2/08/2009

Running in the big league

When our fund managers placed their bets on Citibanks, UBS, Merrill Lynch, Barclay etc etc, I thought it was a good idea. I still believe it was a good idea. Under normal circumstances, it was a window of opportunity opened for a little boy to enter the big league, on invitation. Even if the situation wasn't of the best, it should turn out well in the long run. We could be co owners of some of the biggest names in the financial world. Obviously things did not work out the way they were expected. Our losses were phenomenal. No numbers have been quoted except in vague percentage terms. The art of selective use of absolute numbers versus percentages has been honed to a fine skill in this paradise. My guesstimate is that the loss could be around $150b to $200b. Oh, let me be more precise on this. It is paper loss. And we outperformed the market and even trimmed our investments to 7% cash. Outperforming the market is a way devised by fund managers to tell investors that they have lost a lot of money but they are still cleverer than the market. As to the 7% in cash, good fund managers would probably have 70% in cash, not 7% or 10% or even 20%. What went wrong? On hindsight, we were in a hurry. We could also be too trusting of the Angmohs that came knocking at our doors asking for money. That was ok. The sore point is whether we have done enough homework and done enough to protect our investment if things were not what the Angmohs said they were? Placing such huge bets, in the billions, must be done with a lot of caution and hard facts. It is not betting in a casino! Everything is now water under the bridge. We would have to wait for the long run to recover our losses. There is this conventional wisdom that in a 30 year cycle, the prices of stocks and shares will outperform any kinds of investments. We will see what will happen in 2038. With the advantage of hindsight, any money put into the market today could probably double in less than three years. But the risk to lose everything is still there. The difference is that the risk is much lesser and the loss relatively lesser too. Many investors in the market have learned their hard lessons since the bull run of 1993 and the subsequent years of crashes. And they are still learning and still hurt by the present crisis. The important thing is to learn that old conventional wisdom may not always hold and investing with big money must be done carefully, patiently, unlike gambling in a casino.

7 comments:

Dog said...

Investment is a matter of timing. If my billion dollars had been held in cash from 2007 till today, I could have bought 10times the stocks. And of course I would be sure to hit the jackpot within 2 instead of having to keep my fingers crossed for the next 10 to 15 years. If I had not been in such a hurry to show my business acument and to fix-up my pay to millions, now I would not have the need to agonize over my mistakes even to my death. And still leave behind a bundle of problems for my sons and grands. Sigh!!!

redbean said...

what's done is done. let's move on. another 30 years things will be fine.

Dog said...

Move on towards where, what or when, redbean? To move my old body I need billions more. Where and how to get?
From CPF?
By double unlocking the treasure chest?
But the whole world's watching! And I cannot do it behind frosted glass anymore.

redbean said...

hi dog, your appetite is growing big huh. i only need $1m and i will be very happy liao.

yes, we can move on, to the future.

Anonymous said...

RedBean,

You are off the target,now the estimate is S$195 billion(GIC loss)+S$75 billion(TMK loss),total $270 billion

It is bad punting that went terribly wrong.



http://nationmultimedia.com/2009/02/09/headlines/headlines_30095260.php

Temasek takes severe hit
By Thanong Khanthong
The Nation
Published on February 9, 2009
CEO Ho Ching's exit won't alter fortunes of the sovereign wealth fund in short term

Ho Ching's resignation as CEO of Temasek Holdings would not cloud heavy losses of about 40 per cent at Singapore's sovereign wealth fund amid the global financial market meltdown.

The Government Investment Corporation of Singapore (GIC) is also suffering similar heavy losses.

An investment analyst in Singapore said Temasek's results will be released in April and he estimated that of its US$125 billion portfolio as of March 2008, Temasek would have lost 40 per cent, leaving it with about US$75 billion left.


As for the Government Investment Corporation of Singapore or GIC, the investment analyst said it would also lose more than a third of the value of its investment portfolio.


"GIC started the crisis with roughly Singapore $550 billion in reserves. My estimate is that it has lost about $190-$200 billion of that, leaving it with about $350 billion left. This amount is equivalent to 200 per cent of Singapore's gross domestic product," he added.


"So both have lost money but their performance has not been out of line with other large funds, possibly a bit better. These are all worst-case estimates."


Ho, the wife of Prime Minister Lee Hsieng Loong, announced last week that after almost seven years at the helm of Temasek, she would step down by October this year. She would be succeeded by Chip Goodyear, a former CEO of BHP Billiton Ltd, who would be the first foreigner to run the sovereign wealth fund.


Temasek Holdings was set up by proceeds from the privatisation of Singapore's state-owned firms, while GIC by international reserves of the Monetary Authority of Singapore. Both represent the investment vehicles of Singapore, which has eyed for a global reach for its investment.


The transition is taking place at a time when Singapore is suffering the worst economic problems since 1960s. Temasek, racked a return of about 17 per cent a year since its inception in 1974 and March this year, is also going to face a drastic restructuring of its investment strategy.


Under her leadership, and also as wife of Prime Minister Lee Hsian Loong, Ho led Temasek to embark on audacious acquisitions in China, Asia, Europe and the United States. Temasek's buy-out of Shin Corp, previously owned by former prime minister Thaksin Shinawatra, in January 2006 sparked out a political turmoil inside Thailand followed by a military coup in September that same year.


Ho's resignation has also sparked a debate inside Singapore. Tharman Shangmugaratnam, the finance minister, preferred to handle the issue with a diplomatic term, saying that Ho's departure wasn't linked to the performance of Temasek's investments.


"Whether this is a way of making a change of someone who is related to the prime minister, this has been a point that I've dealt with since the first day Ho Ching was appointed as CEO. I was very instrumental in bringing in Ho Ching and it was based purely on merit and has nothing to do with her relationship to anyone," he said.


The investment analyst in Singapore said Ho's resignation was planned for about a year. "I don't think it has much to do with Temasek's performance. This is Singapore, favoured people are not made to resign for performance! I think Singapore leaders are more concerned over the Sovereign Wealth Fund issue. It becomes more difficult to defend Singapore's sovereign wealth fund as a non-state actor with no political agenda if the wife of the prime minister is running it," he said.


Singapore's economy is facing a severe downturn, with growth rate plunging into the negative territory. "We recently revised downward our GDP forecast to minus 2.8 per cent to reflect the likelihood that the contraction in the first half of 2009 could be deeper than previously expected," said Citi's Asia Economic Outlook and strategy (January 23, 2009). "Advance estimates for the fourth quarter of 2008 showed a contraction of 2.6 per cent from a year ago, down sharply from 0.3 per cent the previous quarter. On a quarter on quarter seasonally adjusted annualised rate, the fourth quarter GDP contracted 16.9 per cent - the worst on record."


Singapore has recently entered into a currency swap arrangement with the US Federal Reserve, which worked out the swap arrangements with selected countries including Brazil and Korea, to avert the financial crisis, data of the US Federal Reserve show.


Unlike Korea, which has drawn down the currency swap arrangement, Singapore has not yet drawn down the swap.

redbean said...

ya, i deliberately quote a very conservative number. not too nice to embarrass people.

anyway all the fund managers or professionals in the industry could easily guess now that some numbers are out.

Anonymous said...

Dear Fren;

You grossly understate their abilities or You have judged them too conservatively. Accurate but not very accurate.

patriot