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Six years ago

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Recent market turmoil reminds me 6 years ago: Enron, WorldCom and Tyco scandals are all in the news. Even blue chip names like GE and Xerox have some corporate governance problems. GE gave excessive benifits to retired chairman Jack Welch, the benifits including Manhantan condo, free corporate jets, season tickets to Yankee baseball games etc. Xerox had to re-state its financial statements (I remember got this news from Chinese newspaper when I was in Shanghai, summer 2002). It seems the corporate bean counters can not get the numbers right. That’s when I started to invest in the US stock market (sharebuilder), although in very small amount.

Shortly after we got Sabane Oxly Act, which targets the corporate internal control and financial reporting (GAPP). I remember in dot com days all the internet companies used “pro formula” (non GAPP) to tell the fairy tales to the investors. April 2003, US invaded Iraq. The US stock market bottomed there, and took off until the recent sub prime debacle.

When will the current bear market bottom? I don’t know. But one thing I know is the market go down, and goes up…all the time, as said by famous fund manager Peter Lynch (Lynch’s take on market, mp3, 5 mins)

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Unofficial indicator of market bottom

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Peter Lynch once described our human’s psychology about stock market during different cycles, in his book One Up on Wall Street. I remember he used a party as an example, and he looked at the number of people approached him (people know he is a fund manager), and the amount of conversations about stocks, as an unofficial indicator about the market. So, for instance, in a red hot market, almost everyone came up to him and recommended his/her stock pick; while in a bear market, people will talked about “how is the weather”, and pretty much regard him as a dentist.

According to my observation, we are somewhere in between at this time. I mean, people think the stocks are risky, if not toxic 🙂

I would really be interested in learn how this plays out in the gatherings of Chinese New Year back home.

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Lynch and Buffett talked about downturn

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In this bear market, we can watch Cramer, read WSJ, Yahoo Finance, Google Finance etc. But all this can not substituted “reading what the real masters are thinking”.

With that in mind, here is Buffett’s talk about US economy Money available, cheap, due to rate cuts, quote the article:

Buffett said that what has taken place “is a re-pricing of risk and an unavailability of what I might call ‘dumb money,’ of which there was plenty around a year ago.”

and another my favorite:

“It’s sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end,” he said in reference to some of the large investment banks that were involved in designing and marketing complex investments that have soured in recent months and have generated billions in losses.

Peter Lynch is the legendary fund manager of Fidelity Magellian. Here is a PodCast (MP3) of his. He talked why we should not try to time the market.

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Peter Lynch One Up on Wall Street

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I heard about Peter Lynch and his book more than two years ago; I ordered his book from Amazon last week because I wanted to learn more about stocks and investing. I just got to Chapter 5 now, but I found his book to be educational and interesting: his humor can be felt in many places of the book. This is a much fun book than Ben Graham’s Intelligent Investing. By the way, both Ben and Peter are considered as the gurus of investment, Ben is the mentor of Warren Buffett, Peter managed Fidelity fund and had a sterling record. Peter is not a big fan of Business School although he graduate from Wharton, here is what said about B-school: Some Wharton courses were not rewarding, but even if they’d all been worthless, the experience would have been worth it, because I met Carolyn (his wife) on the campus.

Seriously, he proposed the three questions “mirror test” for investing in stocks:

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