Process

(Our three-way discussion continued.)

I considered for a moment and felt slightly uneasy as L was too cynical, "But, my friend, as far as I could see, there remains a possibility that a really good program of one kind or another could reduce hospital stay or admission in the long run."

"Exactly. I agree it is not easy to pick up the truly valuable one - probably more difficult than picking a 10-bagger from hundreds of IPO each year." S added, and turned to L, "But, it looks as if you are implying nothing would do what-so-ever !"

(For those not familiar with the stock market, IPO stands for Initial Public Offer.)

"Right, I really mean what I said." L was affirmative.

"Why?" S and I were almost in resonance.

"That is because, my dear friends, the biology of human body has not changed in the past ten thousand years," L suddenly looked grim, "On the average, a human body died after a certain degree of accumulated wear-and-tear, usually from repeated ones here and there. The need and duration of hospital stay is, in essence, a measure of that wear-and-tear. A treatment that successfully reverts the damage this time would mean the same person would come back some time later for a problem elsewhere."

"You mean ..." I hesitated to elaborate, "If a program is successful and save someone's life, it would only mean he would have the chance to be admitted some time later - hopefully for some entirely different problem."

"True, if the program is a really good one. Otherwise the process of death would be prolonged - and so is the need of hospital stay," L nodded, "Or, to put it simply, we all agree everyone would eventually die, but, the less appreciated fact is, when our population is taken as a whole, a certain amount of hospitalization is inevitable before we all die."

Strategy

Met my friends S and L on my way home. They were apparently discussing something serious.

"Hey guys. What's up?" I asked.

"Our friend here is thinking of something for the coming RAE." L said.

(For those who are not familiar with our system, RAE in government hospitals stands for Resource Allocation Exercise. Yes, it means money. By a coincidence, RAE in the university means Research Assessment Exercise - another matter that attracts the attention of all academic staff. This is one of the rare occasions when the government and university staff seem to share the same interest.)

"Alas ... What's your advise?" I asked my cynical friend.

"I asked S to follow the successful strategy." L smiled.

"Is there one?" I was slightly amazed.

"Apparently yes," S said, "Find something that could reduce hospital stay or admission."

"That's not easy," I believe my point is obvious.

"That's not not easy - that's quite impossible if you want something that could permanently reduce hospital admission," L interjected, "But we just need something that works for a while, and it is not at all difficult to prove something - anything actually - works in the short run, when everyone is paying attention and extra effort on it."

"For example ...?" I asked.

"For example, find something that you are already doing, repackage, propose to find a dedicated person to do it in a more efficient manner so that hospital stay could be reduced - and there is a reason to ask for money and vacancy of promotion." L finished without taking a second breathe.

"I know your argument," and I saw what my friend was getting at, "After a few years, the money becomes regular and the senior post permanent. Who would remember or bother to make the effort to check whether the program continues to reduce hospital stay? After all, the situation would have changed so much that no one could prove anything."

Establishment

Although not always accurate (see http://vwswong.blogspot.com/2011/06/harrison.html), this is a paragraph I copied from the Wikipedia:

********************************

Establishment of the Party

Marxist ideas started to spread widely in China after the 1919 May Fourth Movement. In June 1920, Comintern (共產國際) agent Grigori Voitinsky was sent to China, and met Li Dazhao (李大釗) and other reformers. He financed the founding of the Socialist Youth Corps. The Communist Party of China was initially founded by Chen Duxiu (陳獨秀) and Li Dazhao in the French concession of Shanghai in 1921 as a study society and an informal network. There were informal groups in China in 1920, and also overseas, but the official beginning was the 1st Congress held in Shanghai and attended by 53 men in July 1921 and later transferred from Shanghai to Jiaxing. The birth of the party was declared here in a boat on South Lake... The key players were Li Dazhao, Chen Duxiu, Chen Gongbo (陳公博)... Mao Zedong (毛澤東) was present at the first congress as one of two delegates from a Hunan communist group.

PS. As a co-founder of the Chinese Communist Party in 1921 and its first General Secretary, Chen Duxiu was removed him from all positions of leadership six years later, and was expelled from the Party altogether in 1929.

Li Dazhao was executed for being suspected a Soviet spy.

Editorial

(My friend VW urged me to write an editorial for the latest solicited paper on my blog.)

The recent article of Warren on financial management for young doctors (see http://ccszeto.blogspot.com/2011/06/question.html) is no doubt illuminating for our fresh graduates. It represents the pearl of wisdom from someone who has passed through all stages of establishing a professional career, built up his own wealth, and is now doing what he thinks valuable.

I shall not discuss his specific recommendations. On the other hand, I agree with the comment of TW: In addition to thinking of measures to save up some money and invest, it is also important to consider twice what, and how much, expenditure to have. For example, does one need HK$250K for a wedding?

To go one step backward, it is the entire mindset of spending money that one needs to pay attention to. No, I’m not asking everyone to become Puritans. However, happiness has at best a modest correlation with money. For example, are you more satisfied to dine at Gaddis or Café de Coral? Yes, the former in general – but, it depends more on whom you are dinning with. If you think it is a hardship that one has to endure for a few years in order to save up the money and achieve an end, you have a wrong attitude – you can be equally happy without spending a lot of money but saving it up. After all, we should enjoy the process, not (only) the end.

And, for exactly the same reason, you can also achieve a equally happy ending without needing a lot of money.

PS. For a fresh graduate, I believe the most important investment is the one he does on himself. In addition to having the effort and find some good place to put your money (which, I agree, is absolutely necessary), it is most fruitful to build up your own as a valuable asset.

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.

Reply

(Reply letter of Warren is, as always, instrumental and instructive.)

Dear XX,

I can see that you are a well-planned and disciplined person and this is the most important character of a successful investor!

You have a relatively short to intermediate investment goal (compared to the other goals such as retirement, education fund of the next generation, etc.). In order to have guaranteed return in such a short period, you can only make investment with more predictable return.

You would expect a period of high inflation in the coming years and the inflation rate is so high that the profit-making ability of many companies may be undermined (because of high cost and rents, etc.). The fear is now being reflected as a low valuation of the stock market currently. Because of the lack of confidence in company's profitability yet the saving interest rate is so low, people opt to park their money on bricks, which is reflected as over-valued real property market.

For a long term investment plan, I am sure you will know that you should accumulate stocks during this period because of its low valuation, which will normalize in the long run. And you should avoid the over-valued real property, which will be down-rated in the long run. But you need to strike a balance for short-intermediate investment plan.

I would therefore suggest:

1. Try to lengthen the period of debt payback (if this is feasible).
2. Build up a cash reserve for 3-month urgent extra expenditure on top of your usual expenditure during your internship (e.g. if you need $60K for this, you need to save $5000 each month).
3. No car please.
4. Live with your parents, don’t buy or rent a separate apartment before getting married (if this is also agreed by your parents and boyfriend, but their preference should be on higher priority).
5. Put all your surplus money to monthly fixed-amount investment on stock markets (this is known as “dollar cost averaging, 平均買入法”).

(To be continued.)

Question

(A letter written to my friend Warren recently.)

Dear Professor,

I am a newly graduated med student from CUHK, and I was very grateful that you gave us such a useful talk on investment after our white coat party.

In fact, I have a question that I was too shy to ask during the Q and A section, but it is an very important question to me, so I decided to send you an email to ask about it.

(But I would not hesitate to share your advise to my classmate afterwards!! The most embarrassing part is the asking!)

I am planning to get married in third year MO, and my other half is a civil servant with monthly income of about $24000. I predict we would need a 250K budget for the wedding, and would need somewhere to live in. I have a debt of about 100K, of which 40K was grant loan, and the others lent from my family, and I have no savings at all. I do not have to support my family financially but I would not be supported by them as well. How would you advice on the investment plan outline so as to achieve our goal?

Thanks very much for your advise!

Regards, et cetera.