The Vigilant Investor -- Pat Huddleston

The Vigilant Investor -- Pat Huddleston

Who is a vigilant investor?

The vigilant investor:

> understands that all healthy humans are vulnerable to investor fraud

> is aware of his cognitive biases and compensates for them

> understands that scam artists target accomplished people not just because they have money, but also because it is easier to manipulate their pride

> does not count on the investment cops to keep her safe

> investigates the people behind the proposed investment, using regulatory websites etc

> insists on seeing evidence of profitable trading and avoids anyone who is unwilling to be transparent

> does not invest if he does not understand the investment

> avoids investments that encourage investors to recruit their friends and family

> understands that the most dangerous scams look perfectly legitimate and never sound too good to be true [investments that sound too good to be true and offered by amateur scamsters]

> confirms the identity of those who vouch for an investment

> talks to people at the business from which the money flows to confirm the salesperson's representations

> remembers that scam artists love the headlines and is suspicious of any investments that seems especially timely

> checks on claims of patents for new technology through the US Patent and Trademark Office

> confirms the use and profitability of new technology by talking to the end users

> is never blinded by celebrity or power and avoids investments offered by name-droppers

> remembers that savvy scamsters rent the credibility of those whose others trust

> questions trusted advisers about commissions that they receive from any investment that they recommend

> says "NO" to a test-drive of an uncommonly profitable investment

> never accepts a salesperson's offer to serve as the investor's protector and stays alert to the effects of the loss aversion bias

> remembers that citing the law does not indicate compliance with the law

> accepts her public duty to help expose investment crime

Criticism

"If U are irritated by every rub, how will you be polished then?" Rumi

Courage

Courage is not simply one of the virtues but the form of every virtue at its testing point -- C S Lewis

Creative thinkering by Michael Michalko (interpreted by HCM)

Creative thinkering by Michael Michalko (interpreted by HCM)

What we have learnt might obstruct us from being creative -- need to prevent established concepts from becoming road blocks to creativity

1. Don't use usual thinking channels if you want to create new ideas.

2. Blend concepts from dissimilar disciplines.

3. Take a bird's eye view.

4. Use random inputs to trigger thinking.

5. Change your angle and adopt various angles to view issues.

6. Invert. Consider the opposite.

7. Push and break boundaries. Stop thinking about the boundaries.

8. After the initial focused thinking, take time-off so as to allow ideas to grow "undisturbed".

9. You must have the intention to create. Leaving your brain to function on "auto-pilot" is to drift into established thinking channels.

10. Positive thinking -- change the way we speak. Need to be optimistic to encourage divergence thinking.

11. Show up and take the plunge -- you become what you pretend to be. Willingness to try is crucial to creativity.

Everything you know about business is wrong by Alastair Dryburgh

Everything you know about business is wrong by Alastair Dryburgh

WHY WE THINK WRONGLY?

## Caveman brain --
1. familiarity is security
2. social conformity

## Thinking traps --
1. lure of magical "sure win" recipe
2. status quo bias
3. silo
4. risk aversion
5. attribution error (it's the situation, not the person)

Examples of wrong business rules

A. Pricing should be based on cost of production (Wrong!)
A woman asked Picasso to make a portrait of her. He grabbed a piece of paper and in 5 minutes sketched the woman's portrait. He asked for 5 thousand francs. "but it took you only 5 minutes .." "No madam, it took me my whole life!"

Avoid two types of leakage:
1. A customer who values you very highly buys at the same price as everyone else. They would have paid more -- you have left money on the table.

2. A customer who puts a low value on your offering doesn't buy at the price you charge everyone else. They would have been profitable at a lower price but you couldn't find a way of offering it to them without other customers migrating to that lower price point.

B. Cost cutting is a good way to boost profits (Wrong!)
Cost cutting is just one of many possible solutions to boost profits. It could be poor product pricing, wrong markets, wrong strategy .... that you should take care of. Only if you have waste and excess capacity that cost cutting makes sense.

* The only reason for spending money is because it produces a return on investment (ROI), that is to say you get back more than you put in.

Companies should ask themselves these questions::

1. What do we offer to the customers? Higher quality? Cheaper? Faster?
2. Do the customers care about our offer?

## What is Right-sizing?
Right-sizing does not automatically means down-sizing. Sometimes, need to upsize.
Down-sizing does not mean becoming a smaller elephant (from a big elephant). It means becoming a monkey or a deer.

Measurement

-- we know what's happened but we don't know why.
-- we don't know what to do to improve result.
====> we have been measuring the wrong things.

Useful measures have two things in common --
1. They are NOT revenue related to sales (like gross profit as % of sales) but revenue related to staff or customers (like profit per employee, profit per customer)

2. Specific to company

** Efficiency measurements destroy efficiency
-- measuring time spent per customer call increases number of transfers (from one officer to another) and this ended up with longer time needed for resolution of problem and angry customers
-- measuring wait time in hospitals ended up with more non-urgent cases being treated

Sensible measurement
1. Focus on the whole process
2. Measure what matters for the customers
3. Assume that people will game the system
4. Cost of whole process, not by parts
5. Cost of servicing customers
6. Lifetime value of customers
7. Cost of acquiring new customers

You need 2 finance directors

1. Control and compliance
needs Consistency, Regularity, Accuracy.

2. Business partner
needs Out-of-box thinking and detailed digging

Budgeting and planning

Recognize that these are separate things:
1. An expectation is what I think will happen
2. A possibility is what could happen
3. A need is what must happen

-- we have to make at least 1 million or we will be in trouble (need)
-- I think we could realistically make 1.2 million (expectation)
-- we might have a chance of doing 1.4 million (possibility)

# If it ain't broke, it will soon. So, do something NOW!
# It it is broken, don't fix it. It might be cheaper and faster to build new ones.
# Don't take massive action. Or it might cause you to be blind, rigid and stubborn.
# Failure might be a good option. Sunk cost is sunk.
# Don't just do it. Check to see if you have plan, skills and support.
# Forget about time management - Just Say No (to low value activities, to tasks others can do
better, to complicated solution)

陈式太极扇 〈林�兴〉

陈式太极扇 〈林�兴〉

预备势
一、一柱朝天
二、丹凤朝阳
三、霸王请客
四、顺水推舟
五、一夫当关
六、孤雁出群
七、力劈华山
八、袖底藏花
九、仙女下凡
十、美人照镜
十一、金�倒挂
十二、白鹤亮翅
十三、开门迎客
十四、金鸡独立
十五、哪吒深海
十六、悬崖勒马
十七、古树盘根
十八、横扫千军
十九、风卷残云
廿、犀牛望月
廿一、钟离施扇
廿二、翻江倒海
廿三、夜叉探海
廿四、夺命穿肘
廿五、龙腾虎跃
廿六、迎门挥扇
廿七、玉女空梭
廿八、孤骛斜飞
廿九、风扫落叶
三十、嫦娥奔月
三十一、苍龙如海
三十二、海底翻花
三十三、摘星�斗
三十四、海底捞月
三十五、翻花舞袖
三十六、横扫三江
三十七、一蹬倒柱
三十八、拨云望月
三十九、蝴蝶吸水
四十、仙鹤冲天
四十一、奇峰倒插
四十二、灵蛇出洞
四十三、漫步推磨
四十四、怀中抱月
收势

The Behavior Gap -- Carl Richards

The Behavior Gap -- Carl Richards

1. We don't beat the market, the market beats us

Return of investments > Investors' return ==> behavior gap
Investor's psychology ==> flipping between Fear and Greed
Cost of mistakes is proportional to level of confidence
The greater fool theory ==> doing something dumb and hoping someone else is dumber

The process ::
a. Have a real plan (know where you are, where you want to be, and how to behave to get there)
b. find investments to populate your plan ==> this comes at the end of planning process
c. Admit there is a problem
d. Face the fact that cash is not a solution to a crisis
e. develop a checklist of questions to ask before you make major financial decisions
f. Take your time
g. Incorporate new information slowly
h. Focus on your own behavior, not the market's behavior

2. The perfect investment

Stop looking for ::
a. Perfect investment
b. super fund
c. Super stock
d. Super guru to follow

Chance of a fund will stink is direct proportional to its expense ratio

Bad decision that led to good outcome is STILL Bad decision

3. Ignore advice, make fun of forecasts

Personal finance is Personal
Their advice, your money
Chance of a forecast being right increases with the number of forecasts

4. Life planning, not financial planning

Memorable experiences WITH people you love ==> a great source of Happiness

Happiness ::
Increases with income initially but flatten out quite soon after a reasonable lifestyle is attained
Decreases as you are trying to keep up with the Joneses
Increases with positive relationships and experiences
Decreases with the time spent looking for it

Setting up an emergency fund ==> important and Urgent
Estate Planning ==> important but not urgent
Lists of stocks you "must buy now" ==> urgent but NOT important
What Jim Crammer said last month ==> Not important and Not urgent

5. Too much information

Chances you will make a mistake is proportionate to your awareness of cover stories about market direction
Long term wealth is inversely proportionate to the frequency you follow the market

6. Plans are worthless

The planning process is important, not the Plan

A traditional financial plan ==> a bunch of assumptions over a long time
Focus on things that matters and you have control on

7. Feelings

Mistakes is proportionate to emotional attachment to an investment

Overnight test -- assuming all the stocks in your portfolio are being liquidated overnight, will you buy them back today assuming there is no transaction costs? If the answer is NO to some stocks, maybe it's time to sell them?

Don't get stuck with a number ==> it is not where you bought them that is important

8. You're responsible for your behavior (but you can't control the results)

Conflict of interest ==> research required
"Hope" is NOT a strategy
Investing is NOT entertainment

9. When we talk about money

Quality decisions come from great conversations

We have different views on money and value ==> talk about it so we understand each other

10. Simple, not easy

We often resist simple solution because it requires us to change our behavior
===> that's why when trying to plan for retirement fund, we think of buying super stocks, super funds rather than spending less

Money problems increases with instances of Instant Gratification
-- try to put on hold a purchase
-- go on a multi week buying fast
-- track your spending
-- put a price tag on your goals
-- think about what you earn if you invested the money instead of spending it