Prospering in a recession

Well, not my finances but some people seem to be doing well out of the recession:

1. Disneyland: They recently announced a significant increase in the cost of admission to Hong Kong Disneyland for tourists (the fees for locals will be reviewed in a few months). It wasn't cheap to begin with;

2. Physiotherapists: With more people having time to exercise (not necessarily by choice), more people are injuring themselves. Given that I recently had to wait three days before getting an appointment, I can personally testify to this one;

3. Civil servants: The greatest drain on the Hong Kong tax payer awarded themselves above market pay increases in 2008. Needless to say, it would be too much to expect any cuts in either civil service remuneration or numbers;

4. Banks: Banks have widened their spreads between interest paid on deposits and interest charged on loans. Several have also increased fees and charges. So why aren't they doing well? Something to do with management apparently;

5. Tenants: rental levels have fallen significantly for both office and residential leases.

Sadly, all of these are benefiting at my expense - lower income for #5 and higher expenses for the remainder.

A number of potential investments have become a lot cheaper (stocks, real estate), but I am still waiting for any of my living costs to come down.

Writing put options

Writing options is generally regarded as a risky idea (unless as part of a hedging/spread strategy or similar). The reasoning is generally stated as being that the option writer receives a relatively small payment in exchange for accepting a much larger risk.

The current market turmoil has resulted in the premiums paid for put options being inflated above normal levels (not sure what is "normal"). Given that I believe that the Hang Seng index is reasonably attractive at these levels (i.e. I do not mind buying the index), I have written some put options against the Hong Kong Tracker Fund (which tracks the Hang Seng Index). My strike price is HK$12.00 (against a market price of HK$13.24 at the time of writing) and the contract is for one month.

If the Tracker Fund is higher than HK$12.00 on the fixing day, I will keep my money and pocket the option premium.

If the Tracker Fund is at HK$12.00 or less, I will end up buying Tracker Fund at HK$12.00 and keep the option premium.

Of course, if the market drops below HK$12.00 (less premium) then I will lose money. If the market rises above HK$13.24 (plus premium) then I would have been better off just buying the Tracker Fund outright. Essentially, I am betting that the market will go sideways or down less than 9% on the fixing date.

Since my primary motivation for this trade is to improve the yield on my cash balances, I have gone for a strike price which is well out of the money. I could have got a higher return by taking on more risk and selecting a strike price which is closer to the current market price.

Off balance sheet items

The impact of cashing out a long service payment when I left my old job had a significant impact on my net worth (about 11% on my balance sheet and about 7% on the combined balance sheet) for the simple reason that no provision had been made in the balance sheet for this benefit. This was deliberate - it was difficult to value and in certain circumstances it might have amounted to a lot less than it did. The purpose of running a balance sheet is to help with my financial planning. Including assets which are of uncertain value and have the potential not to eventuate at all is more likely to harm than help my financial management.

However, receiving the payment did lead me to think about any other assets and liabilities which are not on the balance sheet. I came up with the following items:

1. a whole of life insurance policy taken out when I was at university. It matures when I am 50 and the amount involved would pay for a modest car or an extensive bout of travelling for us after I retire. The justification for not including this is the intention to spend it (unless I need it at the time);

2. a modest collection of claret in bond with UK wine merchants. While the wine could be sold, the amount is not large and it is likely that at least some of it is an investment in future drinking rather than financial well being;

3. paintings and carpets. The resale value of these is uncertain (but certainly small) ;

4. mrs traineeinvestor's jewelry. I strongly suspect that if I suggested selling my wife's engagement ring, she would list some of my surplus body parts on e-bay;

5. depreciating items such as furniture (or a car if we had one) would not qualify as investments and would never be included as assets in a balance sheet.

Even if the guesstimated value of items 1-4 above were added to the balance sheet, the effect would be minimal (about 1%).

I couldn't think of any liabilities which are not included in the balance sheet.