Talk #285

Prelude

Some two thousand years ago, we had the famous three kingdoms in central China. Many heroic and romantic stories have been written and handed down through the generations. In recent time we may also have the situation of "The Three Kingdoms" again, and they are Hong Kong, Taiwan and China...

There was this book, made famous years ago by the movie, entitled " The Russians are coming, the Russians are coming". The story was about a small Russian fishing boat washed ashore on the coast of Maine. The local people thought that the Soviet fleet had arrived and the Russian Navy and the marines started to invade. It was a hilarious story about the hysterical Americans.

In response to the presidential election in the Kingdom of T, the kingdom of C flexes her muscles a little in the south China seacoast provinces, creates a small movement of her troops as if to prepare for war. This little maneuver caused great alarm in the Kingdom of H , let alone in the Kingdom of T. So much so in the Kingdom of H that some Lighters initiated a debate about the impending invasion ( termed the inevitable invasion).

Now let us consider the impact of such a debate. On the world scene, there is zero impact. On the possible or inevitable invasion, zero impact, on the interactive communication among the lighters, a hell of lot of impact. The "Great debate" brings the lighters to a more focused discussion of the current political crisis, or pseudo-crisis.

A simple man's approach to "war and peace" would be to ask
" what is in it for the Kingdom of C to invade, or what could be
gained by the invasion ?" A simple man's reply would be " Only national pride, and very little of anything else".

"What could it lose? "
" (1) World opinion, (2) economic progress, (3) support of the
overseas Chinese, (4) lives, possibly, (5) friendly relationship with that little village across the Pacific Ocean, (6) possible goodwill from the people living in the Kingdom of T, (7) cheap PCs, (8) respect of the people in Kingdom H, since Kingdom C did not do a damn thing about the "Fishing Platform", but beat up her own people in Kingdom T instead, and (10) face if the invasion lasts for two weeks and one day".

You know and I know, Kingdom C has only one thing to gain and at least 10 things to lose by an invasion. You know and I know what the odds are for this kind of action.

So why is the Lighter in Kingdom H alarmed by this little "staged" troop move ? It is all about the stock market in Kingdom H.

In the Little Village the NASDAQ lost 40% of its valuation and the DOW 10 % in three weeks, not because of any "staged" troop movement, but triggered by the break-up of Microsoft. While the total market capitalization in this little Village across the Ocean is really huge, Microsoft has a non-insignificant market share. Furthermore, almost every man, woman and child has some Microsoft holdings. A sell-off caused a cascading effect.

In the Kingdom of H, the total stock market capitalization is tiny. When Soros came to play some months ago, the Kingdom of H faced a stock sell-off crisis. The Finance minister of Kingdom H used somewhere between 10 to 15 billions worth of Village money to firm up the market.

Boy, Fidelity's Magellan alone is worth more than 100 Billion,
Vanguard's index 500 is worth another 100 billion, and there are at least 8000 mutual funds around, plus countless individual stock holders. 10 to 15 billion dollars is close to what Bill Gates lost in one day. All this says is that the stock market in kingdom H is too small to have any stability. A small amount of money movement can cause big swing in the market. It dose not take a " staged" troop movement to do this.

So how to deal with this kind of inherent volatility ?
(1) Diversify, (2) diversify, and (3) diversify.

There is no use in worrying about events beyond our control, such as the possible invasion of Kingdom T.

It appears more useful to focus on how to achieve financial security, how to diversify investment and how to reduce risk in a limited market valuation.

And so, dear lighters, Rumbling the mighty Long River flows east. Washing all heroic deeds into the sea......