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THE CURRENT AI CANNOT CREATE MIRACLES

Posted on June 15, 2024June 15, 2024 by William Dai

The so-called AI is not real AI. It cannot create miracles. It is not able to
know anything humans don’t know. If you feed it with rubbish, it will output
rubbish. Only one thing for sure, it will improve efficiency dramatically. The
stock market has been overreacting in each case related to AI.

https://www.msn.com/en-us/news/technology/apple-s-huge-ai-announcement-is-a-chatbot-and-an-image-generator-which-is-the-exact-same-boring-offering-as-microsoft-google-and-meta/ar-BB1nYnXd?ocid=socialshare&pc=DCTS&cvid=6ed7bb60750e4ee9a1434105ac3e63ac&ei=83

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 5 TRAITS ARE ‘ALMOST CERTAIN TO SUCCEED’ – CHARLIE MUNGER

Posted on May 4, 2024May 4, 2024 by William Dai

In a 2019 interview with CNBC’s Becky Quick, Munger echoed advice from
shareholder meetings and shared his secrets for a long and happy life. Here are
five pieces of advice from Munger that undoubtedly contributed to his long life,
financial success, and — most importantly — happiness.

1. Don’t overspend your income.

One key to success, according to Munger: “You don’t overspend your income.”

By living within your means, you can reduce stress surrounding debt, inflation
and rising costs. I you are spending less than what you earn, you have a safety
net if your expenses rise or your income drops. Plus, it frees up cash for
investments and passive income generation.

2. Invest shrewdly

“It’s so simple to spend less than you earn, and invest shrewdly,” Munger told
shareholders at one Berkshire Hathaway meeting.

“The big money is not in the buying and selling, but in the waiting,” he said.

He also advised that you should invest in businesses that virtually anyone can
run. “If it won’t stand a little mismanagement, it’s not much of a business,” he
said. However, don’t seek out businesses that are poorly run as a general
practice: “We’re not looking for mismanagement, even if we can withstand it.”

3. Continue Learning

Munger had previously advised, “The game of life is the game of everlasting
learning. At least it is if you want to win.” Munger also emphasized one of
these best ways to gain knowledge: “In my whole life, I have known no wise
people who didn’t read all the time — none, zero.”

4. Remain Disciplined

Hold on your principles. Don’t speculate. To achieve long term success, you need
to be patient and do the right thing day by day and year after year.

5. Avoid Toxic People

While you want to seek out and surround yourself with reliable people, you also
want to avoid the toxic ones, Munger advised. “A great lesson of life is get
them the hell out of your life — and do it fast,” he told shareholders at one
meeting. “If you do all those things, you are almost certain to succeed. If you
don’t, you’re going to need a lot of luck.”

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CHARLIE MUNGER’S WISDOM ON HOUSE

Posted on April 1, 2024April 1, 2024 by William Dai

For Charlie Munger, living in a relatively modest house wasn’t an accident — it
was a conscious choice.

Munger, the billionaire investor and longtime business partner to Warren
Buffett, at the age of 99. He’d previously discussed his rationale for living in
the same California home over the past 70 years.

“[Buffett and I] are both smart enough to have watched our friends who got rich
build these really fancy houses,” Munger said. “And I would say in practically
every case, they make the person less happy, not happier.”

A “basic house” has utility, said Munger, noting that a larger home could help
you entertain more people — but that’s about it. “It’s a very expensive thing to
do, and it doesn’t do you that much good.”

Another drawback to owning a mega-mansion, he added: Such an ostentatious
display of wealth could spoil his kids by encouraging them to “live grandly.”
Munger had nine children across two marriages, including two step-sons and a son
who died of leukemia at age 9.

“[Buffett and I] both considered bigger and better houses,” Munger said. “I had
a huge number of children, so it was justifiable even. And I still decided not
to live a life where I look like the Duke of Westchester or something. And I was
going to avoid it. I did it on purpose … I didn’t think it would be good for the
children.

As Munger alluded to, Buffett lives similarly: The 93-year-old
billionaire bought his house in Omaha, Nebraska, for $31,500 in 1958, and has
lived there ever since. Buffett’s quality of life would “be worse if [he] had
six or eight houses,” he reportedly said at Berkshire Hathaway’s 2014
shareholder meeting.

Munger often preached the merits of living modestly, giving advice like “don’t
have a lot of envy” and “don’t overspend your income.” In the Thursday
interview, he credited his success and longevity to a long-held sense of caution
and an ability “to avoid all standard ways of failing.”

“Avoid crazy at all costs,” said Munger. “Crazy is way more common than you
think. It’s easy to slip into crazy. Just avoid it, avoid it, avoid it.”

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THIS BUBBLE IS UNMATCHED IN HISTORY

Posted on July 26, 2023July 26, 2023 by William Dai

Bad news for Chinese real estate market is constantly coming out these days.
Western economists and analysts mostly think about the issue in the normal
context of a free market economy. But the Chinese economy is not a free market
economy, especially in the property market.

There is no doubt that the early development of the property market in the 90s
and the first decade of 21st century long with the whole development of the
economy brought millions of Chinese people out of poverty. However, because the
Chinese government is the sole owner of all land in mainland China and has
complete control of banks, law and media, to say that the Chinese government has
the monopoly power over the property market is an understatement.

Based on analysis of the financial reports of developers in China, the
government takes away 40%-45% of the revenue of a project. The government is the
biggest winner for sure. Land has been the magic treasury box with endless cash
flow for the governments since the beginning of commercial property development.

However, at the beginning of 2010’s, the return on investment of residential
property at good location with reputable school was at 2% in 1st tier city, such
as Shanghai, while the interest rate for one-year fixed deposit was at 3%.  The
residential property price was already out of reach of ordinary people in China.
But Chinese people was still pouring money into the property market in strong
believing that the government wouldn’t allow the property price to drop and the
price of property would keep going up.  With a stock market of disappointing
performance and bad reputation, they believe that buying property was the only
way for investment. To be sure, with capital control for overseas transaction
and a casino like stock market, the only valid way for Chinese people to invest
was buying property.

Moreover, home ownership is not a dream, but a necessity in Chinese culture. It
was not uncommon for a marrying couple to buy an apartment for the new family
with the help from their parents from both sides. This further made an impact
the consumption of other items from these 3 families.

Meanwhile, although the government already realized that the property market at
such price level was not sustainable, they cannot afford to lose the magic
treasure box. They tried their best to stop people from speculating the market
using policy tools and propaganda machine on one hand, while made all the
efforts to block any reports or comments pointing out potential property market
crisis using censorship tools, and even to order the property developers not to
drop the selling prices on the other hand.

Chinese property prices kept going up for almost another decade. The most recent
available statistics showed that it took 20 to 43.5 years of median income to
buy an apartment unit in 1st and 2nd tier cities in China. Meanwhile, Banks did
not stop lending even they sense the risk, because the government owns banks. In
addition, based on the relevant Chinese law, the banks are actually not bearing
any direct risk for the mortgage, because in the great People’s Republic of
China, once the buyer stop paying the mortgage, the bank will get the property,
but it’s not the end of the contract, unlike in any other country. In the case
of the selling price of the property cannot cover the rest of the mortgage owed
by the buyer, the unfortunate buyer still has to pay the difference! These
people not only lost their home, but most likely would carry the debt in the
rest of their life. It’s happening now and more will come.

When I travelled and saw concrete jungles of high-rise buildings in China in
recent years, I saw craziness of people from buyers, developers, bankers and
government officials and wondered how ugly this would end up.

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ARE YOU GREEDY NOW

Posted on December 31, 2022January 1, 2023 by William Dai

If you are a serious investor, you must have heard of the famous Buffett saying,
“Be fearful when others are greedy. Be greedy when others are fearful.” Well,
it’s easy to understand the idea, but very difficult to practice. The key is
“when”.

Let’s look at the movement of index fund “QQQ” during the year-to-date bear
market, there were two big rallies, only to lose ground to go further down
again.

Invesco QQQ Trust (QQQ)

If you were greedy around mid March, you would have enjoyed a good rally, only
to give back and fall further down later. The same scenario would happen again
in July. Obviously, there were quite many people being greedy to have a good
rally in a bear market, while there were even much more people being fearful in
the first place to have a lasting bear market.

It seems that the winning formula “Be greedy when others are fearful”, doesn’t
always work. If you became greedy too early while more people kept turning
fearful, the market went down, even with much more people having turned fearful
earlier. Only when the power of fearful is near exhaustion, the greedy side has
the chance to win.

How do you know how many percent of people in the market being fearful? To be
more accurate, you need to know the percentage of capital controlled by these
people on the fearful side. If that percentage was over 90%, your greediness
would win huge, simply because downward power of the market is near exhaustion.

However, there are no such market statistics available. You have to rely on your
gut feeling. But gut feeling is not reliable. The next thing is the chart. By
looking at the chart above, you might think QQQ already reach the bottom at
early Nov, which is showing a quite strong signal until the chart of coming 3
months telling you otherwise, because if a recession came in 2023 and lasted
longer than the market having expected, all the stocks and indexes would go down
further. Although almost everybody is talking about recession this time, no one
for sure whether it will really come and how sever it will be.

Only one thing for sure: Nobody knows where the bottom is. The only reliable
indicators I learned from my almost 20 years of investment experiences are the
valuation results based on fundamentals. If you look at the PE for QQQ on Yahoo
Finance, it is 22. Based on QQQ’s historical data, PE at 22 is cheap. But you
cannot analyze QQQ like an actual company and cannot tell whether companies
included in QQQ will survive in a recession.  I eventually bought Microsoft in
early Nov at $215 simply because Microsoft is a tech blue chip and it will most
likely not only survive a recession, but thrive when everyone is struggle to
“achieve more” with less. And most importantly, I could analyze it as a company
with all the data available and concluded that it’s cheap at $215 with enough
margin of safety.

Since then, the market has been fluctuated wildly. However, price of Microsoft
has gone up 12% since 8 Nov while QQQ has dropped back to the same price level.
Obviously, there are many investors have reached same conclusion on the value of
Microsoft in the market, while it’s difficult to evaluate an index fund like
QQQ, which is much more affected by the outlook of economy development in near
terms.

In short, valuation is the No. 1 factor to make investment decision. Greed and
fear in the market only helps you to get better prices.

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THE CHARACTERISTICS OF A SUCCESSFUL INVESTOR

Posted on September 5, 2021September 7, 2021 by William Dai

I am one of the many students of Warren Buffett and quite successful in applying
his investment methodology and philosophy，although he never knows me. Mr.
Buffett once mentioned that investment is not rocket science and you don’t need
a very high IQ to do it. That said, with 18 years of experiences in practicing
value investment, I think that it’s not a job an average person can do it, and
takes certain level of high IQ, wisdom, and certain characteristics to do it
constantly well in a life time.

Self-Discipline

As a Buffett style value investor, you must have the self-discipline to follow
the rules set based on your understanding of Buffett’s methodology all the time.
This is easier said than done. Fear and greedy often affect your decision making
and taking action decisively. There were many times I missed the best prices to
buy or to sell and then waited for the best prices to back again for fearing of
losing money or just being greedy, and missed the whole opportunity forever.

Continue reading “The Characteristics of A Successful Investor” →
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THE DIDI PHENOMENON

Posted on July 9, 2021September 5, 2021 by William Dai

What happened to Didi could happen to any company in China. The fundamental
reason behind is not what Didi did, but the political and economical system in
China. It’s not a market economy in China. There is no rule of law, but rule by
official power, or by the ruling party in China. In fact, the party can cut the
throat of any company at will.

What happened to Didi is not the first case, as the case for Alibaba is still
fresh in our memory, and will not be the last case. This is another wake up call
to the everyone living in the free world and taking freedom and rule of law as
granted. Without systematic change in China, the drop in share prices of Didi or
Alibaba is NOT temporary, and therefore not an opportunity for investors to pick
up the shares.

The US regulators and administration should ban the public listing of Chinese
companies or any company which generate its revenue mainly from a country where
there is no rule of law to protect investors.

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PRIVACY ON FACEBOOK

Posted on June 12, 2021September 5, 2021 by William Dai

I have heard all the fuss about privacy on Facebook in recent years and am still
wondering what kind of privacy these people have been so seriously complaining
about. In the internet and telecommunication era, you expose your location once
you turn on your device connecting to the Internet or mobile networks. You also
expose your interests every time when you click on a link or type a word on your
device. The search engines or the APPs, including Facebook, you often used would
eventually know your interests and preferences.

However, these kinds of information are nothing related to your social security
numbers, your bank account details or your assets, and of course not the shape
of your private part, if you are always careful enough not to expose them on the
Internet.

But why are there so many people care so much about it? It’s really beyond my
keen. I don’t care if someone knows that I like black chocolate, or beautiful
girls either naked or not. It would be nice, if Google or Facebook could provide
such information proactively. The trade off between my personal preferences and
a free service like Facebook is well worth it!

BTW, Facebook has been the my best idea for investment among big tech companies
since 2017.

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WHAT TO DO NOW

Posted on June 9, 2020September 3, 2021 by William Dai

It’s a most turbulent and unique period for every investor. Even Warren Buffett
never has such experience over his very long and successful career as the most
respected investor in the world. He has not made any drastic move and is sitting
on $137 billion dollar cash pile, except selling all the airline shares. There
are a lot of people thinking he is too old to make any smart move quickly, and
they can outsmart him. The wild fluctuation of certain shares, such as Hertz and
airlines, which were impacted severely by the pandemic, are the evidence of
active trading by these people.

The reality is that nobody is able to predict the near further precisely. Will
the pandemic be over next month, quarter, or even next year? Will there be 2nd
wave of sudden increase of hundreds and thousands infected people? How sever the
impact of shutdown of most of economic activities caused? How fast will the
economy pick up? Nothing is for sure. A pandemic like this has never happened in
modern era. The only thing Warren Buffett being sure was that the airline would
not be able to recover for next 2 to 3 years and the whole industry will not be
the same again.

So, what to do now?

Continue reading “What to do now” →
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DON’T PANIC

Posted on March 18, 2020September 3, 2021 by William Dai

A friend called me yesterday, asking what happened to my holdings in US shares.
This is a normal reaction of ordinary people after a stock market crash
anywhere.

My answer was, “Well, the shares indeed dropped a lot. But I never doubt the US
will still be the most prosperous country in the world in next few decades.”

I always buy shares of public companies like an entrepreneur buying a business.
The most important criteria I have been using to screening companies is always
their competitive advantage and how wide the moat of the business is. The 2nd
criteria is the health of the companies’ balance sheets. I never buy shares of a
company carrying debt far more than its equity no matter how good its business
looks like. Of course, even with such stringent screening criteria, there are
still risks to loss my money. There is no such things as ZERO risk in the
investment world.

However, unless human civilization were totally destroyed by a catastrophe, such
companies would certainly not only survive, but rise from the dust and become
even stronger. I have never doubted about that. COVID-19 pandemic is not that
kind of catastrophe for sure. With the advanced medical technology at genetic
level, it will be all over within 2 years time. In addition, its death rate is
actually lower than 3% if all every infected person has been included in the
data analysis.

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