MECHCalvin Fund Report May, 2013 - Four Years of Risk Already

Fund price of this month 本月基金價格: 


$1.3049 -0.0155 (-1.17%)

Dear Investors,

4/6/2013 will be the end of my four years running this fund, and July will be the end of 5th year of joinning the insurance industry.

the latest unit fund price is $1.3049 (-0.0155, -1.17%)

the market have gone negative, so does gold and stock market, this month i have sold a few things and brought a few things, thus my fund price finally drops, yet if you have invested this fund early, you still remain 30% gain, it again prove if you buy something low enough, few % up and downs is hard to care.

i have switch my Manulife Asian Small Cap back to cash in order to lock a 56% profit, i have also sold Standard Chartered Bank shares (HKG: 2888) and lock a 19% profit, with a dividend pay of $1300.


i have used these profits brought couple undervalue properties stocks, including The Link REIT (領匯), Fortune REIT (置富置富產業信託), and holding cash, it comes to my guts feeling the market have lost direction, and people are become overconfident in the stock market, these are signs before a market crash, so i am trying to play defensive.


i cannot believe it have already been 4 years, i am thinking if i see no more good opportunity on the market in the coming year, i will sell everything to lock profit next year this time, and return the money to you guys (investors) first, and see what it will lead me to.

i always use 5 as a milestone for anything, e.g. i like to review my career every 5 years, i use 50k as a unit with come to investment, so it will be good for me to review what i have learnt in the last 5 years from investment next year.


the Heng Seng Index was 18378.73 in 4/6/2009, and reached 22392.16 in 31/5/2013 with a 21.84% growth, while my fund have growth 30%, it is better than the market, and sure beat any kind of bonds, bank deposit saving (obviously), currencies/ gold investments, yet i am not gonna lie, there are many professional funds have done so much better than me (even after management fee), at the same time there are professional funds have done much worser than me. yet to be fair, the return of my fund will be much much better if i have only focus in stocks investment only, and ignore all those loan, gold, currencies, busines, etcetc... however the experience i got from those will benefit you much more in long run.


how to deal with risk have always been the major tropic in any kind of investment, and in life too, people got a lot of misunderstand with risk, i am glad i work in the insurance company have taught me so many things about risk management, the history of insurance companies dealing with risk is like the history of men dealing with women: they don't want to live with each other, but at the same time they can't live without each other.


i would like to take this opportunity to explain what i have learnt so far, it is going to bore a lot of people, so if you don't want to read a long essay, or you don't have the time, you can stop reading now and go back to do whatever you are doing.


best regards,

Calvin

fund site: http://mechcalvinfund.blogspot.hk/


Risk - love and hate.


many people got a pretty bad experience with investment and blame investment is a scam, is because they have not realise the existing of risk, they always say they understand, but i can ensure you 90% of them don't, otherwise their life would be much easier.


The Government warned them, the financial companies warn them (although in this case it is like the casino warn gamblers don't gamble too much, it is a real life dark joke), yet i am pretty sure both the government and the financial companies do not pay too much attention to risk than any citizen (although they understand more, this make some of them much more evil than those who have no idea).


these are few common misconception of risk.


1. Risk is gone!

this kind of misconception happens when the market is doing well, it seems even someone who never invest before can earn in the market earily, the general public have this idea the risk on the market have been lowered (even dissappear), so they gain confident and everyone rush into the market, because nobody want to miss the opportunity to gain some money.


the problem of this atmosphere comes from the advestising of many investment firm, in both extreme,
in one extreme, the stock dealers want people to believe: everyone can be a good investor,
while on the other extreme, the fund managers want people to believe: no one can do better than them, so you better hand over the job of investment to the professionals,
both extremes are based on the same factor - money. The stock dealers got commission when someone trade with them, while the fund managers gain money from management fee, either way they try very hard to convince the general public you should deal with them, either you do it on your own, or they do it for you.

yet the general public always forget one thing, like energy, risk never disappear, it can only be CONVERTED or DIVERSIFIED,
an investment bank convert their risk back to the investors, this is their beliefs, either you gain or loss, it is your problem, not ours,
while an insurance company diversify their risk to many insurers, they say, it is ok for 1 people to loss when the rest can compensate for him, and i am pretty i will gain more than loss some.


if you know the risk can never dissappear, you will pay attention where the risk goes to at particular time, and make sure you don't bear more risk than you have to. saying investment is the cause of lossing is like saying disease is the cause of bad health. Risk is like bacteria, disease is the outcome of unmanaged bacteria, loss is the outcome of unmanaged risk.


2. Avoid risk it all cost!

you have people try to risk everything and hope he will get more in the end, while you also have people who is extremely afraid to risk anything in order to avoid any kind of loss,


I am not gonna lie i did have the same misconept before i run this fund, it is our human nature we don't want to lose, even a dent. Risk suggest we will, and we try our best to avoid them, which is not entirely wrong. However try to avoid risk is like try to avoid bacteria, you just can't, there are germ and virus everywhere, it is on the table, it is in the air, you can never run from risk is like you can never run from bacteria. An investor aware of risk should be like a doctor aware of bacteria.


So if we can't run from it, what should we do? there are two ways of dealing with risk.

firstly, although you can't avoid risk completely, but you can avoid major risk easily, it is like you can't avoid virus in general but you surely run away from some dangerous place, no one ask you to go into a nuclear plant, nor ask you eat food that have dropped on the floor, because you know by doing that, you are taking more risk than you normally need. So does your investment, no one ask you must pursuit a 40% annual return, or invest into something you have no idea, you can just simply don't do it.


secondly, make sure you can handle the risk you are facing.

everyday we face treat, it can be hit by a car, infected by virus, or hit by a flower pot dropped from the building above you, unless you plan to lock yourself at home 24 hours a day (even the house might collapse :P), you have to face these normal risks everyday, however you don't get too scare walk outside, because you know you can bear it, and in most case, you won't walk into dangerous place you know of.


in normal condition, our body provide mechanism to fight virus, it is not we do not get in touch with virus itself that keep us healthy, but it is our immune system can defend them. Same for investment, if you only risk a little bit of your money, you are still safe because you know you can afford this. As Warren Buffett said, "if i know a truck weight 1 tonne run across my bridge, i will make sure my bridge can withstand 3 tonnes."


when i asked you guys to join my fund, the amount the majority of you have given me is only a small portion of your wealth, you say: "what the hell if Calvin lose them all! it is not a big deal!". and some gave me a larger portion of your wealth (definitely not all) is because you have confident in me more than the rest, so in your subconscious, MECHCalvin Fund and Calvin has a lower risk than rest of the investment you know of, yet either way, any investor need to and is taking risk, a better investors are those who clearly understand they are taking lesser risk, while having a better expectation of return. However, nobody on this earth can avoid risk at all cost, you can only avoid risk you cannot handle.


3. Higher the Risk, Higher the potential return!

I gotta say this is the biggest misconcept in modern financial, and ironically this is brought to you by the mainstream investment companies. They say, "if your investment has low risk, then you should expect lower return, thus if you want more, you must risk more." I am pretty sure hell has a special place for these morons. Higher risk DOES NOT give you higher return, and in most case, it gives you higher chance of loss. if Risk = chance of losing, higher chancing of losing will give you higher chance of return? what kind of logic is that?


they will make few convincing examples, take lottery for example, the chance you will lose (risk) is high, but if you are lucky, you will have very good return, or a startup business is risky, but if you have succeed, the return is very rewarding, or the ultimate worst example, stocks is risky, but the return is very good! bond is less risky, so the return is not as good as stocks! bank saving has leaset risk, so the return is very bad! thus, risk more if you want more!


the devil talk is always convincing, and with a bit of seductive elements added into it, i can be a devil, but i prefer to be an angel majority of my time, and play the devil in a less harmful way, or just for fun! :P


you buy lottery is not taking a huge risk, unless you spent all your money to buy tickets, it is a risk you can afford even though you know you have a good chance of losing, and more importantly, it doesn't proof more risk you take, the higher return you will have.


A startup business is risky when you don't know what you are doing, most successful bosses do business they have confidents in, while most people fail because they do not understand the industry they are about to enter, as Warren Buffett said: "Risk comes from people don't know what they are doing." startup business is not particular a higher risk than getting into normal pay job, risk comes from when you don't know what you are doing.


and i will explain the last one in my 4th misconception.


4. Volatility is Risk!

when people in investment firm tell me (same for my company Manulife, it is a shame really), bank saving has lesser risk, so the return is lesser, bond is higher, and stocks has the highest, so we can conclude higher the risk, better the return! this mega-huge delusion comes from modern finance, it is packaged with a pretty name: "insurance portfolio" (same as many drugs that kill people), it works like that, if you want lesser risk, you must make your portofio less volatile.


it is human nature we feel unsafe when things are not stable, yet it is our feeling that always trick us. All these non-sense fit our nature, but usually untrue, think about it, does it mean if something volatile less really means it is safer?


now think about the Titanic, was her claimed to be the safest ship and less volatile ship ever built in mankind? i am sure if you were one of the passenagers, enjoying the dinner and company with the captain before she hits the iceberg, the floor was solid as rock! now think of the bank in Eastern Europe, are they really safer than the stocks of a good company in USA?


Volatility have no connection to risk, at all! things can be pretty safe with high volatility, while things can be pretty unsafe in stable form. all explosive are in stable form, until someone light a match, insurance, bank saving, bonds, stocks can be safe and unsafe neglect their volatility.


a company that is in financial stuggle, her bond with 3% return isn't very safe, a bank (like in 2007) provide 2% saving doesn't mean it is very safe, a stock from a well finance company can goes up and down 10% can be very safe, i think you have got the idea. so understand what's behind is more important than pay attention to its volatility.

Enough have said, if you are still reading, i appluse you, as you have growth as much as I am in the past 4 years, and for rest, i wish you all the luck, because you will need it.