The Ultimate Guide to 2010 Investment Predicitons and Outlooks

I have recently come across this guide which I find to be very useful as TPC has compiled a comprehensive list. They have included reports from analysts, gurus, hedge fund managers, and investors. Enjoy at your own risk.

Wall Street Banks

Hedge Funds & Investment Gurus

Actionable Ideas, Alternative Assets & Potential Potholes

The Outlook Abroad

You can find more information about TPC here.

Hitler’s take on investing in Asia

I received a link to this video earlier today and I have to say it is a must watch for anybody thinking about investing in Asia. The short clip starts off with a discussion of the upcoming investor trip arranged for Hilter. Enjoy.


Religion is about Risk

Before I begin, I would like to make it clear that I am not trying to be controversial by discussing a sensitive subject such as religion. I want to share with you my findings in my quest to understand risk and more importantly, how to manage it effectively.

It was 1:57 am. I was desperately trying to find a means to put my thoughts to rest. After all, it was late and I needed to either sleep or be productive. I chose to immerse myself in my search and found it to be ironic that religion found it’s way into the equation.

It all started on June 19, 1623 in one of France’s oldest cities Clermont-Ferrand, when baby Blaise Pascal was brought into this world. Pascal was a child prodigy and is a celebrated mathematician, physicist, and religious philosopher. [1] He was also the first to develop the idea probability and more importantly Pascal’s Gambit, which is the area of this topic’s focus.

Peter Bernstein describes Pascal’s Gambit very eloquently by saying:

Pascal spent half his time leading an unsavory life and half the time being very ascetic. In the end, he came to the conclusion that he must give up the sinful life and retire to a monastery. While in the monastery, he asked himself the following question: ‘‘God is, or God is not?’’ He said that reason cannot answer this question—an important statement to come from a mathematician. He said belief in God is not a decision. I cannot wake up one day and say, ‘‘Today I will believe in God,’’ or ‘‘Today I will not believe in God.’’ It does not work like that. The answer to Pascal’s question comes from within, but you can decide how you will live your life. You can act as though there is a God, or you can act as though there is not a God. This is your choice. If you act as though there is a God, you lead a life of virtue. If you die and you find out that there is no God, well, you gave up a few things but you lived a good life. Look at it from the other point of view. Suppose you act as though there is not a God and lead a life of sin and lust, and then you die and discover there is a God; you are in big trouble. Thus, Pascal argued that the better bet, the better wager, is to behave as though there is a God. So, in many instances, the consequences of decisions must outweigh the probabilities. Even outcomes with small probabilities may have big consequences. [2]

What does this all mean in trying to understand risk?

  • It is those events that have low probabilistic outcomes but catastrophic consequences that cripple companies [Credit Crisis]
  • We should always be reminded of these risks and formulate our investment thesis accordingly and if possible hedge or mitigate these risks
  • Believing in a GOD is the better wager.


[1] Wikipedia

[2] Peter L. Bernstein. Risk: The Hottest Four-Letter Word in Finance. The CFA Institute Risk Symposium. New York City. 22–23 February 2006.

Al-Hamour’s List: 2008 Doves of the Year

First and foremost, I would like to welcome all of you to 2009 and hope that you have enjoyed the holidays. After being away for so long I thought it best to start the year with a light but meaningful post.

As a follow up to 2008: Year of the Dove I have decided to create a list that gives the reader a snapshot of global central bank policy in 2008. Some of these men may have been named ‘most influential’ people by Newsweek, but on Al-Hamour these men are merely doves incognito. They are commended for their dovish efforts in trying to quell their respective financial markets and economies by using interest rates as their weapon of choice.

I have ranked each central bank by the percentage change for the 2008. This means that if at the beginning of 2008 the interest rate was 10% and finished the year at 5%, I would consider this a 50% drop in rate as opposed to an absolute 5%. In addition, interest rate cuts during the first quarter of 2009 will not be taken into consideration but it looks like the European Central Bank and the Bank of England are in the lead for this year’s list.

The list includes 55 entries but I have decided to only provide more detail on a few.

Source: Al-Hamour, Bloomberg

Source: Al-Hamour, Bloomberg

Source: Al-Hamour,Bloomberg

Source: Al-Hamour,Bloomberg

Source: Al-Hamour, Bloomberg

Source: Al-Hamour, Bloomberg

Source: Al-Hamour,Bloomberg

Source: Al-Hamour,Bloomberg

Source: Al-Hamour, Bloomberg

Source: Al-Hamour, Bloomberg

Source: Al-Hamour, Bloomberg

Source: Al-Hamour, Bloomberg

Source: Al-Hamour, Bloomberg

Source: Al-Hamour, Bloomberg

If you would like the sources of all the rates used for the different countries please email me and I will send you the information.

Technical difficulties

I have been experiencing some technical issues with the new version of WordPress, specifically with uploading graphics and tables that I plan to use for my next post.

My IT advisor has found a way around this. Therefore, I plan on having something up in the next few days.

Al-Hamour Update

In an effort to improve the blog, readers can now subscribe and receive an email notification of all new posts. Just type in your email in the box to the right of this post, choose the Subscribe button, and click send.

I am currently working on my next piece and will have the post up by this week.

Thank you for your continued support.


Dear All,

I have been on a break for the past week and have just come back from a race event in Bahrain []. Hopefully I will get a post out after the upcoming Eid holiday.

Thank you for your patience.


The Rule of 72

There are many lessons to be learned in this world. Some of them taught in classrooms, others in life. The best ones are those that carry substance yet are simple to understand. One of the most useful lessons I have learned is what is known as The Rule of 72. It is a simple and effective way to easily understand some of the financial jargon many salesman like to throw around these days. It is also a great way to break down what seems to be complex financial calculations into understandable math.

The Rule of 72 is a mechanism of measuring how many years or return per year [%] it would take to double an investment. I will illustrate with a few examples.

Using Number of Years:

Initial investment: KD 100

Investment Horizon: 10 Years

Annual rate of return [ROR]: Unknown

In this case you are presented with an investment whereby you have been told that the investment would require KD 100 and you would leave the investment for 10 years without touching it.

What would be the annual rate of return needed in order to double the initial investment to KD 200 by the end of 10 years?

Simply divide 72 by the number of years to get the answer: 72/10 years = 7.2% annual ROR. That means that if the investment returned greater than 7.2% on an annual basis you would expect to double your initial investment of KD 100 earlier than 10 years.

Using Rate of Return:

Initial Investment: KD 100

Investment Horizon: Unknown

Annual Rate of Return: 20%

In this example we assume that you are able to achieve an annualized return of 20% on your initial investment. The Rule of 72 will enable you to quickly calculate how many years it would take for the investment to double. Please note that the annual rate of return is also interchangeable with the IRR [Internal Rate of Return] that many salesmen in finance like to throw around.

How many years would it take to double the initial investment of KD 100 if the 20% IRR is maintained?

Again, we take 72 and divide it by 20% [do not use decimals] to get the answer. Therefore, it would be 72/20 = 3.6 Years. In other words it would take 3 years and approximately 7 months to end up with KD 200.

To my knowledge 72 is the only number that possesses this magical financial prowess. It is a rule that has served me well in my finance career. I urge you to embrace it and I guarantee your financial world will be that much simpler.

Court order halts Kuwait Stock Exchange trading

I received a phone call last Thursday morning around 10:40 am informing me that all trading on the Kuwait Stock Exchange [KSE] has been suspended. Here is what the press reported:

Lawyer Adel al-Abdul Hadi says the Administrative Court in Kuwait City ruled on Thursday that all trading be halted. The order takes effect immediately and is to last until next court hearing on November 17 [1]

At first I was not sure of the story and I kept getting different answers so I decided to focus on the event itself and not the details of what happened. What is confirmed is the parties involved are a lawyer[s], Kuwaiti Courts, and the KSE. This is what I imagine happened:

المحامي: افففف ! كل يوم حد أدنى! كل اللي أشوفه أحمر! ليش الحكومة الكويتية ما تسوي شي؟

يدخل الفراش كعادته الساعة الحادية عشرة صباحا وبيده استكانة الشاي مع الدرابيل

الفراش: سنو فيه بابا، ليش زعلان؟

المحامي: هذا السوق، تدري اشكثر خسران؟

الفراش: سنو يعني؟ كم فلوس يبي بابا؟ أنا يعطيك

!المحامي: لو تشتغل 100 سنة معاشك ما يغطي ربع الخساير

الفراش: أنا يقول حق انتا سنو يسوي.. هادا في كراتشي سوق كل يوم ينزل. ناس نفر روح سوي “بروتست”  حق حكومة مال باكستان، حكومة وقف سوق

المحامي: ها؟ والله يطلع منك! انزين روح ييبلي بعد درابيل

Lawyer: Damn it! Its limit down every day! I see is red! Why isn’t the Kuwaiti government doing anything about this?

Tea Boy enters with red chai and darabeel [2] as he usual does at 11:00 every morning

Tea Boy: What’s wrong Baba. Why are you upset?

Lawyer: This market, you know how much I have lost?!

Tea Boy: What does that mean? How much money do you need, I’ll give you.

Lawyer: If you work for 100 years, your salary won’t cover a quarter of my losses!

Tea Boy: Let me tell you what to do. In Karachi, the market was down every day. People went to ‘protest’ and the government stopped the trading.

Lawyer: Huh? Well you do have some good ideas. Now go get me more darabeel.

The rest is history.

If anyone has a copy of the court ruling please email me a copy and I will post it

To be fair, stock markets do close when extraordinary situations prevail. An example would be 9/11 when the American stock markets were closed from September 11 – 14, 2001. However, it was a decision made by the government not for the government by a lawyer.

What actions should be taken

I believe that if there are people that are willing to spend the time and effort improving the public markets and investment community they should be addressing the following.

Issue: Liquidity

Objective: Liquidity is the lubricant the market needs in order for it’s internal gears to function smoothly. In addition, liquidity also provides forced sellers a means to exit their positions in order to fulfill their obligations.

Proposed Solution:

  • Market makers: In a free market operation, a buyer will always seek a seller and vice-versa. At times, we find that there is a large gap between buyer and sellers in a market due to liquidity constraints. Market makers are in the business of ensuring liquidity is available to whomever needs in by always making a bid [buyer] and offer [seller]. Instead of the Kuwaiti government merely injecting cash into the market, I suggest they establish a KD 150-200 mm Market Maker fund. The government would appoint various investment companies, that meet the criteria, to become market makers using these funds. The company would benefit by being able to generate income on the spread and the government will address the issue of liquidity, a win-win situation.

Issue: Regulation

Objective: To ensure that a conflict of interest does not exist between the financial market regulator and an exchange operator.

Proposed Solution:

  • FSA model: London’s Financial Services Authority is a good example to follow as an independent  non-government body with a wide range of rule-making, investigatory and enforcement powers in order to meet their objective. The FSA has no relation to the exchanges which operate in England and are accountable to the Parliament. [3]
  • Private Bourse: Kuwait should allow the establishment of private bourses or exchanges. Not only does this improve efficiency through competition, but it also enables greater access to market participants for companies that currently do not meet listing requirements. However, this is not limited to equity exchanges as we should also develop exchanges to trade credit [bonds & sukuks] , commodities, and other financial instruments.

Issue: Transparency

Objective: Stockholders should always have the right to access company information as they are owners in the businesses they invest in. Management should not try and deceive shareholders and are expected to provide accurate and non-misleading information.

Proposed Solution:

  • Frequent investor communication:  A simple way o ensure that stockholders are aware of the company’s activities is by holding events where the management discusses such issues. In addition to the annual report and general assembly, companies should have more frequent communication with investors and analysts covering the stock. This ensures that decision makers are equipped with the necessary information in order to make decisions as the whether to buy, sell, or hold. I suggest that companies have quarterly analyst and investor calls/meetings that discuss the financial statements produced.

Issue: Competence

Objective: Te ensure professionals managing and advising client assets are qualified to do so.

Proposed Solution:

  • Regulation of investment professionals: Kuwait must develop licenses for investment professional who are managing or advising client assets. The General Securities Representative license [Series 7] is one example of the requirements needed in the US for a professional to communicate with retail investors, among other things. It is essential that we establish such guidelines and licenses in order to ensure that qualified and competent people are managing our money.

Obviously these suggestions are not the be-all and end-all of what needs to be done. However, I believe they tackle the most important issues we are faced with today. I am confident that if we focused our time and effort in trying to address these issues and implement the proposed solutions rather than having silly protests, we will be one step closer in establishing a more sophisticated financial community.

[1] The Associated Press. November 13, 2008.

[2] Darabeel: Arabic sweets

[3] Financial Servies Authority

What the markets think of Donkeys & Elephants

It has been an interesting year so far and the punches keep coming. This is what it must feel like if you stepped in the ring with Mike Tyson. Soon enough you would find yourself with a broken jaw, black eye, chewed off left ear, half a nose, and possibly a missing pinky toe.

The most recent uppercut is the election of the first African-American President of the United Sates of America , Barack Obama, by the American people. November 4, 2008 will be etched into history books and millions of school children will be forced to memorize the date as the day America ‘Changed’. Enough on politics, lets take a closer look at what the markets think of all this.

For reasons that I don’t quite understand, and I am not sure I am interested enough to find out, Republicans are commonly referred to as Elephants and Democrats as Donkeys. What I am interested in however, is seeing how the markets reacted to these Donkeys and Elephants over time.

I used the following indexes to represent different segments of the market:

  • S&P 500: Large corporates
  • NASDAQ: Tech industry

[I wanted to include other indexes but it was getting too complicated. Plus, Office 2007 kept crashing on me]

The table below is a summary of each US President and the respective terms served. All data used is from Jan 20, 1977 – Nov 7, 2008.

Market reaction: S&P 500 Index [Bloomberg: SPX Index]

The chart below shows the S&P 500 shaded to represent the Donkey [blue] or Elephant [red] that was living in the White House at the time.

Source: Bloomberg. Daily closing price. 1977 - 2008.

Source: Bloomberg. Daily closing price. 1977 - 2008. Al-Hamour

To be able to understand the market’s reaction to each President’s term I have included a ranking that takes the annualized return for each term served. So, because Bill Clinton served for two terms he will have two entries.

Source: Bloomberg. Al-Hamour

Source: Bloomberg. Al-Hamour

I then took the overall annualized return to measure the market return for the entire period served for each President. Here are the results:

Source: Bloomberg. Al-Hamour

Source: Bloomberg. Al-Hamour


  • During Bill Clinton’s single and overall terms the S&P 500 performed the best on an annualized basis @ 9.91%
  • The Elephant [George W. Bush] has the worst record relative to his peers

Market reaction: NASDAQ COMPOSITE Index [Bloomberg: CCMP Index]

The chart below shows the NASDAQ daily price close, shaded to represent the Donkey [blue] or Elephant [red] that was living in the White House at the time.

Source: Bloomberg. Al-Hamour

Source: Bloomberg. Al-Hamour

To be able to understand the market’s reaction to each President’s term I have included a ranking that takes the annualized return for each term served. So, because Ronald Reagan served for two terms he will have two entries.

Source: Bloomberg. Al-Hamour

Source: Bloomberg. Al-Hamour

I then took the overall annualized return to measure the market return for the entire period served for each President. Here are the results:

Source: Bloomberg. Al-Hamour

Source: Bloomberg. Al-Hamour


  • During Jimmy Carter’s term the NASDAQ performed the best on an annualized basis
  • The Elephant [George W. Bush] has the worst record relative to his peers

Lessons learned:

  • Donkeys ranked number one for both the S&P 500 and NASDAQ
  • George W. Bush is the worst Elephant and overall President

What to expect:

Despite the current banking and financial crisis we would expect that President-elect Barack Obama follow in the footsteps of the Donkeys before him. He has a tough road ahead of him and will have to address key issues such as rising unemployment, failing financial institutions, and the US dependency on oil exports. I suggest he attend Bill Clinton’s speech hosted by the National Bank of Kuwait [Bloomberg: NBK.KK Equity] next Sunday the 16th of November. Maybe he can pick up a few pointers. I know I will be there.