Jim Rogers - Hot Commodities

If anyone has any doubts over recent spike of crude oil price to the all-time high of over USD139 per barrel, read this book. Written by no other than the commodities guru Jim Rogers himself.

His insight is purely based on the supply and demand of the world crude oil reserve and reasons why we should invest our money in commodities, especially in crude oil. According to him, no major elephant oil fields have been discovered over these years in the world. This is coupled with huge energy demand from China and the rest of the world.

According to him, if the world is experiencing recession or economy downturn, or bear market in equity, it always coincide with the commodities bull market. He believes there could still another 10 years or more for the bull in the commodities market.

Jim Rogers also reasons why we should invest directly in commodities itself and not the company that link to the underlying commodities in order to get a better returns.

Sometimes I wonder whether the recent sharp increase in the crude oil price is due to the speculators and fund managers who take Jim Rogers advice and hedge their investment in crude oil futures.

Believe this guy. He knows what he is talking about.

Two Great Classic Novels

Into the final two parts of Anna Karenina, a masterpiece by Leo Tolstoy instead. It took me almost one and half year now. Of course, I stopped readin' it for almost a year. In between I've have read other non-fictions as well. Meanwhile, started on Pride and Prejudice by Jane Austen, her most famous novel. That's me. Always started on new book before the old ones could finish. Sometimes, I have with me six to seven books that i read concurrently. Will watch the film "Anna Karenina" once I've finished readin' it.


This 1997 film starring Sophie Marceau as Anna Karenina.



This is the trailer of the 2005 film starring Keira Knightley as Elizabeth Bennet.

More Books...

Finally, the exam is over. At the mean time, i wish to at least finish reading some of the books that have been long overdue. Some of them are:

1) The Black Swan by Nassim Nicholas Taleb
2) The Age of Turbulence by Alan Greenspan
3) Blue Ocean Strategy by W. Chan Kim and Renee Mauborgne
4) The World Is Flat by Thomas L. Friedman
5) Anna Karenina by Leo Tolstoy

amongst others.

Rule #1: An Investment Methodology

This investment book is written by Phil Town. It is essentially based on value investing and fundamental analysis with some modifications from the author.

The Excerpt

4M – Meaning, Moat, Management, Margin of Safety.

i) Meaning – Passion, Talent, Money.

View equity investment like buying into a company as if we depend on it for the next 100 years, not as just buying a share.

ii) Moat – The Big Five Numbers (Return on Investment Capital Growth Rate, Equity Growth Rate, EPS Growth Rate, Revenue Growth Rate, Free Cash Flow Growth Rate). Growth rate must be at least 10% per annum. Compare the growth rates for the last 10 years, 5 years and 1 year to see whether they are deteriorating. Lastly, debt must be within manageable level.

iii) Management – Read the previous year annual reports to see whether the CEO of the company has delivered what he had promised. Preferably a Level 5 (a term coined by Jim Collins) CEO.

iv) Margin of Safety – At least 50% discount to the sticker price.

Calculate the Sticker Price (Intrinsic value) & Margin of Safety (MOS)

After passing the 4M examination, we must determine the right price to buy. These steps are basically the essence of the entire book.

a) Get the current EPS.

b) Determine the Equity Growth Rate – either from historical data or from industry estimation, whichever is lower.

c) Determine the future P/E ratio – 2 x Equity Growth Rate of (b) or from historical data, whichever is lower.

d) Determine the minimum rate of return – 15%.

e) Determine the Sticker Price – ¼ of (future P/E ratio x current EPS).

f) Determine the MOS – 50% off the Sticker Price. Buy if it is less than 50%.

The 3 Tools (Technical Analysis)

i) Stochastic

ii) Moving Average – 10 days.

iii) MACD – Standard is 12-26-9, preferred is 8-17-9 version.

Even though the share price is at 50% off the sticker price now, individual investors should wait for the right moment. This means waiting for these 3 indicators to show positive signals. These indicators are used by institutional players to determine the right time to buy or to sell a stock. Individual investors should use these indicators to see whether the institutional players are buying or selling their holdings and thus making their own buy and sell decisions accordingly and timely.

Sell only when the share price has reached the sticker price (annually adjusted, roughly up 100% from MOS price). Or, when all the 3 indicators show negative signals. Buy back only when the price has dropped more than 20% from the selling price PROVIDED all the fundamentals are still the same and you had bought at 50% MOS price INITIALLY. Of course, don't forget the 3 indicators.

The author also ruled out the significance of dividend payment. He said it is better for the money to be retained in the company to grow the business than returning the profit as a way of dividend to you because this will save you from the headache of finding another company to reinvest the dividend received.

Although I must admit the author's way of calculating the intrinsic value is great (not many investment books teach you how to do this), it is always difficult to find a stock that is showing all the characteristics of Rule #1 investing. The journey of investing never stop. Seek and ye shall find.

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything

This is a book by University of Chicago economist Steven D. Levitt and New York Times journalist Stephen J. Dubner published in 2005.

The Excerpt

Morality represents the way people would like the world to work—whereas economics represents how it actually does work. Economists use data as a tool to determine the effect of any one factor, or even the whole effect.

The book based on a few fundamental ideas:

1. Incentives are the cornerstone of modern life – Cheating among school teachers and sumo wrestlers.

2. The conventional wisdom is often wrong – Ask the right question, you might find some interesting answers.

3. Dramatic effects often have distant, subtle causes – Legalized abortion in 1970s causes substantially drop in crime rate in 1990s.

4. Experts like real-estate agents use their informational advantage to serve their own agenda – Internet brings balance to information asymmetry.

5. Knowing what to measure and how to measure it makes a complicated world much less so – If you learn how to look at data in the right way, you can explain riddles that otherwise might have seemed impossible.

Regression analysis – By applying constant every variable except the two he wishes to focus on, and showing how those two correlated. Correlation indicates whether two variables move together, positively or negatively. Cold and snowing outside is positively correlated; but we are not sure whether the cold causes the snow or the snow causes the cold.

Parenting – It does matter who the parents are, not what the parents do in order to have positive influence on the children.

Two Investment Books On Randomness

These two investment books talk about the randomness of the capital market. One is called A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing by Burton G. Malkiel and the other one is called Fooled By Randomness: The Hidden Role of Chance in Life and in the Markets by Nassim Nicholas Taleb.

IMHO, before anyone embarks on the journey of investing, they should at least understand the concept of EMH (Efficient Market Hypothesis) - An investment theory that states that it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, this means that stocks always trade at their fair value on stock exchanges, and thus it is impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices.

But since capital market is not always operated at full efficiency, this provides some profit opportunities to the investors.


This book popularized the ideas that the stock market is efficient and that its prices follow a random walk. Essentially, this means that you can't beat the market. That's right - according to Malkiel, no amount of research, whether fundamental or technical, will help you in the least. Like any good academic, Malkiel backs up his argument with piles of research and statistics. It would be an understatement to say that these ideas are controversial, and many consider them just short of blasphemy. But whether you agree with Malkiel's ideas or not, it is not a bad idea to take a look at how he arrives at his theories. (http://www.investopedia.com)

This book also popularized the concept of "Buy and Hold" for long term.



In Fooled by Randomness, Nassim Nicholas Taleb, a professional trader and mathematics professor, examines what randomness means in business and in life and why human beings are so prone to mistake dumb luck for consummate skill. This eccentric and highly personal exploration of the nature of randomness meanders from the court of Croesus and trading rooms in New York and London to Russian roulette, Monte Carlo engines, and the philosophy of Karl Popper. It addresses the apparently irrational movement of money markets around the world. (Amazon.com)


No matter how well your research on the market is, the market is still prone to randomness - one cannot really predict the market. That's why some portfolio managers try to predict how much they can lose in the worst case scenario over a period of time by using a methodology called Monte Carlo Simulation.

(Note: Nassim Nicholas Taleb has a new book called The Black Swan: The Impact of the Highly Improbable)