Worldly Wisdom and Mental Models

Charles Munger's 1994 USC Business School speech on Worldly Wisdom and Mental Models.

Blackstone IPO

It's clear that Chinese government has not got the return it had expected in Blackstone's IPO. To be fair, 80% of the investment universe would have guessed the other way.

The long term return on that investment would largely depends on how the tax bill unfolds and how long the favourable borrowing environment persist.

Investments made in the other way are generally more successful. For example, Goldman's 5% stake in ICBC and BOA's 10% investment in China Construction Bank

How to price CDS Indices

A good introduction on how to price CDS indices (a basket of single name CDSes). And here is the link to the spread sheet.

Of course, you can always use the average of single name CDS spreads as a first order approximation, which ignores the spread convexity. The proper method, as presented in the spread sheet, is risky annuity/DV01 weighted average of these spreads.

Interviews with Mohnish Pabrai

Bloomberg interview with value investing guru Mohnish Pabrai(Part I, II) on his recent investments, including BRK, DFC, HNR, etc.

Here is another interview by CNBC.

Mohnish Pabrai is the author of The Dhandho Investor. He has been bidding for the Power Lunch with Warren Buffett for the last couple years but has yet won one.

EDIT: A FT article on his "low risk, high uncertainty" investment strategy.

Microsoft .NET StockTrader

Microsoft just released .NET StockTrader, an end-to-end sample trading solution, at SIFMA.

The application and its source code are not yet available for download. Judging from its technical overview paper, the design is a very standard n-tier, SOA solution:

• Web Application Layer (UI), utilizing ASP.NET and Web Forms
• Middle layer Business Services Layer (BSL), utilizing stateless C# classes
• Data Access Layer (DAL), utilizing ADO.NET and stateless C# classes

The design focus is on the business layer, with WCF based webservices implementation (transaction processing, interoperability, scalability, etc).

Microsoft has not put any of the cool stuff (such as WPF or SilverLight) to spice up the presentation layer, neither has it pushed the bleeding edge data access technologies (DLinq, Linq to Entities, etc).

Design Principle Acronyms

• A rather cynical list of acronyms in software engineering. My favorites are ADD, CYAE and GMPM...
• Okay, seriously, here is the REAL list of design principles you should follow (including OCP, LSP, DI, etc).

The beauty of acronyms is that they make you look incredibly professional in the eyes of non-professionals when you talk like this:

"Lad, YAGNI, so KISS and DRY"...

POWER LUNCH WITH WARREN BUFFETT

Bidding for a power lunch with Warren Buffett on eBay.

This is, of course, a charity event. The bid starts at $25,000 and the winner last year paid $600,000.

Java and C#/Winform Job Trends

Click the image for a full size view

The Essays of Warren Buffett

This book is essentially a collection of Warren Buffett's letters to BERKSHIRE HATHAWAY shareholders in the last thirty odd years. The book organizes these letters in such a way that the paragraphs addressing the same topic are clustered togather, make reading much easier. If you have absolutely too much time to kill, you can read pretty much all of it here.

The book is a fun read and many ideas from the "value investing" (a term that's redudant according to Warren Buffett) master are simply brilliant. I particularly enjoyed his critics on EMH:

"What could be more advantageous in an intellectual contest--whether it be chess, bridge, or stock selection--than to have opponents who have been taught that thinking is a waste of energy?"

I think B-schools should give more weights to this type of thinking when teaching modern portfolio theories. This should not be completely off the chart given that we are still debating whether to teach both the Bible and Nature Evolution in high schools...

Gamer Generation

Koreans have actually made a profession out of Starcraft. You should see it in Gamer Generation on Discovery Channel. These players are treated like, for the lack of a better word, heroes.

I still remember how crazy we were playing Starcraft on the homemade rudimentary intranet in the dorms back in college years back. If you do a regression on one's GPA with his Starcraft winning record, the negative coefficient would be statistically significant at any confidence level --- not that it matters much though, according to Gamer Generation, the pro players in Korean owes a handsome salary. And even at the end of their career in their late 20s, they are hired by financial firms as stock brokers (might be traders, I suspect)...

iPhone Clone

MiniOne cellphone by Chinese cellphone vendor Meizu (魅族). It has got the look and feel of iPhone, attractive features and delicious price (about $260 for the 4GB version and $450 for the 16GB version)...

Caught by Google Street View

A list of embarrassing (to themselves) and funny (to everyone else) images caught by the new Google Street View.

Like this one, a potential break in in progress?

Next time you're on the street, watch out for the evil Google Van...

Google Finance

Google Finance has a much prettier user interface than Yahoo. The flash based chart is also neat, especially the marking of news tags.

However, as I start to look at the data seriously. I noticed that the data on Google Finance is generally less reliable than it's competitors. The price history could be wrong (compare the one year chart of FNF on Google v.s. Yahoo, for example), the financial statement sections might miss important information (for QWest, the quarterly balance sheet doesn't even have PP&E, and the annual report contains only Gross PP&E, no accumulated depreciation).

No matter how "cool" the user interface looks, garbage goes in, garbage comes out --- "beautified" garbage is still, garbage... I should probably go back and look at old fashioned Yahoo Finance...

Yield Curve

The US yield curve had been inverted for most of the past year, with 2 year yield higher than 10 year. This is supposedly "bad" for the economy, but the stock market did extremely well during this period. Now that the yield curve has resumed its "normal" shape, the stock market welcomed that with a warm hearted sell-off...

The sharp rise in long term rates yesterday is at least partly spooked by the latest comments from the Bond King: Bill Gross revised his long term interest rates view and now believes the 10 year yield could rise to 6.5% in the next 5 years.

Best Airline Rewards Credit Card

I have been too lazy in the past to save on airline tickets: no meaningful frequent traveller miles and no reward credit card that accumulates flight miles --- I wasn't much of a frequent traveller anyway.

However, things are a little bit different this summer. By some brief calculation, I need to purchase a total of 60,000 miles worth of airline tickets in just over a month, enough to orbit mother Earth twice and change. It's probably time to look for a good reward card for airline tickets...

After some digging, I determined that Citi PremierPass Elite is definitely among the top (if not the best) in the breed. It gives 1 reward points for each mile travelled through any airline, while 100 points is worth around $1. In my case, it's around $600 in savings, not too bad, I'd say.

Of course, there are some catches to be found in the fun reading of terms and conditions (as any other reward programs) and there is a $75 annual fee (ouch...).

Correlation and Copula

Correlation

People (at least myself) have loosely interpreted Correlation as the strength of predictability between two random variables. I.E. A correlation coeffecient of 0 indicates the value of Y is independent of the value of X. Turns out that's not really the case. In the following example:

X	Y
1	1
-1	1
0	0

The correlation coeffecient is 0, but the value of Y is perfectly predicatable when the value of X is known. Correlation is only an indication of the strength of a linear relationship betweem the two variables.

The same kind of simple yet common mistake as the misconception of volatility.

Copula

Dr. David Li's original paper on using Copulas to model default correlations.

Microsoft Surface

Microsoft Surface demo (done in Flash, instead of SilverLight...). It's basically a PC with a 30-inch table-top touch screen. You can grab and move "data" with your hand, no special stylus necessary.

• "Surface-Computing Innovations" at MSR TechFest 2007.
• What lurks below Microsoft's Surface.

I can remeber at least two sci-fi movies featuring similiar technology:

• Minority Report, the computer used by "Pre-Cogs" to analyze crimes
• The Island, the computer used by Merrick to monitor the health of his "products"

BTW: In The Island, MSN Search is used to replace yellow page. Not sure whether the movie got its "Surface PC" idea from Microsoft or the other way around.