16 December 2007
18 November 2007
Focusing Your Unique Ability
Fact: Right now, regardless how successful you are, your probably spend 90% of your time and effort focusing on personal abilities that are not unique, ablilities that hundreds of other people possess. And yet, if you identified where virtually all your results come from, you would find that they stem directly from 10% of your time when you are focused on your Unique Ability.
Every person in the world is made up of 3 seperate selves:
1. The past you is who you think you've been up until now.
2.The future you is who you think you'll be in the years ahead.
3. The present you is who you think you are right now; a composite of your other two selves.
Your notion of who you are in the present moment is a function on memory, or who you think you've been, and vision, or who you think you'll be.
Your Unique Ability lies in your vision of who you'll be. An individual who is committed to his future you is continually learning, improving and growing that will create new value in the world.
It is this commitment that constitutes the uniqueness that other people value most in you - but only when you are willingly to live life on this basis.
7 Areas of Confidence:
1.Confidence About Health - Nutrition, Sleep, Exercise and Meditation
2. Confidence About Money- Autonomy Funds
3. Confidence About Time - Free Days, Focus Days And Buffer Days
4. Confidence About Referability - Show up on time. Do what you say, Finish what you start, say please and thank you
5. Confidence About Relationship - R-factor Question
6. Confidence About Uniqueness - Unique Ability only emerges through delegation
7. Confidence About Genuis - Unqiueness X Time : 10,000 hours of conscious repetition, experimentation, innovation and formalisation.
Every person in the world is made up of 3 seperate selves:
1. The past you is who you think you've been up until now.
2.The future you is who you think you'll be in the years ahead.
3. The present you is who you think you are right now; a composite of your other two selves.
Your notion of who you are in the present moment is a function on memory, or who you think you've been, and vision, or who you think you'll be.
Your Unique Ability lies in your vision of who you'll be. An individual who is committed to his future you is continually learning, improving and growing that will create new value in the world.
It is this commitment that constitutes the uniqueness that other people value most in you - but only when you are willingly to live life on this basis.
7 Areas of Confidence:
1.Confidence About Health - Nutrition, Sleep, Exercise and Meditation
2. Confidence About Money- Autonomy Funds
3. Confidence About Time - Free Days, Focus Days And Buffer Days
4. Confidence About Referability - Show up on time. Do what you say, Finish what you start, say please and thank you
5. Confidence About Relationship - R-factor Question
6. Confidence About Uniqueness - Unique Ability only emerges through delegation
7. Confidence About Genuis - Unqiueness X Time : 10,000 hours of conscious repetition, experimentation, innovation and formalisation.
31 October 2007
Social Intelligence
Our priorities, socialisation and myraid other social-psychological factors can lead us to direct or inhibit our attention or the emotions we feel - and thus our empathy
Self-absorption in all its forms kills empathy, let alone compassion. When we focus on ourselves, our world contracts as our problems and pre-occupations loom large. But when we focus on others, our world expands. Our own problems drift to the periphey of the mind and so seem smaller, and we increase our capacity for connection - our compassionate action
To be continued...
Self-absorption in all its forms kills empathy, let alone compassion. When we focus on ourselves, our world contracts as our problems and pre-occupations loom large. But when we focus on others, our world expands. Our own problems drift to the periphey of the mind and so seem smaller, and we increase our capacity for connection - our compassionate action
To be continued...
25 October 2007
Stagflation Worries In The Present
During 2006, certain economists believed that global stagflation might return when the price of oil was close to $80 a barrel, and the US Federal Reserve was increasing interest rates. Blogs promoting fears of stagflation began getting attention even before statements by Stephen Roach and Paul Krugman. They cite a cooling housing market combined with a failure to adjust monetary policy as potentially leading to higher than "comfort zone" inflation and slower growth.
The worries multiplied in 2007 . On February 28th China's reaction to its complex domestic policy binds triggered a shock to financial markets (DJIA down 5%)as well as a reminder of the danger China had raised in February 2005 when Chinese economist Fan Gang, director of the state-owned National Economic Research Institute in Beijing, recommended publicly [World Economic Forum, January, 2005] that China sell its hoard of U.S. Treasury debt into the world market because interest rates were too low. China is the second-largest holder of U.S. Treasury debt in the world (after Japan). Such an action would send U.S. interest rates soaring, according to most generally-accepted models of the global economy, since such a massive sale would immediately drive down bond values, thereby raising not only the effective interest rate on existing bonds but also the market into which new bonds were sold. These models show that U.S. interest rates would soar. The polico-economic indication from these models was that the U.S. Federal Reserve was already in the policy bind that would contribute to Stagflation.
Two days earlier (2-26-2007) U.S. Federal Reserve Chairman Alan Greenspan predicted a possible recession in the U.S. before the year 2007 was over, speaking via satellite link to a Hong Kong business group. Some took this to be an indication that his model also recognized that China's policy binds had created a U.S. policy bind which prevented anti-recessionary action by the U.S. Federal Reserve. Others postulated that the higher interest rates prevailing in the U.S. in 2007 were known by him to be the U.S. response that was implemented to forestall the possibility of China's massive bond sale. Still others voiced the conclusion reached after the Nixon-era price controls that high interest rates were in and of themselves inflationary, since the cost of money was factored into models for the unit cost of everything from the price of wheat to the cost of making a high-budget film in Hollywood, a microeconomic measure prevailing in some modern economic models.
At its May 2007 meeting the U.S. Federal Reserve (FOMC Minutes, May 9, 2007, U.S. Treasury Dept.) made the following policy statement: "In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information." The across-the-board reaction was that the widely anticipated July 2007 lowering of U.S. interest rates was no longer feasible, and the Fed's response confirmed to many who maintain a polico-economic models that U.S. economic policy was unfolding in a manner that confirmed that the policy bind which accompanies Stagflation was becoming more visibly present.
On May 11th former U.S. Federal Reserve Chairman Alan Greenspan redefined the odds on a U.S. recession during 2007 from "possible" to "1-in-3".
May ended with the widely publicized report that foreign holdings of U. S. Treasury debt maturing in the three-to-ten year range had reached the 80% level, sparking comparisons to 19th Century America when European lenders provided financing for building U.S. infrastructure projects such as railroads and canals. Today's worries leave U.S. domestic economic policy hostage to international economic factors flowing from spiraling U.S. trade deficits and government deficits.
The first two weeks of June 2007 brought reports that China's trade surplus for the previous month had exceeded $22 billion, which moved the United States Congress, the OECD and the IMF to forcefully describe China's trade and exchange rate policies as "unfair". Also in June China began to show a reluctance to increase its hoard of U.S. Treasury debt and is thought to be the Asian seller with daily offerings of 10-year Treasury notes in the overnight market. This action drove down values and thereby increased the interest yield from its long-established rate below 5.0% to the 5.1-5.2% range with peaks at 5.3%. One result is that the U.S. housing market went into the biggest slump in 15 years. Furthermore, this higher prevailing interest rate triggered a mini-collapse in the already sagging subprime home mortgage market, which leaves a number of New York investment houses in peril of defamation and legal liabilities.
Despite all these adverse signals and an oil price approaching $70 per barrel, the insatiable demand of the U.S. consumer created sufficient optimism for investors to trigger the stock market to its largest three-day advance in 18 months on the occasion of the June 15th triple witching Friday. Ergo, markets were happy.
Ultimately, the current worry reaches epic proportions -- the prospect of global stagflation, a phenomena never before encountered.
The worries multiplied in 2007 . On February 28th China's reaction to its complex domestic policy binds triggered a shock to financial markets (DJIA down 5%)as well as a reminder of the danger China had raised in February 2005 when Chinese economist Fan Gang, director of the state-owned National Economic Research Institute in Beijing, recommended publicly [World Economic Forum, January, 2005] that China sell its hoard of U.S. Treasury debt into the world market because interest rates were too low. China is the second-largest holder of U.S. Treasury debt in the world (after Japan). Such an action would send U.S. interest rates soaring, according to most generally-accepted models of the global economy, since such a massive sale would immediately drive down bond values, thereby raising not only the effective interest rate on existing bonds but also the market into which new bonds were sold. These models show that U.S. interest rates would soar. The polico-economic indication from these models was that the U.S. Federal Reserve was already in the policy bind that would contribute to Stagflation.
Two days earlier (2-26-2007) U.S. Federal Reserve Chairman Alan Greenspan predicted a possible recession in the U.S. before the year 2007 was over, speaking via satellite link to a Hong Kong business group. Some took this to be an indication that his model also recognized that China's policy binds had created a U.S. policy bind which prevented anti-recessionary action by the U.S. Federal Reserve. Others postulated that the higher interest rates prevailing in the U.S. in 2007 were known by him to be the U.S. response that was implemented to forestall the possibility of China's massive bond sale. Still others voiced the conclusion reached after the Nixon-era price controls that high interest rates were in and of themselves inflationary, since the cost of money was factored into models for the unit cost of everything from the price of wheat to the cost of making a high-budget film in Hollywood, a microeconomic measure prevailing in some modern economic models.
At its May 2007 meeting the U.S. Federal Reserve (FOMC Minutes, May 9, 2007, U.S. Treasury Dept.) made the following policy statement: "In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information." The across-the-board reaction was that the widely anticipated July 2007 lowering of U.S. interest rates was no longer feasible, and the Fed's response confirmed to many who maintain a polico-economic models that U.S. economic policy was unfolding in a manner that confirmed that the policy bind which accompanies Stagflation was becoming more visibly present.
On May 11th former U.S. Federal Reserve Chairman Alan Greenspan redefined the odds on a U.S. recession during 2007 from "possible" to "1-in-3".
May ended with the widely publicized report that foreign holdings of U. S. Treasury debt maturing in the three-to-ten year range had reached the 80% level, sparking comparisons to 19th Century America when European lenders provided financing for building U.S. infrastructure projects such as railroads and canals. Today's worries leave U.S. domestic economic policy hostage to international economic factors flowing from spiraling U.S. trade deficits and government deficits.
The first two weeks of June 2007 brought reports that China's trade surplus for the previous month had exceeded $22 billion, which moved the United States Congress, the OECD and the IMF to forcefully describe China's trade and exchange rate policies as "unfair". Also in June China began to show a reluctance to increase its hoard of U.S. Treasury debt and is thought to be the Asian seller with daily offerings of 10-year Treasury notes in the overnight market. This action drove down values and thereby increased the interest yield from its long-established rate below 5.0% to the 5.1-5.2% range with peaks at 5.3%. One result is that the U.S. housing market went into the biggest slump in 15 years. Furthermore, this higher prevailing interest rate triggered a mini-collapse in the already sagging subprime home mortgage market, which leaves a number of New York investment houses in peril of defamation and legal liabilities.
Despite all these adverse signals and an oil price approaching $70 per barrel, the insatiable demand of the U.S. consumer created sufficient optimism for investors to trigger the stock market to its largest three-day advance in 18 months on the occasion of the June 15th triple witching Friday. Ergo, markets were happy.
Ultimately, the current worry reaches epic proportions -- the prospect of global stagflation, a phenomena never before encountered.
14 October 2007
Moments in Life
Contentment is not the fulfillment of what you want, it is therealization of how much you already have.
When the door of happiness closes, another opens, but often times we look so long at the closed door that we don't see the one which has been opened for us.
It's true that we don't know what we've got until we lose it, but it's also true that we don't know what we've been missing until it arrives.
The happiest of people don't necessarily have the best of everything; they just make the most of everything that comes along their way.
The brightest future will always be based on a forgotten past, you can't go on well in life until you let go of your past failures and heartaches.
Enough trials to make you strong, Enough sorrow to keep you human, and Enough hope to make you happy.
When you were born, you were cryingand everyone around you was smiling. Live your life so at the end, you're the one who is smiling and everyone around you is crying.
Don't count the years, count the memories...........
Life is not measured by the number of breaths we take, but by the moments that take our breath away
When the door of happiness closes, another opens, but often times we look so long at the closed door that we don't see the one which has been opened for us.
It's true that we don't know what we've got until we lose it, but it's also true that we don't know what we've been missing until it arrives.
The happiest of people don't necessarily have the best of everything; they just make the most of everything that comes along their way.
The brightest future will always be based on a forgotten past, you can't go on well in life until you let go of your past failures and heartaches.
Enough trials to make you strong, Enough sorrow to keep you human, and Enough hope to make you happy.
When you were born, you were cryingand everyone around you was smiling. Live your life so at the end, you're the one who is smiling and everyone around you is crying.
Don't count the years, count the memories...........
Life is not measured by the number of breaths we take, but by the moments that take our breath away
13 October 2007
Investment Fundamentals
Before we even touch on the word “investment”, we need to make a clear distinction what it really means or how it should be defined. This word sounds too familiar with many and formed an impression of investments are subconsciously in their mind, and many comments follow suit.
The word “investment” sounds too cool to many and some may have reacted instantaneously as “Don’t ever try man! I had a bad experience!”, or even common phrases like “I got burnt in the stock market!” You may also hear about news about people committing suicide. These are all real-life examples and these are negative images that always etched in your mind. Are these events turning away from “investments” or investments equates to getting yourself potentially burned in the stock market?
In layman terms, investment is defined as getting a return back based on your capital that could result in a loss or profit at the end of the day.
In a scientific definition, it is amount (i.e. your capital) that you locked into an investable tool that can potentially generate a profit at the end of a pre-defined time horizon, capturing the risk element through a risk elimination management process. In a modernization world as today, you can have loads of information using the today’s developed technology, with chunks of raw data easily accessible. We need to understand the importance of “Investing” before we can even place our confidence in them, just like a salesman preaching on the benefits of a product. Humans need to be convinced, they need concrete precedents before they even attempt to give a go.
In the context here, investments are not necessarily classified as equities. We need to understand the principles of money, cash or even asset and inter-relate this to investment world to understand the whole picture clearer. Let’s get back to the fundamentals, the basics of living and the economics mechanism.
The fact that the prices of goods and services over time goes up which is an undeniable standard of living. This is also known as the inflation rate, commonly used. With the same purchasing amount, considering an inflation rate of 3%, the amount of goods and services we received will be lesser, or re-phrasing, things are actually getting more expensive compared to before.
In summary, inflation is eroding our purchasing power. They can be only three ways to combat this, either you reduce your expenditure proportionately; increase your disposable income by the same proportion while maintaining your current expenditure. Or find new ways to increase your net income. How reliable would the first two ways be? Job security seems a big question mark nowadays and how can we ensure our wages can growing at least 2% per year? Or how can we possibly ensure that we can reduce our expenditure by the same proportion to the inflation rate every year. This leads us to the fact that we need to seek new avenues for growth. Where can we find such channels that can possibly appreciate our capital to address the inflationary concern?
That’s where investments come into play. The investment sector is an integral part of the financial sector which is a trillion dollar entity as a whole. The investment sector has developed into a much more complex nature than the past and the array of investments products may even taken you aback, pretty much that you’re lost in such an area. (To be continued…)
The word “investment” sounds too cool to many and some may have reacted instantaneously as “Don’t ever try man! I had a bad experience!”, or even common phrases like “I got burnt in the stock market!” You may also hear about news about people committing suicide. These are all real-life examples and these are negative images that always etched in your mind. Are these events turning away from “investments” or investments equates to getting yourself potentially burned in the stock market?
In layman terms, investment is defined as getting a return back based on your capital that could result in a loss or profit at the end of the day.
In a scientific definition, it is amount (i.e. your capital) that you locked into an investable tool that can potentially generate a profit at the end of a pre-defined time horizon, capturing the risk element through a risk elimination management process. In a modernization world as today, you can have loads of information using the today’s developed technology, with chunks of raw data easily accessible. We need to understand the importance of “Investing” before we can even place our confidence in them, just like a salesman preaching on the benefits of a product. Humans need to be convinced, they need concrete precedents before they even attempt to give a go.
In the context here, investments are not necessarily classified as equities. We need to understand the principles of money, cash or even asset and inter-relate this to investment world to understand the whole picture clearer. Let’s get back to the fundamentals, the basics of living and the economics mechanism.
The fact that the prices of goods and services over time goes up which is an undeniable standard of living. This is also known as the inflation rate, commonly used. With the same purchasing amount, considering an inflation rate of 3%, the amount of goods and services we received will be lesser, or re-phrasing, things are actually getting more expensive compared to before.
In summary, inflation is eroding our purchasing power. They can be only three ways to combat this, either you reduce your expenditure proportionately; increase your disposable income by the same proportion while maintaining your current expenditure. Or find new ways to increase your net income. How reliable would the first two ways be? Job security seems a big question mark nowadays and how can we ensure our wages can growing at least 2% per year? Or how can we possibly ensure that we can reduce our expenditure by the same proportion to the inflation rate every year. This leads us to the fact that we need to seek new avenues for growth. Where can we find such channels that can possibly appreciate our capital to address the inflationary concern?
That’s where investments come into play. The investment sector is an integral part of the financial sector which is a trillion dollar entity as a whole. The investment sector has developed into a much more complex nature than the past and the array of investments products may even taken you aback, pretty much that you’re lost in such an area. (To be continued…)
Price/Earnings (P/E) Ratio
How much should you pay?
The right way to use P/E and other valuation tools
When times are good, investors think the happy days will last forever, and they are willing to pay exorbitant amounts for earnings.
When times are bad, they assume the world is ending and refuse to pay much of anything. In assessing how much a stock is worth, investors talk about “valuation,” the stock price relative to any number of criteria.
The P/E, for example, compares a company’s stock price to its earnings.
Price/earnings (P/E) ratio
Everybody uses it, but not everybody understands it. The actual P/E calculation is easy:
Just divide the current price per share by earnings per share. (Just about every finance website with a quote box provides the P/E — including CNN/Money.)
But what number should you use for earnings per share? The sum of the past four quarters? Estimates for next year?
There is no right answer. The P/E based on the past four quarters provides the most accurate reflection of the current valuation, because those earnings have already been booked.
But investors are always looking ahead, so most also pay attention to estimates, which also are widely available at financial websites (including CNN/Money).
Wall Street analysts generally compute earnings per share estimates for the current fiscal year and the next fiscal year, and use those estimates to assign a P/E, though there is no guarantee that the company will meet those estimates.
The P/E can’t tell you whether to buy or sell. It is merely a gauge to tell you whether a stock is overvalued or undervalued. Assuming they have the same total shares outstanding, is a $100 stock more expensive than a $50 stock?
Not exactly. Where valuation is concerned, price is dictated by expectations of future performance. If the earnings of the higher-priced company are growing considerably faster than the other, the higher price may be justified.
What’s an appropriate P/E? Different types of stocks win different valuations. Generally, the market pays up for growth or enormous profitability. Consider GE and Microsoft, two well-run companies that vie for the title of biggest market capitalization. GE takes in more revenue in a quarter than Microsoft does in a year. Yet Microsoft boasts enormously fat profit margins, and generally stronger growth prospects than GE does in many of its businesses.
That’s why the market rewards Microsoft with a P/E that’s more than twice that of GE, despite the relative size of their respective businesses.
To quickly compare P/Es and growth rates, use the PEG ratio — the P/E (based on estimates for the current year) divided by the long-term growth rate. A company with a P/E of 35 and a growth rate of 20 percent, has a PEG of 1.8.
In general, you want a stock with a PEG that’s close to 1.0, which means it is trading in line with its growth rate, but for a quality company, you can pay more.
Also, don’t get excited by rock-bottom P/Es — some companies are doomed to low valuations. One group the market tends to penalize is cyclicals, companies whose performance rises and falls with the economy.
When times are good, General Motors can be highly profitable, for example. But because automakers tend to be hit hard during general economic downturns, investors account for the next recession in GE shares by awarding them a lower P/E.
Price/Sales ratio
Just as investors like to know how much they’re paying for earnings, it’s also useful to know how much they’re paying for revenue (the terms “sales” and “revenue” are used interchangeably).
To calculate the Price/Sales ratio, divide the stock price by the total sales per share for the past 12 months. You could also use revenue estimates for the next fiscal year, which are being published more frequently on financial websites.
Like P/Es, Price/Sales ratios are all over the map, with fast-growers tending to get the highest valuations.
Price/Book Value ratio
Defined simply, book value equals a company’s total assets minus its total liabilities and intangible assets. In other words, if you liquidated a firm, this is what the leftover assets would be worth after paying off all your creditors.
On the balance sheet, book value is represented as “shareholders’ equity.” (Dividing this aggregate total by the number of shares outstanding will give you a per-share book value.)
This is a more conservative measure, which embraces a “bird-in-hand” philosophy of valuation. Investors use it to spot cases in which the market is over- or undervaluing a company’s true strength.
For example, a retailer that owns the buildings its stores are housed in might be sitting on unrealized real estate gains.
The right way to use P/E and other valuation tools
When times are good, investors think the happy days will last forever, and they are willing to pay exorbitant amounts for earnings.
When times are bad, they assume the world is ending and refuse to pay much of anything. In assessing how much a stock is worth, investors talk about “valuation,” the stock price relative to any number of criteria.
The P/E, for example, compares a company’s stock price to its earnings.
Price/earnings (P/E) ratio
Everybody uses it, but not everybody understands it. The actual P/E calculation is easy:
Just divide the current price per share by earnings per share. (Just about every finance website with a quote box provides the P/E — including CNN/Money.)
But what number should you use for earnings per share? The sum of the past four quarters? Estimates for next year?
There is no right answer. The P/E based on the past four quarters provides the most accurate reflection of the current valuation, because those earnings have already been booked.
But investors are always looking ahead, so most also pay attention to estimates, which also are widely available at financial websites (including CNN/Money).
Wall Street analysts generally compute earnings per share estimates for the current fiscal year and the next fiscal year, and use those estimates to assign a P/E, though there is no guarantee that the company will meet those estimates.
The P/E can’t tell you whether to buy or sell. It is merely a gauge to tell you whether a stock is overvalued or undervalued. Assuming they have the same total shares outstanding, is a $100 stock more expensive than a $50 stock?
Not exactly. Where valuation is concerned, price is dictated by expectations of future performance. If the earnings of the higher-priced company are growing considerably faster than the other, the higher price may be justified.
What’s an appropriate P/E? Different types of stocks win different valuations. Generally, the market pays up for growth or enormous profitability. Consider GE and Microsoft, two well-run companies that vie for the title of biggest market capitalization. GE takes in more revenue in a quarter than Microsoft does in a year. Yet Microsoft boasts enormously fat profit margins, and generally stronger growth prospects than GE does in many of its businesses.
That’s why the market rewards Microsoft with a P/E that’s more than twice that of GE, despite the relative size of their respective businesses.
To quickly compare P/Es and growth rates, use the PEG ratio — the P/E (based on estimates for the current year) divided by the long-term growth rate. A company with a P/E of 35 and a growth rate of 20 percent, has a PEG of 1.8.
In general, you want a stock with a PEG that’s close to 1.0, which means it is trading in line with its growth rate, but for a quality company, you can pay more.
Also, don’t get excited by rock-bottom P/Es — some companies are doomed to low valuations. One group the market tends to penalize is cyclicals, companies whose performance rises and falls with the economy.
When times are good, General Motors can be highly profitable, for example. But because automakers tend to be hit hard during general economic downturns, investors account for the next recession in GE shares by awarding them a lower P/E.
Price/Sales ratio
Just as investors like to know how much they’re paying for earnings, it’s also useful to know how much they’re paying for revenue (the terms “sales” and “revenue” are used interchangeably).
To calculate the Price/Sales ratio, divide the stock price by the total sales per share for the past 12 months. You could also use revenue estimates for the next fiscal year, which are being published more frequently on financial websites.
Like P/Es, Price/Sales ratios are all over the map, with fast-growers tending to get the highest valuations.
Price/Book Value ratio
Defined simply, book value equals a company’s total assets minus its total liabilities and intangible assets. In other words, if you liquidated a firm, this is what the leftover assets would be worth after paying off all your creditors.
On the balance sheet, book value is represented as “shareholders’ equity.” (Dividing this aggregate total by the number of shares outstanding will give you a per-share book value.)
This is a more conservative measure, which embraces a “bird-in-hand” philosophy of valuation. Investors use it to spot cases in which the market is over- or undervaluing a company’s true strength.
For example, a retailer that owns the buildings its stores are housed in might be sitting on unrealized real estate gains.
What is Fundamental Analysis?
What is Fundamental Analysis
Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock.
Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.
Earnings
It’s all about earnings. When you come to the bottom line, that’s what investors want to know. How much money is the company making and how much is it going to make in the future.
Earnings are profits. It may be complicated to calculate, but that’s what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.
When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.
While earnings are important, by themselves they don’t tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools.
Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.
Earnings per Share - EPS
Price to Earnings Ratio - P/E
Projected Earning Growth - PEG
Price to Sales - P/SPrice to Book - P/B
Dividend Payout Ratio
Dividend YieldBook
Value Return on Equity
No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become
Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock.
Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.
Earnings
It’s all about earnings. When you come to the bottom line, that’s what investors want to know. How much money is the company making and how much is it going to make in the future.
Earnings are profits. It may be complicated to calculate, but that’s what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.
When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.
While earnings are important, by themselves they don’t tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools.
Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.
Earnings per Share - EPS
Price to Earnings Ratio - P/E
Projected Earning Growth - PEG
Price to Sales - P/SPrice to Book - P/B
Dividend Payout Ratio
Dividend YieldBook
Value Return on Equity
No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become
12 October 2007
The Stock Market for Dummies
Learning about the stock market can be a long, painful and complicated task. In order to avoid all the migraines and all the mental disabilities that can be caused by such information overload, there are easy ways to learn all about it.
That is of course to read this package: The Stock Market for Dummies. There are a few basic points that everyone needs to know in order to be able to achieve success. Obviously how things work in a stock market is one of them as well as types of stocks and bonds, which one’s could bring more profit and other such boring pieces of information will be very useful to know. Let’s start from the beginning.
The stock market is a place where stocks, bonds, or other securities are bought and sold. When you buy stocks or shares in a company you gain part ownership in that company. In today’s world people buy stocks in order to gain dividends on money that they have invested. Some advantages of buying stocks over bank deposits; money-market funds or bonds are that stocks have a long historical track. Although the disadvantages of buying stocks are that the market fluctuates very often and the stocks are never guaranteed so you may loose all of the money you have invested. Before deciding on what type of stock you are going to purchase, you must determine what type of investor you are.
There are two types of investors: technicians and fundamentalists. Technicians (through statistics) are investors that tend to buy and sell stocks very quickly. These investors are not interested in book values, dividends or earning although they study the price patterns of that certain stock. Fundamentalists (through news/media) are investors that look for long-term growth in a company. They consider such factors as earning, dividends and book values and are as interested in the price patterns because they are in for long term growth so they know that the market will fluctuate.
When you are buying stocks there are three different types that you may choose from: Penny stocks, growth stocks and blue chip stocks. Penny stocks are stocks from a company that has almost no chance of developing into a big company and the stocks are of very little monetary value. These stocks for example would be a chain of local pizza stores that would never make it into the big market of restaurants such as Pizza Hut but would do well in it’s local market. Growth stocks are companies that have a high potential to achieve great success, but they can also be very risky investments because they are not well established.
An example of this type of company would one that invents a product that may make a big impact on the market similar to when air bags were invented their stocks probably rose drastically. These stocks would be the intermediate level in the purchasing of stocks. The highest level of stock purchasing is buying blue chip stocks. Blue chip stocks are of companies that are very well established and have almost no chance of its stocks dropping drastically. Some of these stocks would be of companies such as McDonald’s Corp., General Motors Corp., Coca-Cola Co., etc.
Although blue chip stocks are the best stocks to invest in, they can also be very expensive limiting you to only buy a few of that companies shares. Often when the price of a stock plateaus, the company decided to split its stock. When this occurs you receive more stock for your money already invested. But when your companies’ stock splits two for one you get twice the amount of stock but the value of that stock depreciates by 50%. Reverse splitting means that the stock double in value although you only get to keep half the stocks you had before. Any way the stock may split you will not loose your money. In any companies stock they are two different types of stocks you can buy: Common Stock and Preferred Stock.
Common stock in a company shows you that you own a fraction of a company. Since common stock has a high potential for gain they are the last person to receive their dividends after those who own preferred stock. Preferred stock is sold to the public after all the common stock is sold. Companies who are going out of business have to pay out their preferred stock owners first because they have paid a higher premium for that same stock.
Preferred stock owners only receive a fixed dividend payment making it the only drawback for people to purchase this type of stock.After you have decided what type of stock to purchase you must find a broker. This person will only take orders to buy and sell stock tickets. Every brokerage firm has two types of brokers. Stockbrokers help by giving advise to on investing and by doing research on stocks. Discount brokers are the “middle man” of buying and selling stocks and do not research or give advise. After you find a broker, all that you have to do is give him or her a call when wanting to buy or sell your stock.
That is of course to read this package: The Stock Market for Dummies. There are a few basic points that everyone needs to know in order to be able to achieve success. Obviously how things work in a stock market is one of them as well as types of stocks and bonds, which one’s could bring more profit and other such boring pieces of information will be very useful to know. Let’s start from the beginning.
The stock market is a place where stocks, bonds, or other securities are bought and sold. When you buy stocks or shares in a company you gain part ownership in that company. In today’s world people buy stocks in order to gain dividends on money that they have invested. Some advantages of buying stocks over bank deposits; money-market funds or bonds are that stocks have a long historical track. Although the disadvantages of buying stocks are that the market fluctuates very often and the stocks are never guaranteed so you may loose all of the money you have invested. Before deciding on what type of stock you are going to purchase, you must determine what type of investor you are.
There are two types of investors: technicians and fundamentalists. Technicians (through statistics) are investors that tend to buy and sell stocks very quickly. These investors are not interested in book values, dividends or earning although they study the price patterns of that certain stock. Fundamentalists (through news/media) are investors that look for long-term growth in a company. They consider such factors as earning, dividends and book values and are as interested in the price patterns because they are in for long term growth so they know that the market will fluctuate.
When you are buying stocks there are three different types that you may choose from: Penny stocks, growth stocks and blue chip stocks. Penny stocks are stocks from a company that has almost no chance of developing into a big company and the stocks are of very little monetary value. These stocks for example would be a chain of local pizza stores that would never make it into the big market of restaurants such as Pizza Hut but would do well in it’s local market. Growth stocks are companies that have a high potential to achieve great success, but they can also be very risky investments because they are not well established.
An example of this type of company would one that invents a product that may make a big impact on the market similar to when air bags were invented their stocks probably rose drastically. These stocks would be the intermediate level in the purchasing of stocks. The highest level of stock purchasing is buying blue chip stocks. Blue chip stocks are of companies that are very well established and have almost no chance of its stocks dropping drastically. Some of these stocks would be of companies such as McDonald’s Corp., General Motors Corp., Coca-Cola Co., etc.
Although blue chip stocks are the best stocks to invest in, they can also be very expensive limiting you to only buy a few of that companies shares. Often when the price of a stock plateaus, the company decided to split its stock. When this occurs you receive more stock for your money already invested. But when your companies’ stock splits two for one you get twice the amount of stock but the value of that stock depreciates by 50%. Reverse splitting means that the stock double in value although you only get to keep half the stocks you had before. Any way the stock may split you will not loose your money. In any companies stock they are two different types of stocks you can buy: Common Stock and Preferred Stock.
Common stock in a company shows you that you own a fraction of a company. Since common stock has a high potential for gain they are the last person to receive their dividends after those who own preferred stock. Preferred stock is sold to the public after all the common stock is sold. Companies who are going out of business have to pay out their preferred stock owners first because they have paid a higher premium for that same stock.
Preferred stock owners only receive a fixed dividend payment making it the only drawback for people to purchase this type of stock.After you have decided what type of stock to purchase you must find a broker. This person will only take orders to buy and sell stock tickets. Every brokerage firm has two types of brokers. Stockbrokers help by giving advise to on investing and by doing research on stocks. Discount brokers are the “middle man” of buying and selling stocks and do not research or give advise. After you find a broker, all that you have to do is give him or her a call when wanting to buy or sell your stock.
My Quotes
“Character cannot be developed in ease and quiet. Only through experiences of trial and suffering can the soul be strengthened, vision cleared, ambition inspired and success achieved. You gain strength, experience and confidence by every experience where you really stop to look fear in the face…. You must do the thing you cannot do. And remember, the finest steel gets sent through the hottest furnace. A winner is not one who never fails, but one who NEVER QUITS!”
“You don’t get to choose how you’re going to die, or when. You can only decide how you’re going to live. Now.”
“How great a success is not measured by how great the achievement is, but the countless obstacles that have been encountered to achieve success.”
“A man’s life is like a piece of paper, where people leave a mark on the paper.”
“Happiness keeps you sweet, Trials keep you strong, Sorrows keep you human, Failures keep you humble, Success keeps you glowing” “You are to gather up the joys and sorrows, the struggles, the beauty, love, dreams and hope of every hour that they may be consecrated at the altar of daily life”
“You don’t get to choose how you’re going to die, or when. You can only decide how you’re going to live. Now.”
“How great a success is not measured by how great the achievement is, but the countless obstacles that have been encountered to achieve success.”
“A man’s life is like a piece of paper, where people leave a mark on the paper.”
“Happiness keeps you sweet, Trials keep you strong, Sorrows keep you human, Failures keep you humble, Success keeps you glowing” “You are to gather up the joys and sorrows, the struggles, the beauty, love, dreams and hope of every hour that they may be consecrated at the altar of daily life”
Discover the 90/10 Principle
It will change your life (at least the way you react to situations). What is this principle? 10% of life is made up of what happens to you. 90% of life is decided by how you react. What does this mean?
We really have no control over 10% of what happens to us.
We cannot stop the car from breaking down. The plane will be late arriving, which throws our whole schedule off. A driver may cut us off in traffic. We have no control over this 10%. The other 90% is different. You determine the other 90%.
How? By your reaction. You cannot control a red light. However, you can control your reaction. Do not let people fool you; YOU can control how you react.
Let us use an example: You are eating breakfast with your family. Your daughter knocks over a cup of coffee onto your business shirt. You have no control over what just happened. What happens next will be determined by how you react. You curse. You harshly scold your daughter for knocking the cup over. She breaks down in tears. After scolding her, you turn to your spouse and criticize her for placing the cup too close to the edge of the table. A short verbal battle follows. You storm upstairs and change your shirt. Back downstairs, you find your daughter has been too busy crying to finish breakfast and get ready for school. She misses the bus. Your spouse must leave immediately for work. You rush to the car and drive your daughter to school. Because you are late, you drive 40 miles an hour in a 30 mph speed limit zone. After a 15-minute delay and throwing $60 traffic fine away, you arrive at school. Your daughter runs into the building without saying goodbye. After arriving at the office 20 minutes late, you find you forgot your briefcase. Your day has started terrible. As it continues, it seems to get worse and worse. You look forward to coming home, When you arrive home, you find small wedge in your relationship with your spouse and daughter.
Why? Because of how you reacted in the morning. Why did you have a bad day?
A. Did the coffee cause it?
B. Did your daughter cause it?
C. Did the policeman cause it?
D. Did you cause it?
The answer is “D”.
You had no control over what happened with the coffee. How you reacted in those 5 seconds is what caused your bad day. Here is what could have and should have happened. Coffee splashes over you. Your daughter is about to cry. You gently say, “Its ok honey, you just need to be more careful next time”. Grabbing a towel, you rush upstairs. After grabbing a new shirt and your briefcase, you come back down in time to look through the window and see your child getting on the bus. She turns and waves. You arrive 5 minutes early and cheerfully greet the staff. Your boss comments on how good the day you are having.
Notice the difference? Two different scenarios. Both started the same. Both ended different. Why? Because of how you REACTED. You really do not have any control over 10% of what happens. The other 90% was determined by your reaction.
Here are some ways to apply the 90/10 principle.
If someone says something negative about you, do not be a sponge. Let the attack roll off like water on glass. You do not have to let the negative comment affect you! React properly and it will not ruin your day. A wrong reaction could result in losing a friend, being fired, getting stressed out etc.
How do you react if someone cuts you off in traffic?
·Do you lose your temper?
· Pound on the steering wheel? (A friend of mine had the steering wheel fall off)
· Do you curse?
· Does your blood pressure skyrocket?
· Do you try to bump them?
WHO CARES if you arrive ten seconds later at work? Why let the cars ruin your drive. Remember the 90/10 principle, and do not worry about it.
You are told you lost your job. Why lose sleep and get irritated? It will work out. Use your worrying energy and time into finding another job.
The plane is late; it is going to mangle your schedule for the day. Why take out your frustration on the flight attendant? She has no control over what is going on. Use your time to study, get to know the other passenger.
Why are you stressed out? It will just make things worse. Now you know the 90/10 principle. Apply it and you will be amazed at the results. You will lose nothing if you try it.
The 90/10 principle is incredible. Very few know and apply this principle.
The result? Millions of people are suffering from undeserved stress, trials, problems and heartache.
We all must understand and apply the 90/10 principle.
It CAN change your life!
We really have no control over 10% of what happens to us.
We cannot stop the car from breaking down. The plane will be late arriving, which throws our whole schedule off. A driver may cut us off in traffic. We have no control over this 10%. The other 90% is different. You determine the other 90%.
How? By your reaction. You cannot control a red light. However, you can control your reaction. Do not let people fool you; YOU can control how you react.
Let us use an example: You are eating breakfast with your family. Your daughter knocks over a cup of coffee onto your business shirt. You have no control over what just happened. What happens next will be determined by how you react. You curse. You harshly scold your daughter for knocking the cup over. She breaks down in tears. After scolding her, you turn to your spouse and criticize her for placing the cup too close to the edge of the table. A short verbal battle follows. You storm upstairs and change your shirt. Back downstairs, you find your daughter has been too busy crying to finish breakfast and get ready for school. She misses the bus. Your spouse must leave immediately for work. You rush to the car and drive your daughter to school. Because you are late, you drive 40 miles an hour in a 30 mph speed limit zone. After a 15-minute delay and throwing $60 traffic fine away, you arrive at school. Your daughter runs into the building without saying goodbye. After arriving at the office 20 minutes late, you find you forgot your briefcase. Your day has started terrible. As it continues, it seems to get worse and worse. You look forward to coming home, When you arrive home, you find small wedge in your relationship with your spouse and daughter.
Why? Because of how you reacted in the morning. Why did you have a bad day?
A. Did the coffee cause it?
B. Did your daughter cause it?
C. Did the policeman cause it?
D. Did you cause it?
The answer is “D”.
You had no control over what happened with the coffee. How you reacted in those 5 seconds is what caused your bad day. Here is what could have and should have happened. Coffee splashes over you. Your daughter is about to cry. You gently say, “Its ok honey, you just need to be more careful next time”. Grabbing a towel, you rush upstairs. After grabbing a new shirt and your briefcase, you come back down in time to look through the window and see your child getting on the bus. She turns and waves. You arrive 5 minutes early and cheerfully greet the staff. Your boss comments on how good the day you are having.
Notice the difference? Two different scenarios. Both started the same. Both ended different. Why? Because of how you REACTED. You really do not have any control over 10% of what happens. The other 90% was determined by your reaction.
Here are some ways to apply the 90/10 principle.
If someone says something negative about you, do not be a sponge. Let the attack roll off like water on glass. You do not have to let the negative comment affect you! React properly and it will not ruin your day. A wrong reaction could result in losing a friend, being fired, getting stressed out etc.
How do you react if someone cuts you off in traffic?
·Do you lose your temper?
· Pound on the steering wheel? (A friend of mine had the steering wheel fall off)
· Do you curse?
· Does your blood pressure skyrocket?
· Do you try to bump them?
WHO CARES if you arrive ten seconds later at work? Why let the cars ruin your drive. Remember the 90/10 principle, and do not worry about it.
You are told you lost your job. Why lose sleep and get irritated? It will work out. Use your worrying energy and time into finding another job.
The plane is late; it is going to mangle your schedule for the day. Why take out your frustration on the flight attendant? She has no control over what is going on. Use your time to study, get to know the other passenger.
Why are you stressed out? It will just make things worse. Now you know the 90/10 principle. Apply it and you will be amazed at the results. You will lose nothing if you try it.
The 90/10 principle is incredible. Very few know and apply this principle.
The result? Millions of people are suffering from undeserved stress, trials, problems and heartache.
We all must understand and apply the 90/10 principle.
It CAN change your life!
SEVEN DEADLY INVESTMENT SINS
1. Believing that you have to predict the market’s next move to make big returns
2. The “Guru” belief: If you can’t predict the market, there’s someone somewhere who can and all I need to do is to find him
3. Believing that “Insider Information” is the way to make big money
4. Diversifying
5. Believing that you have to take big risks to make big profits
6.The “System” belief: Somebody, somewhere has developed a system - some arcane refinement of technical analysis, fundamental analysis, computerized trading, - that will guarantee investment profits
7. Believing that you know what the future will bring - and being certain that the market must “inevitably” prove you right
Winning Habit #1
Preservation of capital is always priority #1 (Never lose money)
The Master Investor
Believes his priority is always preservation of capital, which is the cornerstone of his investment strategy.
The Losing Investor
Only investment aim is “to make a lot of money” As a result, often fails to keep it up.
High Probability Events!
Only invest in “high probability event” and nothing else. Risk of loss is tiny or non-existent.
Winning Habit #2
Passionately Avoid Risk
The Master Investor
Is risk-adverse
The Losing Investor
Thinks that big profits can only be made by taking big risks
Risk is contextual
Risk is related to knowledge, understanding and competence
Risk declines with experience
4 Stages of Learning
Unconscious incompetence
Conscious incompetence
Conscious competence
Unconscious competence
2. The “Guru” belief: If you can’t predict the market, there’s someone somewhere who can and all I need to do is to find him
3. Believing that “Insider Information” is the way to make big money
4. Diversifying
5. Believing that you have to take big risks to make big profits
6.The “System” belief: Somebody, somewhere has developed a system - some arcane refinement of technical analysis, fundamental analysis, computerized trading, - that will guarantee investment profits
7. Believing that you know what the future will bring - and being certain that the market must “inevitably” prove you right
Winning Habit #1
Preservation of capital is always priority #1 (Never lose money)
The Master Investor
Believes his priority is always preservation of capital, which is the cornerstone of his investment strategy.
The Losing Investor
Only investment aim is “to make a lot of money” As a result, often fails to keep it up.
High Probability Events!
Only invest in “high probability event” and nothing else. Risk of loss is tiny or non-existent.
Winning Habit #2
Passionately Avoid Risk
The Master Investor
Is risk-adverse
The Losing Investor
Thinks that big profits can only be made by taking big risks
Risk is contextual
Risk is related to knowledge, understanding and competence
Risk declines with experience
4 Stages of Learning
Unconscious incompetence
Conscious incompetence
Conscious competence
Unconscious competence
Understanding Life
Why do we close our eyes when we sleep?
When we cry?
When we imagine?
When we kiss?
This is because THE MOST BEAUTIFUL THING IN THE WORLD IS UNSEEN.
Happiness lies for those who cry, those who hurt,
those who have searched and those who have tried. For
only they can appreciate the importance of the people
who have touched their lives.
The strongest people are not those who always win but
those who stand back up when they fall.
Somehow along the course of life, you learn about
yourself and realize there should never be regrets,
only a lifelong appreciation of the choices you’ve made.
Loving is not how you forget but how you forgive, not
how you listen but how you understand, not what you
see but how you feel, and not how you let go but how you hold on.
It’s more dangerous to weep inwardly rather than
outwardly. Outward tears can be wiped away while
secret tears scar forever.
When we cry?
When we imagine?
When we kiss?
This is because THE MOST BEAUTIFUL THING IN THE WORLD IS UNSEEN.
Happiness lies for those who cry, those who hurt,
those who have searched and those who have tried. For
only they can appreciate the importance of the people
who have touched their lives.
The strongest people are not those who always win but
those who stand back up when they fall.
Somehow along the course of life, you learn about
yourself and realize there should never be regrets,
only a lifelong appreciation of the choices you’ve made.
Loving is not how you forget but how you forgive, not
how you listen but how you understand, not what you
see but how you feel, and not how you let go but how you hold on.
It’s more dangerous to weep inwardly rather than
outwardly. Outward tears can be wiped away while
secret tears scar forever.
My Favourite Albert Einstein Quotes
“Any intelligent fool can make things bigger,
more complex, and more violent. It takes a touch
of genius - and a lot of courage - to move in
the opposite direction.”
“Imagination is more important than knowledge.”
“Gravitation is not responsible for people falling
in love.”
“A person starts to live when he can live outside
himself.”
“Sometimes one pays most for the things one gets
for nothing.”
“The whole of science is nothing more than a
refinement of everyday thinking.”
“The most incomprehensible thing about the
world is that it is comprehensible.”
“We can’t solve problems by using the same kind
of thinking we used when we created them.”
“Education is what remains after one has
forgotten everything he learned in school.”
“If A is a success in life, then A equals x plus y
plus z. Work is x; y is play; and z is keeping your
mouth shut.”
“Two things are infinite: the universe and human
stupidity; and I’m not sure about the universe.”
“As far as the laws of mathematics refer to
reality, they are not certain, as far as they are
certain, they do not refer to reality.”
“I know not with what weapons World War III
will be fought, but World War IV will be fought
with sticks and stones.”
more complex, and more violent. It takes a touch
of genius - and a lot of courage - to move in
the opposite direction.”
“Imagination is more important than knowledge.”
“Gravitation is not responsible for people falling
in love.”
“A person starts to live when he can live outside
himself.”
“Sometimes one pays most for the things one gets
for nothing.”
“The whole of science is nothing more than a
refinement of everyday thinking.”
“The most incomprehensible thing about the
world is that it is comprehensible.”
“We can’t solve problems by using the same kind
of thinking we used when we created them.”
“Education is what remains after one has
forgotten everything he learned in school.”
“If A is a success in life, then A equals x plus y
plus z. Work is x; y is play; and z is keeping your
mouth shut.”
“Two things are infinite: the universe and human
stupidity; and I’m not sure about the universe.”
“As far as the laws of mathematics refer to
reality, they are not certain, as far as they are
certain, they do not refer to reality.”
“I know not with what weapons World War III
will be fought, but World War IV will be fought
with sticks and stones.”
09 October 2007
“Deal or No Deal” Gameshow
The Game Itself:
On the TV show “Deal or No Deal”, a contestant is faced with a number of briefcases (26 in the Singapore version) in which various amounts of money have been placed. The contestant is asked to select one to keep, unopened. Then the player plays a number of rounds.
In each round, the contestant is asked to select some of the other briefcases to open (usually several in the early rounds, decreasing in number to the later rounds). After seeing what is in the open briefcases, the contestant has a better idea what possible amounts of money could be in his briefcase.
A banker, who has also seen what has been opened, then offers the contestant a sum of money— usually this offer is smaller than the average of the remaining prizes (significantly so at first, but closer to the average in later rounds). The contestant can either take it, or reject the offer and continue to play another round. The excitement of the game centers round the decision that the contestant faces: “Deal or No Deal?”
The Methodology Behind:
The ideal behind “Deal or No Deal” is simple. For example, consider the following scenario with four numbers on the board:
$75 $300 $500,000 $1,000,000
The Deal or No deal contestant has a 25% change of getting any number, and over a given number of trials, the expected payout of each value is 25% time that value:
Value Expected Payout
$75 $75*.25 = $19
$300 $300*.25 = $75
$500,000 $500,000*.25 = $125,000
$1,000,000 $1,000,000*.25 = $250,000
$375,000
In this simple example, the expected payout probability is $375,000. Now, you would expect the Deal or No Deal banker to offer a value that relates to the expected probable payout, right? In reality, the bank offers are calculated to manipulate the contestant (it’s what makes the game exciting).
In the early rounds, the banker makes offers that are less than the contestant’s expected probable payout (an incentive to continue). As the rounds near completion, some suggest that the contestants behavior can be altered by the “banker”, and that the offers (as compared to the expected probable gains) should increase, proportional to the risk/reward for each round:
Why offer above the expected payout? It’s because people’s attitude will change when faced with a large-stake high-risk gamble.
For example, consider a deal where we have two items left, one for $100k and another for $300k. The 50-50 chance expected payout over thousands of simulated trials would be (.5*100)+(.5*300)= $200k. What would you rather have, a $200k sure-thing, or a 50% chance of getting $300k, with the risk of losing $100k?
Since our downside risk is limited to $100k (the worst outcome), this decision point can be reduced into a simpler problem:
You have just won $200,000 and the right to gamble half of your winnings. You have these two choices:
a) You may wager $100,000 on a double-or-nothing, winner takes all, based on a random 50-50 choice (like the toss of a fair coin), or:
b) Take $200,000 and quit.
Obviously, this curve is never linear, but with a hit show like this, the Deal of No Deal bank offers are carefully crafted to maximize the stress on the contestant!
My Summary:
The host plays a motivational role in to the player, especially when large amounts are opened in the early stages.
The host can “mislead” the player by quoting about the S$250,000 in the selected box which hardly actualise. The probability of the selected box to be S$250,000 increases when the number of opened boxes increases. However, this is pure mathematics, disregarding human emotions. You have to ignore the host at times!
Adopt the mentality of expected comfortable return even before the game starts. Once the expectation meets, call if off. The greed element is the killer.
At the end of the day, you got to realise that you’re still a winner! You never leave the game empty-handed. At least you will be better-off, just a matter of how much better!
You can devise your own strategy in selecting boxes; based on past box figures. In strict mathematics, such past precedents does not affect future outcomes. Random walk theory can also be adopted. The number 1 mistake that people commit is choosing their favourite numbers to open those boxes! Instead, those favourite numbers should be left unopened!
The goal is to pick small values in order to have a higher expected payoff, and hence, a higher bank offer. The expected payoff in Deal or No Deal is essentially probability problem.
If numerous big values are picked in the early stages, it would mean a smaller bank offer proportionately. However, that would also represents that the chances of opening smaller values are higher in the later stages, so don’t despair early. In such cases the bank offer will increase tremendously in the later stages in small values are opened.
Understanding human behavior in terms of utilities and preferences is the subject of game theory, which forms much of the modern language of mathematical economics.
On the TV show “Deal or No Deal”, a contestant is faced with a number of briefcases (26 in the Singapore version) in which various amounts of money have been placed. The contestant is asked to select one to keep, unopened. Then the player plays a number of rounds.
In each round, the contestant is asked to select some of the other briefcases to open (usually several in the early rounds, decreasing in number to the later rounds). After seeing what is in the open briefcases, the contestant has a better idea what possible amounts of money could be in his briefcase.
A banker, who has also seen what has been opened, then offers the contestant a sum of money— usually this offer is smaller than the average of the remaining prizes (significantly so at first, but closer to the average in later rounds). The contestant can either take it, or reject the offer and continue to play another round. The excitement of the game centers round the decision that the contestant faces: “Deal or No Deal?”
The Methodology Behind:
The ideal behind “Deal or No Deal” is simple. For example, consider the following scenario with four numbers on the board:
$75 $300 $500,000 $1,000,000
The Deal or No deal contestant has a 25% change of getting any number, and over a given number of trials, the expected payout of each value is 25% time that value:
Value Expected Payout
$75 $75*.25 = $19
$300 $300*.25 = $75
$500,000 $500,000*.25 = $125,000
$1,000,000 $1,000,000*.25 = $250,000
$375,000
In this simple example, the expected payout probability is $375,000. Now, you would expect the Deal or No Deal banker to offer a value that relates to the expected probable payout, right? In reality, the bank offers are calculated to manipulate the contestant (it’s what makes the game exciting).
In the early rounds, the banker makes offers that are less than the contestant’s expected probable payout (an incentive to continue). As the rounds near completion, some suggest that the contestants behavior can be altered by the “banker”, and that the offers (as compared to the expected probable gains) should increase, proportional to the risk/reward for each round:
Why offer above the expected payout? It’s because people’s attitude will change when faced with a large-stake high-risk gamble.
For example, consider a deal where we have two items left, one for $100k and another for $300k. The 50-50 chance expected payout over thousands of simulated trials would be (.5*100)+(.5*300)= $200k. What would you rather have, a $200k sure-thing, or a 50% chance of getting $300k, with the risk of losing $100k?
Since our downside risk is limited to $100k (the worst outcome), this decision point can be reduced into a simpler problem:
You have just won $200,000 and the right to gamble half of your winnings. You have these two choices:
a) You may wager $100,000 on a double-or-nothing, winner takes all, based on a random 50-50 choice (like the toss of a fair coin), or:
b) Take $200,000 and quit.
Obviously, this curve is never linear, but with a hit show like this, the Deal of No Deal bank offers are carefully crafted to maximize the stress on the contestant!
My Summary:
The host plays a motivational role in to the player, especially when large amounts are opened in the early stages.
The host can “mislead” the player by quoting about the S$250,000 in the selected box which hardly actualise. The probability of the selected box to be S$250,000 increases when the number of opened boxes increases. However, this is pure mathematics, disregarding human emotions. You have to ignore the host at times!
Adopt the mentality of expected comfortable return even before the game starts. Once the expectation meets, call if off. The greed element is the killer.
At the end of the day, you got to realise that you’re still a winner! You never leave the game empty-handed. At least you will be better-off, just a matter of how much better!
You can devise your own strategy in selecting boxes; based on past box figures. In strict mathematics, such past precedents does not affect future outcomes. Random walk theory can also be adopted. The number 1 mistake that people commit is choosing their favourite numbers to open those boxes! Instead, those favourite numbers should be left unopened!
The goal is to pick small values in order to have a higher expected payoff, and hence, a higher bank offer. The expected payoff in Deal or No Deal is essentially probability problem.
If numerous big values are picked in the early stages, it would mean a smaller bank offer proportionately. However, that would also represents that the chances of opening smaller values are higher in the later stages, so don’t despair early. In such cases the bank offer will increase tremendously in the later stages in small values are opened.
Understanding human behavior in terms of utilities and preferences is the subject of game theory, which forms much of the modern language of mathematical economics.
07 October 2007
Six Thinking Hats - By Edward de Bono
White Hat - neutral and objective, concerned with facts and figures
Red Hat - Emotional views; rage and emotions
Black Hat - Points out the weakness in an idea; somber and serious,; careful and cautious
Yellow Hat - Optimistic and covers hope and positive thinking; sunny and positive
Green Hat - Creative and new ideas
Blue Hat - Control the organization of the thinking process and the use of other hats.
Quick Summary:
In writing my comments on this book, I will not attempt to use the six thinking hats to review. I do agree to a certain extend that such a methodology in discussion or meetings might be time efficient which translates to cost savings. It points out the number 1 rule is that disagreements should be avoided and the ego of each individual shall be restrained.
Personal Viewpoints:
The key factor to such an adoption of such approach lies in the facilitator and the “blue hatter”, where they can be the same person. The facilitator decides when the hats can be interchangeable and the “blue hatter” controls the direction of the meeting, ensuring that the current issues are not diverted.
Such time control and directional decision needs judgement. The blue hatter or/and facilitator can determine the success of such adoption. That’s where we should assign such an important role to to the right person. This person shall match such a job role, not just matching alone is suffice, but to able to maximse the meeting and discussion. By using the StrengthsFinder 1.0 /2.0 as a guide may identify such a personality trait in fitting the post. A set of guidelines or criteria should be laid to fit the bill too.
In this methodology, the hats are interchangeable at times when such a hat could be exhausted at a different time. E.g. In the green hat, we seek for creative ideas and creative ideas do not just come when you want the brain to instill creativity. I’m not saying that green hat is a fruitless element in the six thinking hats, but this hat might be the hardest to work on.
We clearly understand that each of us have different strengths and weakness. Can we identify those people who are efficient in these different hats. E.g. I’m a person whos strength is in researching materials. Why not put me in as a white hatter? This person primary role is a white hatter but doesn’t mean he can’t contribute in other hats. Those might be his secondary roles.
The organization shall identify such strengths to such hats as primarily concern. The adoption of such thinking hats during the meeting can still be used. The six thinking hats is a “focus and organised” tool as we are divided into a pre-determined six segments. Therefore, the people attending the meeting will focus on one aspect when the facilitator points in one direction/ hat.
This clear-divided six segments has other limitations. Our brain is not a total robotic programming system. The brain can be directed to stay focus but you can’t control everyone’s brain during the meeting. Thoughts and ideas can just charge anytime to our brain nerves. That also explains why people daydream and visualize the future too.
Imagine now we are in the white hat zone where facts need to be supported and few could be having thoughts on the green hat. You can jot down those ideas and present when the green hat is turned on for discussion. However, at the juncture, you lose focus on the white hat.
To minimize such occurrence, it might be beneficial for those involved in such a meeting to do their ample homework before the meeting and aftermath. This means that the various caps should still be turned on before the meeting and even after the meeting. Every individual will do six thinking hat assessment before the meeting, probably a few days. The main agenda shall be disclosed if not on a very confidential level. After each meeting, depending on the progress of the meeting, the caps shall never be turned off should any point in time, each proficient individual shall works towards the last derived summary.
Existing of the culture is also a top barrier to implementation of such thinking hats where people could be resistant to changes or trying out new ideas, especially to the more conservative kinds. Simple and easy it seems, but hard to implement.
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