Making monkeys out of markets

IT'S now official. Even monkeys can beat the stock market index. Cass Business School researchers in London simulated 10 million portfolios of US stocks selected at random. They found that a US$100 invested at the beginning of 1968 would have yielded US$5,000 by the end of 2011, but half the monkey (computer-simulated) portfolios managed US$8,700, one quarter made more than US$9,100 and 10% made more than US$9,500.

So, does the market beat all the professionals if monkeys beat the market?

There is a real lesson here for investors. I had a great debate with a good friend last month regarding the benefits of investing in a world where fast trading algorithms (using super fast computers to detect market opportunities to buy, sell or short stocks make it hard even for traditional asset managers to compete. So what chance is there for retail investors? My friend decided to get out of trading stocks.

Investing has been such complicated business because there are just too many variables to handle. Gone are the days when you think you can understand how markets perform. The rules of the game changed when policymakers began intervening through unconventional monetary policy and politics become part of the equation.

You would have thought logically that growth economies should produce growth stocks. The BRICS economies (Brazil, Russia, India, China and South Africa) met in Durban at the end of March. These five countries accounted for over half of total global growth since 2001, but their stock markets have not done that well. Since its peak in 2007, the BRICS index is down 37%.

Chinese retail investors have declined in number, based on the number of accounts closed. The A share index is down 31% since its peak in 2009, and the Brazil, Russia, India and South Africa stock market indices are all in negative territory since the beginning of this year. On the other hand, both the US and Japan are sluggish in growth and their stock markets performed 11.1% and 20% respectively since the beginning of this year.

Despite being overall in crisis and negative growth, even the European stock market performed in positive territory, mainly due to better performance in Germany and France. There are globally diversified companies in these economies that can outperform despite the slowdown in the European economy.

The real problem is that negative real interest rates around the world are truly destroying the ability of investors to judge what is the right asset to invest in. Markets are clearly bubbly when emerging market investors start investing in taxi licenses.

Accordingly to a Bloomberg report, Turkish taxi licenses today trade for US$580,000 each. My Hong Kong taxi driver was complaining to me that a Hong Kong taxi license was trading over HK$7mil (just under US$900,000) and yielding next to nothing.

It made no sense to him as a taxi driver himself to be an owner. This reminded me that in 1996, golf club membership was being touted as the best investment ever, with the 1997 Asian financial crisis wiping out all gains thereafter.

So what should an honest, no-inside information retail investor do? I guess the old-fashioned advice to invest in diversified and value stocks and maintaining ample liquidity is still sound. Global bonds have done well since the financial crisis due to the massive quantitative easing.

Even those who have speculated on Greek bonds when they were yielding more than 20% have done well. But it is difficult to argue that ten year US Treasuries and German Bunds at under 2% per annum represent no risk. Certainly, Japanese 10 year bonds at 0.55% per annum, when the official inflation target is 2% per annum, must carry considerable interest rate risks.

Over the long-term, there is no question that investing in one's own home has been good investment. This is officially supported leveraged investment, since most mortgages still require not more than 30% down payment for the first home. The fact that there is a growing middle-class in most emerging Asia means that demand for housing is still on the increase, but given such low interest rates, it is hard to imagine how much further can house prices rise relative to the affordability index.

My own inclination is to go for high yield, solid growth companies that are globally diversified. You basically invested in the region that you are most familiar with, and in companies that demonstrate good governance and know what they are doing. The average price/earnings ratio of Hong Kong, Singapore, Malaysia and Thailand markets are still below those of the US (17.7). China A share has a PE ratio of only 8.1 and a yield of 3.7%.

Of course, the art of investing depends completely on the investor's risk appetite, age and liquidity requirements. If you are fully invested in illiquid assets or in illiquid markets, you cannot get out even though the returns look good. Property markets are notoriously easy to get into and difficult to cash out, especially in the smaller markets. Bond investments may look good on paper, but when you want to exit, the selling price may be lower than what you think you can get, especially for retail investors.

Knowing that even monkeys can beat the market gives one food for thought. You can do better, but you must invest the time and energy to think through what you are investing in, what risk you are taking and what you want to achieve. My friend in Australia had no formal training in investments, decided that she could outperform the market, relied on her instinct and own research into companies and is now doing pretty well on her own.

Even monkeys know how to survive, so don't look down on monkeys.

THINK ASIAN By TAN SRI ANDREW SHENG

■ Tan Sri Andrew Sheng is president of the Fung Global Institute. He was recently named by Time magazine as one of 100 most influential people in the world.

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Should Malaysians vote for the racist ?

Zulkifli Nordin - PERKASA

condemns Chinese and Indians as "pendatang haram". Where are his roots ? Java, Sumatra, Sulawesi or from heaven ? Dare he traces his roots ! After all he is also a "pendatang haram ?





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Malaysian election time: swinging change towards transformation?

The political choice for Malaysians is not whether to embrace change, but which kind of change they prefer.

IN life, change is said to be the only constant. In politics change is a given, even mandatory.

If a governing system does not change its style or policies the way people want, then the system itself may be changed. Such change may be democratic or autocratic, evolutionary or revolutionary, peaceful or violent.

Much will depend on the type and degree of change. Who will be affected by that change, and in what ways?

Will the promised changes be what people had been led to expect? What other changes are likely as a consequence?

Will the pros outweigh the cons of those changes? And if the people find the actual changes not to their liking, will those changes be reversible?

Such questions often arise at general elections. Malaysia’s coming 13th general election seems to have unearthed more of these questions than any other election in the country’s history.

This comes partly as a residue of the 2008 general election. In that “political tsunami”, more seats in the Federal Parliament changed over into Opposition hands than ever before.

At the time, many voters who opted for the Opposition had not actually wanted to change the Federal Government. They merely wanted to teach Barisan Nasional a lesson for non-delivery and general indifference since 2004.

Voters did so by clearly denying Barisan its two-thirds majority. This had come right after the 2004 general election, which had won Barisan 63.9% of the popular vote (more, if Barisan had contested all constituencies).

So in 2008, Barisan scored only 50.3%, an all-time low. The previous low count was in 1999, which saw Barisan win only 56.5% of the popular vote.

Will the general election this year see a swing of support back to Barisan as it hopes, or a further boost for the Opposition as it imagines? Will there be a pendulum effect in favour of Barisan, or a slide favouring Pakatan Rakyat?

As soon as Datuk Seri Najib Tun Razak assumed the premiership in April 2009, he had seen the writing on the wall.

He opted for a major overhaul of policy and mindsets with the emphasis on transformation (change).

This spanned an Economic Transformation Programme that aimed for merit over entitlement, the Performance and Delivery Unit (Pemandu) within the Prime Minister’s Department introducing Key Performance Indicators, a change in national attitudes with 1Malaysia, focused aspirations towards a high-income nation and even abolition of repressive laws like the ISA.

The changes came thick and fast, including some that none had thought possible. The pace of changes exceeded anything that any Federal or State Government had seen before.

Even a movement like Hindraf, born in the crucible of street protests and energised by hunger strikes, came to deal with Najib’s Barisan.

Hindraf leaders P. Waythamoorthy and N. Ganesan had discussed their concerns and bargained with Pakatan and Barisan leaders, and opted to work with Najib.

Najib himself, coming into office in his mid-50s and the son of a former prime minister, personified change. One after another, Barisan stalwarts like Tun Dr Ling Liong Sik, Datuk Seri Samy Vellu and Tan Sri Rafidah Aziz quit the scene, following Tun Dr Mahathir’s lead.

Unlike this older generation, Najib engaged openly and repeatedly with the younger generation. Young adults are typically seen as energetic, idealistic and hungry for change.

The obvious subtext was that voters need not opt for a change in government, since the government itself had already launched a comprehensive programme of change. This approach seemed to coincide with the mood of the time.

The 13th general election will see 2.9 million new voters, out of a grand total of 13.1 million nationwide. That represents just over 22% of the country’s electorate.

Some of those new, mostly younger voters may not seek that much change. Many will want more of the changes they have seen, sticking with Barisan, while others may still want a change in the system itself by opting for Pakatan.

A divided Hindraf embodies this difference in approach. In seeking change, should one ride the wave of change in securing more changes, or switch to a competing outfit atop a platform of change?

Which is more important, adding to the momentum of change that had already begun, or opting for the promise of change? Each individual and group will have to make that crucial choice come next Sunday.

On nomination day, Barisan unveiled another surprise: the high proportion of fresh young candidates. In states like Penang, the percentage of new faces reached 70%.

In contrast, Pakatan parties are still led mostly by older people: Lim Kit Siang, Karpal Singh, Nik Aziz and Hadi Awang, with Anwar himself six years older than Najib.

Will the many young voters, seeking change, end up voting for the oldest political leaders in the country?

COMMENT
By BUNN NAGARA

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DAP's Tiger roars, Malaysian election fevers!

DAP national chairman Karpal Singh, the ‘Tiger of Jelutong’, is now roaring his way into the people’s hearts this general election.

For the first time, he has incorporated his famous tiger trademark into his election campaign by having his campaign vehicles emblazoned with his image beside the image of a tiger.

The 72-year-old lawyer, who earned the nickname following a dispute with former MIC president Datuk Seri S. Samy Vellu in Parlia-ment in 1982, said he was sure the tiger would bring good luck to him and Pakatan Rakyat.

He also did not mind retelling the story behind the nickname to reporters during a meeting-the- people session at the market in Jalan Gangsa yesterday.



“During an argument with Samy Vellu, he called himself a lion while he called me a tiger.

“But I’m a lion as Singh means lion in Punjabi. And lion is ‘singa’ in Bahasa Malaysia,” he added.

“But then I said to him: ‘Never mind, you be the lion and I’ll be the tiger. There are no lions in the country.

“So the name started from there,” he said with a chuckle.

Karpal Singh, who is defending his Bukit Gelugor parliamentary seat, said a supporter, S. Mahendran, had taken the campaign vehicles — a multi-purpose vehicle and a jeep — to the shop to have the images pasted on them.

He added that he would ensure that tigers, an endangered species, would be protected as any attack on a tiger was an attack on him.

“The vehicles bearing the tiger images received a positive response from the public who would take photographs of them,” he said.

He has also called himself the ‘Tiger General’ in Bukit Gelugor which he said was the only constituency in the country to have four lawyers in the parliamentary and state seats.

“Four lawyers — we are like ge-nerals. And I am the ‘Tiger General’,” he said.

DAP candidates for the three state seats are incumbents R.S.N. Rayer (Seri Delima), Wong Hon Wai (Air Itam) and Yeoh Soon Hin (Paya Terubong).

Karpal Singh won the Jelutong parliamentary seat in 1978 and held the seat for more than 20 years until losing it in 1999.

The Bukit Gelugor constituency was once part of the Jelutong parliamentary constituency until the mid-1990s.

By JOSEPHINE JALLEH josephine@thestar.com.my

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The powerful political marketing: hate and love emotions in Malaysian election?

The peddling of hate has been proven to be very effective in political marketing, especially when people are trapped in certain mindsets that determine their views.

SATURDAY, April 20, was a special day for about 80 of my ex-schoolmates and I, most of whom have known each other since starting out in primary school 51 years ago.

No, politics had nothing to do it. Nomination Day just happened to fall on our old boys’ reunion, planned months earlier.

But there was no relief from the pervasive political talk amidst the camaraderie and merriment.

Even the chef at the golf resort in Malacca where the gathering of the 58-year-olds were held, could not resist trying to campaign for the side he was supporting.

To my disbelief, the man who had only recently returned home after working in Germany for many years asked me point blank: “Who are you voting for, ah?”

With the whole country gripped by election fever and emotions running at all time highs, such manners can be expected before we cast our ballots for the mother of all political battles on May 5.

A day after the bash, as we were recovering from the after effects of the revelry, a friend who has seen the ups and downs of business shared his experiences in the insurance and multi-level marketing industries before heading back home.

Recalling his lucrative days of running a thriving insurance agency, he said the art of selling policies mostly relied on playing on the emotions of potential clients.

His formula was simple: Give 98% focus on emotions, 1% on product knowledge and 1% for other needed explanations to convince, including “convenient untruths”.

We soon ended up comparing the similarities of tactics used in the realm of politics.

An election, after all, is the final closing move in the marketing of political emotions to sway voters to one side or the other.

Emotions are mental reactions experienced as strong feelings directed toward a specific object, persons or situations.

The word can be traced to its Latin roots of movere (to move). Emotions move people to act in a certain way.

Like in the case of marketing products or services, three types of appeals – logical, ethical and emotional – are put across to political “customers”.

By right, the logical route based on reasoning should be the most appealing but is used the least, except in cases of party manifestos and presentation of performance “report cards”.

The simple reason for this is people don’t make rational decisions based on detailed information, careful analysis or conscious thought.

The ethical appeal is usually used in campaign messages to raise the profile of certain personalities and expose the unsuitability of others by disparaging them.

In business, the emotional appeal involves using greed, fear, envy, pride and shame, but in politics, it is the harnessing of primary emotions – happiness, surprise, sadness, anger, disgust and fear, in addition to the most potent one, hate.

The peddling of hate has been proven to be very effective in political marketing, especially when people are trapped in certain mindsets that determine their views and decision-making.

In Malaysia, like elsewhere, political support is conditioned by up­bringing based on ethnicity, location (urban or rural), level of education or wealth and the shared belief of family members or friends.

Tragically, since the last general election, hate has been stoked steadily to the point where reason has little chance or participation in civil discourse.

Hate has become the norm in our political engagement, especially in cyber space, with our Hollywood icon Datuk Seri Michelle Yeoh as the latest hapless victim.

The 49-year-old actress was called “a traitor” to the Chinese race, running dog and pinned with other unpalatable labels by partisan cyber bullies just for attending a dinner in Port Klang organised by a group of Selangor Chinese businessmen in support of Barisan Nasional last week.





Two months ago, a young female Facebook user, who posted a YouTube video pledging support for one side, ended up being insulted with all sorts of derogatory names and even threatened with rape.

Don’t Malaysians have a choice or the right to support whoever they want anymore?

These days, one cannot log into Facebook without being drawn into some form of partisan political conversation.

Too much energy appears to be focused on emotionally-charged rants and sharing them with people who might not necessarily agree.

Instead of “de-friending” these people, I have taken to hiding posts that are deemed to be unworthy of sharing.

I read somewhere that this would automatically prompt Facebook to weed out posts from such people. It has not happened yet, though.

Hate is also being spread via e-mail and through SMSes and WhatsApp on mobile phones.

Like many others, I have been getting an endless stream of political messages designed to influence my vote, over the past month.

Enough already, please. In any case, my mind has already been made up. It was done some time ago, too.

> Associate Editor M. Veera Pandiyan values these words by Gautama Buddha: Hatred does not cease by hatred, but only by love; this is the eternal rule

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