R2

(Warren's letter continues.)

For the stock investment, I would suggest a more balanced portfolio for you:

1. Companies that can raise their service charges in a free market in response to inflation (i.e. not China): Cheung Kong Infrastructure (1038).
2. Landlords that can raise the rents especially for retail business: Link REIT (823), Hang Lung Group (10).
3. Large-cap companies with economic franchise yet under-valued because of the gloomy short-term prospects: China Construction Bank (939), China Mobile (941).
4. Small/Medium-cap companies with outstanding management that can cope with the hyperinflation: Yip’s Chemical (408), SOHO China (410), ASM Pacific (522), Dah Cheong Hong (1828).
5. Small/Medium-cap, high dividend rapid growers that are oversold because of market panic: Bosideng (3998), Lonking (3339), China Dongxiang (3818).
6. Small/Medium-cap, high dividend, under-valued companies that are being neglected: Xinhua Winshare (811), Alco (328), Chevalier International (25), Pacific Textiles (1382).

For a beginner who is not comfortable with volatility of stock market, you can just focus on categories 1-3.
For an investor with more enterprising mindset, add cat. 4
For an aggressive investor who doesn’t mind volatility up to 30%, add 5-6.
For an adventurous investor who doesn’t mind volatility up to 50%, focus on 4-6 only.

All these stocks are now being traded at discount (i.e. 15-20% lower than their intrinsic values) or even bargain (i.e. 20-50% lower) prices.

Should you buy or rent a flat when you get married? Please ask me again when you become a 3rd year MO. I don’t have a crystal ball!

Good luck, Warren.