Archive for August 13th, 2008

Rollover Beatles. Tell the Rolling Stones the news.

August 13, 2008

Hands down…U2 is indisputably one of the top 5 rock bands ever. But now after watching U2 3D, I’m close to commiting heresy to say U2 has no equal, including legendary rock bands including the Rolling Stones, the Beatles, Led Zeppelen, the Red Hot Chili Peppers, and Nirvana.

No U2 fan in his right mind would miss U2 3D shown at Imax theaters. The experience of watching this uplifting concert on Imax is worth repeating again and again despite the hefty US$15 ticket. For a good review on the U2 3D film read this.


3 principles of Wing Chun Kung Fu (The Financial Athlete #41)

August 13, 2008

Simple. Direct. Economy of Movement. These are 3 key principles shared by Wing Chun Kung Fu and Bruce Lee’s Jeet Kune Do. An investor should abide by these principles too. Here’s how:

1. Simple
Don’t day trade stocks.

Don’t waste time obsessively watching the tape (day’s trading). Most of an investor’s time on task should be spent on research, not worrying about the daily market fluctuations.

Buy with the intent to hold long-term. Sell when your investment thesis no longer remains true or the stock becomes substantially overvalued.

Monitor the company progress and project its growth rates for the next 5 years. Leave the micromanaging to the managers.

Don’t buy stocks on margin. A margin call is a stressful and potentially devastating experience. Don’t complicate your life with buying on margin. Only own an equity without borrowed money.

Keep some cash on the side. Or, you may find yourself selling equities at a loss to cover expenses or to fund new investments.

2. Direct

Manage your own money. Don’t pay commissions to fund managers. If you do not have time to manage your own money, buy index funds.

Don’t buy individual stocks until you have become financial literate. If you cannot understand financial statements and valuation metrics, then you are gambling, not investing. Use valuation metrics as your primary tools, and basic technical analysis as your secondary tools.

Don’t buy call options (a derivative). The necessary price appreciation often takes longer than when the call options expire. Buying call options is another form of gambling, not investing.

For speculative stocks, buy only in private placements to get a discounted unit price plus warrant coverage. (You must be an accredited investor to participate in private placements.) If you are not a sophisticated investor, avoid speculative stocks altogether. Successfully investing in speculative stocks requires an intricate knowledge of the factors of success for business development.

For investments into small cap companies, speak directly to management by telephone and private meetings. Although this is direct research, don’t believe everything you hear.

3. Economy of Movement

Economy of movement is about doing more with less. With investing this done through leverage. Use leverage discreetly. Don’t overextend yourself. If you overextend yourself, you may be forced to sell prematurely, often at a loss.

Much is written about using OPM (other people’s money) as the path to wealth. Not enough is written about the pitfalls of debt for investment purposes. Some investments that once seemed very promising turn sour. Therefore, if you use leverage, always keep the debt level manageable.

Leverage should be used in proportion to your financial liquidity. If you have little liquidity, don’t take on more debt. Never use credit card debt for leverage.

Leverage should be used for building greater cash flow, not speculating on substantial price appreciation of an asset.

(photo above: statue of Bruce Lee in Hong Kong. Wing Chun was Bruce Lee’s formative style of martial arts.)