Tuesday, September 13, 2011

Blood on the Streets

We have to digress from our topic on education a bit as the financial markets are entering interesting times. Here is my attempt to answer a question on many people's mind: time to buy?

The last couple of months were pretty awful for those who are involved the markets. Most indices were down double digits. Europe was down 20%, Asia high single digits and Latam was also down teens. Only US did ok with single digit declines. What an irony, US the birthplace of this current mess actually suffered the least…

Market commentators are talking about 1/3 chance of recession, but I believe the reality is that we are already in recession. It is double dipped chocolate with whip cream. Unemployment no.s are going to rise and real assets are likely to fall (finally! A chance to buy property!), hopefully.

So the big question: when is it time to buy? Now or still must wait?

Well, I must admit, I am THE worst market timer, so I won’t answer that question outright. I would say look at valuations. If the valuations look cheap enough, then probably it’s ok to buy. But if we go into a recession, things will get cheaper. Value investing cannot help you time the bottom. Market idiosyncrasies can bring a PB 0.5x stock go to 0.3x, even when the book is perfectly good, with no impairment, write-downs or other balance sheet risks.

So the trick would be to keep some bullets. This is for those with ample liquidity who can afford to buy a bit now, wait for more blood on the streets and average down. Not forgetting, there would be transaction costs involved too!

Why do something like that? Why not just wait for real bloody mess and then bet the house?

Well for those who have gone through Lehman or previous messes, we know it’s easier said than done. First, something like Lehman might not happen. Markets might not fall further bcos it is already pretty cheap (at least some markets are, like Brazil which are at single digit PE and giving 4% yield). So if we didn’t buy now, we might miss the boat before we even realize.

Second, when it does come, we don’t dare to buy, bcos we think it’s the end of the world, better keep cash or gold. And when things recover, again, we miss the boat. Of course, the 2nd lesson learnt here would be that if Lehman does happen again (ie global markets fall 20% in one week), we just have to bite the bullet and buy.

Ultimately stock markets will recover. Stock markets have survived the Great Depression, Wars, Oil shocks, Hyper-inflation etc. The only exception is Japan which is mired in major issues which deserves a couple of posts to discuss. But I guess it is the safe to say that as long as companies meet their cost of capital (which most of them do), they would continue to create value for shareholders and that’s the reason stocks will continue to go up over time.

Thursday, September 08, 2011

Problems and Solutions to Singapore’s Education System – Part 2

So, what is the solution?

As I have alluded to in the last post, it is the elimination of scarcity value. This means eliminating our branded schools, or creating more schools that are as good. It will also incorporate changes to the grading system to make it more holistic, encompassing many more subjects, making the system less granular and qualitative assessments from form teachers. It will also involve redistributing resources from elite schools to the entire system and upping the Education budget, making it bigger than Defence.

There are a few ways to create more good schools, mostly involving hard measures but for the greater good. We can redeploy the best teachers to other places and rotate these best teachers and principals so that they spread the best practices. We can nurture promising schools so as they can rival the top schools. These are tough choices. There will be a lot of unhappiness and resistance and it will take a decade if not more to achieve but our children and the future generations will benefit.

Think about the day where parents no longer need to scramble to get their kids into branded schools, because they know that most schools in Singapore are as good. There will be no volunteering for mundane tasks, no fighting to be a grassroots leader, or buying properties for the sake of getting 1km from the school etc. Students receive equal opportunities no matter which school they go. They get a chance to learn from the best teachers and more importantly to learn more holistically.

These are not simple changes. We need to attract talented people and convince them teaching is again a good, noble, highly sought after profession, like in the old days. We might need to double the salaries of teachers, and pay the better ones even more. We need to put money into nurturing promising schools. It is not an impossible task. A good example would be Rulang Primary, which was never highly regarded just perhaps 10 years ago but is today one of the most coveted schools in Jurong. We need a lot more Rulangs and the people who made that possible.

The strength of a good system is to make the best the lowest denominator. In basketball, if we pit Chicago Bulls with Michael Jordan against and All Star Team, which team is likely to win? It’s Chicago Bulls, bcos in the good team, Michael Jordan in the lowest denominator, while in an All Star Team, the weakest Star is the lowest denominator, and the weakest All Star is inferior to Michael Jordan. Currently Singapore’s primary school system has the worse schools as the lowest denominator. And in the schools, the worse students are the lowest denominator, dragging down the class, or even the school. Hence the parents scramble to put their children into the best schools, not wanting to be dragged down.

On changes to the grading system, by making it more holistic means more manpower as well. The current PSLE is efficient and achieve its purpose of sorting out the best students. The new system wants to put the child at the centre of the equation. It means form teachers making qualitative assessments, ie smaller classes. Emphasizing other subjects, more specialized teachers. Infrastructure changes would likely be needed as well: a science garden, history and geography rooms, music rooms, sports facilities, like swimming pools in every school etc.

Again, such changes are not easy, but would be for the greater good and the benefit for the children of Singapore.

Next post, we talk about kiasu parents!

See all posts!
Part 1
Part 2
Part 3
Part 4