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Insights in early 2011

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Indonesia and Philippines are gifted with amazing destinations perhaps more than Thailand, Malaysia, or Vietnam but they have messed up badly in marketing and suffer from (in)security issues.

It is an open secret that no Asian countries are capable of developing intimate ties with China and India simultaneously. Kavi Chongkittavorn. The Nation (Thailand)

The US Federal Reserve’s decided to print US$600 billion stoked fears of formation of bubbles that could lead to sudden crashes. The prices of vegetables and houses went up in many Asian countries.

Dai Haifei (24, a junior architect hailed from Yiyang in southeast Hunan) built a 6sqm mobile egg-house as an answer to Beijing expensive housing where the average home is selling for about RMB 19,500 / sq m (USD 3,000).

Shares that have performed well in the recent past continue to do so for some time. This kind of momentum effect is also present in commodity prices and currencies, they rise or fall for long periods. The Economist Jan 8th, 2011.

There will soon be 7 billion people on the planet. National Geographic. January 2011.
1 in 7 people on Earth lives in slums today.
By 2045 global population is projected to reach 9 billion.

Facebook has secured $500m in financing from Goldman Sachs and Digital Sky Technologies, a Russian investment firm, to fuel its expansion plans.
The business model of Facebook is unproven.
Much of Facebook’s revenue comes from low-end display advertising.

CD sales collapsed.
YouTube runs few ads, for not much money.

Airlines keep finding new things to charge for, from pillows to checked-in luggage. Additional note in  September 2012, my mentor AK advised against buying stocks of airlines companies, because they belong to price competition, instead of sustainable competition.

Investors who buy the best-performing shares over the previous year earn much higher returns (10% points a year) than those who buy the laggards of the preceding 12 months.
Fund managers create the MOMENTUM EFFECT by WINDOW-DRESSING their portfolios with the market’s recent favourites (it looks much better to close a quarter owning the market leaders).
Clearly the momentum effect cannot last for ever or share prices would head for infinity.
An irrational market sends misleading signals, causing capital to be allocated in the wrong places, e.g. encouraging the building of houses in America, Spain, and Ireland for which there was scant underlying (as opposed to speculative) demand.
Momentum effects help to explain why bubbles develop.
Too often, central banks have tended to give speculative buyers a one-way-bet – cutting interest rates when markets falter (weaken), but leaving them unchanged when asset prices boom.
The Economist Jan 8th, 2011. The Big Mo.

Letters on the Disposable academic. Dec 18th.
Society needs highly trained critical thinkers to tackle complex problems with rigor and research skills.
Non-research jobs where they must analyze large amounts of evidence for complex decision-making.
Amanda Murphy (Chicago): I have the opportunity to teach and lecture. My adviser is supportive. I can spend all day thinking and reading books, and that is OK as it is my job.
Paul Greenberg (Managing principal, Analysis group, Boston): I am reminded of my very wise prof’s words of wisdom: the PhD students is someone who forgoes current income in order to forgo future income.

Go south, young scientist.
Brazil is a world leader in research on tropical medicine, bioenergy and plant biology.
Sao Paulo = Brazil’s richest state.
Research funding is being squeezed in Europe and North America.

The most important and difficult problem of academia in Italy was its non-transparent recruitment system. The Economist Jan 8th, 2011.

The best companies e.g. GE, Procter Gamble, are obsessed by the VITAL FEW.
Universities welcome the masses: more people now teach at British universities than attended them in the 1950s.
Novartis, a drug firm, asks high-flyers to produce LEADER PLANS and share them with their mentors and contemporaries.
The best companies single out high-flyers for special training.
Agilent and Novartis like to turn specialists into general managers.
Elitism has its drawbacks. In their rush to classify people, companies can miss potential stars.
People who are average in one job can become stars in another.

Well-paid fund managers have spent decades trying to find ways to beat the market.
Why the bother devoting so much $ and effort to researching the fortunes of individual companies when the momentum approach appears to be easy to exploit and has been aroud for a long time.
SMALL COMPANIES tend to do better than bigger ones in the LONG TERM, but they tend to be LESS DIVERSIFIED and thus MORE RISKY.

MOMENTUM may = the lag btw BELIEFS and the NEW REALITY.
TRENDS occur because there is disequilibrium between SUPPLY and DEMAND.
How to exploit momentum ? trade faster and faster with a time horizon of ms rather than months. But not all market movements are part of a trend. As you trade faster, it is easier to get misled by the noise.

MOMENTUM EFFECT tends to work for the best performers over the past 12 months, but not for those that have shone for longer periods, say 3 or 5 years.

Momentum works over the short term.
Value is successful over longer periods.

1975, 2000, 2003, 2009 are bad years for investors who used a short-term momentum strategy.

After the development of benchmarks like the S&P 500, clients began to demand that fund managers proved their skill by outperforming an index. Many failed, but even some who succeeded may have done so by holding concentrated portfolios of only few stocks (which more risky thank overall market).

These days investors can not only match a benchmark through simple index-tracking funds, they can also own portfolios that exploit the VALUE and MOMENTUM effects without paying hefty fund-management fees.

Momentum effect suggest that an irrationality might be at work; investors could be buying shares (and commodities) just because they have risen in price.

China: price rises in China = inflated fears.
If the prices of vegetables, fruit, other crops are more flexible than other prices, FOOD INFLATION may be an EARLY WARNING of an overheating economy.

20% of UK graduates out of work. Guardian. Jan 26th, 2011.

Written by blueroselady

January 31, 2011 at 2:58 pm

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