Investment personel and knowledge

I like to read great investors' stories. One book I casually picked is "Hedge Hunter". It describes successful hedge fund managers' personalities, investment philosophies, motivations, stellar performance, and some strategies. The time frame ranges 1960s to 2007.

It is great to know how other do and think. But more can be extracted from their stories besides those regular focal points. Some immediate points are observed:

1. We now have much more instruments then the first generation hedge funds. You cannot see word "hedge" but only stocks and bonds way back to 60s or 70s. Shorts were there, though. As hedge funds grew, I saw words like "calls and puts" appeared more frequently. In 90s, "Risk" is another hot keys.

The point is that financial knowledge evolves dramatically as more financial products are available. Why are they available? One reason may be more and more hedge funds are seeking outstanding performance (there is a huge increase in the number of funds and the assets under their management). These funds are motivated to find new products and high returns. A side reading of the hedge fund boom would be the market would become more volatile as the battles are fierce. For investors and fund managers, the choice of explosive growth and steady growth becomes harder and harder. Recall failed funds in 2006 and 2007? There are more to come.

2. Global investment becomes vital for funds growth. In 60s and 70s, U.S. was the main player and now Asia and EU are two key players too. Diversified funds with trusted managers become valuable and contribute big chunk of overall return. All fund managers won't invest money in the markets they don't know. Instead, they invest in someone know the markets. You see the opportunities in global investment? Knowledge is the key as well as unified experience base (financial education and trading systems).

3. Performance standards vary overtime. The old fund managers try harder and harder to find new fund managers can perform as good as they were. The hardness is not caused by the larger fund manager pool and the intelligence of fund managers, I think. It is caused the market and rational. Successful stories of previous fund managers make less independent managers.

Geographical economical imbalance and investment opportunities

I was in HongKong during those roller-coaster market days in the last a few day of last year. I wasn't totally immune to what was happening outside the world, thanks to the not-possible-completely-isolated-internet-bar. I was still able to see the bumpy road of western markets.

As well known, though, China/HK markets were terrific in 2007. China stock market gained 96%, secured the number growth market in 2007 in the region while HK ended as No. 2 with 39% gain during the year. South Korea got the third place. Strong growth in Asia is a sharp contrast to what is happening here (that is another story to be continued). Chinese believes that imbalance must be balanced by something. Such growth imbalance would be counter-balanced by what? There are many:

Imbalanced information in the society. Media is overwhelmed by social issues: inflation, crime rate, housing prices, etc. It isn't easy to break the cocoon to obtain fresh information (language is one of the barriers).

Imbalanced status. Western goods are widely deserved higher price and respect even though locally made ones are gaining momentum and usually priced at lower price. Certainly there is edge over "Made in China" so far.

Imbalanced tax system. Import/export tax is quite complex in China but not in HongKong. Better understanding on the system certainly makes things much easier.

Imbalanced communication needs. Who needs each other more, China or the rest? Hard to say. Let's put this way though, Chinese needs more knowledge of the world than the other way around. Go look at the book stores there will reach this answer easily.

Such imbalances are actually golden opportunities in the fast evolving world.

Subprime woe and investment services

How are words now related to subprime, or by large, recession? Woes, tumbling economy, credit crunch... and many more. How can this happen?

This is a cycle time, just like human being's up-and-down cycle. Un-restricted spending habits and irresponsible financial planning generated tons of bad loans and troubled home owners. At this highly developed financial complexity world, not too many really plan well. The most obvious example is that only about 30% people save money into 401(K). On the other side, the frequency of suggesting more 401(K) saving is pretty high on all kinds of financial articles.

So there is a conflict: financial knowledge is pumping at a speed that far from they can absorbed, not mention how to be applied. Professional investors treat money as a tool rather than $$, they are more disciplined and knowledgable. When it is treating by a business but not a causal spending habit, capital usually works better.

Instead of ending with dire financial situations, it would be wiser to pay trusted financial professions in this regard. Investment services is very much necessary.

U.S. trade deficit and China export

Trade deficit jumped 9.3% to $63.1B in November, 2007, the widest in 14 months. The increase was driven by a 16.3 percent surge in America's foreign oil bill, which climbed to an all-time high of $34.4 billion as the per barrel price of imported crude reached new records. With oil prices last week touching $100 per barrel, analysts are forecasting higher oil bills in future months.

On the other hand, The November deficit with China dipped slightly to $24 billion, but that was down from a record high of $25.9 billion set in October, when retailers were boosting orders for toys, games and video equipment to stock their shelves for Christmas.

Congress has been pressing Chinese government to rise its currency. The Yuan is indeed climbing recently. But it has limited effect on U.S. deficit. Chinese government, although implicitly under joint pressure from U.S. and EU, tried to lower their surplus with other partners since 2007(no wonder the Yuan has appreciated more that 10% since 2007), has little compliment thus far.

If Chinese government allows the surplus unchecked, it would further rise Yuan's value and eventually hurt its export engine. Considering the dominance of export in its economy, it would be more efficient to control its export. No matter how thin the profit is, firms exporting goods can obtain refunds in China. This is a large incentive for export, including firms that have large export overhead. To put a brake on the Chinese side, eliminate or reduce refund can effectively reduce export motivation so that the surplus pressure can be reduced. Consequently, less Yuan appreciation pressure too.