Two Tips from “The Tipping Point”

This will never work (Vol 1, No 27)
Photo by Jack Gisel on Unsplash

Hong Kong’s radio stations are lousy. They hardly ever play any music and when they do, the DJ’s keep interrupting the song with their comments. On the talk radio side, it’s generally some rant against the government or whether Ms. Wong should cut her loss on China Life since it’s fallen 2% today.

Partly due to the lack of decent programming, I’ve started to listen to more podcasts lately. Since most episodes are around 30-45 minutes, they’re great when you go for a run.

Where does creativity come from?

Yesterday, when I was on the treadmill, I happened across Malcolm Gladwell’s “Revisionist History” podcast.

If you’ve read any of his books like “The Tipping Point” or “Outliers”, you know he makes some amazing observations and he is a master storyteller.

One question that he was asked on this podcast was on his creative process, i.e. how does he come up with his ideas? His answer was “Specificity” and that being specific is a key trait of interestingness.


What does he mean? In his example, it’s like instead of saying “I really like that Hitchcock film”, people with a high degree of specificity in speech and thinking would say, “I really like that 30 second moment when that character said this, the camera panned away and that’s when you realised this was happening”.

And it is this level of specificity that makes things interesting.

He didn’t really answer the creative process question directly but what is clear is that for the creative idea to be interesting to other people, it needs to be highly specific.

Did you cheer for Nadal? You did the right thing

The second interesting remark that Gladwell made is that he always cheers for the favourite team/player. He roots for the favourite not because he’s on the bandwagon but because he feels they are under tremendous pressure.

The favourites are expected to win and the underdogs are expected to lose.

If everything plays according to script, the underdogs would lose but they shouldn’t feel too bad since they kind of expected it anyway.

But if you’re the favourite and the overwhelming favourites like the 2015-16 Warriors that went 73-9 or the Undefeated 2007 Patriots, when you lose, you’ve got to deal with the additional overhang of being “The Greatest Team that Didn’t Win”. In other words, the favourites feel the sting of defeat much more than the underdogs.

Interesting observation? But you see what he did there. He took a conventional idea, turned it upside down and wham, it’s brilliant and “interesting”.

So, here are two takeaways on creativity:

  • Be highly specific
  • Do a handstand, turn ideas upside down

Now, if you cheered for Nadal to win his 11th French Open title or the Warriors to sweep the Cavs, tell your friends you only did it because you felt sorry for them.

This will never work



More valuable than gold

This will never work (Vol 1, No 24)

Happy Friday.

We haven’t looked into some inane facts for a while but seeing as it is Friday and I’m still not finished with my longer analysis, let’s take a look at something that costs more than gold. And no, I’m not talking about Bitcoin, we’re going to look at something that actually has lots of intrinsic value.

Photo by Rosino via Flickr

Ophiocordyceps sinensis

We’re going to talk about”Ophiocordyceps sinensis” or as it is more common name “Caterpillar Fungus” or “冬蟲夏草”.

For those in Asia, you know that Caterpillar Fungus is one of the most expensive Chinese herbs that you can buy. It’s got a lot of good medicinal properties but where it comes from is equally fascinating.

It’s a bird, it’s a plane, it’s superworm

One question that people always have about Dong Chong Cao is whether it’s a worm or a plant? It’s both.

Caterpillar fungus actually starts its life as the larvae from the Ghost Moth. Some of these larvae would be infected by the fungus O. Sinensis. For those weaker larvae, the fungus would slowly takeover their bodies. Their bodies would become rigid but their outer caterpillar-like bodies would be preserved. In the following summer, a brown stalk would grow out of the head of the dead caterpillar. The whole process takes three years.

As the Chinese name suggest, it is a worm in the winter and a plant in the summer.

Climb up to 1.4x-2.4x Whistler Mountain

One of the reasons why caterpillar fungus is so expensive is that it can only grow in very cold and very high altitude areas, specifically between 3,000-5,200m.

To give you an idea how high that is, if you are a skier, Mount Annupuri in Niseko is only 1,308m. Whistler Mountain’s altitude is only 2,181m.

So, in order to harvest these little stalks of caterpillar fungus, you’ve got to ascend the equivalent of 2.3x Mt. Annupuri or 1.4x Whistler Mountain.

The higher the elevation, the better it is

As one can guess, nothing good is ever easy. In this case, the higher the elevation, the better the caterpillar fungus. Generally speaking, those grown above 4,000m elevation are considered to be better.

The bigger is it , the better it is

Another interesting tidbit is that the harvesting period only lasts for 20-40 days a year. The stalks generally start to emerge from the ground in mid-April. The first batch is usually the best with the thicker and firmer bodies. By the third batch, these tend to have thinner bodies and their medicinal properties are greatly reduced.

The fresher it is, the better it is

Unlike fine wines where older is better, fresh caterpillar fungus is supposed to be better than old ones.

This should work for Friday dinner party small talk.

Credit and attribution: This post draws from the Chinese language article written by a Professor Leung Ka Ho from Baptist University.

Beware the Buzzwords

This will never work (Vol 1, No 20)

A short post today. Feeling a bit distracted.

Photo by Andrea Sonda on Unsplash

We going to talk about “Buzzwords”.

In the investing world, buzzwords are like flies. If you see a lot of buzzwords, you know something stinks.

Beware “The kinki is very fresh today”

I have a theory that if you go to a Japanese restaurant and the chef/waiter tells you the “kinki” is very fresh, you’re going to get ripped off.

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The western names for the “kinki” fish is “thornhead”.

You won’t find this item on the printed menu because it is always “seasonal” and hence very expensive. Unlike Kobe beef, which is also very expensive, you know that when you order the A5 cut, so there is no surprise.

But with the “kinki”, the shock comes at the end when the bill arrives. What? HK$1,100 for a fish?

Beware the “We-” prefix

So, what is the “kinki” equivalent buzzword in the investment world?

It’s not “crypto” nor “blockchain” anymore, those died off as bitcoin got cut in half.

Instead, the buzzword to be wary of is “We-“.

Not the royal “we” but the “We-” prefix can be swapped out for “Co-” which is characteristic of the “sharing” economy.

Can we call this “Co-Computer” or “WeComputer”?

Not only are we “sharing” our cars, we are also sharing bikes and umbrellas.

While the economics of bikes and umbrella sharing are clearly doubtful, what about “co-working” and “co-living”?

These are better than umbrellas and bikes but someone needs to explain how come just by changing your name from Landlord to WeLandlord, the valuation goes from 10-15x PE and 4% dividend yield to Amazon and Tesla-like.

In Asia, we are a bit behind the curve. While the peer-to-peering lending craze is already well past their sell-by date, we are still hoping that things are different in Asia. Just, last week, we have the HKMA is pushing for more online lending.

I’m going to take a shallow dive into this at some point. But let me tell you, the only thing harder than trying to understand the business model for P2P lending is trying to understand General Electric.

I’ve been trying to do both but unfortunately both are being put into the “too hard” bucket. I’ll come back to them but I suspect there is little urgency since I won’t be ordering the “kinki” anytime soon.

Incidentally, another name for the “kinki” fish is “idiot” fish. How aptly named.

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This will never work.

NINJAs 2.0 – Just make sure you update your social media presence

This will never work (Vol 1, No. 15)


Big brother is listening.

Funny thing. Two weeks ago, I posted a rant about how I hated getting emails from LinkedIn. You know what, since that post, I did not get a single e-mail from LinkedIn for the next 9 days. “Unsurprisingly”, I only got a “Request to add me to your network” the day after I told my spouse that I no longer get prompts from LinkedIn anymore. What a coincidence.

No income, no job, no problem for the NPP

You know what else is funny. Just as I decide to stop updating LinkedIn, the Hong Kong Monetary Authority has now decided to let banks offer loans based on your online presence.

What? I know, this sounds nuts.

Specifically, they call this “New Personal-Lending Portfolio” or “NPP”. In their words,

adherence to conventional lending practices will not be required. Instead of collecting borrowers’ income proof to assess their repayment ability, banks may adopt new credit risk management techniques and practices enabled by innovative technology, such as big data and consumer behavioural analytics, to approve and manage the related credit risks.” – Press release from HKMA

Just brag on social media

Call me a luddite but can someone explain to me what they mean by “big data and consumer behavioural analytics”? Didn’t a certain US$526bn social media company just got into a whole lot of trouble when someone used their “big data and consumer behavioural analytics”?

So, if we are now to ignore traditional data like income and address proof (see HKMA circular for details), just what will they use to see if we can repay. I suppose they can look at our online presence to see how long we have been in our jobs (i.e Linkedin), where we are vacationing (i.e. Facebook), what we are buying (i.e. Amazon and Alibaba), etc.

But we all know that is not real life. For most people, they only post the happy moments in their social media. And in the extreme cases, have you seen the guys holding their iPhone between their toes while dancing furiously just to get the perfect post?

Sounds like a toxic combo to me


I just don’t know. The combination of relaxing lending standards when (i) household debt is at all time high, (ii) and when interest rates are starting to rise just doesn’t look like it will end well.

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Now, they have put some caveat around this and said the amount should not exceed 10% of the banks capital base and that “the amount of credit extended to individual borrowers should generally be smaller than that of conventional credit products” but still 10% of capital base is a lot of money.

I can only hope that the banks are more sensible than the regulators.

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As that guy will tell you, this will never work.









NBA Playoffs and Market Noise

This will never work (Vol 1, No. 13)


Let’s talk basketball today.

Photo by TJ Dragotta on Unsplash

As I write, this is how the NBA Playoffs are shaping up.

  • In the Eastern Conference, Cleveland is up 3-1 against the Toronto Raptors and the Boston Celtics are up 3-1 against Philadelphia.
  • In the Western Conference, Houston is up 3-1 against the Utah Jazz and the Golden State Warriors are up 3-1 against the New Orleans Pelicans.

Unless something miraculous happens, the conference finals should see Cleveland squaring off against the Boston and Golden State facing Houston.

Four Favourites in the Conference Finals…

A little more than six months ago, when the 2017-18 NBA Season started, I think most people would have picked these four teams as the favourites to be in the conference finals. While the end result is not surprising, the path to the conference finals has been full of noise and drama.

…but Lots of Noise Along the Way

So, how did we get here. If we take a look at the full 2017-18 Season, we can see that Cleveland and Boston were not the best teams. Cleveland was only the fourth best team with 50 wins, down 1 from the previous season. Boston had improved 2 wins from the previous year but its roster was decimated by injuries.

Heading into the playoffs, Cleveland and Boston were only 7-3 and 6-4 in their last 10 games. The hottest team was supposed to be Philly which had won 16 in a row. In fact, during the middle of the season, Cleveland gutted their entire team.

chart (79)

In the Western Conference, Golden State was the super team. While they have still done well and secure the number 2 seed, their 58 wins is down 9 from the previous season and compared to two years ago when they won 73 games, their wins are down by 20%. If this was the stock market, it would have triggered stop-loss levels.

In the last 10 games going into the playoffs, the Warriors went 4-6.

The only team playing to form were the Rockets. Houston won 65 games and was 7-3 over the last 10 games heading into the playoffs.

chart (80)

What I’m trying to say is that although the conference finalists are playing out according to pre-season expectations, day-to-day and week-to-week noises would have introduced a lot of doubt.

Markets also has a lot of noise – Trade War, Rate Hikes, etc

In a way, this is not dissimilar to the markets. As we survey the current headlines, we are bombarded with worries about trade war and worries about higher interest rates. A year ago, we were worrying about why rates aren’t rising faster, whether low oil prices is endemic of low global growth, tension on the Korean peninsula, etc.

Looking back, things have turned out okay, at least for now. Rates are now hovering around 3.0%, WTI oil prices is above US$70/barrel and the market is even talking about potential reunification.

Yes, it is very possible that one day, one of these worries will blow up and we will see a big correction. Only 10 years ago, the subprime issue did turn into something bigger. But the trick has always been to separate the noise from what really matters.

Just like in the days of Magic, Bird, Jordan, Kobe, what tends to matter most is who’s got the best players. As long as LeBron, KD and Curry are healthy, the rest is noise, no?

And in the markets, prices could pull back from time to time but good companies and good products tend to be more resilient.

Could it be Warriors-Cavs for the Fourth Straight Year?

In time, we may be talking about the Sixers (+24 wins), Pelicans (+14 wins) and Timberwolves (+16 wins) but for this year at least, it’s still going to be the NBA’s equivalent of the FANGs facing off for a spot in the NBA Finals.

And on that note, I would not be surprised if we were to see the Warriors and Cavs facing off for the fourth straight year.

Go Raptors. Darn, down 103-76 with 9:26 to go.

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This will never work.








Friday Funny – Investing Vs. Gambling

This will never work (Vol 1, No.8)


There is a fine line between investing and gambling. For most retail investors, buying a stock is really no different than betting on your favourite number on the roulette table.

Things in common – math and statistics

What they both have in common is math. There’s a bunch of statistics that we can fall back on. We know what the long term stock market returns are like and we also know  what are the odds of the winning at baccarat. But what we don’t know is what will happen in the short term?

Key difference – Positive versus negative long term returns

What’s different is that in investing, the longer you stay invested in the markets, the more likely you are to see positive returns. On the contrary, as the odds favour the house, the longer you gamble, the more likely you are to see negative returns.

For instance, we know that from 1987-2017, out of 7,659 trading days, the Hang Seng Index had risen 52% of the time. We also know that the average 1.08% gain on those Up days outweighed the average down day’s -1.072% correction and the resultant average +0.046% daily return compounded nicely over time.

chart (64)

Conversely, in the gambling sphere, with rolling chip win percentage around 2.7-3.3%, compounding works in the favour of the casinos.

What’s funny about that?

Hang on a minute here, isn’t the title Friday Funny? This lecture doesn’t sound funny at all.

Well, the whole point of the above is just for me to introduce this YouTube clip. It’s from three years ago but doesn’t feel dated at all. This goes out to my Singaporean friends.

Update on “Mean Reversion”

On a more serious note, the stock market has continued to misbehave.

In mid-February, in the wake of the market sell-off that erased 10.6% over 13 days, we ran some numbers and basically gave a non-answer to whether stock markets were due for a bounce (see link here).

Two months and 48 trading days have passed and we are pretty much back where we started. The Hang Seng Index bounced back from 29,540 to as high as 31,601 (up 7.0%) and has since fallen back to 30,008 (5% retracement).

Does this mean that we have “mean reverted”? Is the volatility over?

Up Days to Down Days – The ratio of Up Days to Down Days has gone from 19:11 to 45:33. As up days still make up 58% of 2018’s trading days, this is still above the long run average of 52% and suggest more rainy days may lie ahead.

chart (65)

Daily Percentage Change – Thankfully, the amplitude of the down days have moderated somewhat. Instead of falling an average of -1.277% (over the first 11 down days), the average down day has now moderated to -1.176% (over 33 down days). At the same time, the average gain on the up days have picked up from +0.673% (over the first 19 Up days) to 0.883% (over 45 days).

chart (66)

My suspicion is that our earlier advice to develop a hobby as a coping mechanism to deal with higher volatility still stands. If not, there’s plenty of funny stuff on YouTube.

Happy Friday!



Three Fun Facts – Energy conversion, Concert Tickets and the After Life

Happy Easter!

It’s Good Friday and time for another Friday Funny. Actually, I don’t know if the following three facts are funny but they certainly raised my eyebrow.

I’m going to break one of the cardinal rule of writing. Instead of starting with my strongest story, I’m going to start with the weakest. But hang in there, you don’t want to miss Fun fact #3.

Fun fact #1 – 3.5 pounds of soy = 1 pound of pork

The Trade War has been all over the news lately. This has been very bad for markets but at least I learnt something new. I was reading about why soy beans are so important in the trade war discussion, especially to the Chinese side.

If you’re like me, you might be thinking of tofu and soy milk. No, it actually has to do with the Chinese increased appetite for meat. Much of the soy is actually used for animal feed, specifically pigs.

Pork has a Feed Conversion Ratio of 3.5-4.0. This means that for a pig to gain one pound, it needs to consume 3.5-4.0 pounds of feed or soy.

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An interesting fun fact but be careful bringing this up at cocktail parties, I’m not sure if this is a conversation starter or a conversation killer.

Fun fact #2 – Naked shorts on Concert Tickets?

The second interesting read this week was on concert ticket scalpers (link to HKEJ article here). The big headline in the entertainment and life section had to do with sky-high concert ticket prices.


Ticket scalpers have existed forever but with the rise of technology, it has become a lot harder for the everyday Joe to get his hands on the hot concerts/events.

Yes, there are online sales and these are supposed to be public and fair but the problem is that humans just cannot compete against machines. Scalpers are now employing computer programs and algorithms, by the time you and I manage to get onto a ticket website, the tickets have all been snapped up already. Desperate concert goers therefore have to resort to scalpers and pay huge premiums.

The part that I didn’t know until this week was that many/some of these online scalpers may not have the tickets themselves either. In finance terminology, the online scalpers are naked short sellers of concert tickets.

Here’s how the naked concert short sellers work. They offer tickets to the hot shows with a ridiculous mark up. In this case, if would be to re-offer a HK$880 ticket for HK$8,888. Some sellers may already have the ticket but for the naked short sellers, they are waiting for someone to bite. If someone does bite, then they scramble to secure tickets at a price below their HK$8,888. Say he finds tickets at HK$6,000, although this is still a ridiculous mark up, he has still profited HK$2,888.

But what if he fails to secure the tickets? Well, he would say “Sorreee”, get a “bad rating” and refund the money if money has changed hands. If you consider the risk-reward profile, the naked concert short seller can easily set up another online profile but on the reward side, his return on investment is infinite – he has no costs. Now, ticket scalping is terrible and should be addressed but you got to respect the entrepreneur spirit of these naked concert short sellers.

As ICE-T says “Don’t hate the playa, hate the game” .

Fun Fact #3 – Sub-divided flats in the After Life

Next Thursday is the Ching Ming Festival. Different faiths have different visions of the After Life.

For the Christian faith, your idea of the after life is that being with God is all that you need.

For those with Chinese origin, next Thursday’s Ching Ming Festival or Tomb Sweeping Day is supposed to be one where we honour our ancestors. For some, this would literally be to sweep the graves and leave some flowers to remember the departed. For others, this is also a time to pass gifts to those in the after life. The means to do this is via burnt paper offerings.

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In the past, this has meant paper money or papier-mache cars but as society has evolved so has the after life, apparently. In recent years, this has meant thing like tablet computers, sushi, sashimi as well as dog food. I guess pet keeping is getting big in the after life.

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While offering up “paper houses” is  not new, this year there is a twist. One of the hot new items is to burn/send subdivided flats to the after life. If this because times are tough? Or because kids are being disobedient?

Nope. Supposedly, the idea is to provide their ancestors with a rental portfolio so that they can have a stream of recurrent income. My question is this, if you’re going to give your ancestors a rental portfolio, why not send them Grade A office buildings or penthouse apartments. Why create poor living conditions in the after-life?

Although this sounds pretty crazy to me, I wouldn’t be surprised if this isn’t the top-selling item for next week’s Ching Ming Festival.

And if I’m wrong, then “Sowwy!” – You see the pun and link back to fun fact #1?

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