Bamboo Innovator Daily Insight: 23 Apr (Thurs) – Mark Zuckerberg shared some simple advice for success: Don’t give up


  • Mark Zuckerberg shared some simple advice for success: Don’t give up: BI
  • The incredible rags-to-riches story of British lingerie tycoon Michelle Mone: BI
  • How to Determine Which Part of What You Know Really Matters: K@W
  • A woman created an awesome resume to land her dream job at Airbnb — and it caught the CEO’s attention immediately; resume showcases what she knows about the travel industry, what she could contribute to Airbnb, and what she thinks the company should pursue next: BI
  • The Secret To Getting Good At Things Quickly: Forbes
  • Great Entrepreneurs Share These Six Traits – And Some May Surprise You: Forbes
  • How Spanx got me an interview with Warren Buffett: BI
  • Here’s how ‘Mad Men’ creator Matthew Weiner manages his super busy schedule: BI
  • 7 Strategies That Make Speechwriting Easier: Slideshare
  • What’s the best advice you’ve ever received?: LinkedIn
  • This Design Professor Makes Products With No Labels On Them: Bloomberg
  • Nice Ph.D. Think It Was Worth It?: Bloomberg
  • Everyone Profits from the Return on Character; soft factors like integrity, forgiveness, and compassion energize employees and customers — and deliver better returns: Strategy&
  • The world’s brightest scientific minds posed for this 1927 photo after historic debates about quantum mechanics: BI
  • Fortune’s World’s Greatest Leaders: 50 intrepid guides for a messy world: Fortune
  • A study in enterprise risk management: Lee Kuan Yew’s governance gives several case studies of enterprise risk management: Risks were identified, assessed, responded to, controlled, and monitored: BT
  • Can Your Relationship Handle a Trip to IKEA? The furniture store can easily lead to arguments for stressed-out couples; how to avoid the ‘IKEA meltdown’: WSJ
  • A Startup Sours After A Falling Out; A Florida entrepreneur’s company fizzles after a messy split with investor and co-founders: WSJ
  • Five of the most epic failures in business history: Quartz
  • How revolution discovered its need of business: JA

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Bamboo Innovator Daily Insight: 22 Apr (Wed) – Forget Buffett the investor. Follow Buffett the manager; 8-year-old girl earns $173,000 monthly from YouTube channel; Elon Musk’s first wife explains what it takes to become a billionaire: “Shift your focus away from what you want (a billion dollars) and get deeply, intensely curious about what the world wants and needs”


  • Forget Buffett the investor. Follow Buffett the manager: Fortune
  • Elon Musk’s first wife explains what it takes to become a billionaire: “Shift your focus away from what you want (a billion dollars) and get deeply, intensely curious about what the world wants and needs”: BI
  • 8-year-old girl earns $173,000 monthly from YouTube channel: AsiaOne
  • Becoming Powerful Makes You Less Empathetic: HBR
  • In praise of caregivers; When a loved one requires long-term care, how many of us can really go the distance?: TheStar
  • Lose your fear of ridicule and think more like a designer; Start-ups can learn from the ‘make and fail’ design approach, writes Airbnb co-founder Joe Gebbia: FT
  • How to become known as the best in your field: BI
  • Goh’s folly? No, Jurong is Goh’s glory: AsiaOne
  •  ‘The Little Prince’ trailer looks better than anything Pixar has made in years: BI
  • The Imagination Gap: Business leaders in at least 16 sectors are still not fully prepared for the digital transformation of their industries: Strategy&
  • Eight Key Points of Blue Ocean Strategy: Insead
  • 8 habits of curious people: FastCo
  • Brand camp: how to market a family business: CampdebFB
  • ‘Daredevil’ and the fantasy of an easy fight against gentrification: WaPo
  • Smart Arms Control the Potential Chaos of Octopus Movement; How does an octopus control eight highly flexible and independent arms so well?: NYT
  • The World’s Most Reputable Companies In 2015: Forbes
  • Why Worrying About Competition Can Destroy Your Business: Forbes
  • Why finding the right career is as rare as getting a seat on a rocket ship: Fotune
  • ‘Vague’ Japanese language can be maddeningly specific: JT
  • Why “Company Culture” Is a Misleading Term: HBR
  • There Are Still Only Two Ways to Compete: HBR
  • Why So Many of Us Experience a Midlife Crisis: HBR
  • Still Hungering for Tech Knowledge, Corporate Directors Pay for Education: WSJ
  • The Trouble With Grading Employees; Performance ratings such as ‘meets expectations’ sap workers’ morale, but firms aren’t sure they can do without them: WSJ
  • Your Total Addressable Market Stat Is Probably a Lie: Hunterwalk
  • What I’d tell myself about startups if I could go back 5 years. TQ
  • This meditation teacher has an amazing explanation – and solution – for why so many of us can’t escape the voice in our heads: BI
  • LearnVest CEO shares her 2 favorite interview questions: Tell me about a time on a Sunday that you were thinking about going back to work and you hated your job. Why? What was it?: BI

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Bamboo Innovator Daily Insight: 21 Apr (Tues) – Daniel Levitin on information overload: Why daydreaming not multitasking is the way to process the unprecedented amount of information we now face


  • Daniel Levitin on information overload: Why daydreaming not multitasking is the way to process the unprecedented amount of information we now face: YouTube, Aeon
  • 5 Secrets To Always Making A Good First Impression: Barker
  • The Puzzling Rise in Nearsighted Children; To battle an explosion of myopia, eye researchers try more outdoor time, medication, even a giant, translucent cube: WSJ
  • Why there has never been a better time to be an entrepreneur: WaPo
  • Here’s how to win any argument: BI
  • One CEO says these 7 lessons from ping-pong have helped him grow a successful business: BI
  • Macquarie’s bad apples still working in financial planning: TheAge
  • The most important lesson I learned as a tech CEO: Fortune
  • How A Dying Family Nut Shop Morphed Into A Thriving Web Retailer: Forbes
  • There’s a Difference Between Cooperation and Collaboration: HBR
  •  Resilient infrastructure key to safer cities: BT

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Bamboo Innovator Daily Insight: 20 Apr (Mon) – ‘Ojuk’: black bamboo craft; Tradition is a spirit not a skill; “I learned precious values through working with my teacher, like masterful perseverance and endurance and the historical significance of black bamboos. If an artisan is not ready for poverty and hardship, he or she cannot endure this entire process. My only goal is to transmit this art to others.”


  • ‘Ojuk’: black bamboo craft; Tradition is a spirit not a skill; “I learned precious values through working with my teacher, like masterful perseverance and endurance and the historical significance of black bamboos”: KT
  • How Abraham Lincoln Became a Saint: Bloomberg
  • Responses to David Brooks: The Road to Inner Virtue: NYT
  • The six skills that make entrepreneurs extraordinary: Quartz
  • How Steve Jobs became the greatest businessman the world has ever known: BI
  • Computational thinking an essential skill for next-generation: TODAY
  • A 30-year work anniversary is a freak event to be cheered; If Warren Buffett can spend decades at one company, so can others: FT
  • Shopping Mall Developer Taubman Dies at 91; Taubman died Friday night at his home of a heart attack: WSJ
  • What Leaders Can Learn from a Long Run: WSJ

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Detecting Accounting Fraud in Asia (Part 4): Introducing Six New Measures

 “Bamboo Innovators bend, not break, even in the most terrifying storm that would snap the mighty resisting oak tree. It survives, therefore it conquers.”
BAMBOO LETTER UPDATE | April 20 and April 27, 2015
Bamboo Innovator Insight (Double Issues 78 and 79)

  • The weekly insight is a teaser into the opportunities – and pitfalls! – in the Asian capital jungles.
  • Get The Moat Report Asia – a monthly in-depth presentation report of around 30-40 pages covering the business model of the company, why it has a wide moat and why the moat may continue to widen, a special section on “Inside the Leader’s Mind” to understand their thinking process in building up the business, the context – why now (certain corporate or industry events or groundbreaking news), valuations (why it can compound 2-3x in the next 5 years), potential risks and how it is part of the systematic process in the Bamboo Innovator Index of 200+ companies out of 15,000+ in the Asia ex-Japan universe.
  • Our paid Members from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing.
Dear Friends,Detecting Accounting Fraud in Asia (Part 4): Introducing Six New MeasuresEarlier articles in the Accounting Fraud in Asia series:

“What seemed to be wrong with this income statement?” I would ask and engage value investors in a conversation discussing the limitations of western-based screening tools and techniques in financial statement analysis to analyze Asian companies.

“It was generated by a listed Chinese zipper company who claimed to be the ‘YKK of China’ with a diversified customer base of over 900 customers. Its zipper products are used in fashion and sports apparels, camping equipment, shoes, and bags by renowned brands. It also received the ‘PRC Top Ten Famous Zipper Brands’ in China. To perhaps make your job easier, a simple table of financial ratios from profit margins, ROE, cash conversion cycle (CCC) is provided. Interestingly, you might note that it is a company generating a ROE of 20.2% on profit net margin of 22.3% and trading at a modest valuation of Price-Earnings ratio 6.2x and Price-to-Book Value 1.6x, with downside protected by a seemingly healthy ‘net cash’ balance sheet with net cash comprising 27% of the market value of the company.”

Fuxing FY06-07

RMB Mil 2004 2005 2006 2007
Revenue   394.3   525.7   716.4   883.9
Operating Income     91.4   165.1   226.5   294.5
Net Income     57.4   109.3   155.6   197.0
GP Margin 26.7% 34.0% 33.7% 34.8%
OP Margin 23.2% 31.4% 31.6% 33.3%
Net Margin 14.6% 20.8% 21.7% 22.3%
ROE 20.2%
AR Days      137      167      139      121
Inventory Days        23        15        19        20
AP Days        12        17        18        18
CCC      149      165      140      123
Mkt Cap (US$m) 181
Price/ Book Value       1.6
PE ratio       6.2
Net “Cash” % Mkt Cap 27%

“And we would stay on this income statement for whatever time it takes before someone points out the dog that didn’t bark,” I added.

Sometimes, there would be one or two people, often those who are open-minded and intellectually curious in their learning approach, who would point out: “The selling and distribution expense of RMB3m seems awfully low for a company generating RMB882m in sales for truckloads of zippers to be transported to over 900 of their customers’ factories in the different provinces.”

This zipper company is SGX-listed Fuxing Zipper (SES: DC9, Bloomberg: FUXC SP), down over 90% in market value. We will later illustrate how accounting tunneling fraud is carried out and the six new measures for value investors to employ to avoid such statistically-attractive fraudulent stocks. From the case of Fuxing, one of the apparent measures is based on the opportunistic shifting or deferring of operating expenses out of the income statement to boost profits artificially – often into the balance sheet items. But how do we can capture this? A possible measure is that of the “OP/OL ratio”, or “Other Payables/Operating Liabilities ratio” which we will elaborate upon later with the cases that we have observed to be a systematic phenomenon. In essence, we have observed that an OP/OL ratio over 40% leads to subsequent and future acts of accounting tunneling fraud in which corporate wealth and cash is tunneled out.

Fuxing Zipper (SES: DC9) Stock Price Performance 2007-2015

Fuxing Share Price

As we have shared in earlier articles, transportation and logistical cost is a nightmare in China and emerging markets, estimated to account for 15 to 20% of the cost of doing business and of the GDP too by various sources that include World Bank and the Li & Fung group in an insightful presentation. The problem lies not only because of the geographical woes but also due to the regulatory licensing bottlenecks: “China’s logistics system is governed by nine separate ministries and commissions, which prevents the central government from regulating cross-provincial transport across China’s 31 provinces. Instead, local governments manage their transportation systems as provincial fiefdoms, often using local license rules and tolls to raise revenue. Thanks to high transaction costs, no trucking firm has yet established a nationwide network.

The emerging Asian and Chinese companies engaging in accounting fraud often push operating expenses and overheads off the listed entities to related-party companies to boost artificially-high profit margins and ROE. For instance, an Asian consumer “brand” selling its “visible” products in supermarkets would usually shift the substantial expenses related to shelf-space placement to undisclosed related-party “distributors” and “agents” (called “tong lu” 通路 in the local language) to achieve the high profit margins and ROE that are attractive to investors. Most value investors focusing on financial ratio analysis do not realize that logistics, distribution and marketing costs in emerging Asian markets is around 15-20% of sales, instead of the 0.34% that this zipper company incurred. Like-minded value investors are often amazed that they have not seen what was now obvious to them. Thus, one simple new measure is to use the “Selling and Distribution expense as % of Sales (Measure #1) as a sanity check on unrealistically low operating expenses that were deferred or shifted out of the income statement.

We wrote something in the article “BNSF + JB Hunt = Buffett + Munger = Lollapalooza! How About Asia?” about how logistical improvement throughout America has enabled the scaling up of retailers and businesses in a cost-effective way:  “The open innovation also enabled American companies such as Petco Animal Supplies, Pepboys Auto, The Container Store, Best Buy, Lowe’s, arts & craft retail chain Michael’s, to scale up their expansion in a cost-effective way.  Petco commented, ‘Despite a 27% growth in stores since 2008 – from 870 to 1,100 – our transportation spend on a cost-per-delivery basis has remained relatively flat. If you had told me we could add that many stores without raising the transportation costs, I wouldn’t have believed you.’”

The above excerpt talking about pet shop Petco highlights one of the important real-world cost concept in doing business: cost-per-delivery or in general, cost-per-activity. Many Asian entrepreneurs whom we have talked to over the past decade plus had lamented their problems in scaling up their business to get a decent valuation beyond the billion-dollar market capitalization barrier. They mentioned how sales might perhaps tripled in five or ten years, but core business profit growth (excluding deal-making trading profits) might remain flat or even decline, and a key reason (from a simple cost perspective) is that Selling, General and Administrative (SG&A) cost, thought by many to be a “fixed” or at least a “semi-fixed” cost, had increased even faster than sales. Rather than SG&A costs being fixed or even variable, these costs had become “super-variable” – increasing faster than sales.

The impatient entrepreneurs seeking their payday resorted to opportunistically manipulating this SG&A cost to improve dramatically their profit margin in the eyes of investors by shifting or deferring this expense item into the balance sheet items that include “Accrued Expenses”, “Other Current Liabilities”, “Other Non-Current Liabilities”, “Deferred Tax Liabilities” and so on, giving the excuse that these expenditures provide long-term payoffs which are unlikely to materialize and hence they should be expensed off. We classify and sum these up as “Other Payables”. A closer examination into the footnote disclosure would reveal these include loans due to directors, amount due to related-parties.

A common IPO fraud ruse by the insiders and investment bankers is for the directors to first borrow some short-term financing from the banks, using part of the borrowed money to create set-up customers to engage in fictitious sales with the IPO company. Once the IPO proceeds are raised, the loans to directors and amount due to related parties are repaid with other people’s money (OPM) – often disguised as under the purpose of “IPO proceeds used for working capital purposes”.

Another is to use the IPO company to buy equipment, goods and services at inflated value from their related companies. Equipment worth $20m is invoiced to the IPO company at $100m from the related company, with the insiders pocketing the “free” $80m profit which they either pump back to the company to boost artificial sales or to convert as “personal” investment into “free” equity into the IPO company in a show of “ownership commitment” in the eyes of the unsuspecting investors. This is often disguised as under the purpose of “IPO proceeds used for PPE, factory expansion and capex investments”. In the case of the accounting tunneling fraud through PPE and capex (we coined it as “Grand Capex Fraud” in our earlier articles), we will elaborate upon this in another future article.

As for deferred tax liabilities, joint-controlled entities and associates…


In addition, the OP/OL ratio = Other Payables (OP)/ Operating Liabilities (OL) (Measure #6), a ratio in which we have observed that crossing over the unusually high 40% (as opposed to under 20% for the typical companies) leads to subsequent and future acts of accounting tunneling fraud in which corporate wealth and cash is tunneled out. In the case of Fuxing Zipper, the OP/OL ratio in 2007 and 2008 is 44% and 52% respectively, as opposed to around 19% for YKK for instance.


In the case of Fuxing, let’s apply the below measures to detect the accounting transgression ahead of the curve before FY09-12:

  • Bloated Balance Sheet (Measure #2)
  • Measure #3
  • Measure #4
  • Measure #5
  • Measure #6
2004 2005 2006 2007 2008
Part C: The Tunneling Measures
Measure #2: Bloated Balance Sheet 80% 75% 74% 53% 64%
Measure #3 -3% 20% 108%
Measure #4 38% 47%
Measure #5 79% 130%
Measure #6: OP/OL 72% 27% 44% 52%


 … the set of tunneling measures reveal that lurking beneath the deceptively attractive financial ratios and valuation metrics is the hideous Picture of Dorian Gray with all the sins hidden.

This is what we wrote in Aug 28, 2013 and we still feel very strongly, if not more so, about what we have written since:

“This prevalent situation in Asia is analogous to that of the Picture of Dorian Gray in the novel by Oscar Wilde (1890) – the face of Dorian Gray showed no signs of aging as time passed, whereas the sins of his worldly existence are vivid in the portrait of himself that he kept hidden in the attic. The Dorian Grays of Asia have been able to get away with their accounting frauds and misgovernance transgressions because they are branded as sexy growth companies who charm party-goers with their good looks (quantitative financials) and riding on “The Asian Growth Story”. 

At Bamboo Innovator, our task is to support fellow value investors to understand and appreciate the early signs of potential problems and red flags in Asian companies ahead of the market, to see the real attic portrait of the companies’ financial health and economic worth.

 We still hold on feverishly to the idealistic hope that a community of like-minded people can come together to spread their knowledge and kindness built around a resilient mental model, a home that everyone can breathe in it and make it their own. We hope that our candid and authentic views about value investing can be shared in our little community. 

 Thus, despite self-doubts all the time, this mission to create value for our readers with the Bamboo Innovator analytical framework has pulled us forward to devote nights after nights and squeeze every ounce of our bludgeoned body to do this. This is why we care so much about doing The Moat Report Asia for you.

 Having the inner compass of the Bamboo Innovator in our hearts can help us not lose our way in difficult and uncertain times as we journey together in the dangerous Asian capital jungles.”

Warm regards,


The Moat Report Asia

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Bamboo Innovator Daily Insight: 19 Apr (Sun) – A More Beautiful Question: The Power of Inquiry to Spark Breakthrough Ideas


  • Young Delacroix on the Importance of Solitude in Creative Work and How to Resist Social Distractions; “Nourish yourself with grand and austere ideas of beauty that feed the soul… Seek solitude.”: BP
  • Do intelligent people worry more?: Slate
  • The Traits of Socially Innovative Companies: HBR


  • A More Beautiful Question: The Power of Inquiry to Spark Breakthrough Ideas : Amazon
  • Leading with Questions: How Leaders Find the Right Solutions by Knowing What to Ask: Amazon

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Bamboo Innovator Daily Insight: 18 Apr (Sat) – For Lucasfilm, the Way of Its Force Lies in Its ‘Star Wars’ Fans; 11 super successful tech leaders who overcame the handicap of being late arrivals to America


  • For Lucasfilm, the Way of Its Force Lies in Its ‘Star Wars’ Fans: NYT
  • 11 super successful tech leaders who overcame the handicap of being late arrivals to America: BI
  • 7 Lessons to Learn If You Want to Thrive in Life: TinyBuddha
  • 10 techniques from professional artists for breaking through creative blocks: FastCo
  • The major Bloomberg outage was fixed by effectively switching it off and on again: BI
  • The truth about Google’s famous ‘20% time’ policy: BI
  • The Power of Starting With ‘Yes’: NYT
  • How to beat the transformation odds; Transformational change is still hard. But a focus on communicating, leading by example, engaging employees, and continuously improving can triple the odds of success. McKinsey
  • The major Bloomberg outage was fixed by effectively switching it off and on again: BI
  • United by diversity: The four main types of family business: Economist
  • Perpetuating inequality: To those that have; The dark side of family capitalism: Economist
  • Survival of the fittest: The success of family companies turns much of modern business teaching on its head: Economist
  • Asian values: In the world’s most dynamic region, family companies occupy the commanding heights of capitalism: Economist
  • Making it work: The family way; Distinctive problems call for tailor-made solutions: Economist
  • All too human: How families can cause trouble for their firms: Economist
  • Old-fashioned virtues: Patience, distinctiveness, thrift and trust still count: Economist
  • Family companies: To have and to hold; Far from declining, family firms will remain an important feature of global capitalism for the foreseeable future: Economist
  • Jack Welch says the best thing to do when you make a big mistake is to ‘own your whack’: BI
  • Intel’s chairman says young job seekers should prepare for this one interview question: BI, NYT
  • Corporate stagnation: What makes corporations stop innovating?: e27
  • Reading With Imagination: Opinionator
  • Life’s Work: An Interview with Brian Grazer, author of A Curious Mind: HBR

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