The takeover of Ramunia Holdings Bhd by national carrier MISC Bhd took the market by surprise. One industry observer aptly put it when he said that such a level of secrecy had not been seen since the early days of the Cosa Nostra.
Judging by the swift leap in Ramunia's share price (it has gained some 33% since the announcement), the market seems to have taken a positive view of the deal, for the fabricator at least.
MISC has remained relatively unchanged since the announcement and closed at RM9.65 on Friday. Despite the lack of enthusiasm, the deal seems to be a sweet one for MISC as well.
To recap, MISC via its wholly owned unit MSE Holdings Sdn Bhd is taking up the reins at Ramunia Holdings Bhd, via the injection of Malaysia Marine and Heavy Engineering Sdn Bhd (MMHE) at a deal valued at RM3.2 billion. MMHE is a wholly owned unit of MSE Holdings.
Ramunia is issuing as many as RM1.4 billion worth of shares at RM1 each, and RM1.8 billion worth of 3.7%, 7—year irredeemable convertible preference shares of 50 sen each at par value.
A second part of the deal involves MSE Holdings making a renounceable offer for sale of 82 million of its shares in Ramunia at RM1 each, to minorities of the latter.
Effectively, the deal values MMHE at RM3.2 billion and Ramunia's stock at RM1 per share. At a price tag of RM3.2 billion, most analysts say MISC was offered a good price for MMHE.
On the RM3.2 billion price tag, OSK Investment Bank's analyst Chris Eng says, "The pricing of MMHE at RM3.2 billion is at a historical price—earnings ratio (PER) of 19.5 times and prospective PER of 14.6 times, which is cheap as oil and gas companies go."
It is also worth noting that some 18 months ago, MISC acquired 35% of MMHE off Kuok Brothers Sdn Bhd and IMC Enterprises Inc, the vehicles of billionaire tycoons Robert Kuok and Tan Sri Frank Tsao Wen King, for some RM181.6 million. After this acquisition, MISC wholly owned MMHE.
Industry sources say MISC made a massive gain as its setting up of MMHE, including the acquiring of equity held by Kuok and Tsao, amounted to slightly more than RM400 million, which means the RM3.2 billion price tag translates to a valuation gain of some RM2.8 billion.
An industry observer quips that if anyone should feel slighted, it should not be the shareholders of Ramunia or MISC, but rather Kuok and Tsao who now seem to have sold the company for a song.
The sale of 82 million shares at RM1 each will also net MISC an additional RM82 million. But the sale also gives Ramunia's minorities a chance to buy Ramunia shares at a significant discount to its current market price. Ramunia closed at RM1.61 on Friday.
Certain quarters argue that the valuation of Ramunia at RM1 a share is too low, considering that it is the only fabricator with unutilised yard space.
RHB Investment Bank Bhd's managing director Chay Wai Leong in an emailed response to The Edge, however, says, "The issue price of RM1 per share was arrived at after considering the 5—day volume weighted average market price of Ramunia's shares of RM1.16 up to Jan 17 this year, that being the last market day prior to the suspension of trading, and the audited consolidated net asset per Ramunia share of RM1.01 as at Oct 31, 2006." RHB Investment Bank is the merchant banker advising Ramunia.
Chay adds that the potential earnings of the fabrication yard had been taken into account, and the size, utilisation and potential increase in the growth potential of the yard as well.
"The acquisition will allow Ramunia to expand its fabrication facilities from 170 to 260 acres and increase its operational capacity to undertake more complex, larger scale, multiple and value—added projects such as deepwater fabrication contracts. The combined order book will be beneficial to the existing shareholders of Ramunia in terms of potential future earnings and prospects," he says.
There could be quite a number of benefits for Ramunia's shareholders. HLG Research's Jason Saw says with MISC at the helm of Ramunia, investor perception of management risks at Ramunia is eliminated. He adds that it is also likely that investors will be willing to place a premium on the company due to the merged entity's strong parentage, that is, oil major Petronas.
Saw also says the merged entity will be able to absorb an additional RM3 billion to RM4 billion worth of work on top of the existing order book of RM3.8 billion.
Management perception of Ramunia hit a snag in the middle of last year, when the company and Petronas were at loggerheads.
Ramunia was thrust into the limelight in—mid 2007, over a dispute with Carigali—PTTPEPI Operating Company Sdn Bhd, which is a 50%—owned unit of Petronas.
The oil fabricator had been awarded a contract for JDA Block B—17 in the Thai—Malaysia Joint Development Area, but had issues with pricing. The dispute was, however, settled out of court.
This issue is now in the past, with Ramunia likely to be an indirect unit of Petronas, after MISC emerges as a 72% stakeholder, after the reverse takeover. However, the company will reduce its shareholding to 68%, after hiving off 82 million shares.
Ramunia's jewel in the crown is its yard in Johor, which spans some 170 acres. Combining the two yards, the merged entity will have some 260 acres of prime yard space, fronting deepwater which will enable large—scale fabrication works to be carried out.
It is also worth noting that the lion's share of Ramunia's contracts come from Petronas, which is MISC's parent, controlling 62.4% of the shipping company's equity.
The enlarged entity would stand to benefit as Petronas is likely to award some RM10 billion worth of fabrication jobs this year, and Ramunia, being the only fabricator with available yard space, seems set to gain handsomely.
Aseambankers, in a research reports, says, "We are positive on this deal, as the merger of Ramunia and MMHE is a symbiotic fit, allowing both parties to leverage on their respective strengths. Firstly, this exercise will result in Ramunia emerging as the largest offshore fabricator in Malaysia with a yard size of 260 acres. This deal also allows MISC to unlock value in MMHE, which enhances value in both sides. We believe MMHE's capabilities can optimise Ramunia's operations, and expect a gradual but progressive transformation in efficiencies."
(taken from www.theedgedaily.com by Jose Barrock)
Thursday, January 31, 2008
Friday, January 25, 2008
SocGen Uncovers Massive Frauds Commited by Trader
PARIS (Reuters) - French bank Societe Generale (SOGN.PA) disclosed one of the biggest alleged frauds in financial history on Thursday, adding to a wave of gloom surrounding world markets battered by credit market losses.
SocGen, France's second-biggest listed bank, said it had uncovered an "exceptional fraud" by one of its traders.
It said this would cost the group 4.9 billion euros ($7.16 billion) and announced plans to raise 5.5 billion euros through a capital increase to shore up its balance sheet, also reeling from a crisis in global credit markets.
The fraud disclosure brought back memories of Nick Leeson, the British trader who in 1995 brought down blue-blooded merchant bank Barings after racking up huge losses.
SocGen said it was in the process of dismissing the Paris-based trader, who it did not name, and added that the trader's managers would leave the company.
It added that its board had rejected an offer by Chairman and Chief Executive Daniel Bouton to resign.
SocGen shares were suspended.
The Bank of France announced an inquiry by the Banking Commission and said no further comment was necessary after Societe Generale took steps to strengthen its balance sheet.
French Economy Minister Christine Lagarde will make a statement during the day on the issue, her office said.
"The most serious thing is that this puts into doubt the risk management systems at some banks," said Fortis analyst Carlos Garcia.
A source at SocGen said the trader was "not one of its stars" and was relatively young. SocGen said the trader had been handling plain vanilla futures contracts on European stock market indices, betting on broad share market movements.
It was not immediately clear what role French police were taking in the investigation. The French prosecutor's office was not available for comment.
FURTHER WRITEDOWNS AT SOCGEN
Analysts said the episode would have a major impact on the reputation of SocGen, which was founded in 1864 and is one of France's most prestigious blue-chip companies.
UBS said in a research note that the fraud would impact the credibility of its derivatives business, which has been one of its fastest-growing units and has a world leading reputation.
Shares in rivals like BNP (BNPP.PA) rose. The fraud could rekindle BNP's ambitions to take control of SocGen, analysts said.
The losses also echo a similar blow on a much smaller scale last year to France's biggest retail bank, Credit Agricole (CAGR.PA), which in September announced a 250 million euro charge related to an unauthorized trading position.
SocGen also announced further writedowns of 2.05 billion euros related to the global credit crunch.
Banks around the world have been hit by credit market losses related to U.S. subprime mortgages. These mortgages are the riskiest property loans, often extended to people who have payment difficulties or a bad credit history.
SocGen said it expected a 2007 net profit of between 600 and 800 million euros -- well below its 2006 profit figure.
SocGen shares closed down 4.15 percent at 79.08 euros on Wednesday. The stock has fallen around 20 percent since the start of 2008.
Tuesday, January 22, 2008
This is the good time to trade options & CFD
The world financial markets continue to plunge because of the rising probability of U.S. recession. Of course, if you only trade conventional equity in stock market, you may wonder -- are there still any opportunities to make money in the stock market right now? Well, what i can tell you is - if you are still trading conventional stock market, whether it's the US, Europe, Japan, or Asian markets, the probability of losing money is greater than ever. Of course you can still gain. But with the effort and time required, the stress of monitoring a downtrend market is not worth it at all.
You may say, we could short-selling the stocks. But don't forget, you need to pay daily interest for that. So, the best strategy these days in this volatile market is of course trading options. In particular put options where you gain a great deal when the market is plunging. The more it plunges, the more you gain. Added in the volatility, you could gain much more than you could expect.
For short term, the sure fire strategy is continue to buy put options on all the financial stocks in the US market, selective technology stocks and retail stocks. ISM index as the leading indicator early this month had already shown 47.70, it's already in the contraction level. If it does not show any improvements early next month, the financial stocks could plunge much more because of the rising concern of US recession.
In a mature market, you must be able to make money whether market is up or down. So, at this point, the best instrument available is of course options. Another good alternative is Contract for Difference (CFD), where you could also profit from falling market. See my previous article on CFD.
There are two advantages of trading CFD over options. One is the guaranteed stop loss which you can place on all trade, provided it is available from your CFD provider. Another advantage is the money is only allocated to trade CFD, not committed like in options. For instance, let say you have USD1000 to trade. If you buy options, let say you buy USD800 worth of options, unless you sell it, if not you only have USD200 available for your next trade. But not in CFD, let say you place a trade worth USD800 with a guaranteed stop loss at USD720, you still have USD720 + USD200 = USD920 confidently available for your next trade. This is the power of CFD trading combined with guaranteed stop loss. Of course, the disadvantage is it don't have volatility counted in like in options, where you could gain a bit more in both call or put options if there is huge volatility.
You may say, we could short-selling the stocks. But don't forget, you need to pay daily interest for that. So, the best strategy these days in this volatile market is of course trading options. In particular put options where you gain a great deal when the market is plunging. The more it plunges, the more you gain. Added in the volatility, you could gain much more than you could expect.
For short term, the sure fire strategy is continue to buy put options on all the financial stocks in the US market, selective technology stocks and retail stocks. ISM index as the leading indicator early this month had already shown 47.70, it's already in the contraction level. If it does not show any improvements early next month, the financial stocks could plunge much more because of the rising concern of US recession.
In a mature market, you must be able to make money whether market is up or down. So, at this point, the best instrument available is of course options. Another good alternative is Contract for Difference (CFD), where you could also profit from falling market. See my previous article on CFD.
There are two advantages of trading CFD over options. One is the guaranteed stop loss which you can place on all trade, provided it is available from your CFD provider. Another advantage is the money is only allocated to trade CFD, not committed like in options. For instance, let say you have USD1000 to trade. If you buy options, let say you buy USD800 worth of options, unless you sell it, if not you only have USD200 available for your next trade. But not in CFD, let say you place a trade worth USD800 with a guaranteed stop loss at USD720, you still have USD720 + USD200 = USD920 confidently available for your next trade. This is the power of CFD trading combined with guaranteed stop loss. Of course, the disadvantage is it don't have volatility counted in like in options, where you could gain a bit more in both call or put options if there is huge volatility.
Saturday, January 19, 2008
Banh Xeo at Dinh Cong Trang, District 1 at Saigon
Saigon, this city serves a nostalgic and peculiar sense to me. Not that i have been here. Just that i feel the name Saigon in itself is of something special. It was late in the evening. The familiar hustle and bustle scene of the traffic was back. Just returned from exploring the lively Mekong River Delta was certainly one of the highlights during my stay in Saigon. Well, this would be my last night staying in Saigon before i headed to Dalat.
So, i decided on going to 46A, Dinh Cong Trang Street for the famous and delicious Banh Xeo, a kind of Vietnamese pancake fried on pans with some shrimps, pork and bean sprouts. The motorbike journey to the place was one helluva ride. I mean, really, it was one hell of a ride for those who have not yet experienced the infamous Saigon motorbikes invasion first hand. The traffic light is of no use. Hey, it's like going into battle with you charging into a formation of motorbike-soldiers head on--in and out, in and out, without fail until you reach your destination every time when there is traffic light. That of course, provided you come out in one piece beforehand.
I ordered one Banh Xeo, some Cha Gio (fried spring rolls) and Goi Cuon (fresh spring rolls). Since this is my first time being served on this Vietnamese cuisine, i was obliviously in the dark on how to savor this delicacy. Of course, you could just eat it like normal pancake in itself. But i observed. The locals definitely not eating their Banh Xeo just like that. They prepared the vegetable leafs, put one Cha Gio in it, grabbed some pieces of Banh Xeo, with a little of every ingredients in it, rolled together and dipped into the ever tasty Nuoc Nam (fish sauce). That's how the locals eat it. And, that's how i ate it. Perfect! Bon appetit!
Banh Xeo
Cha Gio (fried spring rolls with nuoc nam)
How the Banh Xeo is prepared
Fried over a hot charcoal stove
The place to be for Banh Xeo
So, i decided on going to 46A, Dinh Cong Trang Street for the famous and delicious Banh Xeo, a kind of Vietnamese pancake fried on pans with some shrimps, pork and bean sprouts. The motorbike journey to the place was one helluva ride. I mean, really, it was one hell of a ride for those who have not yet experienced the infamous Saigon motorbikes invasion first hand. The traffic light is of no use. Hey, it's like going into battle with you charging into a formation of motorbike-soldiers head on--in and out, in and out, without fail until you reach your destination every time when there is traffic light. That of course, provided you come out in one piece beforehand.
I ordered one Banh Xeo, some Cha Gio (fried spring rolls) and Goi Cuon (fresh spring rolls). Since this is my first time being served on this Vietnamese cuisine, i was obliviously in the dark on how to savor this delicacy. Of course, you could just eat it like normal pancake in itself. But i observed. The locals definitely not eating their Banh Xeo just like that. They prepared the vegetable leafs, put one Cha Gio in it, grabbed some pieces of Banh Xeo, with a little of every ingredients in it, rolled together and dipped into the ever tasty Nuoc Nam (fish sauce). That's how the locals eat it. And, that's how i ate it. Perfect! Bon appetit!
Banh Xeo
Cha Gio (fried spring rolls with nuoc nam)
How the Banh Xeo is prepared
Fried over a hot charcoal stove
The place to be for Banh Xeo
Wednesday, January 16, 2008
MacBook Air - The World's Thinnest Notebook
Apple introduced MacBook Air - The world's thinnest notebook at the MacWorld this morning. Check out the specs at http://www.apple.com/macbookair/specs.html
Most Watched Economic Indicators
For financial market participants, the most watched economic indicators are the ones with very high market sensitivity. There are:
1. Employment situation (http://stats.bls.gov/news.release/empsit.toc.htm)
Release time: 8.30am(ET); generally announced on the first Friday of each month and covers the month just concluded
Remark: Pay attention to unemployment rate
2. ISM Index on Manufacturing (http://www.ism.ws/ISMReport/index.cfm)
Release time: 10.00am(ET); released on the first business day after the reporting month
Remark: less than 43 (recession); 43~50 (contracting); 50~60 (expanding); greater than 60 (economy is booming)
3. CPI (http://www.bls.gov/cpi)
Release time: 8.30am(ET); released on the second or third week following the month being covered
Remark: Pay attention to CPI-U
4. PPI (http://www.bls.gov/ppi)
Release time: 8.30am(ET); released on the second or third week following the month being covered
Remark: Pay attention to finished goods index
Last, and perhaps the most important of all is the Federal Open Market Committee (FOMC) statement. Normally release at 2.15pm on the day FOMC concludes its meeting. Decision on the target fed funds rate will be made. The whole financial market virtually comes to a standstill eagerly awaiting the target fed funds rate. Any deviations from market expectation will undoubtedly moves the financial market accordingly and sometimes substantially.
1. Employment situation (http://stats.bls.gov/news.release/empsit.toc.htm)
Release time: 8.30am(ET); generally announced on the first Friday of each month and covers the month just concluded
Remark: Pay attention to unemployment rate
2. ISM Index on Manufacturing (http://www.ism.ws/ISMReport/index.cfm)
Release time: 10.00am(ET); released on the first business day after the reporting month
Remark: less than 43 (recession); 43~50 (contracting); 50~60 (expanding); greater than 60 (economy is booming)
3. CPI (http://www.bls.gov/cpi)
Release time: 8.30am(ET); released on the second or third week following the month being covered
Remark: Pay attention to CPI-U
4. PPI (http://www.bls.gov/ppi)
Release time: 8.30am(ET); released on the second or third week following the month being covered
Remark: Pay attention to finished goods index
Last, and perhaps the most important of all is the Federal Open Market Committee (FOMC) statement. Normally release at 2.15pm on the day FOMC concludes its meeting. Decision on the target fed funds rate will be made. The whole financial market virtually comes to a standstill eagerly awaiting the target fed funds rate. Any deviations from market expectation will undoubtedly moves the financial market accordingly and sometimes substantially.
Monday, January 14, 2008
Friendly 2 Pub and Restaurant in Hue, Vietnam
One of the restaurants that i think should be recommended to the readers is Friendly 2 Pub and Restaurant in Hue, Vietnam. The specialty of the restaurant is local Hue cuisine. The address of this restaurant is 27, Vo Thi Sau Street, Hue, Vietnam. Telephone no. is 054-240506. The whole restaurant is run by the family members, notably the dishes are all prepared by the sisters.
Recommended dishes are:
Banh Beo (20,000 VND) - This used to be a favorite of past kings. Always a treat during Vietnamese parties. Quarter sized rice cakes topped with crispy chopped shrimps and pork melt in your mouth.
Banh Loc (15,000 VND) - Banana leaf wrapped Loc cake. This dish is hard to prepare. Clear chewy tapioca is wrapped around pieces of pork and shrimp. The flour must be just right so that the right consistency is reached.
Ca Basa Kho To (35,000 VND) - Basa fish (belongs to catfish family found in Mekong River) cooked in the hot pot. The sauce is particularly tasty and the texture of the fish is just right.
Beef Grilled Over Charcoals (30,000 VND)
Other dishes on the menu are:
1. Banh Khoai (10,000 VND) - Vietnamese pancake. A crunchy yellow shell folded over bean sprouts, eggs, tofu and pork. This is delicious when combined with locally grown lettuce.
2. Banh Nam (15,000 VND) - Leaf wrapped with Nam cake. Open up the steamy leaf and scoop out the mixture of rice flour, shrimp and herbs. Dip in the spicy sauce and enjoy.
3. Muc Chien Nhoi Thit (35,000 VND) - Squid stuffed with spiced ground pork.
Recommended dishes are:
Banh Beo (20,000 VND) - This used to be a favorite of past kings. Always a treat during Vietnamese parties. Quarter sized rice cakes topped with crispy chopped shrimps and pork melt in your mouth.
Banh Loc (15,000 VND) - Banana leaf wrapped Loc cake. This dish is hard to prepare. Clear chewy tapioca is wrapped around pieces of pork and shrimp. The flour must be just right so that the right consistency is reached.
Ca Basa Kho To (35,000 VND) - Basa fish (belongs to catfish family found in Mekong River) cooked in the hot pot. The sauce is particularly tasty and the texture of the fish is just right.
Beef Grilled Over Charcoals (30,000 VND)
Other dishes on the menu are:
1. Banh Khoai (10,000 VND) - Vietnamese pancake. A crunchy yellow shell folded over bean sprouts, eggs, tofu and pork. This is delicious when combined with locally grown lettuce.
2. Banh Nam (15,000 VND) - Leaf wrapped with Nam cake. Open up the steamy leaf and scoop out the mixture of rice flour, shrimp and herbs. Dip in the spicy sauce and enjoy.
3. Muc Chien Nhoi Thit (35,000 VND) - Squid stuffed with spiced ground pork.
Saturday, January 12, 2008
Introduction to CFD Trading
What are Contracts for Difference CFDs
A CFD is an agreement between two parties to settle, at the close of the contract, the difference between the opening and closing prices of the contract, multiplied by the number of underlying shares specified in the contract.
CFDs are traded in a similar way to ordinary shares. The prices quoted by many CFD providers is the same as the underlying market price and the you can trade in any quantity just as you would with an ordinary share, you will usually be charge a commission on the trade and the total value of the transaction is simply the number of CFDs bought or sold multiplied by the market price. However, there are some distinct differences from trading ordinary shares that have made them increasingly popular as an alternative instrument to speculate on the movements of shares or indices.
Advantages of Contracts For Difference (CFDs)
- Contracts For Difference (CFDs) are traded on margin so you can maximise your trading capital
- NO Stamp duty is payable (saving 0.5% compared to a traditional share purchase).
- You can profit from falling or rising markets by trading long or short
- A single account can give you access to far greater range of financial markets.
- You can limit & Manage your risk using a ‘Stop Losses and Limit orders
Risks of Contracts For Difference (CFDs)
- The geared nature if margin trading markets means that both profits and losses can be magnified and unless you place a stop loss you could incur very large losses if your position moves against you.
- It is less suited to the long term investor, if you hold a CFD open over a long period of time the costs associated increase and it may be more beneficial to have bought the underlying asset.
- You have no rights as an investor, including no voting rights.
Key Features of Contracts for Difference (CFDs)
Traded on margin
Rather than pay the full value of a transaction you only need to pay a percentage when opening the position called Initial Margin. The key point is that margin allows leverage, so that you can access a larger amount of shares than you would be able to if buying or selling the shares themselves.
The margin on all open positions must be maintained at the required level over and above any marked to market profits or losses in order keep the position open. If a position moves against you and reduces your cash balance so that you are below the required margin level on a particular trade, you will be subject to a “Margin Call” and will have to pay additional money into your account to keep the position open or you may be forced to close your position.
Trade in rising or falling markets
CFDs allow you to trade LONG or SHORT. A Long Trade is where you BUY an asset with the expectation that it will rise, just as you would when buying a normal share. A Short Trade is where you SELL an asset that you don not own in the expectation that the price will fall and you can buy the asset back at a cheaper price. Shorting in the ordinary share market is almost impossible. With CFDs, however, you can go short as easily as you go long. Giving you the ability to profit even if a share price falls if you trade the right way.
No Stamp Duty
Because with CFDs, you don’t actually physically buy the underlying shares, you don’t have to pay stamp duty. Saving 0.5% when compared to a traditional share deal.
Commission
Commission is charged on CFDs just like on an ordinary share trade, the commission is calculated on the total position value not the margin paid.
Overnight Financing
Because CFDs are traded on margin if you hold a position open overnight it will be subject to a finance charge. Long CFD positions are charged interest if they are held overnight, Short CFD positions will be paid interest.
The rate of interest charged or paid will vary between different brokers and is usually set at a % above or below the current LIBOR (London Inter Bank Offered Rate).
The interest on position is calculated daily, by applying the applicable interest rate to the daily closing value of the position. The daily closing value is the number of shares multiplied by the closing price. Each day's interest calculation will be different unless there is no change at all in the share price.
Trade Shares and Indices
CFDs allow you to take a view on shares and indices and some CFD providers also allow trading on currencies and sectors.
Risk Management Facilities
Because of the higher risk nature of trading on margin, many CFD providers offer comprehensive Stop Loss and Limit Order Facilities so that Investors can manage their risk in fast moving markets.How do Contract For Difference (CFD) work
The best way to demonstrate how a CFD works is to look at some key examples:
Share CFD Example: Long Trade
A long trade is a position that is opened with a buy in the expectation that the share price will rise.
Vodafone is currently trading 140 – 140.5
Investor A believes that Vodafone is going to rise and places a trade to buy 10000 shares as a CFD at 140.5p. The total value of the contract would be £14050 but they would only need to make an initial 10% deposit (initial margin) £1405.
The commission on the trade is £28.10 (£14050 x .20%) and because they are buying a CFD there is no stamp duty to pay.
A week later Investor A’s prediction was correct and Vodafone rise to 145 – 145.5 and they decide to close there position. By selling 10,000 Vodafone CFDs at 145p. The commission on the trade is £29 (£14500 * .20%).
The profit on the trade is calculated as follows:
Opening Level 140.50p Closing Level
145.00p Difference 4.50p Profit on trade, (4.5p x 10,000) £ 450.00
Overall Profit
To take calculate the overall profit you must take into account the commission and financing charges on the deal.
| Profit On Trade | £ 450.00 |
| Commission | -£ 57.10 |
| Financing Charge | £ 12.50 |
| Overall Profit On the Trade | £ 380.40 |
Share CFD Example: Short Trade
A short trade is a position that is opened with a sell transaction in the expectation that the share price will fall.
Barclays is currently trading at 555 – 556
Investor B believes that Barclays is over valued and is going to fall and places a trade to SELL 2000 shares as a CFD at 555p. The total value of the contract would be £11,100. Even though they are selling short, they would only need to make an initial 10% deposit (initial margin) £1,110. The commission on the trade would be £22.20 (£11,100 x .20%)
A week later Investor B’s prediction was correct and Barclays falls to 545 – 546 and they decide to close there position. By Buying 2000 Barclays CFDs at 546p, the commission would be £21.84.
The profit on the trade is calculated as follows:
Opening Level 555.00p Closing Level 546.00p Difference 9.00p Profit on trade, (9p x 2,000) £ 180.00
Overall Profit
To calculate the overall profit you must take into account the commission and financing charges on the deal, remember with a “Short” sell the financing charge is credited to the holder.
| Profit On Trade | £ 180.00 |
| Commission | -£ 44.04 |
| Financing Charge | £ 3.80 |
| Overall Profit On the Trade | £ 139.76 |
Stop and Limit Orders
Because of the geared nature of trading on margin it essential to have access to facilities that let you open or close positions if certain levels are reached.
Limit Order
A Limit order is one that is executed at a better price than the prevailing market price, i.e. for a Long CFD Trade when the stock drops to a certain level or for a Short CFD Trade when the stock rises to a certain level.
Example: Vodafone is currently trading at 140 – 140.5 Investor A wishes to buy 10000 Vodafone as a CFD with a limit of 135, therefore they do not wish the order to be opened unless Vodafone reaches 135.
This order is held by the CFD Provider until the limit level is reached.
The next day the Vodafone is 135 – 135.5 and an opening trade of 10000 Vodafone is opened at the limit level of 135.
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Stop orders
A stop order is one that is executed at a worse price than the prevailing market price one of the most common uses of this is a stop loss order. It is possible to make substantial profits when trading CFDs as well as substantial losses which is why many CFD providers allow you to place a stop loss when you open a trade:
Stop Loss
A stop loss is a price level set by the client on a particular trade that if reached automatically closes out the particular position at the desired price.
Example: Lloyds TSB is trading at 467 – 468
Investor A and Investor B both believe that Barclays will rise and both buy 2000 Lloyds TSB at 468 as a CFD. However, Investor B also places a stop loss when he opens the trade at 457
The following day Lloyds drops steeply during the day trading down from 467 to 430.
Investor A has not been watching the price of Lloyds all day and therefore when he checks the price at the end of the day it is now 430 – 431 and he is running a £750 loss. Investor B has not been watching the market either however his position has been automatically closed out at his stop loss level of 450 limiting his loss to just £200.
A stop order can also be used to open a trade for instance if you wished to open Long CFD position you may wait until a stock was moving in the right direction and set a level higher than the prevailing market price.
Friday, January 11, 2008
Transitions Lenses -- My New Lenses
My glasses change from transparent, when I'm inside, to dark when I go outdoors
Sunglasses or prescription eyeglasses that darken when exposed to the sun were first developed by Corning in the late 1960s and popularized by Transitions in the 1990s. In fact, because of the extreme popularity of the Transitions brand, these lenses are usually referred to as transition lenses. The correct term for these glasses is photochromic or photochromatic, which refers to a specific chemical reaction the lenses have to ultraviolet (UV) radiation.
Photochromic lenses have millions of molecules of substances such as silver chloride or silver halide embedded in them. The molecules are transparent to visible light in the absence of UV light, which is normal for artificial lighting. But when exposed to UV rays, as in direct sunlight, the molecules undergo a chemical process that causes them to change shape. The new molecular structure absorbs portions of the visible light, causing the lenses to darken. The number of molecules that change shape varies with the intensity of the UV rays.
When you go indoors and out of the UV light, a different chemical reaction takes place. The absence of the UV radiation causes the molecules to "snap back" to their original shape, resulting in the loss of their light absorbing properties. In both directions, the entire process happens very rapidly.
In the original PhotoBrown and PhotoGrey products made by Corning, the lenses are made of glass, and the molecules are distributed evenly throughout the entire lens. The problem with this method was apparent in prescription glasses where different parts of the lens were of varying thickness. The thicker parts would appear darker than the thinner areas. But with the increasing popularity of plastic lenses, a new method has been developed. By immersing the lenses in a chemical bath, the photochromatic molecules are actually absorbed to a depth of about 150 microns into the plastic. This is much better than a simple coating, which would only be about 5 microns thick and would not provide enough molecules to make the lenses sufficiently dark. This plastic lens absorption process has been popularized by Transitions, the leading manufacturer of photochromic lenses.
An important note about photochromic lenses: because they react to UV light and not to visible light, there are circumstances under which the darkening will not occur. A perfect example of this is in your car. Because the windshield blocks out most UV light, photochromic lenses will not darken. For this reason, most sunglasses with photochromic lenses also have a certain amount of tint already applied to them.
(Article from http://www.howstuffworks.com)
Bloomberg Profile on James Harris "Jim" Simons
Jim Simons, Renaissance Technologies Corp., founder, chairman and president, poses during a reception at the American Museum of Natural History in New York, on Sept. 29, 2007. Simons, a former code breaker and math professor, has built the world's largest hedge fund firm. Photographer: Jin Lee/Bloomberg News
On a hot afternoon in September, Renaissance Technologies LLC founder Jim Simons is too busy to take a phone call. It is, he says, from Cumrun Vafa, a preeminent Harvard University professor and expert on string theory, which describes the building blocks of the universe as extended one-dimensional filaments.
"Get another time when I can talk to him," Simons tells his assistant.
Then he mentions that the next day, he'll be meeting with Thomas Insel, director of the National Institute of Mental Health, to discuss autism research. And he's slated that Saturday to host a gala honoring Math for America, or MFA, a four-year-old nonprofit he started that provides stipends to New York City math teachers.
"I'm undoubtedly involved in too many things at the same time,'' Simons says in his 35th-floor office in midtown Manhattan. "But you make your life interesting.''
String theory, autism, math education: It's fair to ask how Simons, 69, manages his day job overseeing the world's biggest hedge fund firm. The answer, judging from the numbers, is very well.
Renaissance is on fire: Its Medallion Fund -- which uses computers and trading algorithms to invest in world markets -- returned more than 50 percent in the first three quarters of 2007. It had about $6 billion in assets as of July 1.
Simons registered that performance as subprime and related markets were collapsing, sending two mortgage-related hedge funds run by Bear Stearns Cos. into bankruptcy. The turmoil pummeled the Goldman Sachs Global Alpha Fund, a rival to Renaissance's funds, which fell more than 25 percent during the same time. Morgan Stanley's computer jockeys lost $390 million in a single day in early August.
Life Story
Medallion's returns are no anomaly. The fund, which trades everything from soybean futures to French government bonds in rapid fire, hasn't had a negative quarter since early 1999. From the end of 1989 through 2006, it returned 38.5 percent annualized, net of fees.
More surprising than those returns is Simons's life story. At an age when hedge fund pioneers such as Michael Steinhardt have long since stopped managing other people's money, Simons is building on Medallion's success. He's adding funds and strategies and accumulating assets, which totaled $35.4 billion as of Sept. 28.
In August 2005, Simons started Renaissance Institutional Equities Fund, or RIEF, which invests in U.S. stocks. Through Sept. 30, it has returned 12.8 percent annualized. Unlike Medallion, which turns over its holdings dozens of times each year, RIEF keeps its positions for months or longer. Simons said at the time of the fund's inception RIEF could theoretically manage as much as $100 billion.
'New Possibilities'
In December 2006, he limited new investments in the fund to $1.5 billion a month. As of Sept. 30, 2007, it had $25.6 billion in assets.
In October, Simons started Renaissance Institutional Futures Fund, or RIFF, to invest in commodities. It's up 5.2 percent for the month. He says Renaissance's research shows the new fund can manage as much as $50 billion. Along with RIEF, it will promote cross-fertilization of ideas inside Renaissance, Simons says.
"Challenge is good,'' he says. "It opens one's eyes to new possibilities.''
When not in Manhattan, Simons runs his empire from a 15- foot (4.6-meter) by 20-foot office in Renaissance's gated and guarded campus off Route 25A in East Setauket on New York's Long Island, some 50 miles (80 kilometers) east of the Empire State Building. With most of the trading automated, there's little of the hurly-burly of a typical hedge fund firm.
Doubling Assets
Along with routine personnel and marketing tasks, Simons makes time for the researchers and programmers who stop by his office to discuss mathematical and statistical issues they've encountered as they work on new trading strategies.
More than 200 employees, of whom about a third have Ph.D.s, work in East Setauket. Another 100 are based in Manhattan, San Francisco, London and Milan. "He creates an environment where it's easy to be creative and works hard to keep the bullshit level to a minimum,'' says former managing director Robert Frey, who worked at Renaissance from 1992 to 2004.
Even without the new commodities fund, Renaissance's assets have more than doubled in a year from about $16 billion on Sept. 30, 2006. That growth has catapulted Renaissance past such titans as Daniel Och's Och-Ziff Capital Management Group LLC, Ray Dalio's Bridgewater Associates Inc. and David Shaw's D.E. Shaw & Co. to become the world's largest hedge fund manager, according to data compiled by Hedge Fund Research Inc. and Bloomberg.
Code Cracker
Medallion's 3.9 percent return during August, though that fund too was whipsawed by volatility, bolstered Simons's reputation as the silver-bearded wizard of quantitative investing.
In quant funds, mathematicians and computer scientists mine enormous amounts of data from financial markets looking for correlations among stocks, bonds, derivatives and other instruments. They search for predictive signals that will foretell whether, say, a palladium futures contract is likely to rise or fall.
'Role Model'
"There are just a few individuals who have truly changed how we view the markets,'' says Theodore Aronson, principal of Aronson + Johnson + Ortiz LP, a quantitative money management firm in Philadelphia with $29.3 billion in assets. "John Maynard Keynes is one of the few. Warren Buffett is one of the few. So is Jim Simons.''
Aronson credits Renaissance with validating the entire field of quantitative investing and proving that the freedom accorded to hedge fund managers to short stocks, borrow money and invest in myriad instruments can produce results that far outstrip typical market returns.
Simons, standing just under 5 feet 10 inches tall and weighing 185 pounds (84 kilograms), has trod an unlikely path. A former code cracker for the U.S. National Security Agency, in 1968 he became chairman of the mathematics department at Stony Brook University, part of the New York state university system. He built the department into what David Eisenbud, former director of the Mathematical Sciences Research Institute in Berkeley, California, calls one of the world's top centers for geometry.
Leaving Academia
In 1977, frustrated with a math problem and eager for change, he abandoned academia to start what would become Renaissance, hiring professors, code breakers and statistically minded scientists and engineers who'd worked in astrophysics, language recognition theory and computer programming.
"All the quants in the world are trying to follow in Jim's footsteps because what he's built at Renaissance is truly extraordinary,'' says Andrew Lo, director of the Massachusetts Institute of Technology Laboratory for Financial Engineering and chief scientific officer of quant hedge fund firm AlphaSimplex Group LLC. "I and many others look up to him as a tremendous role model.''
The tendency for fund managers to try to emulate Simons may become more curse than blessing in the years ahead. As the selloffs in July and August showed, many quant funds are chasing the same investments. For example, as of June, Renaissance and rival AQR Capital Management LLC had four of the same top 10 stock holdings: Johnson & Johnson, Lockheed Martin Corp., International Business Machines Corp. and Chevron Corp.
'Similar Models'
The overlap became problematic as the subprime contagion spread beyond housing-related stocks, bonds, collateralized debt obligations and commercial paper, forcing some funds to lighten their holdings precisely as demand was drying up.
"All these quant funds are using similar models, looking to buy something cheap and sell something dear,'' says Sol Waksman, founder of Barclay Hedge Ltd., a consulting firm based in Fairfield, Iowa. While expensive securities are by their nature easily traded --liquid, in industryspeak -- the cheap securities hunted by most quantitative managers aren't, Waksman says. After all, the reason they're cheap is that nobody wants them.
"Once you try and sell a low-liquidity stock, by definition there is no one to buy it,'' Waksman says. Overpriced stocks rose in August as hedge funds bought shares to cover their short positions, and cheap stocks plummeted as managers rushed to raise cash.
Wise-Cracking
Renaissance is under increasing pressure to stay ahead of the pack -- and to keep its secrets under wraps. Save current employees and a few former ones, nobody knows precisely how the firm makes its millions. Medallion stopped taking new money from outside investors in 1993 and returned pretty much the last of their capital 12 years later. Today, the fund is run almost exclusively for the benefit of Renaissance staff.
The wise-cracking Simons himself is mum on virtually all of its details.
What can he say about Medallion's trading strategy?
"Not much,'' Simons says with a chortle, and then takes a drag on one of the Merit cigarettes he often smokes.
What kind of instruments does it trade?
"Everything.''
How many different strategies does it use?
"A lot.''
Simons says his Ph.D.s laugh when they read the far-fetched theories about what their fund might be doing. One chat room participant speculated that Renaissance uses audio hookups to futures exchanges and analyzes the noise from the pits with voice-recognition software.
'Conjectures and Hypotheses'
"All of us in the quant business have conjectures and hypotheses but very little data,'' MIT's Lo says. "So we like to speculate about what Renaissance could possibly be doing. They are so far ahead of everybody else that it's both challenging as well as exciting to engage in that kind of idle speculation.''
For his part, Simons says he once explored whether sunspot activity affects the markets. He doesn't say what he found.
Interviews with former Medallion fund managers and with investors, rivals and quantitative scientists provide a glimpse into how the fund is run. So do annual reports, marketing materials and court documents: Ever secretive, Renaissance is suing in New York State Supreme Court two of its former Ph.D.- level researchers who were fired in 2003 after refusing to sign noncompete contracts.
Trade Secrets
The firm accuses Alexander Belopolsky and Pavel Volfbeyn of appropriating trade secrets. Belopolsky and Volfbeyn deny the charges. In a July decision, the two briefly described three strategies that Renaissance had explored. One involved swaps, which are contracts to exchange interest or other payments; another used an electronic order matching system that anonymously links buyers and sellers; and a third made use of Nasdaq and New York Stock Exchange limit order books, which are real-time records of unexecuted orders to buy or sell a stock at a particular price.
With his myriad positions in different markets, Simons likens his approach to the extensive farming he once practiced in Colorado, using center pivot irrigation to grow wheat on thousands of acres.
"Every little stalk of wheat was not doing so great, but most of them were, so you're working on statistics,'' Simons says.
By contrast, he says, the traditional focused investing practiced by Warren Buffett is akin to intensive farming, in which each individual plant really counts. "It's two completely different ends of the spectrum,'' Simons says.
Tidy Fortune
Medallion's farm stand sports quite a markup: The firm generally charges a 5 percent management fee and 36 percent of profits compared with the industry standards of 2 percent and 20 percent. With virtually no outside investors in Medallion, Simons and Renaissance employees are paying the tab -- and reaping the rewards. RIEF investors can select from four share classes with varying and far less expensive fee structures.
Though Simons dislikes talking about it, Renaissance has built him a tidy fortune. U.S. Securities and Exchange Commission documents show he controls 25-50 percent of Renaissance, having spread the rest of the firm's ownership among employees. So Simons's share of the performance fees earned by RIEF and Medallion was roughly between $375 million and $750 million in 2006, according to data compiled by Bloomberg.
With Medallion's 44.3 percent return in 2006, if Simons had invested $2 billion in the fund, he would have garnered an $885 million profit. He declines to comment on his investment.
According to Bloomberg calculations, Simons ranks No. 3 among the world's hedge fund managers with $1.01 billion in firm-wide performance fees during the first three quarters of 2007.
Mathematical Mind-Set
Chief Scientist Henry Laufer, who helped build the Medallion trading system, owns 10-25 percent of Renaissance, the SEC document says. Chief Financial Officer Mark Silber and Executive Vice Presidents Peter Brown and Robert Mercer each own 5-10 percent. Simons's son Nathaniel, 41, who manages the Meritage fund of funds out of San Francisco, owns less than 5 percent, as does Renaissance trading desk manager, Paul Broder.
At the core of Renaissance's success -- and the wealth Simons is creating -- is his own mathematical mind-set. Outside the financial markets, he's best known for the Chern-Simons theory, which he co-developed with Chinese-American mathematician Shiing-Shen Chern in 1974.
Chern-Simons Theory
In simple terms, the theory provides the tools, known as invariants, that mathematicians use to distinguish among certain curved spaces -- the kinds of distortions of ordinary space that exist according to Albert Einstein's general theory of relativity.
Chern-Simons is viewed as important partly because it has proven useful in explaining aspects of another field: string theory. This describes the building blocks of all matter and the universe as vibrating one-dimensional extended filaments or loops called strings.
"It turns out these things we invented, Chern-Simons invariants, had their real applications to physics, about which I knew nothing,'' Simons told the International Association of Financial Engineers in May.
Simons says he's also proud of the work he did in differential geometry at the Institute for Defense Analyses' research and development center in Princeton, New Jersey. In 1968, he published a paper in the Annals of Mathematics called "Minimal Varieties in Riemannian Manifolds.'' The paper helped him win the American Mathematical Society's Oswald Veblen Prize in Geometry in 1976. The prize is named for the Princeton University geometrician who became the first professor of the Institute for Advanced Study.
Simons's Legacy
Simons's most enduring legacy may be as a philanthropist as he builds on the mathematics and science that have shaped his life. In his New York office, Simons gets up and walks across the room to grab a newspaper clipping. It's an article about the administration of President George W. Bush planning to add $50 billion to the defense budget.
"Just a little extra; give them an extra $50 billion,'' Simons says, his voice rising in anger. "Well, for $2 billion, we could revolutionize math education in the U.S.''
He's referring to what he considers paltry funding for a key provision of the America Competes Act, which was signed into law on Aug. 9. The act includes a federal program to bolster math and science education based on the pilot project Simons has bankrolled with more than $25 million of his money: MFA.
U.S. Competitiveness
Simons says America's economic competitiveness is at stake. A 2003 study of 15-year-olds by the Program for International Student Assessment found the U.S. trailing 23 Organization for Economic Cooperation and Development countries, including No. 1 Finland, in math literacy at that age level. The U.S. was ahead of just five countries, among them Greece, Turkey and Mexico.
Simons places the blame for poor high school math scores largely on unqualified teachers. Because of low pay, good math and science teachers tend to get sucked into the private sector -- and the rate is accelerating.
"Students, up and down the line from affluent to impoverished, are being cheated,'' Simons says.
MFA pays full scholarships for math teachers to earn their master's degrees in education at designated graduate schools. Then, it pays a stipend of $90,000 over five years of teaching as a subsidy. Fellows and other experienced teachers are eligible to apply for a master fellowship program, which provides a stipend of $50,000 over four years. MFA is rolling out the program in Los Angeles and San Diego in 2008.
$13 Million Donation
Simons has donated tens of millions of dollars to math and science endeavors worldwide, including Stony Brook University and MSRI. In 2005, he kicked in $13 million with other Renaissance employees to keep the Relativistic Heavy Ion Collider operating at the Brookhaven National Laboratory in Upton, New York, after the U.S. Energy Department cut funding. The collider creates hot, dense matter similar to that which is believed to have existed in the first 10 microseconds, or millionths of a second, of the universe's existence after the big bang.
Simons's other major push: research into autism, a disorder marked by repetitive behavior and impairment in social communication and language. In 2005, he hired Gerald Fischbach, former dean of the faculties of health sciences at Columbia University in New York, to serve as scientific director for the Simons Foundation. The foundation funds a variety of math and science-related projects. Simons's wife, Marilyn, 57, is president. Their daughter Audrey, 21, displays some symptoms of Asperger's syndrome, a milder disorder that bears similarities to autism.
DNA Database
Under Fischbach, the foundation is building a database of DNA samples and clinical information from thousands of families across the U.S. with affected children. Scientists will use the data to identify genes that may contribute to autism.
The foundation is also attracting scientists from outside the field, such as geneticist Michael Wigler of Cold Spring Harbor Laboratory in New York. Fischbach says that, in the past, autism research has had trouble luring top talent because of its complexity.
Simons splits his week between two homes. His Manhattan apartment is in the same limestone building as another investor- turned-philanthropist, George Soros, 77. In Setauket, the white, gambrel-roofed house Simons has lived in for 31 years has broad picture windows overlooking the herons that populate the shimmering waters of Conscience Bay.
For all of his achievement and material success, Simons's life has been beset by the kind of tragedy that few parents can fathom -- the death of not one but two of his five children in separate accidents. In 1996, his son Paul, 34, was struck by a car and killed while riding a bicycle near Simons's Setauket home. In 2003, 24-year-old son Nick drowned while on a trip to Bali.
'Citigroup's Stock'
Simons grimaces when asked whether Nick's death played a role in his flurry of recent activity. He pauses before answering. "There was some connection between losing Nick and my desire to get as busy as I could,'' he says.
Scientific exploration underpins all of Simons's work. "What motivates me?'' he says. "I'm ambitious and I like to do things well. I love to create something that really works. We have lots and lots and lots of strategies, and each new one gives me a lot of pleasure, to see something new that works.''
The laws of the financial markets present a special challenge, Simons says. Unlike the laws governing physics or chemistry, they tend to change over time. "One can predict the course of a comet more easily than one can predict the course of Citigroup's stock,'' he says. "The attractiveness, of course, is that you can make more money successfully predicting a stock than you can a comet.''
Steeped in Math
Investments, philanthropy, academia -- it all traces to a life steeped in math. James Harris Simons was born in 1938, the only child of Marcia and Matthew Simons. He grew up in Brookline, Massachusetts, a Boston suburb designed partly by landscape architect Frederick Law Olmsted.
Early on, Simons asked complicated mathematical questions. At about age 3, he was shocked to learn that a car could run out of gasoline. Why? By Simons's reckoning, a car would go through half a tankful, then half of what remained and then half of that, and so on: There would always be a small amount left. He'd discovered one of Zeno's paradoxes, named for the ancient Greek pre-Socratic philosopher, which would puzzle mathematicians for centuries.
"Those were sophisticated thoughts for a little guy,'' Simons says, laughing.
Soybean Bet
At high school in Newton, Massachusetts, Simons blew through the equivalent of advanced placement math and went on to MIT. In his freshman year, he was cocky enough to enroll in a graduate level class. "The course said no requirements,'' he says.
At MIT, Simons worked hard and played hard -- mostly late- night poker. By 1 a.m., he and friends would pile into his Volkswagen Beetle and head off to Jack & Marion's delicatessen in Brookline for $1.25 chicken in a basket. Simons recalls how two renowned MIT mathematicians, Isadore Singer and Warren Ambrose, would sit down, order food and work into the wee hours on math problems.
"I just thought it was kind of a great life,'' Simons says. "Here they were, grown-ups, eating in this deli, late, late at night, just working away. That seemed wonderful to me.'' Singer, still an MIT professor, would become a close personal friend.
In June 1958, after just three years, Simons collected his bachelor's degree in mathematics from MIT, returning that September for his first year of graduate school. He then headed west to the University of California, Berkeley, to complete his Ph.D. in math. There, Simons dabbled in commodities -- using his and his then wife Barbara's wedding gift money to make a $500 killing in soybeans.
'Original Guy'
Simons's thesis adviser -- Bertram Kostant, now professor emeritus at MIT -- was skeptical about him pursuing the proof that would form the basis of his dissertation, "On the Transitivity of Holonomy Systems.'' It dealt with the geometry of multi-dimensional curved spaces and related to work by Singer and Ambrose.
"He solved it in a remarkably short period of time, under two years,'' Kostant says. "Jim's an original guy. He likes to go off in his own direction.''
After UC Berkeley, Simons won a three-year teaching position at MIT. He left after a year to become an assistant math professor at nearby Harvard. He stayed in touch with two poker-playing MIT classmates, Colombian nationals Edmundo Esquenazi and Jimmy Mayer.
Road Trip
In 1958, Simons and Mayer had celebrated their graduation by buying Lambretta motor scooters and driving to Bogota from Boston. In 1964, the three cobbled together money with Simons's father to start a Colombian vinyl-floor-tile factory. It would eventually prove a lucky move, providing the younger Simons with a stake to build his empire.
Simons was growing restless at Harvard. He was eager to earn more money -- and frustrated by some of the math he was working on. The Institute for Defense Analyses offered a better- paying solution: Simons could spend half of his time on math at the nonprofit's Princeton center and half breaking codes for the NSA.
In 1967, the IDA's president, General Maxwell Taylor, former chairman of the Joint Chiefs of Staff, wrote an article for the New York Times Magazine in favor of the Vietnam War. Soon after, Simons penned a note to the editors. "Some of us at the institution have a different view,'' he wrote. "The only available course consistent with a rational defense policy is to withdraw with the greatest possible dispatch.''
Fired at 29
Taylor eventually fired Simons, who was then 29, married and a father of three. Stony Brook University President John Toll wanted a star to build the school's math department. In 1966, the university had made a splash by luring Nobel Prize- winning physicist Chen Ning Yang from the Institute for Advanced Study. Simons would hire stars for the math department.
Stung by his firing from the IDA, Simons threw himself into the task. "Having just sort of been knocked around a little bit, I liked the idea of being my own boss,'' he says.
Simons negotiated all of the elements of a math position to lure great geometers to a young school: salary, class load, leave policy and research support.
"He'd figure what you needed and get it for you,'' Toll, 84, says. "He did an outstanding job of building the department at Stony Brook.''
Future Stars
Among the future stars Simons lured were Detlef Gromoll from the University of Bonn; Jeff Cheeger from the University of Michigan; and Mikhael Gromov, who'd taught at Leningrad University. All had published in prestigious journals.
"It was viewed as one of the two or three best geometry groups in the world,'' says Irwin Kra, who succeeded Simons as math department chairman and is executive director at MFA.
One of Simons's other hires was a Bronx, New York-raised math professor from Cornell University: James Ax.
Simons dabbled again in commodities while at Stony Brook. The Colombian factory investment had made some profit. Simons and his partners invested about $600,000 of it with Charles Freifeld, a former math student of his from Harvard. During seven months in 1974, Freifeld increased the investment 10-fold, after fees, as sugar futures more than doubled. The $600,000 was now $6 million, Freifeld says.
Simons suddenly had money -- but he was at a crossroads. He had separated from his wife Barbara. As the '70s wore on, he grew frustrated with a math problem related to the Chern-Simons theory.
"It was driving me crazy,'' he says.
Simons met Marilyn Hawrys, a graduate student in economics at Stony Brook who helped take care of Simons's children and would become his second wife.
Birth of Medallion
Simons left Stony Brook in 1977 and started Monemetrics, a predecessor to Renaissance, in a strip mall across from the Setauket train station. He wanted someone to trade currencies and commodities and turned to an old friend, a fellow code cracker from the IDA: Leonard Baum.
Baum was co-author of the Baum-Welch algorithm, which is used to determine probabilities in, among other things, biology, automated speech recognition and statistical computing. Simons's idea was to harness the mathematical models that Baum was writing to trade currencies.
"Once I got Lenny involved, I could see the possibilities of building models,'' Simons says.
Baum never traded using the models. In the late '70s and early '80s, Baum was making too much money on fundamental trading. Such trading involves betting based on, say, whether British Prime Minister Margaret Thatcher would let the pound rise. In an era of one-way markets, it was much easier than using models.
"The dollar was very weak; all you had to do was short the dollar and you'd make a lot of money,'' Simons says.
'Magic or Nonsense'
Simons brought in Ax to look over Baum's efforts. Ax declared that not only would the models work with the currencies Baum had written them for, they could be applied to any commodity future --wheat, crude oil, you name it, Simons says.
Simons set up Ax with his own trading account, Axcom Ltd., which eventually gave birth to Medallion. Ax died of colon cancer in 2006 at age 69.
In Axcom's early days, professionals were skeptical about the kind of systematic trading Ax was doing. Still, he was brilliant and a natural at understanding probability, having shared the American Mathematical Society's Frank Nelson Cole Prize in Number Theory in 1967.
"He had the ability to see patterns in trading data,'' says Brian Keating, 36, the younger of Ax's two sons. "People in the business thought it was magic, or nonsense.''
Talking to Lawyers
Ax was also sometimes difficult to work with. "Most of times things went well,'' says Kevin Keating, 38, Ax's older son, who talked with his father about his days at Axcom. "But when they didn't, they'd butt heads.''
During the 1980s, Ax and his researchers improved on Baum's models and used them to explore correlations from which they could profit. If a futures contract opened sharply higher versus its previous close, they would short it; if it opened sharply lower, they would buy it, says Sandor Straus, a former manager for Medallion who now runs his own investment firm, Merfin LLC, in Walnut Creek, California.
The stuff wasn't complicated, and it worked. In 1985, Ax persuaded Simons to let him move Axcom to Huntington Beach, California, to escape a painful divorce and enjoy year-round boating. By 1988, investors wanted to invest directly in Axcom. Simons and Ax started a hedge fund and christened it Medallion in honor of the math awards that they had won.
Short-Circuit
Ax's signals soon seemed to short-circuit. Peak-to-trough losses by April 1989 had mounted to about 30 percent.
Ax had accounted for such a drawdown in his models and pushed to keep trading. Simons wanted to stop to research what was going on.
"Both were talking to their lawyers,'' Straus says. Ax, in fact, threatened to sue. Simons pulled rank, and Ax left. He went on to write a screenplay and poems in addition to working on problems involving the mathematical foundations of quantum mechanics with Princeton University professor Simon Kochen, with whom Ax shares the Cole prize.
Simons turned to Elwyn Berlekamp to run Medallion from Berkeley, California. A consultant for Axcom whom Simons had first met at the IDA, Berlekamp had bought out most of Ax's stake in Axcom. He worked with Straus, Simons and another consultant, Laufer, to overhaul Medallion's trading system during a six-month stretch.
'Dull Life'
In 1990, Berlekamp led Medallion to a 55.9 percent gain, net of fees -- and then returned to teaching math at UC Berkeley.
"I got a lot more pleasure talking to academics than financial types,'' says Berlekamp, who is now professor emeritus. "Most people in this business are pretty dollar- centric. It makes for a dull life.''
Ax was gone. Berlekamp was gone. Medallion's revamped trading system remained. Straus took the reins. Medallion returned 39.4 percent in 1991, 34 percent in 1992 and 39.1 percent in 1993, according to Medallion annual reports.
Back on Long Island, Simons was gathering an A-team of math brains. Laufer, a former Stony Brook professor, joined full time as research chief in late 1991. Frey, a trader from Morgan Stanley's Analytical Proprietary Trading group, the pioneering black-box quant desk, came in 1992. Nick Patterson, another cryptologist from the IDA, joined in 1993. That year, Simons also hired Brown and Mercer, two language technology experts from the IBM Thomas J. Watson Research Center.
Best Year
The nastier that stock or bond markets turned, the better Medallion seemed to perform. In 1994, as the Federal Reserve raised its federal funds target rate six times to 5.5 percent from 3 percent, Medallion returned 71 percent for the year. The Bloomberg/Effas long-term U.S. government bond index lost 6.7 percent that year.
In 1995, Simons moved most of Renaissance's California operations to Long Island. The firm needed computing power to model the data Renaissance was harnessing, and Simons bought it: From 1994 to 2000, Renaissance's total CPU power grew by a factor of 50. Data bandwidth in and out of Renaissance headquarters rose by a factor of 45, according to a Medallion annual report.
The year 2000, during which the Standard & Poor's 500 Index tumbled 10.1 percent, proved Medallion's best to date. It gained 98.5 percent, net of fees. By the end of that year, Renaissance had 148 employees -- and the fund had a 43.6 percent annualized return over 11 years, net of fees, according to an annual report. It hasn't had a down quarter since.
Insatiable Curiosity
Performance such as that feeds the hedge fund industry's insatiable curiosity. Rivals search for the signals underpinning Renaissance's returns. One set of clues came in the New York State Supreme Court decision in July, which the court heavily redacted. It cites three strategies tested at the firm, including one using limit order book data.
MIT's Lo says that a fund firm could look at such data and identify a large sell order for, say, $15 a share when a stock was trading at $15.05. The fund could short the stock at $15.01 and benefit if the stock hit the $15 trigger.
"There's going to be tremendous downward pressure on the stock,'' Lo says.
'Wolf at the Door'
Former employees say observers may gain as much insight into Renaissance's performance by scrutinizing a more obvious factor: Simons has succeeded in building a pretty good business model. First, it's a firm run by and for scientists.
"I've always said Renaissance's secret is that it didn't hire MBAs,'' says Berlekamp, who blames the herdlike mentality among business school graduates for poor investor returns.
Programming and modeling are treated as the heart of the firm's advantage -- not an expense. "If you needed a lot of computer power, the decision was based on whether you needed it, not the budget,'' says Peter Weinberger, former chief technology officer at Renaissance and now a software engineer at Google Inc.
Decisions are made quickly and feedback is constant. "One of the things about Renaissance is that there's a feeling of urgency,'' says Frey, who left to teach applied mathematics and statistics at Stony Brook in 2004.
"We always believed that there was a wolf at the door, that somebody would get there before we did.''
'Walk In'
From Simons on down, the company encourages openness, whether it's about market signals that show where a security might be headed or about technology or trading. Frey says he doesn't recall Simons ever raising his voice at an employee. Simons says new hires are encouraged to troll computer files detailing Renaissance's past strategies, successful or not. "If Simons's door was open, you could walk in,'' Weinberger says. That would go for everyone from secretaries on up.
For his part, Simons says he's proud of Renaissance's low personnel turnover. The firm is owned by 80-85 employees. From managing directors to cleaning staff, everyone receives a percentage of the profits, Simons says. It's compensation for what he expects them to contribute over the long term.
The notion of paying someone based on a single year's performance makes no sense in an environment where some projects take years to complete, Simons says. "We want everyone to want everyone else to do well,'' he says.
Issue of Succession
In his New York office, Simons pauses for a full eight seconds when asked who will run Renaissance after he retires -- a simple question given that the firm has just two executive vice presidents.
"Most likely someone inside the company,'' he finally says.
Does his likely successor have any idea he or she will be taking over?
"I suppose who would succeed me has a pretty good idea it would be he,'' he says.
Will it be a surprise?
"I don't think so -- but I can't guarantee it,'' Simons says.
Simons is busy as he rounds out his seventh decade: the new RIEF and RIFF hedge funds, Math for America and the Simons Foundation's support for autism research.
He's even returned to geometry, working with a friend, Stony Brook professor Dennis Sullivan, to solve a problem involving multidimensional spaces that's long bedeviled him. In January, they published a paper proving the theorem.
When pressed about retirement, Simons responds with a trademark mathematical paradox.
"I've always intended to retire in the next two years,'' he says, laughing. "I've been saying that for a long time. The two years is a constant.''
In the end, whether Simons is building charities, plotting strategies or contemplating his own legacy, it always comes back to the math.
(Article from http://www.bloomberg.com written by Richard Teitelbaum)
The Street's Slickest Number-Crunchers
"Quants" use ever-more complex algorithms to execute arcane trading strategies, a good approach during times of market turmoil
Only a few years ago, using a computer program to pick stocks was the ultimate in investing sophistication. Any portfolio manager who used a stock screen to, say, identify large-cap companies with low price-earnings ratios could justifiably claim to be a "quant" -- shorthand for investors who use quantitative research and trading strategies.
Now that most professional investors use a stock screen to narrow their choices, being a true quant means a lot more. It requires using computer models based on complex algorithms to implement arcane trading strategies that typically require a PhD to understand.
And it may mean taking humans out of the stock-buying decision altogether, as John Montgomery, founder of Houston-based Bridgeway Funds, has done with his mutual-fund company. "There are a dozen different ways emotion gets in the way and systematically causes people to make the wrong decision at just the wrong time," says Montgomery, who calls his company "a pure quant shop."
"SOMETHING OF A FAD." Quantitative strategies have proliferated recently, thanks to the fact that they were about the only thing that worked during the three-year bear market that ended last March. "If you're on an uphill growth path, similar to the heyday of the dot-com era, fundamental analysis always wins out," says Sang Lee, manager of the securities and investments group at Celent Communications, a Boston-based financial services technology research firm. "Quant shops do better when markets are flat or unstable."
Today, more than 300 investment firms use quantitative research or trading techniques (up from fewer than 100 some 15 years ago), estimates Lee in a September report that reviews developments in quantitative research and trading. Those firms have more than $4 trillion in assets under management, or about 17% of the U.S. market. Lee expects quantitative research and trading activity to grow an additional 40% in the next three to four years, even though his report calls this trend "something of a fad."
The quant world breaks down roughly into two camps for which quantitative trading has both strengths and drawbacks. In one camp are the portfolio managers who use computer models to pick stocks and other investments to buy. These models are mostly used by mutual-fund families like Bridgeway, ICON, or Hennessy, and their models range widely in complexity and success.
FAST-CHANGE ARTISTS. The biggest problem with quant strategies in managing mutual funds is that the best ones don't last long: Models that work in one market environment tend to fail in the next. To run a quant fund "requires constant reconsideration of the model," says Jeffrey Ptak, an analyst at fund research firm Morningstar.
The most successful quant mutual funds today are those that have several models working in conjunction with each other, known as "multivariant" or "multifactor" funds. The idea is that they can switch quickly between sectors and investment styles to take advantage of a shifting market.
Montgomery uses five models in Bridgeway Aggressive Investor, which has a stunning 27% five-year average annual return. The different models (one finds stocks with strong momentum, another identifies stocks that are cheap) are designed to offset each other, which should reduce volatility in the fund. "If each model is doing its part," says Montgomery, "when there's one style in favor that model should be kicking in and something else lagging."
TINY INEFFICIENCIES. The other main quant camp is in the hedge-fund world, where selling stocks short (a way to bet that their price will fall), piling on complex derivatives, and borrowing lots of money (so you can put more cash behind each bet and therefore magnify returns) are permitted. (Federal regulations prohibit ordinary mutual funds from engaging in such risky strategies, but hedge funds, which only wealthy people have enough money to participate in, are almost entirely unregulated.)
"Quant methods is where a lot of the sophistication in investing is going," says Salomon Konig, president of GP Funds, which distributes hedge funds made up of other hedge funds (known as "funds of funds").
Quantitative hedge funds typically use esoteric trading strategies, often employing derivatives, options, and futures to achieve returns that are entirely divorced from stock market returns. Many of the strategies are designed to take advantage of tiny inefficiencies in the market. A hedge-fund manager might design an arbitrage play to take advantage of a slight, temporary difference in price between a stock index and the underlying securities that make up the index.
NEVER-ENDING SEARCH. Some of these hedge funds have been wildly successful, including those run by Jim Simons of Rennaissance Technologies, who manages the Medallion Fund, and Steve Cohen, of SAC Capital Advisors. But when the use of leverage to magnify returns goes wrong, as it did in the famed case of Long Term Capital Management in 1998, the losses can be disastrous.
Another foible of quantitative hedge funds is that once traders discover an inefficiency in the market to exploit, their own trading activity eventually eliminates the opportunity. "Many of the market imperfections can only be revealed by computers and quantitative methods," explains Konig. "Once some of those imperfections are taken out of the market, you need more quantitative methods and more automated tools to get at arbitrage opportunities."
Despite their complexity and apparent sophistication, most quantitative strategies probably don't add much value for investors. Nassim Nicholas Taleb is an experienced options trader, hedge-fund manager, math professor -- and author of the book Fooled by Randomness. He believes that all successful investors, including Warren Buffett, are mainly just lucky.
Nonetheless, a case can be made that taking emotion out of the investing process can help boost returns and reduce risk. "I can't tell you how big a deal I think that is," says Montgomery. Of course, if you produced returns like his, you might feel the same way.
(Article from http://www.businessweek.com written by Amey Stone)
Only a few years ago, using a computer program to pick stocks was the ultimate in investing sophistication. Any portfolio manager who used a stock screen to, say, identify large-cap companies with low price-earnings ratios could justifiably claim to be a "quant" -- shorthand for investors who use quantitative research and trading strategies.
Now that most professional investors use a stock screen to narrow their choices, being a true quant means a lot more. It requires using computer models based on complex algorithms to implement arcane trading strategies that typically require a PhD to understand.
And it may mean taking humans out of the stock-buying decision altogether, as John Montgomery, founder of Houston-based Bridgeway Funds, has done with his mutual-fund company. "There are a dozen different ways emotion gets in the way and systematically causes people to make the wrong decision at just the wrong time," says Montgomery, who calls his company "a pure quant shop."
"SOMETHING OF A FAD." Quantitative strategies have proliferated recently, thanks to the fact that they were about the only thing that worked during the three-year bear market that ended last March. "If you're on an uphill growth path, similar to the heyday of the dot-com era, fundamental analysis always wins out," says Sang Lee, manager of the securities and investments group at Celent Communications, a Boston-based financial services technology research firm. "Quant shops do better when markets are flat or unstable."
Today, more than 300 investment firms use quantitative research or trading techniques (up from fewer than 100 some 15 years ago), estimates Lee in a September report that reviews developments in quantitative research and trading. Those firms have more than $4 trillion in assets under management, or about 17% of the U.S. market. Lee expects quantitative research and trading activity to grow an additional 40% in the next three to four years, even though his report calls this trend "something of a fad."
The quant world breaks down roughly into two camps for which quantitative trading has both strengths and drawbacks. In one camp are the portfolio managers who use computer models to pick stocks and other investments to buy. These models are mostly used by mutual-fund families like Bridgeway, ICON, or Hennessy, and their models range widely in complexity and success.
FAST-CHANGE ARTISTS. The biggest problem with quant strategies in managing mutual funds is that the best ones don't last long: Models that work in one market environment tend to fail in the next. To run a quant fund "requires constant reconsideration of the model," says Jeffrey Ptak, an analyst at fund research firm Morningstar.
The most successful quant mutual funds today are those that have several models working in conjunction with each other, known as "multivariant" or "multifactor" funds. The idea is that they can switch quickly between sectors and investment styles to take advantage of a shifting market.
Montgomery uses five models in Bridgeway Aggressive Investor, which has a stunning 27% five-year average annual return. The different models (one finds stocks with strong momentum, another identifies stocks that are cheap) are designed to offset each other, which should reduce volatility in the fund. "If each model is doing its part," says Montgomery, "when there's one style in favor that model should be kicking in and something else lagging."
TINY INEFFICIENCIES. The other main quant camp is in the hedge-fund world, where selling stocks short (a way to bet that their price will fall), piling on complex derivatives, and borrowing lots of money (so you can put more cash behind each bet and therefore magnify returns) are permitted. (Federal regulations prohibit ordinary mutual funds from engaging in such risky strategies, but hedge funds, which only wealthy people have enough money to participate in, are almost entirely unregulated.)
"Quant methods is where a lot of the sophistication in investing is going," says Salomon Konig, president of GP Funds, which distributes hedge funds made up of other hedge funds (known as "funds of funds").
Quantitative hedge funds typically use esoteric trading strategies, often employing derivatives, options, and futures to achieve returns that are entirely divorced from stock market returns. Many of the strategies are designed to take advantage of tiny inefficiencies in the market. A hedge-fund manager might design an arbitrage play to take advantage of a slight, temporary difference in price between a stock index and the underlying securities that make up the index.
NEVER-ENDING SEARCH. Some of these hedge funds have been wildly successful, including those run by Jim Simons of Rennaissance Technologies, who manages the Medallion Fund, and Steve Cohen, of SAC Capital Advisors. But when the use of leverage to magnify returns goes wrong, as it did in the famed case of Long Term Capital Management in 1998, the losses can be disastrous.
Another foible of quantitative hedge funds is that once traders discover an inefficiency in the market to exploit, their own trading activity eventually eliminates the opportunity. "Many of the market imperfections can only be revealed by computers and quantitative methods," explains Konig. "Once some of those imperfections are taken out of the market, you need more quantitative methods and more automated tools to get at arbitrage opportunities."
Despite their complexity and apparent sophistication, most quantitative strategies probably don't add much value for investors. Nassim Nicholas Taleb is an experienced options trader, hedge-fund manager, math professor -- and author of the book Fooled by Randomness. He believes that all successful investors, including Warren Buffett, are mainly just lucky.
Nonetheless, a case can be made that taking emotion out of the investing process can help boost returns and reduce risk. "I can't tell you how big a deal I think that is," says Montgomery. Of course, if you produced returns like his, you might feel the same way.
(Article from http://www.businessweek.com written by Amey Stone)
Thursday, January 10, 2008
Cai Rang Floating Market in Cantho
I was on a tour to Mekong Delta on my third day in Vietnam. The whole package was only USD18 for a 2 days 1 night trip to the Mekong Delta region. The bus journey started in Ho Chi Minh City (HCMC) and arrived in Cai Be some three hours later. You will see a smaller version of floating market here. Then, we took a boat ride through the maze of shady small canals visiting the An Binh islands in Vinh Long. We saw how people cultivate their orchards, making coconut candy and rice paper. We took a bicycle ride around the area after taken our lunch.
A short boat stop landed on Vinh Long market later that day for us to explore the area. Then, from Cai Von our wonderful boat trip reached Cantho, where we stayed the night.
The next morning, we cruised along the small and picturesque tributaries by rowing boat and experienced the hustle and bustle of Cai Rang floating market first hand. The Cai Rang floating market is by far the largest floating market in the whole Mekong Delta region. Business is the busiest during the early morning. Each boat displays what they are selling by tying the samples onto a stick and displaying it upright.
Later, we visited a rice husking mill and made a stop at Cantho market. We headed back to HCMC later that afternoon where the madness of the traffic awaits us.
A church in Vinh Long
Small shady canal in Vinh Long
This guy showing his skill with kids looking on at Vinh Long market
Boats at Cai Rang floating market
Deals are made on the boats
Different boats selling different goods
A woman rowing a boat and get ready to do business
.jpg)
You know what this boat is offering. Pineapples of course!
A short boat stop landed on Vinh Long market later that day for us to explore the area. Then, from Cai Von our wonderful boat trip reached Cantho, where we stayed the night.
The next morning, we cruised along the small and picturesque tributaries by rowing boat and experienced the hustle and bustle of Cai Rang floating market first hand. The Cai Rang floating market is by far the largest floating market in the whole Mekong Delta region. Business is the busiest during the early morning. Each boat displays what they are selling by tying the samples onto a stick and displaying it upright.
Later, we visited a rice husking mill and made a stop at Cantho market. We headed back to HCMC later that afternoon where the madness of the traffic awaits us.
A church in Vinh Long
Small shady canal in Vinh Long
This guy showing his skill with kids looking on at Vinh Long market
Boats at Cai Rang floating market
Deals are made on the boats
Different boats selling different goods
A woman rowing a boat and get ready to do business
.jpg)
You know what this boat is offering. Pineapples of course!
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