Another Bailout

"If you owe the bank $100, that's your problem. If you owe the bank $100 milion, that's the bank's problem" Jean Paul Getty

Citigroup, one of the world largest banking group need more than USD300 billion of US taxpayers money to bail them out, the US government have no choice, letting Citigroup meltdown could have been catastrophic.

An article by Eric Dash and Julie Creswell exposed how some of the country's best paid bankers were overrated dopes who had no idea what they were selling; or greedy cynics who did know and turned a blind eye.

The bank's executives were clueless about the reckless financial instruments they were creating, or were so ensnared by the cronyism between the bank's risk managers and risk takers that they had no interest in stopping it.

This financial meltdown involved a broad national breakdown in personal responsibility, government regulation and financial ethics.

Who are those who have benefited?

1. People who had no business buying a home, with nothing down and nothing to pay for two years.
2. People who had no business pushing such mortgages, but made fortunes doing so.
3. People who had no business bundling those loans into securities and selling them to third parties, as if they were AAA bonds, but made fortunes doing so.
4. People who had no business rating those loans as AAA, but made a fortune doing so; and
5. People who had no business buying those bonds and putting them on their balance sheets so they could earn a little better yield, but made fortunes doing so.

Citigroup was involved in, and made money from, almost every link in the chain. They are just assuming home prices would keep going up. How stupid!

In Bakersfield, California, a Mexican strawberry picker with an income of USD14,000 and no literacy in English, was lent every penny he needed to buy a house for USD720,000. Those subprime lenders don't even bother whether this guy has the ability to pay the monthly instalment and his credit worthiness!

GREED is written all over the total unabashed complicity of the upper class of American capitalism.

Accountability

Read in Sunday Times today that Town Councils must be accountable to their residents for what they do with the money they collect from them, said Singapore's National Development Minister Mah Bow Tan. "Each Town Councils has the duty to explain to its residents how it invests its funds, what is it philosophy, what are the risks it takes"

News emerged last week that eight of the 14 Town Councils run by the People's Action Party have invested about S$16 million in troubled structured products.

How about Temasek's more than $400 million losses in Australian childcare chain, ABC Learning in less than 2 years? How about GIC's billion dollar investment in overseas financial institutions? Invest for the long term? How long? How many more bad investment decisions? Who are these "professional" managers responsible for the deals?

I am glad to learn that former chief executive officer of NTUC Income is considering standing as Singapore's next elected president or contesting in the next general election as an independent candidate if more than 100,000 signatures and names of Singaporeans are willing to give him their support. He feels that the government has lost touch with the ground, the widening income gap and the high salaries of Government leaders.

Yes, the whole world is facing the same problem of high salaries of CEOs, senior executives and the indecent performance bonuses that drive them to take highly risky business ventures.

Temasek which manages a portfolio of S$185 billion, announced that its senior managers had volunteered to take salary cuts of 15% to 25% as part of a company-wide reduction. Civil service salaries, including those of top political leaders, would be adjusted in light of the economic turmoil, said Finance Minister Tharman Shanmugaratnam.

That's a good move by the government to reign in high salaries and sending a message to the private sector's fat cat CEOs, directors and senior executives. The government should do more to slow the widening income gap.

Gambler Vs Trader

My brother posted this question to us, "What is the difference between a Gambler and a Trader?"

In his opinion, a Gambler take Risk while a Trader manage Risk.

I have yet to meet a Gambler who makes money but I have many trader friends who are consistently making good money trading in financial products. The odds of taking money away from the Casino table is so slim that less than 1% of the gamblers win over a period of time. If gamblers can win, there will be no casinos around!

The reason gamblers lose is because the odds against them is so high. High rollers get 1st class air tickets, limousine services, 5 star hotel stay, good food and expensive wine, all FREE from Casinos. Casinos welcome them with their door wide open to have fun, entertainment and providing impeccable services because these high rollers will later contribute to their bottom line.

Gamblers don't know the odds of striking lottery, TOTO, horse or soccer bets including commission and the wide spread. Smart people only go in small occasionally for the fun and entertainment. The bookmakers are the one laughing all the way to the bank, that's why the government have the monopoly, it will be criminal for anyone trying to muscle into this lucrative business.

Traders have a much better chance of winning than gamblers because they are pitting their skill against other traders though having to pay comm for each transaction. The comm amount to billions to feed the financial industry, that's why more than 80% of the trader loses money and 99% of the retail customer loses their pants.

In my opinion, traders who don't make money consistently are gambling, they lack trading and money management skill. Hedge Fund and Unit Trust managers are good for nothing if they are unable to give positive absolute return over the monies they manage. It's sad to hear so many Hedge Fund and Unit Trust losing money big time despite having huge resources at their disposal.

Most Hedge Funds take risky gamble with their leverage of 1:30 borrowed from the bank. Most Unit Trust make small money during Bull market and lose big time in Bear market. Do you still want to pay them management fees while losing money for you? They are so professional in their explanation and excuses for their underperformance without feeling guilty or shameful.

Annual awards and recognition were given out to the best performing Unit Trust even when they are losing the least money among the industry!

Even Warren Buffett is not spared. Berkshire stock has lost close to half of its value since hitting a record high last December, as the company struggles with lower returns at its insurance businesses, the declining value of its stock holdings as well as paper losses on derivative contracts. He is a legend and greatest investor because of his consistent performance over the years.

Getting Ready

"Money never starts an idea. It's always the idea that starts the money" Owen Laughlin

After months of preparation, we should be trading by 1st December with an initial capital of S$450,000/-. With a goal of achieving a 1% monthly return, our target will be S$4,500/- or a daily target of S$205/- base on 22 trading days in a month. That's Chicken Feat!

Am I setting a target that is too low? How can I give more than is expected of me?

Our objective is capital preservation and not taking unnecessary risk. The plan is to lay the foundation and build up foreign capital before we proceed to more aggressive trading.

Failure

"Failure, the Mother of Success"

Thomas Edison failed more than a thousand times before we could see the light at night. If he had given up hope at the 999th attempt, what would our world be today? Hey! this is the story my Primary School teacher used to encourage us, "Don't Give Up!" But, we can still use candles since we are not as smart as Edison, right?

To be successful as a trader, you don't need to invent a new indicator. The fact is, none of the indicators in use now can be foolproof even though some are extremely complicated and sophisticated. Indicators used in different time frames tell a different story.

What is so difficult to be in this business of day trading? The decision making is so simple, it's either buy or sell yet more than 80% of the new traders failed to make it. The reason is, trading comes with a hefty price tag, it's a negative, negative sum game, winner and loser both need to pay commission, winner pay taxes, loser can't deduct and now a 7% GST on commission upfront.

Apart from the IRA, the winners are the Exchanges, mostly monopoly. When profits are down, they can simply increase the clearing fees, who can stop them? The CEO and senior management get handsome bonuses and stock options for their "hard work". They have a money printing machine contributed by all the traders. And, it will get worst if they merge to reduce further competition. The runners up are all those broking firms, directors owning big bungalows and enjoying lavish lifestyle.

Traders are squeeze left, right and centre but, there are still 10% of the traders who succeed despite the odds. Those who join the Exchange as a member, get a "preferential commission" treatment, a "privilege", very much lower comm than trading as a retail customer. Again, you need to pay monthly membership fees, etc, it's so easy for the Exchanges to make money, no risk, I am so jealous.

Most traders lose money because the odds are against them. So, what is the secret to the few who are successful? What's the magic formula? I read plenty of books on trading, yet I still struggled for more than 2 years to know the answer despite being very successful as a floor trader for 20 years.

There is NO SECRET OR MAGIC FORMULA. The principles are found in most trading books, the problem is most of us read and forget. We don't apply what we learn, many even pay a few thousand for a 3/4 days intensive trading courses and think they can be good traders. Fat Hope!

"The road ahead is long, the climb is steep", Barack Obama. It take time to be a good and experience trader.

One of the most important attribute of a successful trader is the courage to admit that he is wrong in his analysis and judgement. CUT, CUT, CUT your losses fast when you are wrong, if you can't do it, don't be a trader! There is no room for being stubborn. When holding on to a bad position, a trader will not have a clear mind and tend to make further mistakes.

It's that simple, traders know about it, but it's so difficult to execute. This philosophy applies in a business venture, a relationship, etc. It's painful to cut off the disease arm or leg, but to survive, there is no choice. It's stressful holding on to hope.

I always believe in hard work and doing the right thing within my own limitation. Focus and learn, after some time you will understand the market behaviour, the players involved, the trading techniques required for your own temperament. Failure is part of the game, learn to accept it.

Out-trade

Out-trade can be costly affair for any trader. Out-trade meaning when there is a discrepancy between 2 traders over a transaction, it can be disagreement over volume, price, trade going into wrong trader or trader dispute having any transaction with the opposite party..

Out-trade is common for most heavy volume floor traders, it's part of the business cost due to human error on either party. It's unbelievable that most out-trades ended up losing money. For winners, the traders simply split the profit. For losses in dispute, we can request to view tape as there are many cameras on the trading floor. Disputes are settled after viewing the tape or opt for arbitration if there is still no compromise between the traders.

I have the biggest out-trade of my career in 1997. It involves 10 Nikkei contract amounting to losses of 1,700 tics which is Yen 4,250,000 or about S$68,000 at that time. After viewing the tape, trader QAC admitted that it was her mistake when I told her that the 10 contract was traded with another trader. She made me good and took all the losses graciously without any question.

Till this day, I still remember QAC as a trader who honour her trade and a real gentlewoman. No if and but unlike some traders who tried to argue even knowing they were in the wrong.

Recently, I have a out-trade of another kind or drop out trade in the electronic age, what the hell! I have never expect this to happen, missing trade from my system, hanging in the air and those brokers taking their own sweet time to determine who the owner is.

October was a hectic month, on 27/10/08, Monday, I checked my statement and found I have a imbalance position of long 14 Nikkei Contract and short 5 Topix, a perfect hedge position would be 2 to 1 ratio, which mean I should have only 10 Nikkei contract. I called the backroom and told them of the situation and the additional 4 Nikkei which might not belong to me.

After checking, they called to inform me that there was nothing wrong with my Nikkei trades on Friday and the 4 Nikkei belongs to me. So I am stuck with a naked long 4 Nikkei in a fast falling market. I couldn't believe the 4 Nikkei belongs to me but nevertheless I have to swallow it. Meanwhile, the market clashes and it was too painful to cut the losses.

On Tuesday, when the market recovers, I started to cut the position and was very happy that the damage was not that severe. It was stressful and affected my trading.

On Wednesday, I got a shock of my life when the backroom guy called me in the afternoon to tell me that I have a drop out trade the previous Friday. They will put back 2 short Topix contract into my account. What the f@#k! I was told to cut the position, take the losses and talk later.

The market has gone up and the losses came up to Yen 1,020,000 or about S$15,300/-. If they have found the error another 2 days later, the losses would have been close to S$50,000/- Who is to blame and who is accountable for the losses?

It was my mistake to have trusted the computer completely and assume that the position would never go wrong. But, how to accept a drop-out trade that was put into my account a few days later? Those guys must be sleeping and pushing away their responsibilities.

I am still awaiting an answer to their investigation, and it seems that I have to take the blame and the losses which was my own doing, as the trade belongs to me and I should know my own position. To my fellow electronic traders, check your trades, volume and position before switching off the computer and make sure it tally with the statement the following day.

Success

Being hard working does not mean you will be successful.
But, to be successful, you need to be hard working.

We don't become successful simply through luck. Success comes from doing those things and mastering those principles that produce success. Concentrate on developing those qualities in yourself that will make you a winner.

Persons with mediocre accomplishments are quick to explain why they haven't, why they don't, why they can't and why they aren't. Successful individual are less likely to make excuses.

Believe in Yourself that You Can Succeed and You Will.
Develop Positive Attitude.
Think Enthusiastically.
Build up the Confidence.
Have Faith.
Focus.
Action.
How Can I do Better?
How Can I do More with Less Effort?
How Can I Increase My Personal Efficiency?

To gain respect of others, you must first think you deserve respect. And the more respect you have for yourself, the more others will have respect for you. You are what you think you are.

New Account

I am setting up a new account to diversify the risk. It is partially funded by some good friends who have great appetite for risk taking. Futures trading is a highly risky business. Being in this business for more than 20 years, risk management is my forte, there is no room for being reckless.

My partner Robert (RBT) and I will be the adviser to this special account. I have known Robert for more than 15 years and have been very thankful to him for his encouragement and guidance after my return to electronic trading in the arcade. Robert is one of the most consistent trader I have known, a steady, calm and patient trader with a good grasp of the market. He is a very mature and confident trader, a rare gem!

I have absolute faith and trust in Robert's ability, integrity and honesty. I am very glad that he had agreed to work with me in building up this account. We have a very good cordial working relationship and great respect for each other.

For this account, we will take on day and position trading as and when we spot a trading opportunity that have a high probability of success. We will be more conservative in risk taking and thus a lower expectation. My target is to achieve a consistent return of minimum 1% per month.

It is a personal challenge for me to ensure the success of this account. Daily trading performance will be updated on Leverageresults on the right top corner for those who are keen to follow our progress.

Finally, I am extremely grateful to Peter (HWY) who have encouraged me to return to the arcade and George (FIG) who have given me many important pointers in trading.