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Money matters: Every portfolio needs equities
Graham Macdonald
MBMG International Ltd.
Why is it that when we look at most portfolios, in the
broadest sense, investors seem to be more emotionally attached to equities than
to the other 3 asset classes (cash, bonds and alternatives)? Admittedly neither
cash nor bonds are very exciting, and alternatives are still much misunderstood,
but look at the performance of equities over the last century. They don’t seem
to be the most exciting asset class either.
Return(1) Risk(2) Downside Risk(3) Sortino Ratio(4)
Equities – Dow (from 1910) 5.25% 18.81% 12.72% 0.40
Maybe longevity has something to do with it. Property has
been around since man started walking upright and retains greater positive
investor sentiment than simply investing in REITs (Real Estate Investment
Trusts). The Dow has been around as an index since 1910 and that might explain
why people feel so comfortable investing for a return that equates to less than
1/3 of the amount of annualized risk.
The last 10 years have been a supposedly bull market and yet
a comparison of the different asset classes shows equities and properties have
trailed hedge funds and bonds alarmingly.
The information ratios (comparison between units of return
and units of risk) and Sortino ratios (see the definitions below) of stocks and
REITs are so poor in relation to both hedge and bond indices that you might
wonder why anyone invests in this way.
The right answer is that a balanced portfolio contains a
managed blend of all asset classes, with allocations changing according to
pervading economic conditions. Each asset class performs in different ways at
different times – every dog has its day, although for equities the dog seems
to bite its owner more often than with other asset classes.
Definitions:
(1) Compound annual rate of return.
(2) Annualized standard deviation – a measure of volatility
of return around their mean; the greater the number, the more volatile the
investment – up and down. If RoR = 10% and St. Dev = 10%, then you can expect
returns to range 0%-20%.
(3) Annualized downside deviation – a measure of volatility
that focuses upon only
losing months; the larger the negative number, bigger your likely loss when
things go bad.
(4) A measure of “bad” volatility – rate of return per unit of downside
volatility; the higher
the ratio the better the result; you will be losing less money for the returns
you are
getting; a figure > 3.0 is good.
The above data and research was compiled from sources believed to be
reliable. However, neither MBMG International Ltd nor its officers can
accept any liability for any errors or omissions in the above article nor
bear any responsibility for any losses achieved as a result of any actions
taken or not taken as a consequence of reading the above article. For more
information please contact Graham Macdonald on [email protected]
Snap Shots: The digital alternative becoming very attractive
by Harry Flashman
The debate as to whether to stay with conventional film
or to go digital has been running for over a decade. Of course in those
ten years there have been advances both with film, and with digital.
However, the digital movement has seen much greater strides being taken.
Similar to the digital phone revolution, where the mobile phone has become
smaller, smarter and cheaper, the digital camera has too.
 A
few technical terms need to be examined first, before we go on to a
comparison between film and digital. The sharpness of a final print is
governed by the quality of the lens, and the speed of the film. 50 ASA
film has smaller ‘grains’ and is therefore sharper than say 400 ASA
film that has larger, coarser grains in the film emulsion. There is a
similar situation with digital images, where the more pixels that are used
in a picture, the sharper is the final product. The actual measurement is
generally quoted as millions of pixels, called ‘megapixels’ and these
days there are cameras offering 14 megapixels, while ten years ago you
were lucky to see one megapixel of data.
So just as you can choose what film stock you use,
digital cameras allow you to select how many megapixels you will use in
each image. For example, in the VGA mode in the Sony Cyber-shot, which has
640 x 480 pixels, this will produce an image suitable for sending by email
(not overly sharp). If you decide on a 3 megapixel image size, this is
equivalent to 2048 x 1536 pixels (if you multiply those numbers together,
that gives 3 million). This can be enlarged substantially, but a 5
megapixel image can be printed in high quality up to 5 inches by 4 inches,
having 2592 x 1944 pixels.
Just like with print film, you have to decide just what
you will be doing with your pictures. If they are for the family album,
then the ultimate number of megapixels does not need to be offered by your
digital camera, and anything around 3 megapixels will be fine. However, if
these digital images are going to end up as fine art prints, then the more
megapixels the better, and I would suggest you need more than 7 megapixels.
Going back to our comparison between print and digital,
it is also important to compare like with like. The Sony Cyber-shot I
looked at does not have full control of aperture and shutter speed, so
that brings it into the realm of the ‘point and shoot’ compact
cameras, not the SLRs that have full creative control.
The Sony was certainly a ‘compact’, small enough to
fit in a shirt pocket. With compact print cameras that have to have a film
canister inside, they are obviously limited on how slim they can be, so
will not rival the digital cameras in any way. Digital wins that round.
Lens quality in the Sony was excellent, with the
important piece of glass coming from the Carl Zeiss Company, and equal to
the best in print camera compacts. This round is a draw!
Zooming with digital cameras can be both optical and
electronic, giving them greater close-up capabilities than the compact
option that only has an optical zoom. Digital wins again!
The photographic print is the final factor as far as I
am concerned. Despite digital owners showing you tiny images on the
viewing screen at the back of the camera, this is less than satisfactory.
You need a physical print you can put in the baby’s photo album. This
was an area where print film cameras were way ahead of their digital
brothers, but no more. The better ones, such as the Cyber-shot, have a
‘memory stick’. This you can take to the ‘digital’ photo shops
which can download the images and give you prints for around the same
price as print film photographs! Now that’s a draw again.
If you want ‘compact camera point and shoot’ ability only, I would
now suggest that it is time to go digital.
Modern Medicine: PNI and “Sabai Dii Smur”
by Dr. Iain Corness, Consultant
I have tried to be a ‘positive’ person for
many years. When I get asked the standard question, “How are you?” I reply,
“I’m always well,” to the English speakers, or “Sabai dii smur,” to
the locals.
Now have I discovered not only the elixir of youth but also
the secret to permanent health? Unfortunately No! On both counts - but those
words can have more effect on your life than you would imagine. It’s all to do
with PNI. And before you read further, I must also point out I am not a ‘tree
hugger’ either.
So what is PNI? To give it its full title, the letters stand
for Psycho-Neuro-Immunology, which explains very quickly why we just say “PNI”,
doesn’t it! In this rather inexact ‘newer’ science, what the boffins have
been able to do is to measure the body’s physical response to emotional
stresses. This is not the simple, “I’m under stress so my (blood)
pressure’s up,” but is a valid scientific attempt to quantify the
psychological insults to the body in physically measurable terms.
We already knew that those people who ‘dropped their
bundle’ under stress appeared to do less well than those who kept up a cheery
disposition, but it was all fairly anecdotal stuff.
However, there is fairly clear evidence that major forms of
infection can be stress-related. This has been shown for upper respiratory tract
infections (URTIs), recurrences of herpes infections, and bacterial infections.
Exposure to infection is the biggest predictor of becoming ill with an
infectious illness, but for individuals with equal levels of exposure there are
individual differences in ‘host-resistance’, and those differences affect
the likelihood of becoming ill once infected.
As Immunology became a real science, with the ability to
measure immune responses by examination of the blood, we began to get a better
idea of just what was going on. And guess what? It appeared that people under
“stress” depressed their immune system! Was this the answer? Stress reduces
your ability to fight things off. Elegantly simple, but unfortunately, too
simplistic!
Further studies were done by researchers all over the world
and sometimes stress appeared to reduce personal immune response, but other
people did not show the same effects when under the same type of stress. Just
who was fooling whom?
However, there were some studies that showed that those
people with a positive approach were more likely to “get through” a cancer
than those people with a negative attitude. The positive people had
significantly better 5 year survival rates for any cancer than the negative
folk. But we really didn’t know why.
More research indicated that positive people had better
‘immune counts’ than negative thinkers. So it seemed as if the positive
thinkers had ‘immuno-enhancement’ while those with negative outlooks and
poor coping skills ended up with ‘immuno-suppression’. This was, believe me,
a real breakthrough.
The medical scientific community began to look at disease
processes in a new light. The British Medical Journal now reported a very strong
relationship between breast cancer and women who were handling stressors poorly.
In fact, another study showed that women who were severely depressed were almost
four times more likely to die from all causes over a 5 year follow-up than those
who were not. Another study following the progression of HIV showed that those
with immuno-suppression (from poor coping skills) doubled the rate of
progression of the disease, compared to those with immuno-enhancement.
Having digested all that information, now “How are you
today?”
Learn to Live to Learn: Advance Placement Programme and Cultural Bias
with Andrew Watson
At the end of my last column, I began putting
the AP into educational and global context, looking at the course as a part of
whole school culture. It is a pertinent and polemical point. The AP grew out of
the socio-economic and political environment of the United States and one might
reasonably expect the courses to reflect this educational evolution.
I think the question is really, to what extent do courses
reflect their roots? Within this question there are distinct variables, not
least to do with the delivery of the programme.
Cynics will question whether ‘American culture’ is an
oxymoron. Defenders (such as myself) will describe the English Language of the
USA as a natural and positive evolution. Welcome to the brave new world of the
‘American’ language!
Critics will wonder what is involved in the teaching of AP
subjects such as US History, European History, World History and Comparative
Governmental Politics. From what perspective are these subjects taught?
Well, the espoused purpose of the AP World History course is
to develop greater understanding of the evolution of global processes and
contacts, in interaction with different types of human societies. However,
should we be concerned when the course emphasizes and selects relevant
factual knowledge?
Encouragingly, interpretation of fact does have a role and
the course discusses ‘types’ of historical evidence. But I know what you
must be wondering. Is the conclusion pre-ordained? Is the American AP a self
protecting educational extension of the American empire?
For instance, one might very well expect an American teacher
of contemporary US History to deliver the programme in a very different way from
an Iraqi teacher who might have studied in the US. Which naturally leads us to
ask whether a) bias in the delivery of the programme is inevitable; b) bias in
the content of the programme is obvious; c) if bias is inevitable and obvious,
then is it necessary or desirable and can it actually be encouraged? By which I
mean, if in an international school, the leader envisages that the best kind of
faculty is an international faculty, then one can reasonably expect (for this
would surely be one of the reasons for recruiting an international faculty) a
diversity of opinion which influences teaching styles, which will naturally be
expected to have a profound effect regarding how information is shared with
students.
In essence, if you follow this line of argument to its
logical conclusion, the concept of an international school, whatever the
curriculum, demands that students are encouraged to question what they are being
taught, in a critical and compassionate way. In so doing, students are
encouraged to demonstrate initiative, inquisition, intelligence and independence
in equal measure.
However, at this point cultures can collide and we start
getting close to what Rabbi Jonathan Sacks calls, ‘The clash of civilisations’,
where for instance, Western humanist ideals can come into conflict with Oriental
philosophy.
The late great Palestinian writer, Edward Said, recognised
this in his book, ‘Orientalism’, which charts the colonial and post-colonial
passage to ethnocentrism and xenophobia.
However, a more sinister form of bias can arise in what might
be termed ‘generational bias’, where teachers or managers either resist or
are incapable of change and view questions from students as examples of
‘insolence’.
If you grew up in London like I did, I am sure this model is
familiar. In an international environment, it is one of the more bizarre
experiences to discover this essentially Victorian and fossilized pedagogical
approach.
Clearly, one has to rely on the integrity of teachers and
management to be aware of and ensure that any discussion of material accounts
for the diversity in the classroom. This is one example of ‘celebrating
diversity’ in a real and tangible way.
Another way is through the empowerment of the student body.
After all, if we are teaching students to demonstrate the traits previously
mentioned, is it not logical to expect them to want to and to allow them to
‘show off’ their learning?
Let us not pretend that in many cases, students cannot do as
good a job of running an organisation as management! After all, surely we are
each other’s teachers and each other’s students? Look at IT skills as a
perfect example!
In the many American schools I have visited, the role of the
student council body seems to be cherished and is certainly not marginalised or
seen as a threat, as can happen in less enlightened educational environments.
Then there is the market. APs are designed primarily for
students who want to go to college in the States (although there is significant
and increasing recognition in Europe). Therefore, surely it is only natural that
their curriculum should reflect this?
Next week? What’s so special about the English National
Curriculum?
 Heart to Heart with Hillary
Dear Hillary,
Maybe I still have to get used to the Thai way, but sometimes (in my
opinion) it is getting too far. Sitting in a bar having a drink with a lady,
playing some pool it is getting to closing time. She would go with me but to
my big surprise she had to pay 300 baht to her boss (more than she makes in
a day’s work). Do these people own these ladies? I would think when you
are ready working you could do what you want? Also when they want a day off
they have to buy themselves free. It is an insult to your Thai ladies. I am
not used to Thai customs, or do I have a point?
Unbelievable
Dear Unbelievable,
You do have a point, but it is pointing you in the wrong direction. What you
describe is not the ‘Thai way’ but the ‘bar way’. Like all forms of
‘employment’ there are certain ‘rules’ and these girls who
‘work’ there know the rules. You are also a little confused when you say
the young lady would have to pay B. 300 to her boss to go with you to
continue playing pool, or some other ball games. You are supposed to pay
that, my Petal. The nocturnal playing suggested after playing pool also does
not come about because the lady thought you were wonderful! You were playing
pool in the meat market and you are expected to take home some prime rump -
which you pay for, just like in any market. The ‘real’ Thai way and
customs are not seen in the bar scene. If you want to meet Thai ladies, you
should get away from the commercial establishments.
Dear Hillary,
I see these old farangs walking around everywhere with
what we back home in the UK call “trophy brides”. Surely they don’t
think that these girls actually like going around with these old geezers?
They only look at them as ATM’s and as soon as they have emptied it,
they’re off. Reckon they’ve got rocks in their heads. Agree Miss
Hillary?
John
Dear John,
Now just hold on a minute, judgmental John, have you
forgotten that this is not the UK? This is Thailand and this is a different
kind of society. Despite what you might have heard or read, females here do
not have the same opportunities that females might have “back home”
where you came from. There is no story of Cinderella in Thai fairytales.
Good hard-working Thai girls do not get to meet Prince Charmings, no matter
how many glass slippers they might try on. The chances of a Thai girl from a
simple rural background being swept off her feet by some rich Thai are about
the same as me ever getting the champagne promised each week (but never
sent) from Mistersingha, the regular reneger. The Thai Hi-So men only meet
the daughters of other Hi-So’s. Thai Hi-So males do not marry female
farmers from Isaan. Now if any of these country girls (or city girls not
from Hi-So families) has any ambition to get ahead in life, what can they
do? They have at best a very basic education, so where can they get high
paying jobs? Working at the supermarket check-out isn’t going to give her
a car and a nice house in the suburbs, is it? So what is left for a girl
with ambition, but low station? The Thai society does not make it easy for
her moving upwards, but an older farang gives her just that opportunity.
It’s a win-win situation, my Petal. The older farang gets a nice girl and
appreciates what he is getting, and the supermarket check-out lady gets a
nice husband who is prepared to buy her the physical things she would never
otherwise be able to afford. What is wrong with that? Please note that I am
not referring to the ‘professional’ ladies who are into multiple
relationships for purely financial gain. There’s a big difference. You
should stop for a while and think about what I have written. You may have
the rocks in the jocks young man, but the older farangs have not lost the
plot either.
Dear Hillary,
Coming over next month. Just need to know where to
deliver, Belgium chocolates and Krug champers. By the way I never, ever
share a bottle of the sparkling nectar, so you will have to open this one on
your lonesome, otherwise I would drink the lot, beating you off with a large
stick if neccesary (sic). If you decide to put this into print please omitt
(sic) my name. as my pals can be pretty nasty, and I can do without that
sort of crap. A promise is a promise and I NEVER break my word.
Bloody hell just used spell check, and it was all ok. I
should go back to school and pick up all those golden stars I missed out on.
The Champers Kid
Dear Champers Kid,
You have me champing at the mouth. Krug no less! You are
a sweet boy, even if you still can’t spell, despite the spell checker!
It’s ‘necessary’ and ‘omit’ my Petal! Never mind, I’ll think of
you as the Belgian chocolate melts over my back molars. Address the package
(in a tightly sealed paper parcel), to the Pattaya Mail office, marked
Attention Ms. Hillary. Thank you, but sorry, no golden stars yet!
Psychological Perspectives: The creative mind of the scientist
by Michael Catalanello,
Ph.D.
Modern physics, I am told, provides us with two
competing views of the natural world, which are in uneasy conflict. One
view, represented by a continuum of space-time and the universal principle
of gravitation, governs the realm of large bodies and systems of bodies:
stars, planets, solar systems, galaxies and such. The other view describes
a submicroscopic “quantum” world inhabited by atomic and subatomic
particles. The principles which govern these two worlds seem unrelated and
irreconcilable, yet they both claim authority in describing our one world.
Last week we at Asian University were honored to host a
lecture by one of the world’s most acclaimed researchers into the world
of subatomic particles, a recipient of the 1997 Nobel Prize for Physics,
the Algerian born Claude Cohen-Tannoudji. In his lecture, Professor Cohen
described his work in pioneering methods of investigating this strange,
invisible subatomic world.
According to the picture presented by modern science,
the material world consists of collections of particles called atoms, and
collections of atoms called molecules. Because these particles are moving
at unimaginable rates of speed, scientists have a hard time investigating
their properties and behavior. It would be somewhat analogous to our trying
to determine the eye color of a motorcyclist barreling down Sukhumvit
Highway, only in this case, the “motorcyclist” is invisible.
To overcome this difficulty, Professor Cohen and his
colleagues have devised a procedure to cool gasses using laser light,
slowing down and trapping the super-chilled atoms long enough for
scientists to investigate them in detail. This has enabled them to learn
about the interactions between matter and radiation, and the behavior of
particles at extremely low temperatures. This line of research, besides
satisfying the intellectual curiosity of the scientifically minded among
us, also holds promise for practical applications, such as improving the
precision of atomic clocks and measuring gravitational effects.
Physicists like Professor Cohen are an interesting
breed. They spend their waking hours thinking, talking and working within a
narrow topic of interest. They work in a sense like detectives, gathering
bits of evidence, and putting them together to make inferences about a
reality which they cannot see. They describe a world which bears little
resemblance to the world of our everyday experience. They propose
imaginative theories to explain the structure and behavior of the
invisible, and claim that the laws which govern our vast universe are, to
some degree, captured in their mathematical formulas. We tend to hold such
scientists in high esteem, and generally consider their theories to be
true, or approximately true representations of the laws which govern the
natural world.
Professor Cohen is working within one of the oldest
traditions of scientific inquiry, that which questions the nature of
matter. Like many of our scientific traditions, this one extends back more
than two thousand years to that remarkable intellectual awakening which
occurred in Greek antiquity.
The earliest known theory of the nature of matter was
proposed by the Greek philosopher Anaxagoras in about 500 B.C., who
proposed that matter is infinitely divisible. Later, in about 460 B.C., a
thinker named Leucippus proposed that the material world is composed of
atoms which are solid, too small to be seen, unable to be divided,
unchangeable, and indestructible. Further, Leucippus proposed that atoms
remain in perpetual motion. The modern picture of the atom with which we
are familiar, however, began to emerge from the work of New Zealander
Ernest Rutherford in the early 20th century.
In contrast to the ancient philosophers and scientists of the past,
modern scientists have at their disposal a vast array of technical
instruments and methods which allow them to probe deeper into nature, to
observe events which were hidden from past generations of investigators.
Nevertheless, modern scientists like Professor Cohen seem to share with
past scientists, a sense of curiosity, a willingness to observe, and a
creative capacity to combine a multiplicity of facts into elegant theories
providing us with a greater understanding of the workings of our world.
Dr. Catalanello is a licensed psychologist in his home
State of Louisiana, USA. He is a member of the Faculty of Liberal Arts at
Asian University, Chonburi. Address questions and comments to him at [email protected]
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