Stocks & Investment Interview with Dad
1. Q: What are your objectives in investing?
A: The ultimate goal of investment is profit.
However, higher returns are always associated with higher risks.
It’s therefore important to build a balanced investment portfolio of domestic &
international stocks, fixed income products (e.g. cash deposit (CD) and bond), real
estates, and private equities according to the macro economic conditions and
risk/return appraisal.
A good example is the portfolio strategy of CalPERS :
(California pension fund, a institutional investorhttp://www.calpers.ca.gov/index.jsp?bc=/about/home.xml
and their asset allocation tablehttp://www.calpers.ca.gov/index.jsp?bc=/investments/assets/assetallocation.xml)
2. Q: Do you go through the risk/return trade off process every time you trade (consider
investment risk, yield, duration, liquidity, tax consequences)?
A: I have good discipline in maintaining a balanced portfolio of asset allocations. By doing so, I
have risk vs. return trade-off process done in the macro-level overall framework of the portfolio.
It’s much more strategic and important to keep a balanced portfolio, since the portfolio will help
season the market changes and help balance the risks.
Although I do go through risk vs. return trade-off evaluation for every micro-level transaction of
stocks, fixed income and real estates, it’s really impossible to harness the uncertainties.
3. Q: Walk me through the high points and low points in your resume. What were your greatest
accomplishments and challenges? What risks did you take?
A: I worked for IBM during 1985-1993 after I graduated from BSEE and MBA programs.
I made my first career decision to leave the sales manager post in a well-established MNC (MultiNational Corporation) and joined a Dallas-based small company, called Convex that designing,
manufacturing and selling affordable supercomputer, as Greater China regional manager in 1993.
China economy started to boom then and Convex gave me the exposure and opportunity that I
may have to wait for several more years in IBM. Nevertheless, Convex doubled my pay.
That’s one year after your sister Jennifer was born.
I have to step out of my comfort zone and be willing to travel extensively with limited resources in
a much smaller company. I learned to run regional business and gained the perspectives and
exposures of running global operations by participating in the quarterly worldwide General
Managers meetings in Dallas Headquarter. That’s very educational for me to really see how the
games were played.
Unfortunately, Convex was acquired by HP in 1995 and I was retained as Asia Pacific Regional sales
manager of Technical Computing after one year retention and merger process. I learned to
appreciate the management differences between IBM (focusing on customer intimacy, solution
and value sales) and HP (focusing on operational efficiency, commodity and channel sales) and the
merits and drawbacks of two different corporation cultures. However, HP was a very different
company from IBM and Convex. Regional sales manager is more like a staff job and it didn’t offer
the job scope and team I wanted to keep me motivated.
I made my 2nd major career decision to join Clarent, a start-up in Silicon Valley founded by my Univ
roommate, in 1997. That’s one year after you were born. My friend invited me to start up and lead
the Asia Pacific operations because I proved that I could run the regional operations in small
company and MNC’s successfully. The challenges then were really how fast and how robust you
may offer the product and solution to fulfill customer needs. Start-ups don’t run fast, they have to
run very fast since they are too small to be credible and accountable for incumbent customers’
full-blown operational needs. The beautiful thing for start-ups is that they are fresh and dynamic
and they could move very fast to respond to the market changes. Customers love that.
Clarent went IPO in 1999 and I retired in 2000 to be a private investor. The major risks in these
two major career decisions are the uncertainties of the small companies and fast changing
technology market. I have to jump out from well-established business, adapt, learn and start all
over again in a brand new and unfamiliar business. They turned out to be enriching and rewarding
decisions though.
4. Q: How are major world events affecting the stock market?
A: I personally experienced and witnessed 1997 Asian financial crisis, 2000 internet bubble burst
and 2008 subprime crisis.
1997 Asian Financial Crisis was triggered by well fabricated attacks on the Asian countries’
Currency System problems by international speculators with abundant capital.
Taking Thai Baht as example: the speculators leverage mass capital market to buy Baht to make
Baht appreciate, in the mean time quietly buy vast volume of option & future betting the Baht
to depreciate.
Once they are ready, then they start dumping Baht at the high end and spreading the rumor the
Baht will depreciate. Since the volume was big, this created the market panic and
everyone wanted to dump Baht. Since Thai currency didn’t have enough foreign reserve and
strength to buy back Baht and keep it from plummeting, Baht dived 40%, jeopardized the
economy in all perspectives, stores and companies shut down and made people jobless.
The currency speculators reap off the profit by cashing back the appreciated Baht and win the
profits from the future & options betting on the Baht depreciation.
Starting from Thailand, mass speculators attacked Philippine, Indonesia, Singapore, HK, Taiwan,
Korea, Japan and Russia, and created the Asia financial tsunami in 1997.
To give you some perception of how bad it was: I was in Seoul, South Korea, in the 1997 winter.
There were very light traffic on the ever-crowded highway and downtown. Shopping malls were
all on crazy sales but very few customers. Housewives overwhelmingly donated their jewels to
government to help their country to collect enough funding to get through the financial crisis
as shown on the TV. IMF (International Monetary Fund) finally stepped to offer USD 40 Billion
to bail out and avoid default. That caused S. Korea many years to recover.
There were more than 50% average stock price meltdown and 34-84% exchange rate loss all
over the Asia, GDP drop, per capita income loss and sky-high unemployment.
1997-2000 internet bubble was fueled by the blind belief that the dot-com’s will change the
world entirely. The venture capitalist and the media helped inflate the bubble. Any internet
related company no matter their business fundamentals of cash flow, profit, operating expense,
inventory and staffing level, as long as they could start attracting users, they could get listed
(IPO).
In 1999 the internet sales didn’t ramp up, the prevailing Y2K problem and spending faded after
2000 (Year 2000 computer clock setting problem, ie. traditional abbreviation 91’ , 92’, …. 99’,till
the year 2000 showing 00’ and causing the calendar clock confused. This is a prevailing
uncertain risk to any computer system and required IT spending to audit and fix this Y2K
problem.) and 911 NYC terrorist attack in 2001 all contributed to the burst of Internet Bubble.
During 2000-2002, stock price dropped more than 50%.
After 2000 internet bubble burst, US Federal Reserve Chairman Alan Greenspan led to take the
low interest rate policy to stimulate economy from 2002–2004 and that contributed to easy credit
conditions, which fueled both housing and credit bubbles. With the anticipation of persistent low
interest rate and rising housing price, US got into the housing boom in 2005-2006.
Due to loose regulation on the financial industry, many newly invented mortgage backed
securities that packaged the risky subprime mortgages into security products and sold to
international investors.
As a result borrowers were encouraged to assume risky mortgages in the anticipation that they
would be able to quickly refinance at easier terms. Financial institutions were crazy about lending
to borrowers without quality credit ie. flooding the mortgage business with subprime borrowers
and reaping profits from the sales of the new subprime products.
However, once the tide changes direction: interest started to rise and housing prices started to
drop moderately in 2006–2007 in many parts of the US, many subprime borrowers were unable to
refinance. Default and foreclosure activities increased dramatically as easy initial terms expired,
home prices fell, and new mortgage interest rate were reset higher.
2008 US subprime mortgage crisis was then triggered like dominos falling down, once the ugly lies
could no longer sustain the boom. The crisis had severe, long-lasting consequences for the US and
European economies. The U.S. entered a deep recession, with nearly 9 million jobs lost during
2008 and 2009, roughly 6% of the workforce. US housing prices fell nearly 30% on average and the
US stock market fell approximately 50% by early 2009.
5. Q: What questions would you ask your investment banker?
A: To a small start-up, well-known investment banker as an investor gives you endorsement on
the company’s upside and financial back-up. They will help start-ups get listed (IPO) and financing
via issuing debt or new shares when the company keeps growing.
When we first started-up, Goldman Sachs was the Series B investor. They came in to look into the
business model of the company and do their Due Diligence (called DD) investigations about our
customers and our business fundamentals (income statement, balance sheet, cash flow, revenue,
profit, operation expense, account receivables & payables, staffing level – headcounts, inventories,
and sales outlook analysis etc.) and decided to invest US$ 3M for our private equities.
Goldman Sachs then helped us with the credential of financial back up when we presented
ourselves to the mainstream incumbent customers.
We went public and got listed on NASDAQ in 1999. But we used other investment banks for the
IPO in 1999 and subsequent new shares sales in 2000.
That’s perfectly fine with Goldman Sachs and that tells you Investment Banks have different
divisions within their organization, and private equity investment (Venture Capital business) and
IPO underwriting are different divisions’ business.
Goldman Sachs cashed out more freely since they were the private equity investor, not the
underwriter of the company.
6. Q: How do you decide to finance a company with debt vs. equity?
A: If the company’s upside is very promising, I’d love invest in equity participation. However, if
they’re doing very well, it’d be stupid for them to dilute their share value by issuing new shares for
financing. In this case, you may only participate by lending with higher rate if they are desperate
for fresh capitals via the debt arrangement.
7. Q: If you had $10 million, how would you invest it?
A: I would build a portfolio similar to the institutional investor CalPERS (California Pension Fund) I
explained in the Question 1, and revisit the portfolio quarterly and adjust the asset allocations
according to my views of the market then.
The CalPERS asset allocation is always a good reference, since they are resourceful professional
institutional investor, and I would also choose more stock allocations via index funds that follow
the segments or industries instead of individual stocks based upon my personal preferences.
8. Q: What catalysts will affect the stock going forward?
A: Catalyst by definition means it stimulates the change process but itself doesn’t participate in
the change process.
Catalysts for stock market would therefore be factors like weather, commodity price fluctuation,
Macro economy policies, monetary policies, Interest rates, foreign exchange rates, regional
conflicts and wars, political unsettlements, and anything that would affect the trust and
confidence of the stock market as a whole.
After all, at the end of the day it’s a game of people.
For people it’s really the perception that counts.
Reflection
1. Having experience in a big, as well as a small company is a great approach to learn the
fundamentals of business management and realize the best practices of running a company (and
perhaps make better choices in investing and predicting what the future will bring).
2. Getting venture capital and private equity investment is a must know knowledge about capital
markets.
3. Getting listed and becoming a public company will be important for corporate financing on the
long run; nevertheless making the startup team very well is also important.
Works Cited
DeChesare, Brian. "The 3 Most Important Questions You Need to Ace Your Interviews and
the 1 You’re Probably Getting Wrong." Mergers & Inquisitions. Capital Capable Media LLC,
n.d. Web. 18 Nov. 2013.
"Top 9 Questions Investors Should Ask Management." Investopedia. Investopedia, 26 Feb.
2009. Web. 18 Nov. 2013.
"Top 10 Interview Questions for Jobs." Investment Banking Jobs Digest. Job Search Digest,
n.d. Web. 18 Nov. 2013.