Inspiration from Ratatouille

(Please do not continue reading if you intend to watch the movie before knowing the plot)

Ratatouille is the latest animated cartoon by Pixar. Remy is a young rat who grew up in the French countryside with a dream of becoming a cook. Later, he arrived in Paris, the city that was said to have the best cuisine in the world. Remy has to overcome various obstacles to become a great cook, despite Remy's family's skepticism and the rat-hating world of humans.

Someone might say "hey, c'mon, this is just a cartoon, which means everything is created from human imagination and is utterly unrealistics. The ending can go either way, based on the decision of its director." Oh well, unrealistics it might be, but I did learn something from this little mouse:

Remy, (the rat's name, in case you've forgotten) grew up in a rat colony which believes that the destiny of being a rat is to eat from what's leftover at the garbage, also known as, junk. But this particular young rat has a strong belief on the motto of his cooking idol, Chef Gasteau, that "Everyone can cook" and "Food always come to those who loves to cook". It is this belief that gave him the courage to go against the will of his father and the destiny of a rat, and to prove to the world that he too, can become a great cook.

Below are some quotes in the movie which I have copied from the IMDB website (http://www.imdb.com/) to be shared with those who understand what I am talking about:

Remy: ...I think it's apparent that I need to rethink my life a little bit. I can't help myself. I... I like good food, ok? And... good food is... hard for a rat to find!
Django: It wouldn't be so hard to find, if you weren't so picky!
Remy: I don't wanna eat garbage dad!

Remy: [observing what Emile is eating] What is that?
Emile: [pause] I don't really know.
Remy: You dunno... and you're eating it?
Emile: You know, once you muscle your way past the gag reflex, all kinds of possibilities open up.
Remy: This is what I'm talking about.
(Aren't we getting used to things that are given to us and never think whether if we like or dislike, and whether we can get something better?)

Django: [showing the exterminator shop to Remy with the dead rats in the window] The world we live in belongs to the enemy, we must live carefully. We look out for our own kind, Remy. When all is said and done, we're all we've got.
Remy: No. Dad, I don't believe it. You're telling me that the future is - can only be - more of this?
Django: This is the way things are; you can't change nature.
Remy: Change is nature, Dad. The part that we can influence. And it starts when we decide.
Django: [Remy turns to leave] Where are you going?
Remy: With luck, forward.

Similarity to our real life? Aren't we grown up in a society that keep telling us that we should always study hard in school, get a good grade so that we can get into good universities? From there, study even harder, get even better results because ultimately, these results are going to go with our resume when we apply for jobs. So, after striving for 20+ years (if you're good enough, maybe 1 or 2 years earlier than the rest) to do well in studies, some of us might be lucky (well, or unlucky) enough to get a nice and confortable job, high salary (compared to our fellow friends and students) in a big company. Although started at a low level, we are being told to work (sometimes called learn) hard, because one day, with fingers crossed, those above us will retire, resign, die or whatever, and that's our chance to climb up the corporate ladder to fill the gap. Well, work hard for another 20+ years (again, someone might be luckier with fewer years than the others), one day, we might get a higher position and a fatter salary (also fingers crossed). We will then become the star of the family, the talk at every reunions, the role model for the younger generations and etc. Big Deal!!

If you find it thrilling climbing the corporate ladder, so be it! And if you are not able to get good grades, it doesn't mean that's the end of the world, many rich people you see today have not even graduated from colleges. Get a good job isn't the only way to financial freedom, neither is getting a good grade in school. I have not done extremely well in school and have no talent in anything. However, I believe, everyone of us have the chance to achieve what we want in life, if we try hard enough! For my case, I like investing. I like to look at interesting businesses, reading financial reports and the chance to share a piece of the cakes. I get really excited when I see companies selling at discounted valuation. I believe if I learn hard and follow the right path in investing, it will ultimately lead me to what I want in life. Remember "everyone can cook"? I would like to say "everyone can invest" and "everyone can get what they want".

Fear of the Unknown

I was so amazed by the heavy sell down in the market for the past few days. Not only by the economic effects, but more towards the human reaction. I think I've read some statistics somewhere that the total market capitalisation that have been wiped out from the global capital market is more than USD4.5trillion (as at 15th Aug 2007). This figure is at last count, must be at least a few percent higher by today (note: market capitalisation is total number of shares times market price per share. So, in this context, the total value of all listed entities around the world have lost more than USD4.5trillion within days.) (2nd note: 1 trillion is 1,000,000,000,000). This amount can buy out a few times of the total sub-prime loans of the market. So? How to explain this down fall? I would rather call it the "Human Fear of the Unknown".

I have heard many people around me kept selling their holdings over the past few days. Ask them the reason? well, some are selling to limit their loses, others, because fear of the unknown future. They are afraid because they can't see the bottom of this and don't know how bad this may become. The fear to lose more.

Anyway, dear readers, let me share with you some very nice quotes:

"Humans always have fear of an unknown situation -- this is normal. The important thing is what we do about it. If fear is permitted to become a paralyzing thing that interferes with proper action, then it is harmful. The best antidote to fear is to know all we can about a situation." -- John Herschel Glenn, Jr.

Fear makes the wolf bigger than he is. -- German proverb

Nothing in life is to be feared. It is only to be understood. ~Marie Curie

The oldest and strongest emotion of mankind is fear, and the oldest and strongest kind of fear is fear of the unknown.’ — H. P. Lovecraft

Fear is one very interesting human behavior. It leads people to make decision that they will not do during normal circumstances. This might be another interesting topic that worth further studies. Anyway, in my humble opinion, the current situation might get worse and take time to recover, but am quite confident that it will NOT go into a heavy recession from this sub prime crisis. So, it is certainly an exciting time to start accumulating undervalued stocks that have undergone some major sell-offs. Good thing is, even our great Warren Buffett has been reported to have start accumulating stocks in some Banking and Insurance stocks lately. Imagine, it's like a major discounts promotion at the shopping mall out there. Funny thing is, the stock market presents a totally opposite scenario, where people actually run away from discounts promotions. Fear, can be friends.

Happy shopping!!

Subprime Mortgage, Financial Crisis ? - Part 2

Today, 15th August 2007, marked another day of heavy downfalls for the KLCI and major stock market around the globe, except the Chinese Stock Market, which seem to have stood up quite well against the tide. This is something that have fascinated me. For the past few months, I have been imagining the next financial crisis could have been triggered from the burst of the Chinese Stock Market bubble. Ironically, my prediction had turned out to be all wrong whereby she has been one of the few survivors during the recent bloodbath, and in fact, she has turned out to be a winner!! while others have been whiner!!

So, winner or whinner, life moves on. There are people that have been stuck with handfull of investments and saw their "market" value vaporised within days and don't know what to do; there are also those that have been observing at the sideline all these while and wondering whether is it time to bargain hunt (I think these are the lucky few); and there are of course those that have decided to cut their loses and swear not to call their stock broker ever again and etc. Whichever category one is in, I think most people would like to know one thing, "How will it be going forward?", including those that have sworn and cursed. No?

There have been alots of write ups from professional analysts about how would it be going forward. You could have read lots of articles where people have been screaming that the sky is falling, and in fact, there are also a minor few that still think that this sell-off is over-reacted. I am a bit bias to the latter and would like to share some of my views (again, please be reminded that I haven't done well in economics):

Data from Moody's claimed that the subprime market is about USD600 billion (Yes, billion, I've spelled it correctly). It is a huge amount at first look. However, another source of data shows that the total U.S. household debt, including mortgage loan and consumer debt, was $11,400 billion in 2005 (roughly 5% being sub-prime). By comparison, total U.S. household assets, including real estate, equipment, and financial instruments such as mutual funds, was $62,500 billion in 2005. So, assuming ALL borrowers of Sub-prime (I mean, every single person who borrowed money from the subprime market) were to default at once, it can still be well-absorbed by the whole financial market. And secondly, as all these high risk subprime loans have already been securitised and partially sold out to other financial institutions, funds, monetary bodies around the globe like those European's and Asian's. Hence, the losses have already been well-contained and spread out. This is also the reason why we see so many European funds and banks suffered heavy losses from this.

Secondly, as one of the points being brought up times and again by Icapital, one of the leading market analysts that I like, the global economic growth we are currently experiencing is mainly contributed by China, India and the recovery of some of the European countries. The US is having a lesser influence on the global market nowadays. Of course the current jitters might stay for a while, but the effect should not be as heavy as we have gone through. Imagine, the stock market has easily wiped off Trillions worth of market capitalisation from around the globe. This is a few times heavier than the sub-prime loans, even assuming that ALL loans are defaulted at once. What I am arguing here is that the sell-offs have been over-reacted.

Thirdly, the world economy has gone through many expansions and contractions over the years. We have learnt way too many lessons than we have actually needed. The system is mature enough to handle the situation. Just look at the ways banks and government bodies pumping liquidity into the system immediately after the outbreak. Even financial institutions have taken measures to limit their loses and to cool down the selling pressures. Moreover, as mentioned before, the slow down of the housing market has already been observed since year 2005. I suspect that most of them have already preparing for these to happen.

So, back to the question "are we seeing a recession?" In my humble opinion, not at this stage. Of course, the market will need time to heal itself in a few weeks' time. Investors will also need time to lick their wounds. However, to those that have been on the sidelines, this is definitely a better (might not be the best yet, though) time to pick up some bargains compared to months ago. For myself, this is certainly an exciting opportunity.

The "Subprime Mortgage Financial Crisis" - Part 1

I like economics. But I've never done well in this subject. Hell, I haven't done well in any subjects, anyway. Probably I don't put much faith in what I was taught. Well, these are all out of topics...

Many people have blamed that the recent market meltdown across the globe was caused by this evil little thing called "subprime mortgage financial crisis" in the America. As I am somehow illiterate in econs, I have decided to find out more on what the hell is this all about. So, keyed in the phrase in wikipedia and there were a few long articles of this. For the sake of my dear readers, I have somehow summarized it into the followings, as per my understandings (words of caution though: please bear in mind that I've nearly flunk my econ test. I swear I really did):

People borrow money to buy houses. These loan from banks are called mortgages. As the credit controls in the United States are very strict, many individuals that do not fulfill certain requirements will not have access to the mortgage facilities in primary mortgage market, usually from those big and reputable banks. So, one of the alternate routes for these individuals with bad credit history is to seek out the sub-prime mortgage. These usually come with higher interest rates because of the higher risks incurred. From 2001-2005, the housing market in the US was booming, and slowed down in 2005. Coupled with rising interest rates and falling house prices, the subprime market crashed. Many borrowers defaulted and the subprime lenders were suddenly faced with huge amounts of bad loans. And the chain effects quickly spread across the banking industries and had even spilled over to investment funds across the globe. The seriousness? Below is an extract from the Wikipedia that would somehow give you an idea:

"Wall Street Investment Banks and other financial institutions around the world have also been affected. On June 20, 2007, Merrill Lynch seized $800 million in assets from two Bear Stearns hedge funds that were involved in securities backed by subprime loans... on August 9, French bank BNP Paribas stopped valuing three of its funds and suspended all withdrawals by investors after United States subprime mortgage woes had caused "a complete evaporation of liquidity". Goldman Sachs' $8 billion Global Alpha hedge fund, its largest, reportedly lost 26% in 2007. Also, Citigroup has reported taking $700 million in losses in its credit business in July and August 2007... The European Central Bank (ECB) injected €61 billion, and the Federal Reserve injected $68 billion into their respective banking systems on Friday, August 10, 2007 in order to calm their markets, on top of the €95 billion the ECB had injected on Thursday, August 9, 2007. The following day, August 10th, saw widespread volatility resulting from fears about tightening credit conditions... While U.S. stock markets ended the day relatively unchanged after extreme volatility, other indexes fell. London's FTSE 100 index fell 3.7% in its worst day in four years, while Paris' CAC 40 index lost 3.1%, and Germany's DAX index fell 1.4%. The jitters followed in Asian markets: Tokyo's Nikkei share index fell 2.4%, while Hong Kong's Hang Seng Index fell 2.8%. The Federal Reserve further injected $24 billion into the US financial system that day."

Scary eh? It's like a replay of the Asian Financial Crisis all over again, but this time it was started from the West. So, shall we be concerned with this issue? will the regional markets in our part of the world be affected? Is this the beginning of a long bear run? we shall see..

Bloody market @ August 2007

Yesterday marked one of the heaviest market correction in year 2007, AGAIN!

The earlier correction back in February was even scarier (marked by the arrow), but it rebounded quite well back then and rose into new high without looking back. Anyone who have bought in during the panic selling would have made some profits, theoritically.

Anyway, what we are more concerned now is whether the road ahead is going downhill, or is this merely a minor setbacks on a long and strong upward walk?

I had a funny thinking, I would like to make a prediction on the market and tell you what to do with your money RIGHT NOW. Listen carefully: "Sell whatever you have, this is the beginning of a big disaster! The global market is going to bust and will go into recession for years to come! DO NOT LEAVE ANYTHING BEHIND! JUST SELL!"
(wait, don't pick up the phone to call your broker, before finish reading this article or I will not be responsible for whatever action you might have taken).

Come back and thank me when it happens. And I would appreciate if you could show a journalist what I have written here as a clever prediction of what would happen before it actually does. That's going to make me famous and making me the "Golden Boy" or "Prophet" of the Stock Market, isn't it?

You want to know why I make this call?
It has been my secret weapon, but, I don't mind sharing with you since you have the patience to read until here.

Look, the chance of the market going up or down is 50-50. Of course, there are many other factors that might affect it as a whole, but they will sort of "neutralise" each other out, feel good factors will be covered by negative factors and vice versa. Of course, the probability is not exactly 50-50, but should not be far from it (pardon me, for I haven't scored well in maths). So, making a call is merely like making a head or tail call. Best thing is, if I am right, I am going to be famous, and if I am wrong (in this instance, let's say the market rebounded), I would have lose nothing anyway. Worse come to worst, I will just abandon this blogsite and start a new one elsewhere. Why bother? Why am I saying all this BS? Because I am very not happy with some articles I have read recently on market call. I agree that some of them staged some very strong claims and I totally respect the facts that being brought up. But, many of the so-called experts are merely making calls like what I have done earlier, with the "head I win, tail you lose" kind of thinking. I would prefer them to keep quiet and their crystal ball reading skill to themselves. I do ignore many of them but do like to read some occassionally for a good laugh.

So, after all these BSs, what's the right thing to do RIGHT NOW? As repeated time and again, if we are holding to good and strong companies, we should ignore what the others are doing. The panic sellings are nothing but good chance for us to buy more. Don't you like to go shopping when the market is on sale? But take note though, I am not asking you to buy everything that's on sale, only choose what you like and confortable buying. You don't want to buy a broken 40inch plasma TV, even if it is selling for RM1000, do you? Or, put it another way, you don't want to sell the Toyota Vios you have just bought for half its price, merely because your neighbour has just sold his for the same amount, do you? Same concept.

Conclusion:
Buy what you think is undervalued and sell what you think is overvalued. &

Be Fearful when others are Greedy and be Greedy when others are Fearful - Buffett