Saturday, February 1, 2014

known unknowns and unknowns unknowns

The confusing phrase first used by Donalds Rumsfield during the invasion of Iraq.

Let me do a summary of the known unknowns going into the year of the horse. (list not exhaustive, is what I know)

What can go wrong: (Just a list, some of them are interrelated)

1) China shadow banking flare up. (WMP, trusts or SIVs)

2) Bursting of property bubbles

3) Conflicts in east china (China vs Japan; 2 Koreas; China and the South China Sea countries)

4) Currency turmoil in emerging markets

5) Asset price collapse of emerging markets

6) SEA elections frauds and conflicts


What can go right

1) Recovery and expansion of the DMs (US, Europe and Japan)

2) Euro breakup not happening

3) Piigs geting more competitive (Although unevenly)


Looks like we have plenty to worry about and less to cheer about. These are only the knowns unknowns.

What other black swan can happen?

No one knows, unless you are a oracle

What should we do?

Turn to our known knowns.

Companies. Take a bottom up approach (Many will not agree with this)

I have LMRT that is exposed to the risk of Indonesian currency and one of the weaker EMs. If I had not vested in it, I might wait for a better entry price, but am I going to panic and start selling to get in lower.

I have a decent yield, occupancy rate is strong, although I would prefer that they fill up occupancy faster, the mall has plenty of anchor tenants that sell essential goods, so I do not see occupancy to be badly hit. Although Putin Village Mall is begining to look more and more like an bad buy. If the business is still going strong, wait it out. Yes, the price might go even lower, but that will be an unknown unknown.

I have golden agri too. Am I selling, definitely not, in fact, I am waiting to accumulate.

Some might say, wait till the price to get lower, then your MOS is getting even wider.

Well, there will be an unknown unknown too. Look I got YZJ at STI 3200, it is my strongest counter, I got HPHT at av.price of 81 cents when markets is at such level, does it give me such price now? We never know if market will quote us the price we want, just know what you are paying for, and if you are comfortable with your price and volume, and have a plan if market does correct further, you should be held hostage by unknown unknowns.



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