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Yee Ong, CFA
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Yee S. Ong, CFA is the author of "The Strategist's Mind: The Art of High Return, Low Risk Investing" and the principal of YSO Capital Management, LLC, an investment management firm located in Burlingame, California. Yee has more than ten years of professional experience in the... More
My company:
YSO Capital Management, LLC
My book:
The Strategist's Mind: The Art of High Return, Low Risk Investing
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  • The European Jenga: The Significance of the European Debt Crisis
    How important is Europe? Should investors even bother with what happens there? Judging by the way the global market has been reacting these days, you better believe that it is pretty darn important!

    For a long time, investors believed that the US was at the center of the universe. Our importance was even more convincing when the financial tsunami that was set off here in 2008 had roiled the global market. All eyes were on us then. Well, of course, China has gotten a fair share of attention too given its rising economic strength. But the rest of the world has largely been forgotten.

    The fact is we are not alone, and the global economy is becoming increasingly integrated where what happens at one corner of the world can affect another. That’s why we must not underestimate the importance of this European debt crisis.

    Europe is China’s biggest export destination, making up 20 percent of its overseas sales. Europe has helped to cushion a drop in China’s exports after a drastic deterioration of the US economy. Now imagine how the Chinese economy would fare if Europe’s economy were to take a dive too. Thus, China has every right to be worried. If you have not noticed, even the once center stage discussion on the Yuan has taken a back seat when it comes to resolving the European debt crisis at the current meeting in Beijing between Geithner, Clinton, and the Chinese leaders.

    The ripple effect from Europe would go much farther than China. China’s huge appetite for commodities has driven up commodity prices significantly in the last decade. What do you think will happen to commodity prices if China’s economy were to slow?

    Who do you think would be affected next if that happens? Resource rich countries such as Russia, Canada, Australia, Malaysia, Brazil, Indonesia, and Saudi Arabia would naturally be the next victim if commodity prices were to soften drastically.

    Now let’s move back to the US. US dollar would strengthen in such an environment due to safe haven purchases. But does a strong dollar benefit our current economy? I do not think so, especially with the large public debt that we are holding, our high unemployment rate, and our need to be more competitive with our exports.

    The point of the above discussion is that Europe is an important part of our global economy and that this crisis needs to be contained. Otherwise, the market has every right to behave the way it did in the last few weeks.

    Disclosure: No position
    May 25 2:03 AM | Link | Comment!
  • Everyone Makes Mistakes
    This statement will probably sound weird coming from me, but it is true that “you can’t win by not losing.” What often prevent investors from making good returns are people’s fear of making any mistakes and their tenacity in not losing money on every single one of their investments.

    While I always stress risk management in investing, I also believe in periodically taking calculated risks when the right opportunities arise. Doing so will allow you to come out ahead in the long run even if not every single one of your investments turns out the way you had hoped for.

    Just do a simple research online and you can easily find investments committed by some of the most successful investors that have gone sour. For instance, legendary investor Jim Rogers was shorting oil in 1980, right before it shot up due to the war between Iran and Iraq.

    Warren Buffett said, “During 2008 I did some dumb things in investments.” He regretted his investment in ConocoPhillips in 2008 that resulted in multibillion-dollar loss to Berkshire. Buffett trailed the S&P 500 index for 7 out of 22 years and last year his Berkshire Hathaway only advanced 2.7 percent while the market soared 26 percent!

    Despite the above mentioned mistakes, both Jim Rogers and Warren Buffett are some of the most respected investors in the world.

    Investing is very much like playing a poker game where there are always the known and the unknown cards on the table, and you will need to place your bets according to the statistics of winning. You can’t win all the time and that’s also why you do not want to put all your eggs in one basket. But if you are right most of the time and you make much more when you are right than you lose when you are wrong, you will do very well in the long run when you diversify your investments.

    As Stanley Druckenmiller said, ”… it’s not whether you are right or wrong that’s important, but how much you make when you are right and how much you lose when you are wrong.”

    To be successful in the real world, you need to invest when the statistics makes sense. If you invest only in government treasuries or bank CDs, you may have the peace of mind (most of the time) of not losing your savings. But this investment mindset will probably also restrict your money from working hard for you, allow inflation to eat into your assets’ true value, and prevent you from coming out ahead at the end.

    Disclosure: no positions
    May 06 1:58 PM | Link | Comment!
  • The Fear of Missing Out
    A friend who had recently finished reading my book asked me at dinner yesterday, “Investor behavior seems to greatly influence the direction of the market. What are investors currently thinking and how are they behaving in this market? People seem to have lost their fear after a huge market rally since March of last year.”

    That’s actually a great question as it is a misconception that fear does not exist in this surging market. Fear exists in any market, although its form, scope, and who it affects can be different.

    Let’s step back and look at the current market environment. The recent financial crisis had wiped out about 40% of stock values in 2008 and left a huge dent in many investors’ portfolios. While the market has been surging since March of last year, the S&P 500 value is still down about 24 percent from its all time high of 1,565 points in October of 2007.

    Some investors who had lost their fortune during the crisis are reluctant to take any kind of risks anymore. In behavioral finance, this is called the “snake bite” effect where people who had lost money (been bitten once) would be very fearful to invest again, regardless of how attractive or solid the opportunity really is. You can compare this environment to the Great Depression era where many people who had gotten burnt swore to never look at the stock market ever again. A more recent example that demonstrates the snake bite effect would be the bursting of the technology bubble in year 2000 that had wiped out the wealth of many dot com investors. Some people would never touch a dot com stock after that.

    But the fear that is dominant in the market today is actually the “fear of missing out.” Whether in a restaurant or at work, everywhere you go you will hear people expressing their regrets of not having invested more when the market was at its bottom last year. As a matter of fact, you can start to see that investors who were not fully exposed to the market are flocking into it right now. They feel that they have missed the boat as they witnessed empty handedly their other friends making handsome investment gains.

    This phenomenon is very similar to the one that led to the aforementioned technology and the recent housing bubbles. People who were fearful to invest at the beginning were proven wrong and they found it painful to witness the money that they could’ve earned passed by in front of their eyes. The feeling was especially unpleasant when they sat there being proven wrong for months or even years. After awhile their spouses would yell at them for being too hard headed, agent/brokers would say see I told you so, and sometimes even the dog would start barking at them too.

    And so eventually people rushed in and believe me most people who flocked into the market did it at the very end of the bubble. After all, it is when the last person jumped onto the bandwagon…
    Apr 08 5:46 PM | Link | Comment!
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