Wide Moat Investing Summit 2013, July 9-10, 2013 (Presentation by Bamboo Innovator on Jul 10, 8.30am EST)

WideMoat

Bamboo Innovator Workshop for the Singapore Public: Detecting Frauds Ahead of the Investing Curve (Series #2 of 4)

Saturday, 3 August 2013 from 09:00 to 17:00 (SGT)
Singapore
Event Details

Frauds. Warren Buffett commented in the recent Berkshire Hathaway AGM 2013 that when he’s reading through financial statements, he’d find companies he was virtually certain are frauds. In response to a shareholder’s question on what did he find that made him so certain, both Buffett and Munger replied that “there isn’t a 40-point checklist” and that value investors need to understand the interaction between the underlying business model dynamics and the people running the enterprise when examining the numbers.

In Asia, with outbreaks of accounting frauds and corporate governance lapse erupting on a systematic basis at the firm level, how does a value investor go about generating sustainable outsized returns? To paraphrase Sherlock Holmes, to murder (to engage in earnings management) is easy, but to dispose the murdered body (to expropriate or tunnel out the cash and assets out of the company) is harder as it is detectable by the serious institutional investor with his or her keen observation of the various information signals and clues.

It would be premature to speak of “fundamental” analysis using possibly rigged accounting numbers due to propping and tunneling to fashion elaborate but “garbage-in-garbage-out” quant valuation models. Even “technical” analysis can be misleading given prices and volumes are often manipulated by the “insiders” (庄家) who establish the stock inventory (老鼠仓), luring investors in and then offloading in a pump-and-dump cycle. Such exploits by insiders is made easy as most stocks in Asia are still relatively small-cap and illiquid, given that the median market cap of the listed universe of 23,000 stocks in Asia is around $80 million and over 80% are under a billion dollar in market cap.

Thus, the use of “fundamental” or “technical” analysis, or its combination – without a Mungerian I-O accounting framework using the Bamboo Innovator way – can lead to a false sense of confidence that clever insiders exploit at your expense.

Course Highlights:

– Mr Kee Koon Boon, one of the few Asian fund managers being invited to speak at a number of top banking & finance conferences around the world alongside with renowned speakers such asPraveen Kadle, Chief Executive Officer of Tata Capital & Lauren Templeton, President of Lauren Templeton Capital Management

– Learn from an experienced & qualified instructor who has also taught in local Universities

Program Outline and Key Learning Points:

  • UNDERSTAND the importance of the Mungerian I-O (Incentive-Opportunity) accounting framework to adapt value investing principles in Asia.
  • LEARN the three accounting steps that “set-up” companies commonly use to expropriate assets and the ORECTA and other information signals that sophisticated institutional investors use in their cutting-edge empirical research tool-bag.
  • DEVELOP the ability to scan through thick annual reports and financial statements for the Seven Accounting Sins.
  • DEMYSTIFY the various techniques in “earnings management”, “revenue recognition management”, “real activity management” and “income smoothing” and differentiate between opportunistic bookkeeping mischief and discretionary signaling of private information of leading indicators of firm performance by management to investors.
  • ATTAIN the application tools used by sophisticated institutional investors in the accounting of words, that is, textual analysis of disclosures which are an important source of information with value relevance about the firm.
  • DISSECT actual cases of capex-related fraud in prominent Asian listed companies that are invested by reputable fund management institutions who are also caught flat-footed when things unravel.
  • RE-EXAMINE accounting fundamentals that universities impart without the relevant context of value investing, including the use and abuse of the accruals anomaly (AA) in investing strategies adopted by sophisticated institutional investors in various forms.
  • UNIFY at the end of the day all the previously disparate loose-hanging concepts, “descriptive” facts and “checklists” you have learnt from various sources into the practical Bamboo Innovator mental model when it comes to real investment decision-making.

Understand more about the Instructor’s investment approach with the following published articles:

About the Instructor:

Koon Boon is the founder and managing director of the Singapore-based Bamboo Innovator Institute to establish the thought leadership of resilient value creators around the world. KB has been rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets. He was a fund manager and head of research/analyst at a Singapore-based investment management organization dedicated to the craft of value investing in Asia. He had been with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus flagship Asian fund. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. He received his Masters in Finance (magna cum laude) and double degree in Accountancy and Business Management (both summa cum laude) from the Singapore Management University (SMU). He had taught accounting at his alma mater in SMU and at SIM University. He had published research in the Special Issue of Istanbul Stock Exchange 25th Year Anniversary of the Boğaziçi Journal, Review of Social and Economic Studies, as well as wrote articles about value investing and corporate governance in the media. He had also presented in top banking and finance conferences in Sydney, Cape Town, HK, Beijing and in the recent Emerging Value Summit 2013. He had trained CEOs, entrepreneurs, CFOs, management executives in business strategy, macroeconomic and industry trends in Singapore, HK and China.

The S.E.C. Is ‘Bringin’ Sexy Back’ to Accounting Investigations to crack down on accounting fraud

JUNE 3, 2013, 11:38 AM

The S.E.C. Is ‘Bringin’ Sexy Back’ to Accounting Investigations

By PETER J. HENNING

In April 2003, a New York Times article discussed the push by federal prosecutors to crack down on accounting fraud in which one expert said, “These have become the hot, sexy cases.” What followed were the convictions of chief executives including Jeffrey K. Skilling of EnronBernard J. Ebbers of WorldCom and John J. Rigas of Adelphia Communications. The attraction seems to have worn off. The number of corporate accounting cases at the Securities and Exchange Commission has dropped to its lowest level in a decade, with only 79 such cases filed in the most recent fiscal year. In the past, the S.E.C. relied mainly on the market to flag accounting problems at companies that would lead to an investigation. Enron’s demise, for example, began when questions were raised about its complex reporting of various off-balance-sheet transactions amid a rapidly falling stock price, which led to the issuance of subpoenas to the company and its outside auditor, Arthur Andersen.

Today, the S.E.C. wants to be more proactive by using risk modeling to analyze corporate filings to identify companies that might be outliers in reporting their results. In a speech in December, Craig M. Lewis, director of the agency’s division of risk, strategy and financial innovation, talked about a new “accounting quality model” that could help the S.E.C. “assess the degree to which registrants’ financial statements appear anomalous.” Read more of this post

The Dictatorship of Data: Robert McNamara epitomizes the hyper-rational executive led astray by numbers

The Dictatorship of Data

Robert McNamara epitomizes the hyper-rational executive led astray by numbers.

By Kenneth Cukier and Viktor Mayer-Schönberger on May 31, 2013

Big data is poised to transform society, from how we diagnose illness to how we educate children, even making it possible for a car to drive itself. Information is emerging as a new economic input, a vital resource. Companies, governments, and even individuals will be measuring and optimizing everything possible.

But there is a dark side. Big data erodes privacy. And when it is used to make predictions about what we are likely to do but haven’t yet done, it threatens freedom as well. Yet big data also exacerbates a very old problem: relying on the numbers when they are far more fallible than we think. Nothing underscores the consequences of data analysis gone awry more than the story of Robert McNamara. Read more of this post

US funds left bruised by heavy bond losses; Every one of the most popular class of US mutual funds investing in bonds lost money in May, highlighting the risks for investors as interest rates rise

June 3, 2013 7:44 pm

US funds left bruised by heavy bond losses

By Dan McCrum in New York

Every one of the most popular class of US mutual funds investing in bonds lost money in May, highlighting the risks for investors as interest rates rise. Bond yields around the world soared from some of the lowest levels in decades last month as investors anticipated an end to the extraordinary measures the Federal Reserve has used to stimulate the US economy. US funds that invest in higher-rated bonds with average maturities of under 10 years lost an average 1.8 per cent in May, marking their worst performance since the depths of the financial crisis in October 2008, according to Lipper, a research group. Such a broad decline has been rare for these funds. With more than $900bn in assets, these investment vehicles have attracted the lion’s share of inflows from savers in search of regular income and low risk since the crisis. Read more of this post

Bond haircuts in fashion for banks; There is a growing belief that even banks that are relatively rich in deposits should be forced to hold large quantities of bonds that can be “bailed in” if crisis hits.

June 3, 2013 8:10 pm

Inside business: Bond haircuts in fashion for banks

By Patrick Jenkins

Go back a decade and the only reason the Co-operative Bank was in the headlines was because it had raised a chunk more charity money or found a way to make cheque books out of recycled paper.

Today’s news agenda at the UK’s main ethically-minded lender is rather more existential. Over the weekend there was another spate of jitters over the Co-op. A few months after it first emerged that the bank faced a capital hole of up to £1bn, and three weeks on from its dramatic six-notch credit rating downgrade at the hands of Moody’s, there were fresh revelations. First the Financial Times reported that some institutional depositors had begun withdrawing funds. Then it emerged that the umbrella Co-op group, which spans supermarkets and funerals, was weighing some dramatic financial restructuring that would hurt bondholders. Read more of this post

In the Pursuit of Longevity; Two new books offer insights on trying to bend mind and matter to stop or reverse the ravages of time

June 3, 2013

In the Pursuit of Longevity

By ABIGAIL ZUGER, M.D.

At some point between George Washington and Colonel Sanders, white hair and a cane turned from symbols of elegance to suggestions of decrepitude, and an industry was born. Not that the fountain of youth wasn’t always sought after. But to look young, think young, feel young — those are distinctly modern goals.

A giant how-to literature now attends them: As Lauren Kessler estimates in “Counterclockwise,” at the rate of a book a week it would take almost 160 years to read them all. That didn’t stop her from writing one more, of course. Still, she has a point. The field suffers from a dearth of intelligent consumer review.

Ms. Kessler, a no longer young but not quite old journalist who sneakily never does mention her chronological age, decided to test a host of popular techniques on herself. “I did everything,” she tells her readers, “so you don’t have to.” Read more of this post

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