ETF: Exchange Traded Failure

shutterstock_67720732Investing ain’t easy, I’ll be the first to admit. There’s lot of information out there, much not very important, and some that’s very important. That’s the analytical side. The emotional side is sometimes the biggest stumbling block. We are wired to act irrationally at times, and we do. This can be unhelpful if you’re looking to retire early, or retire at all.

So what’s a person to do? For many individuals, sticking to a consistent savings program is at least as important as the return they earn. This can add a degree of rationality as funds are added regularly when the natural tendency of most investors tends to lean toward adding more in good times and less in bad ones.

But where does one (or should one) make these regular investments? One investment vehicle that’s received a lot of recent media attention, including a Barron’s cover story earlier this month, is Exchange-Traded Funds (ETFs). Like index mutual funds, ETFs offer a low-cost way to invest in both broad market indexes (such as the S&P 500 Index) as well as more specialized areas such as Emerging Markets or Small Cap stocks. Nothing wrong with the concept.

ETFs offer an additional bonus (or not as we’ll see later): unlike mutual funds that are only traded after the market closes, ETFs trade on exchanges (in other words, all day long). And, cheaply.

And here is where, in my experience, our little tale of do-it-yourself investing might go awry for investors. If something can be done, it will be done. Over and over. Since ETFs can be traded, they very likely will be traded. Excessively.

A little portfolio tweaking here and there. Or gee, “I don’t really think emerging markets are going to be good this year”. Or “technology stocks are soaring, I’ve got to buy a Tech ETF”. You get the idea.

It’s my belief that investor behavior is the primary factor in investment results. Warren Buffett wrote the following last year about stock investors, but he could have also said the same thing about those considering ETFs:

“Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of “Don’t just sit there, do something.” For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.”

Remember this: in investing, the more decisions you make, the more chances of making mistakes. Oh sure, some people will get the game figured out and trade ETFs successfully, but the vast majority won’t. And the extra liquidity of ETFs could actually contribute to their poor results. An apparent advantage in reality becomes a disadvantage.

Considering costs in investing is important. I think every investment should be considered after the impact of costs. However, costs are not the only factor one should consider. In my view, neglecting to consider the role that emotions and behavior play in investing is a mistake.

Just remember, your emotions can be your biggest enemy, and resolve to protect yourself–from yourself. Failure is not, or should not, be an option.

The above commentary is taken from The Misbehaving Investor, provided by Triad Investment Management.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, principals and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on this website. This summary is meant in no way to limit or otherwise circumscribe the full scope and effect of the complete Terms of Use.

Author Interview: Larry Cunningham on Berkshire Beyond Buffett

2Larry, we want to extend lots of gratitude to you for, most importantly, putting this book together, but then also for taking time out of your day to answer a few of the questions we had after spending time with your book over the course of a couple of months!


How did the idea of this book come up?

In two stages, reflected in the title’s dual meanings:

(1) the idea of a book about Berkshire without Buffett came up after yet another annual meeting where that subject dominated and (2) the idea of a book focusing on the people of Berkshire besides Buffett came up as I researched the first idea. In each case, I wrote to Warren, asking his thoughts and permission to contact Berkshire’s managers, and got his support.

What’s the significance of the tree on the book cover?

Besides signifying growth, strength, and durability, the tree reflects the mathematical property of “self- similarity,” where an object is similar to parts of itself and the whole has the same shape as its parts. Berkshire’s corporate culture is like the tree and its branches, with the various subsidiaries bearing values similar to the parent’s and thus to the whole.

This book must have taken quite some time to put together. Miles and miles of text have been written about Berkshire/Buffett, but not so much about the subsidiaries themselves, what makes them tick and how they fit together. Was the theme of the book, leading up to the B-E-R-K-S- H-I-R-E acronym, always the working hypothesis or did you start up another alley?

In some ways the book took twenty years, since I began studying Berkshire in 1995, but the discrete

work took only two. At first, I was going to stress the corporate culture as Buffett has defined it at the top, like viewing Berkshire as a partnership, using debt sparingly, and holding subsidiaries forever. But corporate culture animates an entire firm, not just headquarters, so I had to take a deep dive into the subsidiaries—their histories, personalities, and values that shape corporate actions and practices.

As my research progressed, nine cultural features emerged as common across the subsidiaries and the book’s structure became obvious. There is a chapter on each value, each illustrated by several subsidiaries; all that is framed by the first part’s look at Berkshire’s history and the third part’s take on the future. The acronym was an afterthought that occurred to me while jogging on the beach, toying with synonyms to make it easier for readers to remember the nine values.

What is the most important thing for a chronicler of corporate autobiographies to think about in order to produce a good read?

The story has to be about people and their actions, unveiling managerial motivations and business values in a vivid way. The colourful and inspiring characters of the Berkshire subsidiaries made their stories a joy to narrate and a cinch to give readers a treat on virtually every page.


In the book you aptly describe the creation of Berkshire almost as accidental, hugely affected by the intricate personalities of chiefly Buffett, but to some extent also Munger. “Berkshire is my painting, so it should look the way I want it to when it’s done…it is designed to fit me”, is Buffett’s quote. So despite the fact that Berkshire and its subsidiaries possess the strongest of all moats – corporate culture centred around trust and permanence – succession will therefore be an immense challenge. If you were picked as Chief Operating Officer, what would you focus on during the first three years on the job?

Since Buffett built Berkshire by hand one deal at a time over many decades, no one will have the same knowledge or ability to oversee the company’s sprawling subsidiaries. To facilitate oversight without creating bureaucracy, I’d focus on arranging Berkshire into a dozen groups headed by presidents reporting to Omaha. As I explain in the book, Berkshire’s Marmon Group subsidiary is a model: that decentralized conglomerate, a mini- Berkshire, was built by the iconic Pritzker brothers through scores of acquisitions over many decades. But my first operating principle would be change as little as possible.

For more than 40 years, Berkshire rarely lost a subsidiary CEO, bar death. The last few years, however, have seen a few hiccups in terms of management-positions – why is that do you think?

Before 2001, Berkshire had only seen a handful of CEO departures while there have been a dozen since then. Although each departure had its own logic without indicating any pattern at Berkshire, the difference in frequency reflects how radically Berkshire has changed over that time: twenty years ago, only 20% of its assets were in wholly owned businesses, the rest in stocks, while today they represent 80%. With so many more and larger wholly owned businesses, it’s unsurprising to see more management  change today than in earlier decades. What’s surprising is how Berkshire’s rate of management change remains low compared with norms in corporate America.

You mention in the book that the succession issue came up as early as 1993. The short-listed names on the shortlist have throughout the years likely included Richard Santulli and David Sokol, showing the need for constant adaption. Considering the “Three Ts” (Todd Combs, Ted Wechsler and Tracy Britt Cool) already in place and Berkshire’s overall make-up, who would be your choice of CEO?

Berkshire has a deep managerial bench. I highlight ten in the book who’d be outstanding based on my own analysis and shareholder surveys I did. Besides oft-mentioned candidates like Greg Abel (BH Energy) and Ajit Jain (BH Reinsurance), these include Kevin Clayton (Clayton Homes), Grady Rosier (McLane), and Frank Ptak (Marmon). I’m confident that the board, whose job it will to make this choice, will choose well.


For every quick-decision “yes” (MiTek, Helzberg Diamond, Pampered Chef etc.) there must be countless rejections? How many proposals pass by Omaha every week?

Too few very large ones that fit and too many smaller ones that don’t. While Berkshire promises confidentiality and rejected suitors may not wish to broadcast the turndown, I am researching a book about the also-rans and what happened to them. I suspect you’ll find them doing deals with others: larger ones sold or merging (Jeff Bezos- Washington Post, FedEx-Kinkos); smaller ones in the homes of Berkshire emulators (like Markel); and others bought by private equity firms (maybe Domino’s Pizza, Fortunoff Jeweler, Friendly’s Ice Cream, KB  Toys, Mervyn’s Department Stores, and Reader’s Digest).

Considering that the culture and “cult” is likely stronger among Berkshire shareholders than among its (subsidiary) employees, can a Buffettless Berkshire suffer as a result of a less loyal shareholder base?

Yes, because shareholder loyalty is part of Berkshire culture, which Buffett earned by the tone at the top headlined by a partnership attitude and strong results. Shareholder loyalty will be preserved by sustaining both the culture and the returns, which go hand-in-hand.

The discussion in the book about Berkshire as a private company was interesting. What odds would you put on that happening?

Close to zero. But the scenario I draw in the book dramatizes    the    stakes    of    the    shareholder showdown likely to emerge post-Buffett. Activist shareholders will clamour for subsidiary divestitures and cash dividends. Stalwarts will resist by pointing to the tremendous long-term value in the commitment of permanence and the capacity that large cash hoards create to act opportunistically.

What is the number one thing a company can do in order to learn from Berkshire’s long-term outlook in making decisions?

Embrace the fact that people value a long-term outlook, including: (a) business sellers who take a discounted price in exchange for the promise of permanence and (b) managers who conquer thorny challenges when their pay is based on performance over several years not one.

InvestingByTheBooksThe above author interview is courtesy of InvestingByTheBooks, the world’s leading site on investment books. The website that brings you around 200 book reviews, book top lists from investment luminaries plus columns on investing, business and finance. We also reveal our personal top investment reads. We believe that one aspect of becoming a great investor is reflection. This is what financial literature brings. Furthermore, we believe that those who give will also receive. In short – we believe in sharing of financial wisdom.

Book Review: Berkshire Beyond Buffett, by Lawrence A. Cunningham

1Hopefully this book can do for corporate culture and creating value what William Thorndike’s Outsiders did for share buybacks and “value creation”. For those of you with a high degree of Warren Buffett-nausea, please keep reading! If Larry Cunningham’s The Essays of Warren Buffett is an “MBA in a book”, this book can be described as a doctorate degree in corporate stewardship in a day. One Buffetteer remarked that what Alice Schroeder did for Buffett The Man, Cunningham has done for Berkshire The Corporation.

Looking at the entrepreneurial juggernaut that Berkshire is today, it would be easy to say that it looks as if it was built by happenstance. And that would be absolutely correct. After reading this year’s shareholder letter from Berkshire, Cunningham remarked that Charles Munger seemed to have caught a slight version of the hindsight bias virus in chronicling the superiority of the “Berkshire system”, creating the 4th most valuable company in the US. And that comment makes total sense – people with integrity, intelligence and energy don’t come walking around the corner at regular intervals, carrying an appetizing price tag. This makes a copycat approach of Berkshire’s evolution nigh impossible. But while the most crucial part of this is not replicable – Buffett’s inimitable broad capacities – the blueprint he and others created can surely be learned from and applied more than is currently the case. This book will take aspiring students a long way towards permanent learning.

The outline of the book is very Buffettesque; simple, yet witty. After establishing its distinct corporate culture as the one homogeneous factor among Berkshire’s 80 subsidiaries, the author outlines the underlying traits via the acronym B-E- R-K-S-H-I-R-E (Budget-conscious, Earnest…). Overall, the book is filled-to-the-brim with anecdotes and nerdy facts. However, it sometimes falls into the trap of being too narrative; there are just so many stories to be told, so many nuggets to bring  out.  But  the  topic  is  not  any  obscure company premiering in the spotlight. Yes, large parts about Berkshire is misunderstood and/or neglected. But not the narrative aspects, rather the details. The “why” rather than “what”, the “how” rather than “when”. Berkshire Beyond Buffett really shines when diving into the nerdy facts about competitive edges of MiTek or discussing Marmon as a Berkshire Mini-me.

Overall however Berkshire is all about permanence and autonomy, the latter which can best be described as a trust-arbitrage. The net gains from giving full authority to people far outweigh its potential abuse. “There is money in being trusted. It is such a simple idea”. The book does this aspect a huge favor, as the myth of “Buffett just buys high quality companies” is widespread. Cunningham provides several interesting statistics around this, where the quality is not so much apparent in the absolute numbers themselves (for the subsidiaries), but rather via its people and organizational values.

While it is easy to agree with the author on the “endurability” of corporate culture – in Buffettshire…pardon, a Berkshire beyond Buffett, that might not matter in the medium term. With the aura around the company gone, Berkshire’s loyal shareholder base might slowly be replaced by Mr. Market – and he might not be so forgiving. It is all too easy to see how the bad apples at GenRe, Benjamin Moore or Salomon would have affected a Buffettless Berkshire. Another aspect likely to hurt is that it might be the most personal corporate animal ever created (considering its size). The “benign dictatorship” has led to everything being a result of Buffett´s personal taste. “Berkshire is my painting, so it should look the way I want it to when it’s done…it is designed to fit me”. Cunningham brings up the “make Warren proud” motif among many operating chiefs, and this aspect cannot be overstated enough. “Make the memory of Warren proud” does not have the same ring to it. The seamless web of deserved trust might be neither seamless nor deserved down the line. Let us enjoy the creation before the buybacks start.

InvestingByTheBooksThe above book review is courtesy of InvestingByTheBooks, the world’s leading site on investment books. The website that brings you around 200 book reviews, book top lists from investment luminaries plus columns on investing, business and finance. We also reveal our personal top investment reads. We believe that one aspect of becoming a great investor is reflection. This is what financial literature brings. Furthermore, we believe that those who give will also receive. In short – we believe in sharing of financial wisdom.

Investment Thesis on Engineering Ingegneria Informatica

We are pleased to share the following presentation by the Value Investing Student Investment Group at Cambridge University’s Judge Business School, with Bruno Carraro’s permission.

A b C d e F G H I J K L

The content of this website is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, principals and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on this website. This summary is meant in no way to limit or otherwise circumscribe the full scope and effect of the complete Terms of Use.

The Physics of Music and the Asian Innovators

The following article is extracted from the Bamboo Innovator Insight weekly column about the process of generating investment ideas among wide-moat businesses in Asia. Each month, an in-depth presentation on one such business is featured in The Moat Report Asia.

At the admission interview of the high school applicants into the Accountancy program at the Singapore Management University last week, one of the  candidates “C” cried during the interview – and I gave her the highest score 19/20 amongst all the candidates and wrote down “strongly recommend”.

We like to share some of the conversations in this story which inspired the discussion about why for instance Singapore’s Creative Technology (CREAF SP, MV $74m) did not scale up to become the Apple of Singapore/Asia, collapsing from over a billion dollar in market value at its peak to $74 million today, as well as the deeper thought-provoking insights to understand and identify the hidden Asian innovators that include Loen Entertainment (016170 KS, MV $1.09bn) which had more than tripled since we last highlighted them in Aug 2013 in “Berkshire Hathaway Embracing Media? An Asian Perspective”.

“C” did not have the straight-As profile (H2: AABD, H1: AC) and even had a “poor” General Paper score, which was strange given her vivid and heart-stirring writing in the application form describing herself and the various activities she does that contributed to helping others during her time at Hwa Chong Junior College. The first impression she would definitely give to others would be that of a stereotypical shy, self-conscious and introverted person. A checklist approach and mindset will definitely strike “C” out.

I sense that there is brilliance beneath her shyness as some of my probing questions and observations revealed that she is an introspective, self-reflective and intellectually curious thinker and tinkerer capable of something rare that eludes the straight-As and well-rounded-CV students – to produce original thoughts and ideas. “C” is the only candidate that I have come across in these years to have applied for both the Accountancy and Information Systems degree programs. With her interests in the Science Students’ Research Council where she was in the International Science Youth Forum Nobel Forum Committee, it seems that she has a yearning to do and make something with her hands and brains, that she is a tinkerer, and a tinkerer who is keen to explore further her interest and confidence in “numbers” – and to peer into the “framework” behind the “numbers”.

“C, I see that you are capable of deep thoughts. I think your General Paper score was because you are too self-conscious in your thoughts about how you come across to others, that you are afraid of being misunderstood in the eyes of others and that affected your writing in that time constraint and pressure in the exam setting. Are you able to share what is the proudest piece of work that you have done up, beyond all these society-imposed resume criteria to fill the CCAs/Community Service silos?” This is akin to asking what does a person do if he or she is not measured by the KPIs or observed by others – to understand their true character and authenticity as a leader and innovator.

And “C” shared about her “The Physics and Science of Music” piece of project work and prototype that I find very interesting and aligned to her deep-thinker personality and untapped hidden potential as an innovator, a Maker who has the capacity and capability to engage in creative work and systems design, work which requires deep thoughts, tenacity and sacrifices to bear through the uncertainty, anguish and passions. The usual self-entitled Taker with straight-As will hardly bother with such meaningless pursuits that do not have deterministic and measurable outcomes. Under all those society-imposed boxes, “C” could not mention or write about this at all in the form.

Instead, “C” said wistfully, “But this is probably not worth mentioning. There is no value to this. It probably cannot be commercialized.”

Inspired by her sharing, I said, “Why not? Imagine if Creative Technology had focused on your idea and organizing vision in the science of music, the science of audio and sound, they probably would not have languished.”

I explained very briefly to “C” that Creative Technology had brought to the world in 1989 the Sound Blaster, a stereo soundboard inserted into the computers to give the computer a voice to play music. And this technology was made widely available to the general consumer, bringing what was previously accessible only to the privileged and wealthy to the masses to enjoy. Creative became the first Singapore firm to be listed on the NASDAQ stock exchange and Sim Wong Hoo, the harmonica-playing founder of Creative, became the youngest self-made billionaire in Singapore at the age of 45.


When Creative’s founder Sim Wong Hoo was said to seek some government financial assistance at the NCB (National Computer Board, now known as IDA) to market the product at Comdex trade show in US, they ridiculed him, saying that no one would ever want to hear a sound from the PC. They rubbed salt in by mentioning that he was just a poly diploma holder and that he needs to develop something for the local market for which NCB would give him assistance. Later, funded by a venture capitalist, Sim showcased Sound Blaster in the exhibition in America and, according to some photos, even Michael Jackson visited his booth. Sim later said about his vision, “I looked at the PC and said it was dumb. I said computers should talk. Computers should play music. I believe in sound. I believe in music.”

Creative Technology (SGX: C76) - Stock Price Performance 1994-2015


Creative dominated the PC audio market as the de facto standard for a decade and had sold 100 million units by 2000. The all-time high was in March 2000 at $64 per share; now Creative is $. By the 2000s, OEM PCs began to be built with sound boards integrated directly onto the motherboard and the Sound Blaster found itself reduced to a niche product. Creative went on to launch other less successful businesses and products that include the CD-ROM business in which they were forced to write off $100 million in inventory when the market collapsed due to a flood of cheaper alternative, Nomad Jukebox and ZEN series of portable media players (before Apple launched iPods), Prodikeys (a keyboard with piano keys), reportedly burning a billion dollar in R&D in developing both the Zii stem-cell-like processor with supercomputing power launched in 2009 and the HanZpad computer tablet launched in late 2011.

After sharing the Creative story to “C”, I was thinking that Creative could well have been the innovator in Guitar Hero, the billion-dollar gaming franchise that rekindle music education in children and has found use in health and treatment of recovering patients. Creative could also possibly ride the rising popularity and profitability of podcast network and audio storytelling phenomenon (podcast subscriptions have passed over one billion in 2013 and monthly podcast listeners have more than tripled to over 75 million per month from 25 million before the onset of the 2007 crisis). Creative could possibly beat Pandora Media (P US, MV $3.4bn)/Spotify/Deezer/Beats Music (acquired by Apple); the Pandora music-streaming app are embedded by GM into the dashboards of most Chevrolets, Buicks and Cadillacs.

Taiwan’s KKBox, started in late 2005 as a PC application, now has over 2 million paying subscribers paying a monthly fee of around $5 for unlimited access to its catalogue of more than 10 million Asian songs and value-added content and services and is valued at over a billion dollar, attracting a $105m investment from Singapore’s GIC in 2014. KKBox has a dominant position in Taiwan in knowing where the music listeners are and what songs and artists they like and now offers a mixture of music, entertainment news, and even organizes its own concerts that are broadcast across the countries they are operating in.

Loen Entertainment (KOSDAQ: 016170 KS) - Stock Price Performance 2001-2015


3Loen Entertainment (016170 KS, market cap $1.09bn) operates Korea’s largest online music retail platform MelOn with a 60% market share. Loen was founded in 1961 by former English-language-daily journalist Min Young-bin as YBM Sisa English, a language-learning tape creator. In the 1960s when Korea was an impoverished nation just out of war, the medium of studying English was limited to printed publications including magazines, books and dictionaries. YB Min launched the country’s first magazine for English learners in 1961 and “A Handbook of Business English” in 1967 in response to policies designed to drive exports. The next decade marked the use of audio and sound in language education. In 1970, supported by the U.S. government, YBM brought out English 900, a set of six books with 60 cassette tapes on 900 English sentence structures. YBM later expanded into a major K-Pop music record label which debuted hallyu celebrity Rain. SK Telecom bought a 60% stake in the music record firm in 2005, renaming it Loen to be put in charge of operating SK’s online music distribution service MelOn in 2009. With the cataloguing know-how developed over the years, MelOn grew to become the most used online music sales in Korea. SK later sold its 52.6% stake in Loen to a foreign PE firm for $239m in Jul 2013.

Loen Entertainment (KOSDAQ: 016170 KS) Vs Creative (SGX CREAF SP) - Stock Price Performance 2010-2015


Organized by the science of music, an idea larger than oneself, the possibilities from business model innovation are more scalable and sustainable, instead of jumping around in chasing trends and themes like Creative did in repeating familiar hardware-based business models that had worked successfully for a while in the past but failed subsequently to remain sustainable.


Because I sense that her community service work is based on a genuine heart, which is rare, I asked “C” gently whether that was shaped by some personal or family experience and she said something moving and aspirational, which was not discernible at all in her opening introduction and write-up.

People like “C” will always be misunderstood, and misunderstood badly, because the harsh and pretentious world look solely at the superficial skin, the poise, the posturing and never the inner worth and potential. “C” is the potential innovator and authentic caring leader who can contribute to improving the world and the people around her and she has far bigger potential that she realizes and that hidden potential needs to be unlocked with an opportunity.

In our years of interacting and observing entrepreneurs and managers in Asia, we find that there seemed to be two kinds: some who would look for flaws in ideas and people, and then pounce to kill them; and others who started from a place of seeking and promoting good, new and original ideas and people. When the “idea and people promoter” saw flaws, they pointed them out gently, in the spirit of improving them – not eviscerating them. The “idea and people killer” were not aware that they were serving some other agenda, which was often to show others how high their standards are. The innovators understand the difficult, ephemeral process of developing the new. The innovators understand that looking beyond the pretty and rigorous checklist for something original, authentic, something surprising and unproven, are necessary for genuine value creation – and must be a conscious effort.

We also want to observe that the corporate culture are NOT infested with the kind of people that populated Disney in the late 1970s as remarked by Pixar’s founder Ed Catmull in his inspiring and thought-provoking book Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration:

“Unbeknownst to me, soon after our meeting at Lucasfilm, John Lasseter would lose his job at Disney. Apparently, his supervisors felt that The Brave Little Toaster was – like him – a little too avant-garde. They listened to his pitch and, immediately afterward, fired him. What John hadn’t realized when he joined Disney Animation, however, was that the studio was going through a rough, fallow period. The animation there had plateaued much earlier – no significant technical advances had been made since 1961’s 101 Dalmatians, and many of its young, talented animators had left the studio, reacting in part to an increasingly hierarchical culture that didn’t value their ideas. When John arrived in 1979, Frank Thomas, Ollie Johnston, and the rest of the Nine Old Men were getting up in years – the youngest was 65 – and had stepped away from day-to-day business of moviemaking, leaving the studio in the hands of a group of lesser artists who had been waiting in the wings for decades. These men felt in was their turn to be in charge but were so insecure about their standing within the company that they clung to their newfound status by stifling – not encouraging – younger talents. Not only were they not interested in the ideas of their fledgling animators, they exercised a sort of punitive power. They were seemingly determined that those beneath them not rise in the ranks any faster than they already had.”

We think this lesson from Disney is poignant for Asia which is at a critical transition phase in succession risk (and opportunity) with the patriarchs and matriarchs handing over the reins of their business empires to the right capital allocators, whether to their heirs or professional managers. Many of the Asian successors are like Disney’s highly experienced and well-qualified men-in-charge in the late 1970s.

Above all, we think a corporate culture focused on KPIs is downright unhealthy as it results in gaming of the performance measurement system and distances people from creating an idea larger than oneself that can involve co-creators in the value creation process. What is this “idea larger than oneself” which we emphasized in many of our writings? Take the case of Hemant Amin, founder, chairman and CEO of Asiamin Capital, a low-profile, successful multi-million single family office, and our guest speaker for the Singapore Management University students in the course ACCT004 Accounting Fraud in Asia with the presentation topic “A Family Office Investment Journey and Understanding the DNA of Fraudulent Promoters”. We mentioned in a thank you note to Hemant that this idea larger than oneself is also about practicing and living out the values of Buffett-Munger:

Hi Hemant,

Thanks much – a recurring theme in the Compounders is that they are obsessed with creating an idea larger than themselves, whether it is Buffett-Munger with their philosophy manifested in their creation of Berkshire Hathaway or yourself in practicing and living out the values of a true value investor to educate and inspire the next generation of leaders! J

Take the case of Lee Bakunin, a very early Berkshire Hathaway value investor whom we respect and admire greatly. Lee is the author of the upcoming book “How to Negotiate Like Warren Buffett”. The book’s vision is an idea larger than oneself. With the book, Lee has transcended beyond material wealth. He can remove himself from the equation and the ideas in the book will profoundly influence and impact positively the readers. Those who practice the philosophy in the book will become the idea itself. We hope to be able to have the opportunity in the future to invite Lee to address the SMU students taking the course Accounting Fraud in Asia and to inspire them with his wisdom and values.

Hence, value investors should simply ask, can the Asian entrepreneur-emperor remove himself or herself from the business equation and the business can still compound in value? Only if he or she has created an idea larger than oneself. This is the true and only KPI that should matter in identifying the wide-moat compounder and Bamboo Innovator in Asia.

And “C”s question to me at the end of the interview was also simple and brilliant, again reflecting her deep-introspective character. Having done admission interviews before, this was the first time I was asked such a question.

“C, you are very good, don’t let anyone tell you anything otherwise,” I told her at the end. I think she cried softly two times during the interview because she felt she was understood, that her inner self was understood, that what she was trying to achieve at an emotional level was understood.

“C” would still need to go through the admissions office’s elimination process based on the number of available places and we hope that she can get into SMU and the program(s) of her choice. We wish her all the best in creating the music of accounting for the business community and society in the years ahead.


We are pleased to present the presentation materials in the SMU course Accounting Fraud in Asia exclusively for our Moat Report Asia subscribers:

Week 1 – Survival in the Asian Capital Jungle: Who Knows What When? (108 slides)

Week 2 – Western Tools to Catch An Asian Snake? (111 slides)

Week 3 – The Incentivized Asian “Wedge” Snake to Tunnel Corporate Wealth (revised to 105 slides from 86 slides)

Week 4-5 – Shedding of the Asian Snake’s Skin, The Opportunistic Tunneling of Corporate Wealth (157 slides)

Week 6 – Descend into the Asian Snake’s Lair, Occult Offshore Centers, Tax-Tunneling, and Consolidation Craftiness (89 slides)

Week 7-9 – The Asian Snake Charmer and Stock Manipulation Scheme (112 slides)

Week 10 – The Accounting of Words & The Hiss of the Asian Snake (57 slides)

The following presentations are by our guest speakers for the Singapore Management University students in the course ACCT004 Accounting Fraud in Asia taught by KB Kee, managing editor of The Moat Report Asia and faculty (accounting) in SMU:

  • A Family Office Investment Journey and Understanding the DNA of Fraudulent Promoters, by Hemant Amin, founder, chairman and CEO of Asiamin Capital, a low-profile, successful multi-million single family office. Hemant, a big thank you for educating and inspiring the SMU students. You are a rare positive role model in the Asian capital markets and you showed the students that it is possible to create value because one has the right values and mindset like Buffett and Munger! :)
  • Accounting Fraud in Asia by Jarrod Baker, Senior Managing Director at NYSE-listed forensic specialist FTI Consulting Inc (NYSE: FCN, MV $1.5bn). Thank you very much, Jarrod and Jason, for taking time to share your knowledge and wisdom with the SMU students about the meaningful and fulfilling forensic work that you do at FTI Consulting.

We are proud of our course students Terence CHUA, YEO Shan Rui and Roy KIM Jia Liang who have applied some of what they have learned in the course into doing up a report to highlight a potential Asian accounting fraud, China Environment (CENY SP):

In the words of the late economic architect Dr. Goh Keng Swee, we desire to “explain, inform and educate” our abhorrence of stock manipulation schemes and potential accounting frauds in the Asian capital jungle.

We hope that the regulatory authorities in Asia will take a more serious and proactive (as opposed to reactive) approach to tackling stock manipulation and potential accounting frauds and restore trust in the capital markets. The large transfer of wealth from outsiders to insider manipulation significantly discourages how much and how many outside investors choose to invest in the market. The presence of manipulators impose large participation costs for genuine participants trying to either invest or raise capital in equity markets and explain why market reforms are hard to implement and emerging equity markets remain a fertile playground for the professional manipulators and insiders who have the incentive and power to manipulate prices, volumes, information and to inject “action” to lure investors and then offloading in a pump-and-dump scheme via related-party and accounting money-go-round transactions.

We need to make right the capital market phenomenon that the sagacious Peter Bernstein aptly described: “The ‘gulls amongst the public to feed the maws of professionals’ seem to replenish itself with remarkable regularity regardless of how many gulls drop out along the way.”

The following presentations are authored by students from the Singapore Management University (SMU) who are currently taking the course ACCT004 Accounting Fraud in Asia taught by KB Kee, managing editor of The Moat Report Asia and faculty (accounting) in SMU:

  • Potential Accounting Tunneling Fraud at China Environment (CENY SP, MV S$170M)? by Terence CHUA Tong Liang and YEO Shan Rui
  • Zhongmin Baihui – CAUTION, Overvalued S-Chip Retailer with Questionable Related Party Transactions, by Eugene SAY Gui Hua, Desmond LIN Liye, Adhitia Budiarjo SEMBIRING
  • A Content Analysis Comparison of Letters Written by CEOs in the US and Japan, by Caleena TAN Kai Yi
  • Do Fraudulent Firms Produce Abnormal Disclosures? By LIN Liye
  • Death Spiral Issues in Emerging Markets: The Case of Doosan Corporation (000150 KS, MV $2.2bn), by Nureen CHAN Wan Wei
  • Debt Covenant Violation and Earnings Manipulation: The Case of Tata Power, by YEO Shu Wen
  • Hiding Behind the China Wall and the case of Longtop Financial, by Katharine TAN Pei Shi
  • Shell Games of Chinese Reverse Merger Firms: The Case of CleanTech Innovations by Jelvin TAN Xiang Rong

Changes to the Ownership and Control of East Asian Corporations: The Case of Indonesia’s Media Company Media Nusantara Citra Tbk PT (MNCN IJ, MV $3.4bn), by Adhitia B. Sembiring

Learn more about The Moat Report Asia.