Some thoughts on the election Part 2 1 comments

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Polling day and an air of anticipation is in the air. I have earlier penned down some thoughts on the election but just to go along with the general mood today it's time for another piece of my mind.

As always I try to aggressively draw analogies from investing. On the issue of alternative parties in Parliament, let's think of it as a portfolio. Conservative investors prefer to stuff their portfolios with blue chips -- safe, medium-return low-risk investments. Some mavericks prefer to go for high-risk, high-return stocks, but of course what this means is that the whole portfolio crashing and burning is a distinct possibility under such a portfolio; risk management is the key. Which means any high-growth strategy must be accompanied by a robust risk management system. Now, different people might have different ideas of the word "return" if you transpose this to politics (as opposed to the clear emphasis on profits in finance), but I would argue that the opposition represents such a "high-risk, high-return" category while the incumbent ruling party represents the blue-chips, in our context and under my own interpretation of the word "return". Depending on the economic situation (vis-a-vis market situation for stocks), people should decide to "weight their portfolio" in favour of the former or the latter (which is why the swing towards the incumbents was so strong during 2001 when the economic and security situation looked dire).

Now for the hot issue that has been dominating talk for the early part of this week: Gomez-gate. Now, the conservative investor ALWAYS looks for management with integrity, because without that, how do you expect to conduct your fundamentals analysis? Financial statements cannot be trusted. I always look for insider selling, for example, as a hint to possibly exit my positions on the stock, and vice versa for insider buying. But the context must be judged correctly. So did the insider sell 10 lots or 10000 lots ie. was the action/"offence" of a high degree of significance or was it mere profit-taking/"carelessness" (the "/" separates the analogies). Does one interpret the action as a hint of a more serious underlying problem to the business fundamentals (eg. United Food's Wang Tingbao selling off a huge portion of his stake in 2003 prior to a dramatic decline in UFood's business), or does one give some leeway in his judgment of the stock? Unfortunately, one can only rely vicariously on news reports to understand the situation; furthermore since James Gomez is a rather unknown quantity there is no way for the ordinary man-in-the-street to make better judgments based on past history.

Now for the next hot issue that has surfaced later in the week following the abatement of Gomezgate. That is of course estate, or more specifically lift, upgrading. Frankly such issues instinctively appear so insignificant to me that I wonder if I am missing the plot, that it actually is a big issue to my fellow countrymen. And instinctively as well, it appears an unfair method of winning voters; it reminds me of the IPO company which issues a huge interim dividend to shareholders immediately post-IPO, obviously from its IPO proceeds (which came from these shareholders in the first place!) and which is clearly not sustainable. It keeps the shareholders happy, of course. A company that comes to mind is Yellow Pages. But at the expense of the long term! The IPO proceeds should well have been used for expansion plans (although of course one could also argue that to fulfil long-term objectives, one has to "fix" the short-term first). Some people might argue that the practice is global, that one is merely "benchmarking" one's practices to what is done in other companies/governments as well, but my point is: do we benchmark selectively, or do we benchmark wholesale?

This brings us to the last point: ministers' pay, and I must say that I agree completely with the government policy not to benchmark against international standards, but against local high-earners. There is always the green-eyed monster in the lower and middle-class towards the high-income earners, and who better to direct this sense of injustice than towards the government themselves? I think of it this way: consider a listed company --> I would rather the directors be paid transparently in monetary salaries rather than in kind ie. through humongous stock options, benefits, negotiated retirement packages etc which are harder to track and can be easily be manipulated by executives to provide extraordinary total remuneration packages. Payment in kind, through political kickbacks and nepotism, has been largely attributed for the collapse of several of our neighbouring countries.