The Current AI Cannot Create Miracles

The so-called AI is not real AI. It cannot create miracles. It is not able to know anything humans don’t know. If you feed it with rubbish, it will output rubbish. Only one thing for sure, it will improve efficiency dramatically. The stock market has been overreacting in each case related to AI.

 5 Traits Are ‘Almost Certain To Succeed’ – Charlie Munger

In a 2019 interview with CNBC’s Becky Quick, Munger echoed advice from shareholder meetings and shared his secrets for a long and happy life. Here are five pieces of advice from Munger that undoubtedly contributed to his long life, financial success, and — most importantly — happiness.

1. Don’t overspend your income.

One key to success, according to Munger: “You don’t overspend your income.”

By living within your means, you can reduce stress surrounding debt, inflation and rising costs. I you are spending less than what you earn, you have a safety net if your expenses rise or your income drops. Plus, it frees up cash for investments and passive income generation.

2. Invest shrewdly

“It’s so simple to spend less than you earn, and invest shrewdly,” Munger told shareholders at one Berkshire Hathaway meeting.

“The big money is not in the buying and selling, but in the waiting,” he said.

He also advised that you should invest in businesses that virtually anyone can run. “If it won’t stand a little mismanagement, it’s not much of a business,” he said. However, don’t seek out businesses that are poorly run as a general practice: “We’re not looking for mismanagement, even if we can withstand it.”

3. Continue Learning

Munger had previously advised, “The game of life is the game of everlasting learning. At least it is if you want to win.” Munger also emphasized one of these best ways to gain knowledge: “In my whole life, I have known no wise people who didn’t read all the time — none, zero.”

4. Remain Disciplined

Hold on your principles. Don’t speculate. To achieve long term success, you need to be patient and do the right thing day by day and year after year.

5. Avoid Toxic People

While you want to seek out and surround yourself with reliable people, you also want to avoid the toxic ones, Munger advised. “A great lesson of life is get them the hell out of your life — and do it fast,” he told shareholders at one meeting. “If you do all those things, you are almost certain to succeed. If you don’t, you’re going to need a lot of luck.”

Charlie Munger’s Wisdom On House

For Charlie Munger, living in a relatively modest house wasn’t an accident — it was a conscious choice.

Munger, the billionaire investor and longtime business partner to Warren Buffett, at the age of 99. He’d previously discussed his rationale for living in the same California home over the past 70 years.

“[Buffett and I] are both smart enough to have watched our friends who got rich build these really fancy houses,” Munger said. “And I would say in practically every case, they make the person less happy, not happier.”

A “basic house” has utility, said Munger, noting that a larger home could help you entertain more people — but that’s about it. “It’s a very expensive thing to do, and it doesn’t do you that much good.”

Another drawback to owning a mega-mansion, he added: Such an ostentatious display of wealth could spoil his kids by encouraging them to “live grandly.” Munger had nine children across two marriages, including two step-sons and a son who died of leukemia at age 9.

“[Buffett and I] both considered bigger and better houses,” Munger said. “I had a huge number of children, so it was justifiable even. And I still decided not to live a life where I look like the Duke of Westchester or something. And I was going to avoid it. I did it on purpose … I didn’t think it would be good for the children.

As Munger alluded to, Buffett lives similarly: The 93-year-old billionaire bought his house in Omaha, Nebraska, for $31,500 in 1958, and has lived there ever since. Buffett’s quality of life would “be worse if [he] had six or eight houses,” he reportedly said at Berkshire Hathaway’s 2014 shareholder meeting.

Munger often preached the merits of living modestly, giving advice like “don’t have a lot of envy” and “don’t overspend your income.” In the Thursday interview, he credited his success and longevity to a long-held sense of caution and an ability “to avoid all standard ways of failing.”

“Avoid crazy at all costs,” said Munger. “Crazy is way more common than you think. It’s easy to slip into crazy. Just avoid it, avoid it, avoid it.”

This bubble is unmatched in history

Bad news for Chinese real estate market is constantly coming out these days. Western economists and analysts mostly think about the issue in the normal context of a free market economy. But the Chinese economy is not a free market economy, especially in the property market.

There is no doubt that the early development of the property market in the 90s and the first decade of 21st century long with the whole development of the economy brought millions of Chinese people out of poverty. However, because the Chinese government is the sole owner of all land in mainland China and has complete control of banks, law and media, to say that the Chinese government has the monopoly power over the property market is an understatement.

Based on analysis of the financial reports of developers in China, the government takes away 40%-45% of the revenue of a project. The government is the biggest winner for sure. Land has been the magic treasury box with endless cash flow for the governments since the beginning of commercial property development.

However, at the beginning of 2010’s, the return on investment of residential property at good location with reputable school was at 2% in 1st tier city, such as Shanghai, while the interest rate for one-year fixed deposit was at 3%.  The residential property price was already out of reach of ordinary people in China. But Chinese people was still pouring money into the property market in strong believing that the government wouldn’t allow the property price to drop and the price of property would keep going up.  With a stock market of disappointing performance and bad reputation, they believe that buying property was the only way for investment. To be sure, with capital control for overseas transaction and a casino like stock market, the only valid way for Chinese people to invest was buying property.

Moreover, home ownership is not a dream, but a necessity in Chinese culture. It was not uncommon for a marrying couple to buy an apartment for the new family with the help from their parents from both sides. This further made an impact the consumption of other items from these 3 families.

Meanwhile, although the government already realized that the property market at such price level was not sustainable, they cannot afford to lose the magic treasure box. They tried their best to stop people from speculating the market using policy tools and propaganda machine on one hand, while made all the efforts to block any reports or comments pointing out potential property market crisis using censorship tools, and even to order the property developers not to drop the selling prices on the other hand.

Chinese property prices kept going up for almost another decade. The most recent available statistics showed that it took 20 to 43.5 years of median income to buy an apartment unit in 1st and 2nd tier cities in China. Meanwhile, Banks did not stop lending even they sense the risk, because the government owns banks. In addition, based on the relevant Chinese law, the banks are actually not bearing any direct risk for the mortgage, because in the great People’s Republic of China, once the buyer stop paying the mortgage, the bank will get the property, but it’s not the end of the contract, unlike in any other country. In the case of the selling price of the property cannot cover the rest of the mortgage owed by the buyer, the unfortunate buyer still has to pay the difference! These people not only lost their home, but most likely would carry the debt in the rest of their life. It’s happening now and more will come.

When I travelled and saw concrete jungles of high-rise buildings in China in recent years, I saw craziness of people from buyers, developers, bankers and government officials and wondered how ugly this would end up.

Are You Greedy Now

If you are a serious investor, you must have heard of the famous Buffett saying, “Be fearful when others are greedy. Be greedy when others are fearful.” Well, it’s easy to understand the idea, but very difficult to practice. The key is “when”.

Let’s look at the movement of index fund “QQQ” during the year-to-date bear market, there were two big rallies, only to lose ground to go further down again.

Invesco QQQ Trust (QQQ)

If you were greedy around mid March, you would have enjoyed a good rally, only to give back and fall further down later. The same scenario would happen again in July. Obviously, there were quite many people being greedy to have a good rally in a bear market, while there were even much more people being fearful in the first place to have a lasting bear market.

It seems that the winning formula “Be greedy when others are fearful”, doesn’t always work. If you became greedy too early while more people kept turning fearful, the market went down, even with much more people having turned fearful earlier. Only when the power of fearful is near exhaustion, the greedy side has the chance to win.

How do you know how many percent of people in the market being fearful? To be more accurate, you need to know the percentage of capital controlled by these people on the fearful side. If that percentage was over 90%, your greediness would win huge, simply because downward power of the market is near exhaustion.

However, there are no such market statistics available. You have to rely on your gut feeling. But gut feeling is not reliable. The next thing is the chart. By looking at the chart above, you might think QQQ already reach the bottom at early Nov, which is showing a quite strong signal until the chart of coming 3 months telling you otherwise, because if a recession came in 2023 and lasted longer than the market having expected, all the stocks and indexes would go down further. Although almost everybody is talking about recession this time, no one for sure whether it will really come and how sever it will be.

Only one thing for sure: Nobody knows where the bottom is. The only reliable indicators I learned from my almost 20 years of investment experiences are the valuation results based on fundamentals. If you look at the PE for QQQ on Yahoo Finance, it is 22. Based on QQQ’s historical data, PE at 22 is cheap. But you cannot analyze QQQ like an actual company and cannot tell whether companies included in QQQ will survive in a recession.  I eventually bought Microsoft in early Nov at $215 simply because Microsoft is a tech blue chip and it will most likely not only survive a recession, but thrive when everyone is struggle to “achieve more” with less. And most importantly, I could analyze it as a company with all the data available and concluded that it’s cheap at $215 with enough margin of safety.

Since then, the market has been fluctuated wildly. However, price of Microsoft has gone up 12% since 8 Nov while QQQ has dropped back to the same price level. Obviously, there are many investors have reached same conclusion on the value of Microsoft in the market, while it’s difficult to evaluate an index fund like QQQ, which is much more affected by the outlook of economy development in near terms.

In short, valuation is the No. 1 factor to make investment decision. Greed and fear in the market only helps you to get better prices.

The Characteristics of A Successful Investor

I am one of the many students of Warren Buffett and quite successful in applying his investment methodology and philosophy,although he never knows me. Mr. Buffett once mentioned that investment is not rocket science and you don’t need a very high IQ to do it. That said, with 18 years of experiences in practicing value investment, I think that it’s not a job an average person can do it, and takes certain level of high IQ, wisdom, and certain characteristics to do it constantly well in a life time.


As a Buffett style value investor, you must have the self-discipline to follow the rules set based on your understanding of Buffett’s methodology all the time. This is easier said than done. Fear and greedy often affect your decision making and taking action decisively. There were many times I missed the best prices to buy or to sell and then waited for the best prices to back again for fearing of losing money or just being greedy, and missed the whole opportunity forever.

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The Didi Phenomenon

What happened to Didi could happen to any company in China. The fundamental reason behind is not what Didi did, but the political and economical system in China. It’s not a market economy in China. There is no rule of law, but rule by official power, or by the ruling party in China. In fact, the party can cut the throat of any company at will.

What happened to Didi is not the first case, as the case for Alibaba is still fresh in our memory, and will not be the last case. This is another wake up call to the everyone living in the free world and taking freedom and rule of law as granted. Without systematic change in China, the drop in share prices of Didi or Alibaba is NOT temporary, and therefore not an opportunity for investors to pick up the shares.

The US regulators and administration should ban the public listing of Chinese companies or any company which generate its revenue mainly from a country where there is no rule of law to protect investors.

Privacy on Facebook

I have heard all the fuss about privacy on Facebook in recent years and am still wondering what kind of privacy these people have been so seriously complaining about. In the internet and telecommunication era, you expose your location once you turn on your device connecting to the Internet or mobile networks. You also expose your interests every time when you click on a link or type a word on your device. The search engines or the APPs, including Facebook, you often used would eventually know your interests and preferences.

However, these kinds of information are nothing related to your social security numbers, your bank account details or your assets, and of course not the shape of your private part, if you are always careful enough not to expose them on the Internet.

But why are there so many people care so much about it? It’s really beyond my keen. I don’t care if someone knows that I like black chocolate, or beautiful girls either naked or not. It would be nice, if Google or Facebook could provide such information proactively. The trade off between my personal preferences and a free service like Facebook is well worth it!

BTW, Facebook has been the my best idea for investment among big tech companies since 2017.

What to do now

It’s a most turbulent and unique period for every investor. Even Warren Buffett never has such experience over his very long and successful career as the most respected investor in the world. He has not made any drastic move and is sitting on $137 billion dollar cash pile, except selling all the airline shares. There are a lot of people thinking he is too old to make any smart move quickly, and they can outsmart him. The wild fluctuation of certain shares, such as Hertz and airlines, which were impacted severely by the pandemic, are the evidence of active trading by these people.

The reality is that nobody is able to predict the near further precisely. Will the pandemic be over next month, quarter, or even next year? Will there be 2nd wave of sudden increase of hundreds and thousands infected people? How sever the impact of shutdown of most of economic activities caused? How fast will the economy pick up? Nothing is for sure. A pandemic like this has never happened in modern era. The only thing Warren Buffett being sure was that the airline would not be able to recover for next 2 to 3 years and the whole industry will not be the same again.

So, what to do now?

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Don’t Panic

A friend called me yesterday, asking what happened to my holdings in US shares. This is a normal reaction of ordinary people after a stock market crash anywhere.

My answer was, “Well, the shares indeed dropped a lot. But I never doubt the US will still be the most prosperous country in the world in next few decades.”

I always buy shares of public companies like an entrepreneur buying a business. The most important criteria I have been using to screening companies is always their competitive advantage and how wide the moat of the business is. The 2nd criteria is the health of the companies’ balance sheets. I never buy shares of a company carrying debt far more than its equity no matter how good its business looks like. Of course, even with such stringent screening criteria, there are still risks to loss my money. There is no such things as ZERO risk in the investment world.

However, unless human civilization were totally destroyed by a catastrophe, such companies would certainly not only survive, but rise from the dust and become even stronger. I have never doubted about that. COVID-19 pandemic is not that kind of catastrophe for sure. With the advanced medical technology at genetic level, it will be all over within 2 years time. In addition, its death rate is actually lower than 3% if all every infected person has been included in the data analysis.