Reigning in the banks

Though this might mean lower bonuses for everyone but hopefully this will reduce the amount of work I am getting! Simplify the rules and regulations as well. Lower leverage, lower risks and please...lower the amount of new trades. Banking should be boring and I would like to have it that way.

Tiger Airways IPO

"Investors have regularly poured money into the domestic airline business to finance profitless (or worse) growth. For these investors, it would have been far better if Orville had failed to get off the ground at Kitty Hawk: The more the industry has grown, the worse the disaster for owners."
-Warren Buffet

One of the worst industry ever to invest in, couple this with losses over the past few years and a negative net asset value. This may be the year of the tiger but with numerous global airlines dropping like flies, don't expect a spectacular flight for this one. Main sellers of the stocks, Ryanair. If the kings of LCCs can't turn this company around, I can't see how Temasek and SIA can.

Expectations of future profits due to the IRs is nothing but a hope at best. It might turn out well, it might not. On the otherhand, if this paper tiger were to roar, then it is sure indication that we are entering bubble territory. Caveat Emptor.

What a mess!

As much as I like the club, its finances are in a mess. Here's what I picked up from soccernet:

The bond will be used to repay the "senior secured notes". It was thought that the Glazers would be looking to finance the £175 million worth of payment-in-kind notes that are currently attracting 14.25% interest. However, this is considered personal debt and will not be refinanced through bonds.

"Manchester United today announced that it will be seeking to raise approximately £500 million aggregate principal amount from an offering of senior secured notes due 2017,'' said a United statement. "The notes, whose proceeds will be used to refinance existing debt secured against the club, will be issued by MU Finance plc.''

But the Glazers will not be selling the club and intend to use the money saved from restructuring the debt to ensure significant money is available to Sir Alex Ferguson to spend in the transfer market.

I have no idea what are in the books. However, from the surface, 14.25% worth of interest is just madness to me. No corporation can ever survive that kind of interest rates on loans. This is the kind of rate you pay for a junk bond, something with a high probability of blowing up within the next few years. Furthermore, isn't issuing new bonds to refinance existing debt a big red flag, a classic robbing Peter to pay Paul syndrome. The Glazers are destroying a great franchise from the inside.

A legend of the past

" I was taught to work as well as play, My life has been one long, happy holiday; Full of work and full of play- I dropped the worry on the way- And God was good to me everyday."
- John D. Rockefeller

Currently reading Ron Chernow's biography of John D.Rockefeller. This guy is an absolute legend. If Standard Oil were to remain as a company today. It would have consisted of ExxonMobil, Chevron and ConocoPhillips combined, which is 3 of the top 5 companies on the Fortune 500. As a percentage of United States GDP, no other American fortune amassed including those of Sam Walton and Bill Gates combined would even come close. This was probably the greatest amount of absolute wealth that any self-made person could amass by his own hands. A controversial character through and through, extremely philantrophic in terms personal life but ruthlessly efficient when it comes to business. It is not hard to imagine the critical role that he played in propelling America's ascension to supremacy as a world superpower.

Learn, unlearn and re-learn

The only function of economic forecasting is to make astrology look respectable.
-John Kenneth Galbraith

Here comes the end of 2010 and the start of a brand new decade. There were lessons learnt and re-learnt and for some unfortunately I still do not learn. Putting the past aside, its time to start anew. Going forward, what are the lessons we can learn from the past that can better guide us towards the future?

Here are my top 5 lists:

1. It ain't over till it's over

Never ever pass judgements too quickly. What might seem a wise choice then might not be so wise later. What might seem stupid then might not be stupid later. Whether you are right or wrong in terms of decisions is all time and outcome relative. You can make all the right moves and the most logical decisions but there is always the element of chance that things might not turn out as expected. There's nothing to rejoice when prices go up and nothing to panic when prices go down. If one does not need validation from the markets, then it does not matter what the market does most of the time.

2. Long-lasting competitive advantage is the driver of value

Statistics and past performances matters as much as how relevant they are as a guidepost to the future. In some cases they can be predictive, in others they are as good as a flip of coin. Value is only as good as how much you will get. If all those earnings and cashflows is going to find itself stuck in some machinery and assets, then unless the company is going to liquidate the assets, you are not going to see those cash. Understanding the economics of a business is a much better way of assessment than some esoteric calculations. Porter's 5 forces though not exhaustive is a good framework to start with.

3. The tendency of man is towards extremes.

Humans are like a pendulum that swings from one end to another. That is why we had cycles in the past, we will definitely have them in the future. However, the magnitude and duration is unknown and unforeseeable. A good business per se does not justify an astronomical price and a bad business per se might not mean it is totally worthless. (It neither works the other way round either.) Reality is not as simplistic as what many people think. Except for scientific laws of nature and history, there is no such thing as sure thing.

4. Psychological biases: Try looking into the mirror

People like to look at success stories and forget about the silent evidences of countless failures. Nothing is more inspirational than fighting and overcoming the odds to emerge victorious. However, one usually fails to notice is that to "overcome the odds", by definition means to be the exception. What makes people like to think "this time its different", for everyone else the rule applies, whereas for me, "it's the exception". Therein lies a paradox, without believing we are the exception, we wouldn't try, then there would be no success stories today. In order to be the true exception, one would have to ask himself and find out "What do you have that others don't? What are you doing that others are not?" Food for thought.

5. It's all a matter of perception

Our internal representations or experiences of any event is not precisely what happened but rather a personalized internal re-representations. People interpret things differently. The conscious mind is unable to process all the signals that are being sent to it. The brain filters and stores the information it needs and ignores the rest. The different filters in place are the reasons why two different people might view the same things differently. Those filters are made of beliefs, values, attitudes and metaprograms. Many of these filters are ingrained and stored within our emotional and cognitive system so much so that we are not aware of it. Since we do not know how things really are, but only how we represent them to ourselves, the best we can do is only to represent them in ways that helps us rather than harm us.