Is Money a Lousy Motivator?

Here's something to think about. 

Besides the cute animation, Dan Pink (the originator) says that more money actually decreases performance for cognitive tasks. Essentially, he says that money is the wrong kind of motivator. Instead, people want purpose, self-mastery and autonomy! 

Which explains in part why we write these blogs for example, or why people do stuff like learn new languages (which seem to find no immediate usage in their lives). It's for the satisfaction! 

Is it true? And can such ideas be profitable for investors?

Of Accounting Fraud and China

The Great Wall might well symbolise
the accounting veracity barriers
in China
Image: www.crystalinks.com

Those looking to play the China mega trend would do well to read this from Reuters. Singapore-based investors would be familiar with the tale of the remiss S-chips even though Reuter's perspective is of those listed on the American bourses.

It talks about accounting irregularities bordering on outright fraud, and how even international accounting firms have seem to fail to detect these, leaving it to certain smaller research firms to investigate and then short the companies profitably (which also spells another conflict of interest and gives potential room for abuse). 

1: For any firms (including those outside of China) where the financial statements cannot be depended upon to be reliable, the only thing  for an investor to do is to avoid it like the plague, regardless of how profitable the trade might seem. The reason might be obvious, but let me say it loud and clear: If the financial statements are not reliable, there is no means of knowing what is going on in the business, unless you are an insider.

2: Reputation is actually worth something. This doesn't mean that one should only invest in well-known firms, indeed great opportunity might lie in small unknown firms. But then there might be a need for a larger discount factor to take into account any unknown risks. Or to put it another way, the expected profits from such less known investments should be fairly large, to compensate for the higher "risks".

3: Another point to note from the Reuters' article is, for those Chinese firms that are formed out of reverse mergers, they did not undergo the rigours of the American IPO process, which thus give rise to such abuses. 

4: There are other ways to play China than to invest directly in the country's companies. International firms doing business in China, or selling their products in China (or for that matter the other countries in rapidly growing countries), can be a safer way to get the China exposure, without the Chinese accounting issues.

2011's Fortune 500 Companies

Image: Fortune Magazine

So the Fortune500 list for 2011 is out. 

For me, such lists can be useful and interesting, as it can be a good place to start looking for investment ideas, and to stimulate some thoughts on whether there are value investment opportunities among America's largest companies.

Big can be good if it implies a level of safety (as in, it is unlikely to go bust, though that can obviously prove otherwise which explains why further work is needed, think Lehman Bros or Enron) or dominance (e.g. Walmart, or Big Oil). So, happy trawling over the list.

China: A Bundle of Contradictions?

Image: Knowledge@SMU

Some of you may be wondering why I have been posting all these links to Knowledge@SMU. In addition to there being some gems on the website, I also have been a contributor and the articles I have posted so far have been written by me (though I might post some others in future not written by myself).

Investors in China have rode some fast and furious bull runs and equally heart-stopping falls, and they might wish to pay heed to the huge and potentially devastating effects of the unsustainable amounts of local government debt, which might ultimately require a bailout not unlike that of the bank bailout in the developed world. 

Carl E. Walter and Frasier J.T. Howie sound off warning bells in their book entitled Red Capitalism, which talks about the near-incestuous relationship between the mega- State Owned Enterprises (SOEs) and the government, and how China's banks are practically "state utilities" to be turned on and off by the central government. 

They warn that "“one cannot simply assume that words such as ‘stocks’ or ‘bonds’ or ‘capital’ or ‘yield curves’ or ‘markets’ have the same meaning in China’s economic and political context” than that understood in international finance. They highlight the need to look beyond the curtain to glimpse the rot beneath and discern the true flows of capital in this so-called economic miracle."

 Read the full review here.

Does Diversification and Market-Timing Make Sense?

It has been a busy week, Singapore is having its General Elections, and given my stake and ownership in this country, I have been focusing on that. 

Nonetheless, here's an interesting video from Forbes on a fund manager who talks about diversification and market timing. None of it is original wisdom, but investors might want to take heed on the wisdom of diversification and the folly of timing. 

Or not? It's a tough question, almost 2 camps of people with opposing views. My take is, non-professionals should diversify, in fact just use an index fund, and forget about timing, if they have a long horizon (those who don't are best served through just remaining in money market assets). But well, many others would suggest otherwise.  

Watch this, for another viewpoint.