When to Top Up?

This post serves as a note-to-self to refine the right process to top up names that are already in the portfolio. It deserves a post because of how our monkey evolved brains work with all its biases and blind spots. It also describes why investing is difficult because the initiation of a position is the start of a very long process for value investors. The position could stay in the portfolio for years, an initial bump up makes it difficult to top up later on and a mistake will take years to unwind.

The scenario we are talking about here is usually when we have done an initial analysis on a name, decided it was worth to take the risk and buy an amount. However, things did not pan out the way it should, bad news erupted, shit hits the fan and the stock collapsed, usually c.20%. We need to decide if we should buy, sell or hold. After years of going through some of these scenarios, having gained some experience, I believe the following would be the right process to follow, with the caveats and strategies attached.

1. Review the new info
2. Redo valuation
3. Write an update 
4. Decide to buy, sell or hold

Review

The first step is obvious. We need to review what happened. This could be an earnings miss, or some bad news at some competitors or some lawsuits etc. The short-term bad news would be the easiest to handle as they would usually provide the opportunity to add because longer term we know things will revert to normal, if the thesis is still intact. 

By and large, we did our homework well when buying initially. So if it is now cheaper, than it should mean we should buy more! But there are some shit that we should look out for: big lawsuits, impairments, potential fraud and solvency issues. These could be negatively gamechanging and we might run the risk of putting good money after bad.

Redo valuation

The next step would then be redoing valuations. This would require doing some assumptions of how much the intrinsic value was impacted and did the share price fall more than it should. This is an art and it could be quite difficult at times to make a good judgement and establish the right valuation when new info is scarce. With lawsuits, impairments and all the big bad stuff, it could really be difficult. If the solvency issue looms big enough, perhaps it would be best to just wait for the next opportunity to get out.

Update

After the above initial analysis, the logical next step would be to write out an update and pencil the thoughts out. This serves to help us crystallize the thinking and of similar importance, for future reference and learning. The update should relook at the thesis, reviews the risk, see if there could be any silver lining and provides the new valuation to see if there is strong basis to top up the position.

The update should also include:

• New information from the 2-3 quarters of recent earnings update
• Information from newswire and the internet, including Youtube and substack
• Alternative sources from interviews with experts (if we can find them via our network)

Decide

Once we have the update in hand, we then need to decide whether we should buy, hold or sell. I will go through the thought process for each of them.

Sell

The decision to sell happens when the thesis is no longer valid. The news was devastating, the intrinsic  value is impaired. This could be fraud, or some mega lawsuit or some big changes. As such, it should not be as difficult because if we have followed the discipline never to put too much into any position, this means that the losses should not be big. 

Percentage wise, it would be big, usually 30-50% type but if we did our risk management well, it could be losing a few thousand dollars or a couple of air tickets for our holidays in today's context. It would make sense to recoup the remaining capital to deploy into better names, with more upside. We can also set a target sell price and wait for the stock to bounce to sell. 

Hold

This would usually be the default decision. It could be because the new data and hence the review was inconclusive. We need more time for more data points to reveal themselves. For example, if the company is involved in some class action lawsuits, the verdict could be months out. It might make sense to wait for that verdict or at least some clearer indication closer to the verdict date. Or it could be simply waiting for the next quarter results. In such cases, we just need another review when there is more data.

Buy

Lastly, the decision to buy more should un-ambiguous. The valuation checks out. There is now more upside than before. What is left is how much more to buy. It would make sense to slowly build the position up to a max size. If we are now at 1% of the portfolio and target to go to 4% then perhaps it could be adding another 1%. Incremental step ups would be my preferred option.

Fear and Greed

Even when everything checked out logically, there will be one final hurdle. Emotions. Fear and Greed. Fear that despite all the analysis, we will make the wrong decision, sell and then it goes up. Or top up only do catch a falling knife. Ouch!

Greed can also come into play, for some reason, we are blinded by some biases and want to buy more despite everything pointing the other direction. At this point, we may need to speak to like-minded investors to help us straighten our thinking, resolve blind spots to make the right decision. 

So that is it!

Hope this lay out a good top up process. As you can see, investing is a full time job. It does not end with one analysis. So much is at play and luck is definitely involved. Sometimes, it is really way simpler to just put everything in T-bills!

Huat Ah!

Lessons Learnt from 4 Biggest Losses - Part 2

This is a continuation of the previous post lessons learnt from my 4 Biggest Losses. To recap they are: 

1. Overseas Education, negative c.30%, operator of one of the largest international schools in Singapore. Student enrollment and revenue fell continuously for almost 10 years. It was exacerbated by the pandemic but even if the world normalizes, it is unclear if the stock will rebound. Management are owners and exemplified small cap risks.

2. SIA Engineering, negative c.20%, aircraft maintenance arm of our national carrier. I overpaid for this and am now suffering. It is unclear if I can breakeven. Oversizing the position also caused outsized absolute losses. This is the ultimate reminder for me not to overpay and to size my bets well.

3. Under Armor, negative c.70%, this was a stock that got into the portfolio because of a structured product went wrong. I sold puts and it got exercised. After holding the stock, it continued to drop and was hit by the pandemic. While there is a chance it can go up 100% or more from here (the 40x gap between Under Armor's and Nike's market cap seemed too big), I am not betting on it. This is another lesson about valuation - never overpay!

4. Cinema related small cap name, negative c.80%, this is a Chinese cinema technology provider that was badly hit by the pandemic. It is also another small cap name which comes with it small cap risks, like Overseas Education. The lesson is therefore not to invest in too many small caps and/or if we must, demand a much higher valuation discount.

In a nutshell, the lessons learnt here are: sizing, small cap risk, understanding unknown risks and over-valuation. I have discussed about sizing and hence we shall touch upon the rest today.

Small cap: I would refer to stocks trading at lower than USD2bn market cap and this was the case with #1 and #4 above. Small caps are usually run by owners, less experienced management teams and the business revenue also tend to be more volatile and as such deserves lower valuations. But we tend to forget that and ascribe just a 10-20% valuation discount to a similar business which is much bigger. 

Courtesy of CME Group

Looking at the four names, we can also argue whether Under Armor (market cap USD3.9bn) truly has an investment case. It is small cap looking through the eyes of Nike (market cap USD147bn) and Adidas (market cap USD28bn). One is much better off buying Nike or Adidas. Why bother with the third smallish player? The chart above says it all - it shows returns between large cap and small cap are not really different yet small cap investors take on a lot more risks. As such, the lesson here is that perhaps we should just avoid small caps. 

Understanding the risks: This brings us to the second lesson. We think we have uncovered everything. We have done our homework well. But it is actually very difficult, especially with small caps and inherently volatile industries. I think there are no good advice (to myself and readers) here, it takes years of experience to understand some of these industries and I urge everyone to always have robust discussions with other smart thinkers. 

The case-in-point here is the cinema technology provider that I bought which has gone down 80%. We all go to cinemas and we think we know the industry well. But with Netflix and streaming disrupting the industry, let alone all the faster changes in China, the writings were on the wall that risks are mounting. When the pandemic hits such small cap names, it was game over. 

It was a similar story with SIA Engineering. I thought I got the investment thesis right. There will be a lot more middle income tourists in the world, Changi will build T4 and T5 and SIA Engineering will benefit. I discussed with smart friends and even though they said it is not water-tight, I refused to listen. Lo-and-behold the pandemic came and turned everything upside down. Looking back, the airline industry is just inherently volatile and it doesn't pay to put too much money into one name and let alone related names (yes, I have other related names!).

Over-paying: There are multiple mistakes with SIA Engineering. Not only did I read the industry wrongly, I overpaid for it at more than 20x PER at the time of buying. I did the same with the cinema name (25-30x PER), believing in the growth story. I also overpaid for Under Armor at more than 30x PER. So much so for proclaiming to be a value investor. But this is also portfolio-manager-wanting-action error. 

Swing you bum! - Courtesy of MyTrade PH

Sometimes, we are compelled do to things even when there is nothing that we should do. From 2016-2020, the market was overvalued and as such most stocks are over-valued. I thought I was getting bargains for getting these high growth names at 25-30x PER. After all, Amazon and Tesla did so well trading at even higher valuations right? Well, unfortunately, I didn't have those but had these! The related lesson is that not all sexy stocks are the same. So perhaps it was best to avoid high valuations, esp after triangulation, they are still high. Again it's easier said than done. The inner voice is constantly shouting "Swing you bum!"

To sum up this last lesson:

1. When everything is expensive, it pays to do nothing.

2. Don't think your growth stock is Tesla.

3. Do not overpay. 

Huat ah!

Lessons Learnt from 4 Biggest Losses - Part I

Most people brag about their investment wins. It is just human nature. We need to show we are better, so we get status, pride and get to lead and enjoy the benefits that get accrued to leadership in tribes. In prehistoric times, alpha males who can hunt, have muscles, can fight well tend to get the best food, the best shelter and the women and produce more offsprings and win the natural selection competition. 

As such, bragging is biological.

Alpha male primate can even get cookies!

Today, it is about money. You can be bald and fat but if you are a billionaire, then prestige and goodies and some women will come your way. So we brag about investment wins to showcase that. We buy cars, watches, houses and NFTs to display wealth. It is imperative, biologically and socially.  But what is truly and fundamentally beneficial is to learn from our losses. That is how we get better as investors. That is what this post and the next is about. 

As I look at my portfolio, there are now four big loss-making positions which I felt compelled to write about. The losses amount almost to six digits and you can imagine how it pains to write about them. But I believe there are many lessons learnt and I hope readers can really takeaway some of these so as not to repeat them. But trust me, it will be easier said than done! Here are the losers in no particular order:

1. Overseas Education, negative c.30%, I have blogged about this stock.

2. SIA Engineering, negative c.20%, pandemic victim, I have also briefly blogged about this.

3. Under Armor, negative c.70%, hit by overvaluation and the pandemic.

4. Cinema related small cap name, negative c.80%, looks like I will never recover my capital.

As I looked at the four painful names, I see similar mistakes and recurring lessons. While all four names were somewhat impacted by Covid-19, it was not just the pandemic. It was overpaying i.e. valuations, it was ignoring small cap risks and not understanding all the issues and most importantly, it was not getting the sizing right. Actually, sizing is so crucial so let's talk about that in more detail. 

What I got from Google wrt to sizing

For me, the sizing mistake relates to all four names but it had the biggest absolute damage in the first two. As such, despite the percentage loss was only 20-30%, the outsized impact on the absolute damage was big and this is the nutshell lesson about sizing:

We must size the bet such that we can still sleep if we lose 80% of the amount invested. We must also think in terms of percentage of the portfolio. In most professionally run portfolios, there are hard limits like 10% for one position but for personal accounts, we may want to size it lower depending on our own psychological construct and the amount of absolute loss we can bear.

Let's use so numbers to illustrate the above. First we must determine how much we can afford to lose in one position. I will arbitrary put that as S$40,000 which is close to half of Singapore's median household income. (Imagine when you need to tell your better half that you lost half a year's income on one stock. This should be good pyschological threshold ;) Looking at my actual losses, since a position can go down 80%, that means the maximum bet on one stock should be c.S$50,000. Of course that also depends on your portfolio. If this is more than 10% of your portfolio, then perhaps it should be smaller. 

There is also a minimum size for a position which relates to transaction costs. When I first started, round trip (buying and selling) transaction cost can cost minimally $100 which means that any position should be c.S$10,000 otherwise it doesn't make sense as it costs 1-2% every time you do some buying and selling. Well, the world has changed and transaction costs can go to zero with some brokers, but still, sometimes it's not and it pays to know what is the optimal minimal size for you.

Going back to my mistakes, if I sized the bets correctly, I could have reduce my absolute losses by half and the pain will also be halved and I would not have to endure the wrath of my better half! When you can size correctly, losses cannot hurt your portfolio and your family peace and you can sleep better at night. There is a lot more to talk about sizing which perhaps deserve its own post but let's stop here for today and we shall discuss in the next post:

1. Valuations 

2. Small cap issues

3. Unknown risks

There are two rules in investing. First rule: don't lose money. Second rule: don't forget the first rule.

Huat Ah!

Ray Dalio's Power Principle

I have read many things written by Ray Dalio and his thought process simply never fails to amaze me. He has published a new book which I have not read but cannot wait to. He continues to think and write despite his age (72 and going strong). The following is something he wrote recently when commenting about the Russia-Ukraine conflict.

Having power is good because power will win over arguments, rules and laws all the time. When push comes to shove, those who have the power will either enforce their interpretation of the rules and laws or overturn them to get what they want. It is important to respect power because it is not smart to fight a war that will produce more pain than reward: it is preferable to negotiate the best settlement possible (that is unless one wants to be a martyr, which is usually for stupid ego reasons rather than for sensible strategic reasons). It is also important to use power wisely. Using power wisely does not mean forcing others to give you what you want ie bullying them. It is the recognition that generosity and compromise are powerful forces for producing win-win relationships, which are fabulously more rewarding that lose-lose relationships. In other words, it is often the case that using "hard power" is not ideal and that using "soft power" is preferable.

This paragraph is so powerful that I felt compelled to write it down here so that it will be part of my infosite and I hope to be able to practice what is written here as well as to be aware who in my circle is using hard power for stupid ego reasons. 

We have all seen bosses enforcing their interpretation of the rules and we have all seen colleagues using power for stupid ego reasons. Most often, we are powerless to stop them at that moment. But we should learn from their mistakes and perhaps make records to note them down such that one day, we might be able to turn the tables against them.

For example:

1. Discretely deciding to use company's budget for meals by using power over secretaries to setup the meal with counterparty and colleagues, bypassing higher authorities.

2. Forcing the deal team to kill the deal by re-interpreting the criteria for new investment ideas which fit a pre-created framework. The deal would have passed the criteria but the re-interpretation meant that it now could not. 

3. Using power to decide the fate of interns despite the verdict still being processed by the rest of the team and feeling happy about "playing god" over interns.

Yes, power abuses.

Back to Ray Dalio, I think the quote above list out all the important tenets about how we should use power. People who play with power are up to no good. They are political, egoistic and generally do not add value. So be careful with people who abuses power and also the companies that have these people. 

Here's a few likeable timeless quotes about power:

Experience have shown that even under the best forms of government, those entrusted with power have, in time, and by slow operations, perverted it into tyranny - Thomas Jefferson

With power comes the abuse of power. And where there are bosses, there are crazy bosses. It's nothing new. - Judd Rose

Those who have true power share it, while those who hunger power abuse it - Royalton Ambrose

Books #10: Ray Dalio's Principles

I have not been able to put this book down for the last few weeks. Even though I read the very first version when it was published as a memo in pdf format many years ago. It was already very good then and I printed and kept a copy. But the book is 100x more awesome. If you have not read it, pls go pick it up today. This is one of the best books written ever.

For the un-initiated, Ray Dalio runs the world's largest macro hedge fund called Bridgewater. He is a multi-billionaire, made from investing and he attributes his success to his principles for work and life. Hence the eponymous book. He has never published his investment track record, but like Warren Buffett, he probably made most of his money in the earlier years. Bloomberg published a league table (below) a few years ago.

Bridgewater's returns

Well, track record aside. The book is a page turner because every sentence just made sense. At the core of it, as Ray puts it, life is about seeking the truth and embracing reality. More often than not, we do not want to face reality. We somehow believe that if we think hard enough, or want things bad enough, we can bend the truth. For instance, we want a nice body. No belly fat, good muscles, ideal BMI of 20. Yet, we do not schedule even an hour per week at the gym. We snack on potato chips, drink alcohol thrice a week and eat ice-cream all weekend. This is not understanding the truth nor reality. 

Yes, we can change reality by scheduling and actually going to the gym. Until then, we must look at the truth in the mirror. The verdict can always change, as Mariah Carey has shown us. The right pic below is unflattering but apparently she is now fit again (in 2020).

Mariah Carey: 90s vs 2018

Beating the markets is all about understanding reality. This reality takes the best minds to figure out. One head is not enough. Warren Buffett had Charlie Munger and George Soros had Stan Druckenmiller. So at Bridgewater, Ray Dalio made the best and the brightest put all their heads together and debate to seek the truth about markets. But it can be super tough. Smart people all have egos and all of them want to bend the truth to fit their own reality. So it takes time to figure out who's really interested to just seek out the truth.

To Ray, only 100% open minded and yet assertive people are able to achieve that. These people seek out others to disagree with them, in order to get to the truth. They will suppress their ego to do that. If they are wrong, they admit so, change their mind, reverse bets and make money. Closed minded, egoistic, smart people are the most dangerous. Naturally, nobody will volunteer to tell you they are closed minded and/or egoistic. So it took Ray 40 years to figure things out. Here's just a few best quotes:

1. Beware of assertive fast talkers, they use speed as a way to push their agenda past other's examinations. Slow them down, make sense of things before conceding.

2. Open minded people ask questions, closed minded people always tell you what they know, even if they hardly know anything. They are typically uncomfortable being around those who know a lot more than they do. Closed minded people will just waste your time.

3. Being open minded is more important than being smart. It is hard to be open minded and assertive. Some people are too willing to accept others' views at the expense of their own. One must be both open minded and assertive.

4. Watch out for people who think it is embarrassing not to know. They are likely to be more concerned with appearance than seeking the truth. These people go for style and form over substance.

5. Don't worry about looking good, worry about achieving your goals. Get over blame and credit and get on with accurate and inaccurate. The need for phoney praise needs to be unlearned.

6. Reflect on pain because pain leads to growth. Remember that the pain is all in your head. To evolve, we need to confront the pain and see clearly the paradoxes. Reflect, learn and resolve them. The past no longer matters except as a lesson for the future. 

7. Don't be naive, most people will pretend to operate in your interest while operating on their own.

8. Everyone has opinions and they are often bad, including your own. Only listen to the believable ones who are open minded. After making sure they have demonstrated believability, with track record, reason and logic.

There are way too many nuggets in this book. Hopefully I can find time to organize more of them. 

Hope this helps! Huat Ah!

Three Investing Adages That Are Not True

Adages are fascinating, they are beautiful and usually true. Take everything in moderation, it's universal. There is no example one can think of when this phrase doesn't work. Or better safe than sorry. It's common sense but unfortunately, also commonly forgotten. It is also the basic tenet of investing - don't lose money, look for a big fat margin of safety. That's how we make money. 

But not all adages are true.

I have had problems with the following three, the more I think about them, the more I believe they are not true. Well, to be more specific, I think they are probably not true more than half the time. Yet, there are many who would believe in them. It then reflects their nascent thought processes and maturity in the markets. Would you agree?

1. Those who can do, those who cannot teach.

2. There are lies, damn lies and statistics.

3. Don't catch a falling knife.

Ok let's start with the first one. How many times had we learnt this phrase. But as I come across this phrase time and again, I must say it is only true maybe 10-20% of the time. Teaching is a noble profession. It is as good as any other profession. It takes a certain character and special skills to be a good teacher, a good coach. A good teacher understands how to motivate others but also needs to discipline, inspire, teach and lead. How many of us remember our best teachers? Think about how they have motivated us to be our best. Every great sportsman or sportswoman had a great teacher, a coach.

The world's greatest investor Warren Buffett had Benjamin Graham, his teacher at Columbia Business School. There are also many historically inspiring teachers, Aristotle, Helen Keller, Maria Montessori and in recent times Jack Ma and J.K.Rowlings were also teachers before they became famous in other fields. Warren Buffett said it himself, if he didn't become an investor, he would have been a teacher.

Of course there are teachers who are real CMIs*. But that's likely because they were pigeon-holed into the wrong profession. They simply needed to do a lot more to be a better teacher. It is sad because when a teacher cannot perform, it pulls down a bunch of kids. Unfortunately, most education systems have rigidity that is not able to help these teachers nor the kids.

*CMI = cannot make it, used as a noun 

Scene from popular Singapore serial drama dedicated to teachers - 早安老师

It takes a lot to be a good teacher. Perhaps more so than an investor. So, it's not true that those who cannot teach. Good teachers can both do and teach. They are also the important human catalysts for creating future leaders and entrepreneurs. For Singapore to continue to progress, we need to make sure we attract the best to be our teachers. We can start by paying them well and stop them leaving schools and becoming tutors.

Interestingly, the second adage was made famous by a teacher - Mark Twain. Although he attributed the quote to the then British Prime Minister Benjamin Disraeli whose exact words were, "there are three kinds of lies: lies, damned lies and statistics."Yes, statistics can be used to lie, but data and statistics is the fundamental foundation of any analysis. To say that statistics are lies reflects the shallow thinking of the sayer. It is as good as saying aeroplanes are bad because they can be used by terrorists to crash into buildings.

Data, numbers and statistics are at the heart of value investing, or rather, any kind of due diligence. We rely on numbers and reading through the numbers to get to the truth. Yes, oftentimes, we need to question the numbers, slice and dice it differently to see the picture. But it doesn't mean statistics are lies. If there is any doubt that the people who created the statistics lack integrity, then we can no longer analyse the numbers and we need to change the people. Statistics are not lies. Statistics are tools. They are neither good nor bad. It is important to learn to use them well.

The normal distribution, the biggest subtopic in statistics

Okay and here's the most interesting of them all, "Don't catch a falling knife."

When I was a newbie investor, I totally believed in this. It just sounded so true. When the stock is going down, why would a smart investor want to buy it? Why catch a falling knife? But as I looked back at my investments over the years, this adage began feeling wrong. Even the analogy is wrong. A falling knife would eventually fall to the ground and lay still. But a stock, especially a good stock, would eventually go up. If you had done your work, calculated the intrinsic value of the company, understood the strong economic moat of the company, then you should buy when it's cheap enough. It doesn't matter if the stock is falling or rising.

We want to think we are smart enough to catch the turning point. We buy when the stock had turned up, when the knife is no long falling. Seasoned investors would know that's not possible. This adage plays different tricks to our minds and confuses everything. It assumes we can predict when stock prices had bottomed and would go up, it projects images of suffering huge pain caused by buying falling stocks. The truth is, we can always just buy a toehold position.

We cannot predict stock prices just like we cannot predict the weather. To not catch a falling knife when buying stocks is like never bringing an umbrella outside because we assume we will always only go outside on sunny days. In my mind, this last adage - never catch a falling knife is probably more harmful than helpful to investors. It sounds beautiful, logical and right. But, in reality, it's not.

Howard Marks

This truth also dawned upon me just recently when Howard Marks made it clear himself. Here's an excerpt of an interview about his views on falling knives. Obviously, he said it much better:

Marks: You mentioned catching falling knives, and my vision is that when the stuff hits the fan and there’s blood in the streets most people go like this, they say well we’re not going to buy until the knife stops falling, until the dust settles, until all the uncertainty has been resolved. But the trouble is that once that happens then the price will have rebounded. So we want to buy at a time of upset and while the knife is still falling and I think the refusal to catch a falling knife is a rationalization for inaction. It’s our job to catch falling knives, That’s how you get bargains. But you have to do it carefully.

So, next time someone tells you about not catching falling knives, you know he's a newbie. Tell him or her that our job is to catch falling knives, with gauntlets on. Some of us even have the Infinity Gauntlet. Stones and all. We time-travelled to enough alternative universes collecting Infinity Stones. If we want, we snap our fingers and the knife disintegrates. Refer him to this post and see if he agrees. 

Happy National Day! Huat Ah!

Minimalism, Decluttering and Portfolio Concentration

According to Wikipedia, Minimalism in art began in the 1960s and the 1970s when a group of artists decided to protray art using the "Less Is More" concept. In New York's Museum of Modern Art, we can see a section dedicated to minimalism. One of the famed artists Robert Ryman painted only with white. He is considered as one of the fathers of minimalist art today.

Robert Ryman's celebrated work

Seriously, I could paint this. My 11-year-old son probably could do better. But I guess it is about articulating the idea, being the first and being able to put in into everyone's mind that less is really more. And so, after a few decades, the minimalism in lifestyle movement took off and moved into our lives. It started with a Japanese lady - Kondo Marie. She is the Queen of Decluttering in the Land of the Rising Sun. 

Kondo's stroke of genius was understanding that most people would not understand why Robert Ryman became a celebrated artist and why minimalism would not work for most people, at first. So she introduced the concept of decluttering. Decluttering is a way to manage our relationships with our stuff. In today's world of ultra-consumerism, we have more stuff than we have space to store them. Sometimes, we don't even have time to use them. We buy tonnes of stuff we don't need and we cluttered up our homes and our minds. 

Decluttering is Kondo's way to simplify. But it is actually also a half step to minimalism.  She put forward a very simply idea: for every item in our possession, we should hold it in our hands and search our feelings thoroughly, we should know whether we actually need it. If we don't, then we say goodbye, trash it and declutter. When we are done if the hundreds or thousands of items in our homes, we should feel refreshed and reborn, ready for a new life.

Kondo Marie

And she's right. So, people started decluttering and some people took it all the way. That was the start of the minimalist lifestyle. Some people managed to reduce their entire possession down to 50-100 items. They use the same soap to wash their clothes, their dishes and themselves. This is serious and minimalism has serious implications. If the majority of people started living this way, then we can see many companies being affected. Consumer names, furniture makers, even Apple. 

But that's perhaps years down the road. Apple should be the most valuable company in the world for the foreseeable future. Even after the stock is down 20%.

The important applicable concept of minimalism to portfolio is actually portfolio concentration. This is a perennial topic that deserved more discussion since I probably last wrote about this 11 years ago in a short post: Diversification or Diworsification. After a decade or so, I guess I found my own answer. In short, the answer is to concentrate to the point where you are comfortable. So this is different for everyone. 

Warren Buffett gave his answer: imagine you only have 20 bullets, how would you invest? That's his answer and since he is the best investor the world has ever seen, maybe the answer is very close to the right answer for most people. The answer could be near having 20 stocks, or 20 investments and make sure you studied them really well and know with very high probability that they would work. 

This right answer also depends on a few things so it's important to know them. For most laypersons, investing is a part-time hobby, so it really takes a lot and a long time to learn which are the right 20 names, so maybe for them, even Buffett's ideal answer might not be for them. If that is so, then it could 20 ideas with a mixture of ETFs and low risk investments like bonds or blue chips rather than 20 individual stock names. Also it's about concentration is these names. Unless you are really, really, really sure, try not putting 50% of your entire net worth into one stock. Warren Buffett did put 30% of his net worth into Berkshire Hathaway in the 1962-1964 after the original owner went back on a promise to pay Buffett the right amount in a tender offer. But Buffett was really, really, really sure. (Of course there is also a twist to this story, which shall be revealed at the end of this post.)

Project 333

In the world of decluttering, another number came up. It's 33 from this movement called Project 333. This project came about for female minimalists. It was a challenge to wear only the same 33 items for 3 months. I looked at this and thought, "Maybe I could do it if I really tried." But I truly admired the ladies who did this and succeeded. I looked at my wife's wardrobe... She probably needs Project 999: wearing 99 items for 9 days? Still, I love her the way she is. We all do right?

Okay, so for portfolios, the right answer is probably 20-30 different ideas, stocks, names. In portfolio management, we also know that diversification is achieved with more than 30 names. This is where unsystematic risks (i.e. risks due to individual names blowing up) are fully reduced and what's left would be systemic risks which no one can avoid (i.e. like global markets falling together) as long as you want to earn market returns (and not fixed deposit returns).

As mentioned, there are some investors who believe this could be 10-15 and not 20-30 and they have actually achieved that. Some are activists, which is understandable since you cannot be active and join the boards of 30 companies trying to push them all to transform. On the other hand, there are investors who hold hundreds if not thousands of names. Peter Lynch and Ben Graham, the father of value investing, are famous for holding very diversified portfolios. I believe that on this spectrum, these gurus would still have the 10, 15, 20 or 30 names that they believe will deliver the bulk of the returns. But they keep the tail to find the 10 baggers or to hold on for other reasons (sentimental ones maybe? Like why I still hold dogs like Singtel and Keppel).

Personally, I belong to the latter. I have 60 odd names and I am actively trying to push up the best 20 names I think should deliver the bulk of the returns in my portfolio. The top names today are companies that have strong business moats and high returns according to my models because they are so beaten down. The largest positions rarely hit 10% of my portfolio and that has worked for me. It is different for everyone, just as the extent of decluttering and minimalism is different for everyone.

So to end this post, let's just spell out some answers again: have as many names as you think is correct for you but also concentrate on the top 10, 15, 20 that will make the most impact. But be careful not have 1 or 2 names becoming so large (like 50%) that it overwhelms everything else. Although Buffett did bet the house on Berkshire, he made rather interesting confession some 45 years later. Here's the explanation from Wikipedia:

In 2010, Buffett claimed that purchasing Berkshire Hathaway was the biggest investment mistake he had ever made, and claimed that it had denied him compounded investment returns of about $200 billion over the subsequent 45 years. Buffett claimed that had he invested that money directly in insurance businesses instead of buying out Berkshire Hathaway (due to what he perceived as a slight by an individual), those investments would have paid off several hundredfold.

Hope this helps! Huat ah!

It's the Blue Ocean, not the Blue Whale Game!

I felt very compelled to write this post as I believe this would save lives. If readers here ever feel there is a need to repost this, tell someone about this, please do so asap. Our lives are very precious and there is never, I repeat, never a good reason to end it prematurely. We are connected to everyone (and all animals and all of nature) the day we are born. Every connection is very important. You are very important. More than you know it.

The blue whale is the largest animal that has ever lived. It is a highly intelligent animal and has been able to bounce back from the brink of extinction despite humans hunting them for food. Blue whales can sing and this fact was featured beautifully in Pixar's Finding Nemo and Finding Dory. Hitherto, it is not known why they sing but I would speculate that they sing because they are happy and they want to communicate their joy, just like we do. Blue whales sing a lot! They sing when they find food and they sing to impress other blue whales. As they are connected to Mother Earth as we are, blue whales' songs are heard by other blue whales and sailors and other sea animals. Blue whales then repeat the same nice tunes, resonating across the oceans.

The blue whale, one of the world's most amazing creatures

Hence it is beyond me that a suicidal game could be named after such an amazing creature. For the un-initiated, there is a dangerous, detrimental game called the Blue Whale Game that is being downloaded all over the world causing teenagers to commit suicide. The game starts innocuously by asking the gamers to do some simple tasks like listening to music or to write an online status, it then gets crazier and crazier until the last task - to commit suicide. The gamers are held ransom as the game hacks into their phones and the curators would threaten to wipe their phones or reveal embarrassing pictures or videos if the gamers do not complete the tasks.

Do not download this game.

Here's a sample list of the crazy tasks:

• Listen to music the “curator” sends. 
• Write a status online about being a whale.
• Watch scary videos all day.
• Draw a whale on a piece of paper 
• Write “yes” on the person’s own leg if ready to be a whale. Otherwise, they should cut themselves multiple times. 
• Wake up at 4:20 a.m. and watch a scary video (sent by the curator.) 
• Make lengthwise cuts on the person’s own arm.  
• Get up at 4:20 and go to the roof. 
• Carve a whale on the person’s own hand.  
• Sit down on a roof with legs dangling over the edge. 

Even if you have downloaded a game, there is always a choice to quit. So what if the phone get wiped. So what if some photos or videos are revealed online? It is not the end of the world. But suicide is, for the person. Nothing can be worse when life ends. Majority of people who tried to commit suicide actually regret at the last moment bcos deep down, they knew there is always another way out. Suicidal people tend to think that the pain ends with death.

However the pain doesn't end because we are all connected. The loved ones continue to bear the pain of the person who committed suicide. Suicide family survivors bear the pain and guilt of losing someone to suicide for the rest of their lives. They will forever ask why? Why didn't they manage to stop the person? Could they have done something better? Could they be more caring? It is a like a broken link in a web. Suicide doesn't solve anything. It amplifies the problem and passes it on. 

Broken web

It is said that 90% of all suicides are actually caused by depression. Depression is a serious sickness not unlike other major illnesses such as dementia, strokes, cancers and heart problems. It requires medication and treatment. However unlike most other illnesses, it is a sickness of the mind. Depressed people cannot snap out of sadness. The negative thoughts in the minds circle around over and over again. The thoughts lead them to conclude that the only choice to make in order to escape the pain is suicide. Hence medication and therapy is needed to overcome this highly dangerous sickness.

There's an analogy here with investing. In investing, it is always a multitude of choices. However most market participants are inclined to think in very limited scenarios. This is very rudimentary and is often proven wrong. For example, when TV first came out, people believed no one would ever listen to radio again. Sorry we still do, every day, in our cars. Today, it's about disruptions. If Amazon is going into groceries, then Walmart is going downhill. If Tesla grows big, all traditional automakers will be bankrupt. Sorry, wrong. The world is never so binary. Walmart is going strong and Costco is at all time high despite Amazon's onslaught and BMW is going from strength to strength. Look at its long term chart!

Tesla or not, BMW just powers on!

The investing world is always about creativity. This is because businesses are run by smart people who adapt and change, just like our ancestors for millions of years. Hence people who think in binary terms or have tunnel vision approach will always be constrained and their investing returns mediocre, very very mediocre. Ever heard stock critics talk about how this industry is gone because of that, how margins must be so and so, using deterministic language as if they know the future? That's tunnel vision and tunnel investing. We have to break away from that. 

The Blue Whale Game is the complete opposite of creativity and coolness. It locks people in, limiting choices, using threats and peer pressure to achieve its tunnel vision mindfuck. I have to emphasize again, do not download or play this game. It is even worse for people suffering from depression. Depressed patients need help to break away from the tunnel vision that lead them to only one outcome - suicide. This game exacerbates that. It does not help.

Depression requires doctor intervention. Often times, depressed people do not know why they are depressed. It's could be trigger by anything. They then get worried, unable to sleep, cry for no reason then seek to escape reality. They also have this perpetual feeling that they are worthless or helpless even though it's not true. Everyone has value. Even a business that has already bankrupted will always be able to buyers. Depression is a serious illness. Do seek professional help if you think you are suffering from depression.

Are you depressed? Seek professional help.

The world actually needs the other type of game, a Blue Ocean Game - a positive achieving game where anything becomes possible and we become the best that we can be, helping others and saving the world. We start with simple positive tasks but grow to complete a list of wonderful projects and then make the best deal ever - never ever commit suicide. Here's a list of tasks:

• Look in the mirror, smile and say, "I love you."
• Hug your mum, dad, partner, spouse, sister, brother, dog, cat, kids, any other loved ones and tell them you love them.
• Wake up at 6 am, have a good breakfast and then go out watch your city/town/neighbourhood waking up.  
• Say sorry for wrong things you have done someone by texting him or her. If you are up to it, ask them out and say sorry in person.
• Forgive someone who had done wrong to you in the past, text him/her and tell him/her that if necessary.
• Try to talk with at least 5 different unknown people about something for at least 5 minutes each.
• Meditate for 10 minutes.
• Eat no meat for a day.
• Exercise daily for 10 days.
• Say,"I can see, hear, feel better and I know that I am full of love and I will make this world a better place." x 1000.
• Make this pact with someone or with yourself - you will never take your own life and you will help make this world a better place for all sentient beings.

By completing these tasks and making meaningful pacts, we can then understand that possibilities are as limitless as the Blue Ocean and the world is our oyster. We are only limited by our own barriers and the tunnel visions that we had imposed on ourselves. We have to regularly connect with positive-minded friends and with Mother Nature to move out of tunnels and into the light. That's when we free our minds and execute the blue ocean strategies to live our lives to the fullest extent possible.

Value Investing Is Really Like Cave Diving

About 18 months ago, we discussed that value investing could be compared to riding a bicycle up a Finnish mountain. It was a really stretched analogy that was perhaps too difficult for most people to understand. Two weeks ago, the successful rescue of 13 Thai boys trapped in a cave caught the world's and my attention. As with many others, I followed the saga closely. I was woefully saddened when one of the rescuer died and jubilantly rejoiced when they were finally saved! It was truly a triumph for human innovation and a story worthy for Hollywood!

It also opened up my mind to the world of cave diving. This is really an extreme sport that is only suitable for the most courageous as simple mistakes could result in life-and-death situations. Cave diving rescue by extension goes beyond the realm of difficult tasks. It's crazily arduous as we had seen. To rescue the 13 boys, hundreds of people were involved. There were 90 divers, a team of pumpers to pump and drain the water out of the caves round the clock, 24 by 7. 

The logistics people numbered in the hundreds, chefs cooking, doing the laundry, ushers, volunteers and all the unsung heroes, including farmers who allowed the cave water to flood their lands, destroying their crops. They do it because lives are at stake, they needed to beat the clock and the odds to get the boys out alive.

Cave diving and rescue: treacherous operation!

The whole operation was akin to an investing firm, also usually with a few hundred people, asked to generate above average returns to beat the market. Most professional investors fail. They do well in a year or two, only to falter and then forgotten. Rarely we see an investment operation succeed for decades. Hence Warren Buffett, with his 50 odd years of track record is revered and adored not just by other investors but by everyone.

Cave diving, in my mind, is really analogous to practising value investing. It is not easy to appreciate how tough it is. We know it's not a walk in the park but most people certainly don't think it's rocket science. But the truth is, it's almost as tough as rocket science but in a different sense. Cave diving and investing requires a different mentality - taming our minds and most people fail to appreciate that. In cave diving, bad moves result in death. In investing, it's permanent loss of wealth, sometimes, a lot of wealth. The other important learning point: mediation helps in both! The boys meditated for days so that panic did not seize them while they waited for help.

As we had seen in the previous analogy about riding up a mountain, investing requires experience, technical skills and most importantly dealing with uncertainty. The CG above depicted how treacherous the path was from the cave entrance to the boys' location. To some extent, it looked like a stock price chart! Value investing by individuals is no less treacherous in a few ways. Here's the few aspects that we ought to discuss: 

1. Technical Skills: Math and Science
2. Experience and Real Training
3. Navigating in Darkness
4. Build in Contingencies

Investing usually starts with technical skills. I recall how sessions with students interested in investing always involve Excel and modelling. They are very keen to build the most sophisticated models, learn all the intricacies about Black-Scholes, the math and science behind it all. Unfortunately, the stock price wouldn't know how you modelled the firm. 99.9% of the time, the revenue forecast would not match reality. While I don't do cave diving, I believe the theory and technical skills behind would be very important. You need to know scuba diving basics. You need to understand decompression risk. You need to know geology and physics. You need to do your math well, don't get the oxygen content wrong. Because the cave would not care if you don't have enough oxygen. 

Cave Diving = University Math

It is said that scuba diving and cave diving is like primary school math vs university math. Cave diving is no child's play. You need to be proficient to be in the game. In cave diving, there are high risks of getting decompression sickness. This is caused by nitrogen bubbles going into the divers' bloodstream as a result of mismanaged pressure changes with the oxygen tanks. This requires careful calibration. Decompression sickness can result in death. Investing is not very different, you don't need university math but you do need to know accounting, corporate finance, efficient market theory, equity and bond analysis well enough. Yes, those Excel modelling is important, but it's the building block for something more. It's also all about calibration.

Calibration requires experience. Cave diving and investing is therefore a lot about experience. It cannot be taught in classrooms. After we learnt all the technical skills, we need to apply them correctly in the field. Every cave is different. Some are more treacherous than others and you never know how the conditions will change. Most of the time, visibility is very poor. Caves are dark places. You can use torches but sometimes the water turns muddy! Imagine that!

Real investing also cannot be taught (as with riding a bicycle). You must experience it. You also cannot see the future. You will never know which way the stock would go from today's price. When someone buys his first stock, watching it fall 30% and then panic. That's the experience we are talking about! So always start small with stable names. For every 10 stocks we choose to buy, 4 to 5 would go south, or not make our desired return! That's the best hit rate for most professional investors.

Since we cannot see the future or the cave tunnels clearly in front of us. We have to move slowly and be very prudent. Know the risks well. Never bet the house. Build in contingencies. In investing, we need our margin of safety. This is the most important thing according to the grandfather of value investing - Ben Graham. It means we only buy if the gap between the stock price and the actual value is really, really huge. We want to buy something we think is worth a dollar with 60 cents.

Cave diving contingencies

Navigating the markets and navigating dark caves also share many similarities. The diagram above does look even more like a stock price chart right? If  you are going into a new cave for the first time, you will not know what lies ahead. When there is a fork, you would have no idea which route would lead you forward. You wouldn't know where the water table levels off and you get back to dry land again. You wouldn't know how much oxygen you have in the cave and how long you can take off your mask. In the same vein, when we are investing in the markets, we have no certainty about where the stock will go, where oil price will be next month, or what is the earnings or the GDP numbers next quarter. 

Talking heads are forever predicting. They talk as if they know for sure what the future would be. The truth is, like navigating new cave terrain, nobody has any idea. If people claim they knew, avoid them like the plague. It is also like the weather. Can you say whether it will rain or shine next week? For weather, we now have the technology to predict a week or two in advance, but in the markets unfortunately, there is no way to know, unless you are an insider. But we do know that quality stocks compound over time. These are great companies with strong business moats and strong track records that had proven themselves. Value investing is about identifying these companies.

Since we cannot predict the future. We have to prepare well. This means building in contingencies. In cave diving, it's about having guide ropes and extra oxygen tanks. It's about having good torches with enough batteries in them. The picture above showed how the rescue built in even more safety measures. In investing, we can do two things: always size our bets correctly and always insist on a good margin of safety. Contingencies like buying put options are also available to sophisticated investors but for most of us, they are too expensive and hence not deployable.

To sum up, value investing is about navigating well when there are a lot of uncertainties. We learnt all the skills and theories in the early years but they are barely enough. It's also about many buy and sell calls to hone our acumen and to build on our experience. To most people, it's basically just too hard and hence Warren Buffett's advice to just buy ETFs and forget about stock picking. In this analogy, buying ETFs would be like scuba diving. It's easier and you would certainly have a lot more fun (i.e. earning good returns on your capital). Most importantly, you won't die.

However, to true value investors, the world's stock markets are our caves and every detailed stock analysis, our finest dive. Huat Ah!

Germany Tak Boleh!

"Tak Boleh" = "Cannot" in Malay

Last night, Germany, the champion in the last world cup was eliminated by South Korea, the worst player in its group. It is now advised that Mongoloids should not visit Germany in the next one month lest we get beaten up by soccer hooligans in Europe's strongest economy. If you really have to go, wear a T-shirt proclaiming you are not Korean. Maybe this is all planned. Both Italy and Spain were also eliminated in group stages after they won the World Cup previously (see below). So, Germany is just keeping the tradition!

Winners, move on!

I believe the lesson here is that we do perform our best when there is nothing to lose. This is especially true in the World Cup. South Korea was confirmed out of the race. It really didn't matter whether they win or lose as they would not be able to advance to the next round. So, with no stress and completely relaxed, next thing we know, they beat the crap out of the previous champion.

We all remember Roberto Baggio's spectacular penalty miss in the 1994 World Cup Final which caused the country to fall into a recession that lasted till today. Just kidding. But it was bad. He was the star and the captain of the team and the ball went way off course. Brazil won the World Cup. We also remember how England exited Europe twice in a week. Then there was Messi earlier this month, missing his penalty in his first game. It takes a lot to perform under pressure and humans are very poor at it. So, when making important decisions, especially investment decisions, please relax. Think of blue skies and beaches.

Ah.. blue skies and beaches

World Cup also brings in another related topic with regard to investing - betting. Remember Andy whose father bet Germany would win the last World Cup with all his savings? He was lucky four years ago, hopefully he didn't make the same bet this time. Actually, he shouldn't. The winnings should last until Andy goes to university. But how should we bet then? Most people probably bet on their favourite teams, Brazil, Argentina, Spain. Some more sophisticated ones try to use data to analyze and then figure out the odds and bet. Like analyzing all the past matches of Germany and South Korea, maybe bet big that Germany would win, then hedge with a smaller bet that Korea might win. Lo and behold, the hedge saved the day.

Speaking of figuring odds, there's this Singaporean guy who became a legend in soccer betting. His name is Dan Tan. Most of us probably never heard of him. I read about him in the New York Times a few years ago. His story was simply amazing. He tried to improve his odds (or rather his edge) by fixing matches. He would pay a few hundred thousand dollars to the referee, linesmen, goalkeeper to do things. Then he bet millions for the outcome he wants. When his story was leaked, that was when the whole world knew that maybe 70% of all soccer matches had some kind of fixes, including World Cup matches and this Singaporean guy fixed the bulk of them! There was once he paid the stadium to shut down the power so that the match would not have more than three goals! This guy is truly legendary.

Of course, he is now in jail. He became the most wanted man in Italy after fixing some matches and the Interpol and the Singapore police worked together to lock him up. Well, technically speaking, they didn't have enough evidence to trial him, so they just locked him up indefinitely. But I guess match fixing will continue until the day A.I. becomes the referee and linesmen and all soccer players are paid so much that it's impossible to pay them to fix matches. This could be partly why EPL is the most watched soccer league, their players are paid too much, nobody can fix the matches and hence it's real and fun to watch.

Ok back to investing, so what's the relevance?

Well. in the world of investing, the idea to improve investors' edge (legally that is) is being implemented by activists. Activist shareholders and funds are pushing companies to do things that would be good for share prices by writing open letters or joining the board of directors of companies to shake things up. Some of them have been super successful. Elliott Management's Paul Singer comes to mind. His fund's performance significantly beat both his peers and the market since 2007 as most of his activism caused share price to rally hard. Although one might argue that some did not sustain because once they made their money, these guys leave and sometimes, there is another mess to clean up. Check out Arconic!

Activists winning the day

As small shareholders, we really don't have the ability nor clout to do such things. There is no way we can influence the share price to move up unless we personally know the CEO and can tell him how to run his business. This is why it is always advisable to go for blue chips, or to be more specific, large cap companies (better to be in the billions, the higher the better) and firms with strong business moats. This would be your branded products businesses and market leaders. I also tend to like firms with no debt. That way, it's harder for them to go bankrupt. The balance sheet is sometimes the last line of defence, like the goalkeeper. We definitely don't want that line to be breached!

Ole! Ole! Ole! Huat Ah!

Of Frauds and Facebook

A recent bloomberg article "How Facebook Help Shady Advertisers Pollute the Internet" discussed how fraud advertising was crazy on Facebook. These are ads selling slimming pills, money making stock tips and sure-win cryptocurrencies, miracle hair growing cream and other shady products or services via affiliates that would utilize Facebook's user data to find their victims. Most people would know that these things won't work. If they did, then they wouldn't be coming from unheard sources. Yet there are always enough gullible people to prey on. Facebook knows who they are, because everyone uploaded everything about their lives on Facebook. 

Here's how it might work, say you have been watching videos about weight loss, researching on Atkins diet and posting pictures of your 5 km runs, your meals, your weight loss last week vs this week, then when a slimming pill ad pops up on Facebook, promising results in one week, sure, why not give it a try. If someone calls you soon after you read about the fake slimming pills and markets it perfectly. Bingo! You would have spent the $100 buying some fake slimming pills.

Fraud and scam works even if 1 or 2 out of 100 tries work. By leveraging on Facebook's data, these scammers might get the success rate up to 3 out of 100 tries. That's a 100-200% increase and millions in incremental income for the fraudsters and scammers. Unfortunately, these are also people that are not too educated, usually older folks or people from with low income households. Scams prey on fear and greed and are very powerful. It is difficult for most people not to fall for these traps, but the less knowledgeable and the insecure would be especially vulnerable. 

Sex scams in Singapore

The human mind unfortunately falls prey easily to these scams time and again. It is said that internet scams are not new. The mechanics of the tricks worked in the olden days and in the pre-internet era. We had phone scams (scammers impersonating kidnapped grandkids calling grandparents to wire ransom money) and we had old school sex scams (where a sexy girl will lead  you to a room full of gangsters) before the new era Whatsapp/Alipay sex scams. It's all greed and fear, two of the most powerful emotions. Here are some common greed/fear psychological traps:

Fear
1. Fear of authority
2. Ransom
3. Near miss / loss aversion / effort for reward

Greed
1. To get rich quick
2. Greedy for sex
3. Vanity: slimming pills, hair growth

In finance and investing, we have our fair share of frauds and scams. We hear countless stories about get-rich-quick schemes or yet another guaranteed investment plan that would make money. Invest in farmlands, invest in this platinum AAA fund with 200% return, invest in bitcoins etc. I would say that 99% of all these are frauds/scams. If they were really good investments, they would have had brand names like DBS bank or AIA insurance backing them. They would be selling via unit trusts and via banks and insurance firms. Heck, even funds that got through to banks and insurance firms might be scams, let alone those that didn't pass banks and insurance firms' screening criteria.

Of all the top billionaires and millionaires that we know, how many made it there through investing? Yeah, just one, Warren Buffett. (Well, there's also George Soros and Carl Icahn but who remembers them?) Not to forget, Warren Buffett worked at it for forty donkey years before he got famous. How can we expect some promises of get-rich-quick to get us there? Investing is tough work, as with most things in life, if anyone promises quick returns, just walk away.

Having lived a few decades (signs of becoming grumpily old), I would say there aren't that many short cuts in life. We hear stories of people striking gold, had one genius insight that got them rich, made a killing in so-and-so. But, that's really a 1% or even lower probability event. 99% of the time, it's lots of hard work and strenuous effort. Edison said it himself - genius is 1% talent 99% hardwork. In my experience, doing it by the hard way yielded much better results than trying to find short cuts.

"An hour of deliberate practice or concentrated practice is worth five hours of trying to find some easy way out by cutting corners"  

- improvised Bloomberg quote

With the hard way, it's confirmed that you will get the results. To successfully lose weight, you have to change your eating habits, exercise like hell, shun all unhealthy food. Confirm plus chop will see results.  By adhering to this philosophy, we know better and hopefully never to get scammed. But just to be really safe, we need more precautions, here's three don't's to fend off fraudsters and scammers:  

1. Don't ever part with your money, especially sums more than four digits. Disregard most of what you hear when someone asks you part with more than $1,000. In fact, be careful even if it's a few hundred dollars. 

2. Don't engage. Walk away as fast as possible, this minimises the fear of loss aversion / effort for reward psychological trick. The longer we engage, the more time the scammers can work on us, trigger our loss aversion, effort for reward mindset. Don't let them have the chance. 

3. Don't keep everything to yourself, when you face a situation. Check with friends, relatives or other informed sources, even if the Police Commissioner or the President of Singapore had called and asked you not to share the information. Always double check, double confirm, look for the chop also. Need confirm plus chop first, then we talk.

Facebook's share price

Back to Facebook, so is it a buy right now? Well, as with most past valuations, my preferred metric is to use the free cashflow (FCF). Facebook generated USD 17bn of FCF last year. It is hard to say, whether this is a sustainable level given that things change too rapidly in techland. I would just triangulate that Apple generated USD 50bn and Google USD 24bn last year. The rest of the FAANGs are still not too good at FCF generation. Well Amazon has USD 9bn but Netflix still burning cash. So maybe Facebook can do USD 20bn some time in the future, given that it has Whatsapp and Instagram which it hasn't started to monetize. But, it's really a wild guess. So let's say USD 20bn. But even at USD 20bn, we are just talking about of 4% FCF yield and that's not exactly cheap. I would consider stocks trading nearer to high single digit FCF as cheap. For example, Apple is trading at 7% FCF yield with a few hundred billion dollars of cash on its balance sheet. So despite the sharp fall, Facebook is not exactly a screaming buy yet.