Saturday, June 30, 2007

World Wealth Report 2007

The 2007 edition of the Gap Gemini Merrill Lynch World Wealth Report was released earlier this month. Once again it made interesting reading. Among the highlights:

1. the number of High Net Worth Individuals in the world increased by 8.3% to 9.5 million;

2. the number of Ultra-HNWIs increased 11.3 % to 94,970;

3. the aggregate net worth of all HNWIs was US$37.2 trillion, an 11.4% increase over 2005;

4. the incease in the number of HNWIs and their aggregate net worth was primarily driven by GDP growth and rising equity markets (no surprise);

5. the countries with the fastest growing populations of HNWIs were all either emerging markets or countries with close connections with emerging markets. Singapore, India, Russia and Indonesia produced the largest percentage increases in the number of HNWIs. All of these countries had strong stock markets during 2006;

6. Ultra-HNWIs grew their wealth faster than the HNWI population as a whole (this was not surprising);

7. HNWIs reallocated some of their assets away from alternative investments into real estate in 2006. Interestingly, about half of the HNWIs asset allocation to real estate was in the form of second or holiday homes, frequently purchased without the use of mortgage finance;

8. they also spent more money on "investments of passion" such as art, jewlery, wine, antique cars etc. Increasingly, investments of passion are viewed as investable assets rather than just hobbies of the wealthy;

9. geographical asset allocation is trending away from North America to Europe.

A High Net Worth Individual is a person whose financial assets (i.e. assets other than the primary residence) exceeed US$1 million. An Ultra High Net Worth Individual is a person whose financial assets exceed US$30 million.

Monthly Review - June

My net worth increased by 2.1% in June.

The year to date increase is 17.8%. The return on my investments in the first half of the year was ahead of the desired return for the full year. In dollar terms savings are slightly ahead of my budget (in spite of my best efforts to overspend in June). This is due to increases in income being greater than increases in spending. More discipline on the spending front is needed.

June was a disappointing month. Although the headline increase in net worth appeared to be a solid result a look at the numbers tells a different story:

1. my unit trusts declined in value during the month. The change was relatively small, but it was a negative performance;

2. my residual share portfolio declined in value during the month. The change was relatively small, but it was a negative performance;

3. my investment in silver declined in value during the month. In percentage terms it was a material change in the value of my investment in silver but the overall effect on my net worth was small;

4. my tenants continued to pay the rent on time and rents continue to be higher than the expense component of the outgoings;

5. the modest gain on the sale of a small investment property was realised at the end of the month;

6. I had a self inflicted blow out in expenses during the month. See here for further details;

7. my income rose during the month.

The combined effect of the increase in income, the realised gain on the property disposal and the net income from the investment properties was greater than the losses on the investment funds, shares and silver.

The only investment activities undertaken during the month were (i) completion of the sale of one small investment property (ii) agreeing the budget for the fit out of the new property purchase to be completed next month (iii) regular monthly payments into two small cap investment funds and (iv) a small amount of cash converted into RMB in anticipation of participating in the launch of an RMB bond issue.

Looking ahead to July, I will have major cash outflows as I complete the purchase of another property and make the first payment to the contractor and pay the credit card bills for our holiday.

Friday, June 29, 2007

Spending - some controls needed (2)

Having spent a few days thinking matters over, I have identified a number of potential cost savings. These are:

1. en primeur wine: With the season nearing its end, I am being bombarded with e-mails from the wine merchants. This year I will limit myself to a single case of mid priced wine for future consumption. I have deleted my multi-case "wish list";

2. food: I can save a bit of money with my lunches and snacks without compromising the quality of the food. Fruit and other items purchased at the supermarket is a lot cheaper than food purchased at the likes of Pret, Mix etc. I also have the option of attending various training courses which usually come with a sandwich lunch. Sitting through a training course that I do not really need is a pretty high price to pay for a "free" lunch but when I am trying to get into some better spending habits, every gesture helps;

3. wine (again): in terms of the wine purchased for drinking at home, I will set a price limit on purchases. In case you hadn't guessed, my wine consumption is a bit more than what my doctor would suggest is optimal. In any case, I will be spending more time looking at the bin end specials and less time reading the reviews of the more expensive stuff;

4. personal training: I signed up for a set of personal training sessions as a means of motivating myself to get into the gym a bit more often. When the current set runs out in September, I will not sign up for any more sessions. I will have to look at the waistline as a source of motivation.

The two economies I considered but do not intend to implement are:

A. taking the bus instead of a taxi: taking a bus will save me HK$25 per trip. This is a worthwhile saving. Unfortunately the price of that saving is often not seeing my children before they go to bed in the evenings. Family is more important than the savings;

B. charity: I tend to give quite freely when friends and colleagues are looking for support for various charitable endeavours. While there is no obligation to give, I would prefer to continue to support worthwhile causes.

The above ideas are not much, but I have to start tightening the purse strings somewhere.

Thursday, June 28, 2007

Spending - some controls needed (1)

This month's spending has been horrendous due to a number of reasons:

1. we went on holiday - which had been largely budgeted for but it still hurts to see the cash leave the bank account. The fact that the holiday cost more than expected was a reflection of the original budget being inadequate rather than a lack of control on the spending side;

2. we (meaning me) went a little berserk with the shopping while on holiday buying new carpets and paintings. We will have to pay for the latter to be framed. In effect, I have spent about twice my annual budget for luxuries in a single month;

3. a succession of minor routine non-routine expenses for items such as medical expenses, insurance premia, a birthday party for one child, increased school and tuition expenses (another child will start school in August) which collectively have had a significant impact on this month's savings. Some of these expenses will be recurring.

With the latest property purchase due for completion in the first week of July and refurbishment and mortgage payments starting immediately after completion, I will also be bleeding cash until the refurbishment has been completed and the property has been rented out.

I have revised the budget for the second half of the year and it is not a pretty picture to reflect both the June blowout and the expected recurring increases in expenditure for the rest of the year. Although the savings rate will still be "high" by general standards it will fall short of what I had hoped for.

I will be spending some time over the next few days working out where I can cut some expenses.

Sunday, June 24, 2007

Book Review: The Last Tycoons

William D. Cohan's "secret" history of Lazard Freres & Co was a hugely detailed but slightly heavy read. The historical aspects of the firm's founding and the various crisis it faced during the period of its history from founding in New Orleans in 1848 (as a dry goods store) through to its IPO in 2005 were the more interesting parts of the book.

The story is dominated by four themes:

1. the "Great Men" strategy where the firm set out to attract, cultivate and rely on a succession of "Great Men" to drive its advisory business and set it self apart from other investment banks. With Andre Meyer and Felix Rohatyn being among the greatest investment bankers of their respective generations it was a strategy that for a long period of time enabled Lazard Freres to differentiate itself from competing firms. However, this strategy ultimately contributed to the failure of Lazard Freres to evolve and maintain its top tier investment banking rating;

2. the wealth that a successful investment banking business can generate for those sufficiently high in the profit distribution chain. Even the comparatively unsuccessful partners (a very relative term) were earning staggering sums of money;

3. the level of political infighting and squabbling that came close to destroying the firm and was a major contributor to the seemingly endless state of crisis that the firm experienced in the years leading up to its IPO;

4. the ownership structure that made Michel David-Weil and a few others phenomenally wealthy but ultimately doomed the firm to existence outside the ranks of the elite investment banks for a number of reasons.

In short the book was an interesting insight into the lives of successive generations of investment bankers and their cut throat world.

Book Review: John Jacob Astor

Axel Madsen describes John Jacob Astor as "America's first multimillionaire" (a label which arguably should be attributed to Stephen Girard) and chronicles his rise from the relative poverty of his childhood in Germany through his immigration, initially to England and then to the United States in 1784.

In financial terms, Astor began his career as a butcher's apprentice in his home town of Waldorf (following his father), moved to London for four years to learn how to make flutes before arriving in Baltimore with a consignment of flutes for trade at the age of 20. He moved to New York a few weeks later once he had sold enough of his flutes to In historical terms, Astor's arrival in the new world was shortly after the United States had declared independence from England.

In New York, Astor took a job peddling for a baker, before once again switching career to work for a local fur dealer. During this early stage of his career he continued to supplement his income by selling musical instruments, some made by his brother, imported from London (although advertising them as German in view of the anti-English sentiment prevailing at the time). Profits and savings were invested in more musical instruments and furs. The former were imported from the old world to the new while the furs were exported from the new world to the old where the prices were better.

One of two noticeable feature of Astor's business career is how he used the profits of each business activity to invest in other businesses, each of which was both rapidly growing and tremendously profitable at the time. Money made in trading musical instruments was invested in the fur business, which he eventually dominated and would ultimately form the basis of his staggering fortune. In turn, the profits of the fur business were invested in international trade (with China among other countries) and real estate in the rapidly growing city of New York.

The second noticeable feature was Astor's involvement in political matters - as a means of furthering his business interests.

While Madsen's book provides an interesting chronology of Astor's career, the background information on the age in which Astor lived is quite limited and conveyed little of life in that era and it left only a very superficial impression of what Astor was like as a person.

In short, the book was an interesting read but could have been a lot more interesting.

Tuesday, June 12, 2007


We have (after several years of marriage and children) finally instructed a lawyer to prepare our wills. This was something that should have been done years ago (i.e. when we were married and updated as children arrived).

As morbid as the subject of death is, there is some comfort in knowing that if anything happens to us, arrangements are in place that will ensure that the children will be properly cared for and most of the estate assets will be safe guarded for them.

One interesting feature of the estate planing exercise was looking at the effect of assets that would fall outside the estate such as properties held as joint tenants and life insurance policies. For certain purposes, having assets in the name of one spouse only gives greater flexibility when it comes to providing for children and other dependants.

New Property Purchase (2) - Financing And Refurbishment

I have finalised the finance for the purchase:

1. 70% gearing;
2. 20 year p+i term;
3. 0.5% cash rebate;
4. interest rate at the lower of prime - 0.8% or 1 month HIBOR + 0.5%;
5. repayment penalties of 2% in the first year and 1% in the second year.

I could have obtained a better cash rebate by using a different bank but decided to use a bank which I know from experience is flexible and fast in approving leases rather than take a risk and end up with a bank which is an unknown quantity in this respect.

I have also finalised the contracting for the refurbishment of the unit. The apartment will be completely stripped and all new fit out installed. The contractor has confirmed that he will be ready to start as soon as completion has taken place.

Saturday, June 02, 2007

Monthly Review - May

My net worth increased by 2.7% in May.

The year to date increase is 15.4%.

May was very much a case of just about everything making modest advances in spite of some volatility towards the end of the month:

1. investments in funds did well. It was nice to see my Thai fund (an investment made a matter of days before last year's military coup) advance to the point where it is now showing a rate of return comfortably above the minimum needed to achieve my retirement objectives;

2. the residual share portfolio was mixed but showed a small net increase for the month;

3. silver continued to live up to its reputation as the "restless metal" but ended the month with a slight gain;

4. with all properties fully let and the tenants paying on time, rental income was higher than expenses;

5. my income was at the high end of expectations and my savings were good with no unexpected or large expenses.

The major developments were the sale of our smallest investment property and the purchase of a larger property. Neither of these transactions had any impact on the numbers for May. The sale will be booked in June and the purchase will complete at the beginning of June.