the fundamentals.

Self-reinforcing and Self-correcting

  1. Self-reinforcing and self-correcting work for both the underlying trend and the prevailing bias

The Alchemy of Finance

The underlying trend refers to market forces other than price movement resulting from the imbalance of bid/ask orders. The prevailing bias is the source of short-term price fluctions. The underlying trend refers to the facotrs as a whole which neither side can afford to ignore, such as the general market trend, the market sentiment, the macro economy, the earnings trend, etc.

Stock Price Trend is observable by looking at the recent movement of stock price, if the underlying trend is flat, then the stock price trend is the same as the prevailing bias
(Stock Price Trend = Underlying Trend + Prevailing Bias)
Underlying Trend Cound include factors such as index fund sells, etc
The underlying trend is not necessarily recognized by investors.
// The underlying trend affect the stock price via affecting the prevailing investor bias.

Soros' Criticism on Economy Theory

Soros' criticism on economy theory is well justified in the financial market, but not necessary in the micro-economy field such as the market of ice cream. The demand and supply of assets in the financial market and the price of exchange do reflect the participant's expectation of future event, which doesnot frequently happend in the ice cream market.

The expectation of market participant can be confirmed by subsequent market event. Also, the subsequent market event can occur as a result of the expectation of market participant.

Imperfect Understanding of Market Participant

  1. The lack of knowledge of the environment
  2. The thinking and expectation of participant affects the situation to which it relates

Reflexivity

Perception -> Participation -> Impact on Environment -> Perception -> Participation

Fertile Fallacy

对客观现实片面而扭曲的认知会影响行动,从而使原先的扭曲认知得到增强。

Soros Conceptual Framework

  1. The principle of Fallibility. --> The participants' view of the world is always partial and distorted.
  2. The principle of Reflexivity. --> These distorted views can influence the situation to which they relate because false views lead to inappropriate actions.

The principle of Fallibility

The Enlightenment Fallacy and the Posmodern Fallacy

The enlightenment fallacy refers to the fallacy that reason can be seperated from reality, that is the process and consequence of reasoning does not have influence on the progress of reality.

Postmodern Fallacy is related to postmodern philosophy. The fallacy stated that the reality can be well manipuated following the manipuator's intentions.

Lecture 1

两个重要的推断:
1. 不可靠性原则:人类作为场景的参与者,对场景总体的认知总是片面(对现实的认识是部分的)的和扭曲(对现实的认识不反映实际情况)的
2. 反身性原则:这些片面和扭曲的认知可以改变场景事件的走向,因为错误的认知导致错误的行动。

人们往往因为追求事件的确定性而忽视的反身性。经济金融理论是建立在市场均衡的概念之上的,市场均衡概念与反身性原则直接冲突。

现实可以被分为主观现实和客观现实,人类的思考和认知形成了主观现实,事件的事实本身构成了客观现实,主观现实存在于人脑中,而客观现实存在于外部物理世界。世界上只有一个客观现实,但是却往往有很多主观现实。

不同的现实之间通过反身性链接在一起,相互影响,比如市场主流的A观点影响B观点的发展,A和B观点影响客观现实C的发展。

反身性的两种情况:
1. 反身性关系:作用于主观现实之间的反身性关系
2. 反身性事件:作用于主观现实和客观现实之间的关系

正反馈和负反馈
负反馈会减小主观现实与客观现实之间的差距,负反馈理论上可以一直持续下去,终点是理想状态下的市场均衡。 ---> 自我修正
正反馈会增大主观现实与客观现实之间的差距,正反馈不会一直持续下去,因为如果距离过大,参与者会因为主观现实与客观现实之间差距过大而意识到情况不对,做出调整,所以正反馈不会永远持续下去 ---> 自我增强

人类的主观认知是主观现实的一部分,同时作用于认知函数和行动函数。其结果为,参与者往往只能基于对客观事物的不完全认知来决策行动,而且参与者行动的结果往往与预期有差异。

社会科学的不可验证性

  1. 人类不确定性
  2. 社会科学理论的反身性
    因此,社会科学理论的验证标准不能遵循物理理论同样的框架。

金融市场泡沫模型(boom-bust process)

追逐泡沫并非是不理性行为,相反,控制成本下追逐泡沫是对事态发展有清楚认识和预期的理性逐利行为。

理性预期理论假设有一个单一均衡预期,且所有市场参与者都会向这个预期逼近;但实际上,市场参与者的决策背景往往存在很大的不确定性,因此他们的决策是暂时性的,有偏见的,这也是价格扭曲的原因。金融市场的均衡状态很难达到,及时达到也很难持续。

从总体来看,市场参与者的投资决策是具有高度博弈性的,市场参与者的决策行为部分由他们对其他参与者行为的预期决定。

Equity Leverage

Issue New Shares to Expand Market Cap.

Human Uncertainty Principle

The action of human beings as a group cannot be precisely predicted because human beings are characterised by a collection of inheret limitations, such as the fact that human beings cannot know each other's thinking, different participants have different interests.

Robert Shiller – Destroyer of Efficient Market Hypothesis (EMH)

Efficient market hypothesis states that the market price reflect all information available and consistent alpha generation is impossible.

Rober shiller demonstrates that short-term price movement is substantially driven by psychology and cannot be reasonablely justified by all availble public information.

Shiller's perspective can be illustrated by his definition of bubble:
"A situation in which news of price increases spurs investor enthusiasm which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increase and bringing in a larger and larger class of investors, who, despite doubts about the real value of the investment, are drawn to it partly through envy of others’ successes and partly through a gambler’s excitement."

Irrational Exuberance读书笔记

The Characteristics of Financial Asset Bubble

Financial asset bubble is more like speculative epidemics

Speculative Bubble

Feedback loop of Bubble

The Position of Media in Speculative Bubble

Significant market events generally occur only if there is similar thinking among
large groups of people, and the news media are essential vehicles for the spread
of ideas

Reading Notes

Bank Management (Peter S Rose)

The asset weight of commerical banks among financial service providers declined from 66% to 25% in a century.

Ray-Dalio-Principles-Life-and-Work读书笔记

Ray Dalio's Investing Philosophy

It seems that Ray Dalio doesnot base his trading decision on the under or overvaluation of financial assets, he instead traded based on the prediction of future price movement. The attribute price movement not unpon the traditional market supply and demand theory, but more practically, transactions. By research deeply into the forces behind market movements based on historical data and the mechanism of economic world, Dalio was able to make bettings that have consistent returns.

Ray Dalio's success demenstrates the difference between stock market and the derivative market. From a value investing's perspective, Ray Dalio is more of a speculator than an investor.

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.

The Root Cause of Debt Crsis

The vanish of credit.

Deleveragings Can Occur Without Depression

GDP and Growth In Demand

Growth in demand are commonly accompied by growth in spending. As gdp growth slower than growth in demand, the economy as a whole spend more than production (income). The gdp and spending difference increases the total debt of economy.

Three Forces and Interactions

Productivity growth rate is relatively constant across the 100 years span, economic growth follows the trend in general but variations did occur frequently.

The marjor swings of economic growth are due to expansions and contractions in credit - i.e. , credit cycles/debt cycles, 1) long-term debt cycles and 2) short-term debt cycles

An economy is the sum of the transactions that make it up. A transaction is an exchange of money/credit for goods, services or financial asset. A market consists of all the buyers and sellers involved in the transaction of the same nature.

The average price of any good, service or financial assets in a time span is the total amount of consideration given (money or credit) by the total amount received in this window. The market participators (buyers and sellers) have different motivations.

When buying in credit, the settlement of the transaction is actually delayed until the debt is paid off.

A credit-based transaction, as well as other cash settled transactions, would result in an increase in asset of both the seller and the buyer. The expansion of balance sheet for both the seller and buyer would then allow more credit transactions to occur. The process is self-reinforcing because rising spending generates rising income and rising net worths, which raise borrowers' capacity to borrow.

The economy expansion is highly correlated with the expansion of credit. As increase in demand would result in growth in production and economy, typically financed by credit growth. In a credit-based economy, strong demands equals strong real credit growth. Consequently, recessions and depressions are developed from declines in demand, typiclly due to a fall-off in credit creation. In such an economy, demand is constrained only by the willings of creditors and debtors to extend and receive credit.

The modern practice of supporting economy growth by credit expansion is the root cause of debt cycles.

The constrain of modern credit-based economy is relative size of money (cash) v.s. credit. The total amount of debt in the U.S. is about 16 times the size of money in existence.

Lending naturally creates self-reinforcing upward movements that eventually reverse to create self-reinforcing downward movements that must reverse in turn. Mostly due to the fact that it is increasingly difficult to convert debt into income.

Short-term debt cycle is controlled by central bank's monetary policy to tighten or ease credit.

The long-term debt cycle is determined by the relative speed of debt service payment growth and income growth.

The-Intelligent-Investor读书笔记

Two Policies that Must be Followed to beat the Average

a. Inherently Sound and Promising Prospects for A Security
b. Not Popular on Wall Street

The Restrictions of Security Analysis

a. The conclusion of the study is only a nearly correct version of the past
b. The information used in the analysis may have lost relevance by the time acquired
c. The conclusion may become obsolete by the time the market is ready to absorb it.

Topics that Must be Covered in the Study of Corporate Income

a. Accounting aspect: What are the true earnings for the period studied ?
b. Business aspect: What indications does the earnings record carry as to the future earning power of the company ?
c. Invest Finance aspect: What elements in the earnings exhibit must be taken into account, and what standards must be followed, in endeavoring to arrive at a reasonable valuation of the shares ?

Tests for determining "bargin" issues

  1. The indicated value by appraisal is at least 50% more than the current market price
  2. The value of the business to a private owner, the realizable value of the assets.

Top major sources of undervaluation

  1. Currently disappointing results
  2. Protracted neglect or unpopularity.
  3. The market's failure to recognize its true earnings picture.

Timing and Pricing

  1. Timing: The endeavor to anticipate the actions of the stock market
  2. Pricing: The endeavor to buy stocks when they are quoted below their fair value and to sell them when price rise above such value

About Market Timing

Market forcast is by itself meaningless.
The general market is unpredictable.

The Effectiveness of Investment Theory

  1. New conditions has emerged that is not in the old formular over time
  2. The popularity of a theory cast an adverse effect on its performance as more people applies it.

The paradox of market valuation

The more successful the company, the greater are likely to be the fluctuations in the price of its shares. The better the quality of a common stock, the more speculative it is likely to be. Gambling and speculation is about the betting on uncertainty with a potential high return. The uncertainty component can be if the company can succeed in the future, or if it is definitely going to succeed, how big success it can reach. The market price for hight quality stocks is highly speculative because the public can not reach consensus on the potential about the future of a company, even if they agree on genenral its success or failure future, they surely cannot agree on how success it will be.

Graham's Lifetime of Experience

The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits hisself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgment.

Distinction Between Investor and Speculator

Intention of Stock Purchase

  1. Speculator
    The speculator's primary interest lies in anticipating and profiting from market fluctuations. (Price Orinted)

  2. Investor
    The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. (Earnings Orinted)

Although a change of earnings will eventually reflect on price movement, the intention is different.

For investors, the market quotations are there for his convenience, either to be taken advantage of or to be ignored.

The Two Components of Profitability

  1. Operating Performance: operating margin
  2. Financial Performance: net margin

Factors to be considered when making a investment decision

  1. Do I have more information than my trading counterparty ?
  2. Do I know this company as well as I thought to be ?
  3. How much should this security go up to make even taking into account the tax and trading cost ?

Avoid Losses

Taking a 95% loss is much easier than making a 95% gain, let alone a 95% gain is not enough to make up the previous loss

Bull&Bear Market and Security Riskiness

Common stock is frequently considered as risky in bear market and "safe investment" in bull market when the reality is the exact opposite.

Component of Stock Market Growth

  1. Real Growth
  2. Inflationary Growth
  3. Speculative Growth