《20 / 80 時代 智富路》- 劉創楚

《20 / 80 時代 智富路》- 劉創楚

The name of this book "20/80" means the top 20% of people get a larger and larger proportion of income.

This book includes philosophy of financial management (i.e. financial planning, asset allocation, modern portfolio theory by Harry ), the principles of investment( i.e. compounding, business philosophy, value investing) and investing management ( i.e. panic investing, theme investing)

Frankly speaking, the author just makes the ideas a little bit complicated (especially the first half of the book), but the underlying concepts are easy to understand, he can actually keep them simpler. But overall, it is a good book with rich contents; I like the second half of the book more since it briefly tells the situation of China. I just get a feeling that China is running on a similar road of previous HK.

Points to note:

-force saving, live below your means

-buy index fund instead of the financial products of the bank to save transaction cost and selection effort

-be alert to the saving rate of different banks

- Government bond vs. cash (bond > more protective against inflation rate)

- Prerequisite of focus investing > you know well about what you are investing

- What determine the return ( 91.5% asset allocation, 4.6% selection, 1.8% timing)

-stock market (the longer the time, the lower the risk)

-Gini Coefficient 堅尼系數 ( assuming that there are ten people, if GC =0, everyone can get 10% of total income. If GC = 1, one person gets all the income) HK is now 0.43 ( year2009)

-either good at choosing the best timing or selecting the best can make you succeed

4 rules to pick good companies by Peter Lynch
1) research on the company should be done continuously

2) the company should be as simple as possible ( Warren “you should invest in the business that you know very well")

3) Niche (others cannot follow and can differentiate with the others and others cannot easily enter the market to compete with you)> "business franchise with profit royalty due to some historical factors - people have inertia to it >>mentioned by Warren" e.g. Wall Street Journal, Cola coke, HKEx, China Mobile

4) Earnings

-Peter Lynch "good companies must have good performance in long term but may not in short term"

*******

-Warren Buffett "there is no fast track to earn a lot, being rational is needed" "a share in a business" " acquiring a good company (consider the time factor to predict its future ) with reasonable price instead of acquiring a bad business with low price"

- Warren " picking stocks in the banking and insurance industries > focus on good management> must be good at controlling risk and cost, asset allocation"

- Victor Sperandeo " preservation of capital> consistent profitability> pursuit of superior returns">risk management

-Benjamin Graham "value investing> know the intrinsic value from fundamental analysis > waiting for the business cycle>margin of safety

3 main parts of value investing
1) Business - ability testing ( simple and understandable business) , operating testing ( time is the indicator), prospect testing ( natural franchise without the control of government)

2) Financial status - ROE ( + consider the liability) , marginal profit ( net profit) , $ 1 test ( if the company reserve $1 revenue instead of giving dividends and the stock price cannot increase $1, then the investing ability is not high)

3) value - find out the intrinsic value of a company ( cash flow + the growth rate of return) and compare with the current price

-Tony Measor " The investor may gain even the stock price doesn't increase in short run> shares replace dividends> investors can get more shares if the stock price is low (ROE + increasing dividends> indicator of good companies)

-how to position in the bear market > don't do expectations but make use of the volatility of stock price

- the features of the bull market 1) historical high price 2) low dividend rate> lower than bond rate 3) everyone plays in the stock market 4) many companies including the bad ones issues IPO

-3 insights of an investor (1) money making outside HK not inside, don't focus on stocks in property industry 2) take advantage of china's economic growth 3) find business franchise)

- appreciation of Reminbi harms manufacturing industries (unemployment, company’s bankruptcy) and stability of financial market but benefits “cheap Reminbi” industries including exported add-valued industries

- How to deal with the “crash” created by appreciation of Reminbi > revolution of tertiary industries

-the economic transformation of China> turn to heavy industries/ high-tech industries ( it is hard because it requires creativity)

6 trends in China

1) Stable & high economic growth rate with less volatility (around 8.5-10%)

2) The end of the era of cheap labour ( due to one child policy in 1979)

3) Inflation in China ( HK is facing the dilemma of high inflation rate but low interest rate ( due to linked exchange rate system of US Federal Reserve Board)

4) The end of the leading manufacturing industries > >tertiary industries

5) Balance of trade ( reduce trade surplus and thus reduce the conflicts between trade partners)

6) The end of fixed rate of Reminbi