A good time to invest?

It's a tough time to work in real world, but it is not bad to sit in the classroom now and learn about investment.

In Stanford, we have a class called the Investment Management and Entrepreneurial Finance taught by Professor Jack McDonald. He was once the Chairman of Nasdaq advisory committee, and is well connected in the industry. In the class, he invites all type of investment experts, from the founder of TPG to the Chairman of Capital Group Research. In the past few months, they talked on the downturn of the market usually in an optimistic way; interestingly, a lot of them mentioned the opportunity. One of them, founder of a US$15 billion PE firm, said the next 5 to 10 years is going to be a big opportunity to get a huge return. He said US's opportunity will sit in its advantage to deliver goods and services to other countries. More importantly, US should think more of the real problems such as energy dependence, climate change and food safety by working together with countries like China instead of treating it as adversary.

Clearly, there is a misconception in the US media that the US is going to an end. There are a lot of smart investors quietly observing the volatile market, waiting to be in the best deals. Looking at the past 100 years, a lot of great investors often emerged in the bad time. and who will be this time?

good time, or bad time, to start a business now

Economy downturn finally spread to the VC industry, while Sequotia Capital called an urgent meeting to all its portfolio CEO last week. Definitely it holds a somber view on the economy.

I was talking to my business partner on if it is good time to start a business now. He is conservative, while I am optimistic. On one hand, it's hard to raise money, but on the other hand, there is less competition. Start-up takes time to develop and the downturn is a good time to prepare it well. When economy begins to fly, your business will start to fly too. Maybe this is too ideal, but isn't that entrepreneurs have to be passionate and persistent to succeed?

Excerpt: (if you need the slides from Sequoia, let me know)

http://blog.weatherby.net/2008/10/a-ceos-sequoia.html

Today, Sequoia Capital hosted a mandatory CEO All-Hands Meeting on Sand Hill Road. There were about 100 CEO’s in attendance and let me tell you, the mood was somber. I’m not one to perpetuate doom and gloom or bad news, but let me underscore this for you: We are in a serious economic downturn and this is just the beginning. Immediate, decisive and swift action is required, along with frugal, day-to-day management of expenses and our business is required.

***Here are my notes from the meeting. Keep this note in your in-box and read it every day. I’m serious folks, this is for our survival.***

Speakers:

· Mike Moritz, General Partner, Sequoia Capital (he moderated the speakers).

· Eric Upin, Partner, Sequoia Capital (Eric ran the $26-Billion Stanford Endowment Fund and knows a few things about Economics and investing.)

· Michael Partner, Sequoia Capital (Michael was recruited to start Sequoia’s very first hedge fund, coming from Maverick Capital and Robertson Stephens. I know him from my BEA days.)

· Doug Leone, , General Partner, Sequoia Capital

best wishes to the friends who left us

Today Dean Joss sent us a bad message: three of my classmates were caught in an accident on Highway 1 and left us. They are all young bright people who are going to make an impact in the world, but left us too early. Our heart and prayer to them. Wish they would know they are missed by us.

short selling in China

First, sorry for being absent for a few week. I don't have a good excuse, since students are not supposed to be busy. But actually I am pretty busy. The classes in the second year are so good that I scarified some writing time for reading cases. I am also planning to do a start up on consumer Internet. hopefully I will bring more updates soon.

The biggest news this week is China started the trial on short selling, a big improvement in the capital market. I remember people have been talking this for many years, and the CSRC is smart to launch this now because the market is too low, almost at the bottom. Short selling will not hurt that much.

FT article:

Short selling may be out of favour, widely blamed as one of the most dangerous of the unregulated excesses of market capitalism, but China’s stock market regulators are apparently not worried by that.

Just as many countries have banned or restricting the practice, China announced at the weekend that it would proceed with the trial introduction of both margin trading and short selling of shares, in spite of the global turmoil.

Initially at least, the Shanghai stock market was unimpressed: the benchmark Shanghai Composite index closed down 5.23 per cent at 2,173 points on Monday, shrugging off the positive impact of the announcement entirely, and giving in to concerns about the health of the global economy instead.

Shanghai stocks were also playing catch-up: the mainland markets were closed last week for the Chinese national day holiday, so they were unable to react to market falls elsewhere in Asia until Monday.

On Sunday, partly as a further effort to support the flagging Shanghai stock market, the China Securities Regulatory Commission (CSRC) announced the cautious introduction of margin trading and short selling. The measures were meant to introduce “new vitality” to the stock market, the regulator said on its website.

It said only carefully selected brokerages would initially be permitted to offer such services, and the scale of any margin trading – buying shares with borrowed money – would far exceed that of short selling since brokerages have much more cash to lend to clients than shares. Traders expected the measures to lift the market.

But investors appear to have been too preoccupied by global market travails to care much about long-term reforms to the Chinese markets. “The fall today is a negative response towards the external market worldwide during the long holiday. The introduction of margin trading and short selling is a . . . technical enhancement with more long-term effect than immediate impact,” said Zhang Jichun of United Securities. “There is still a big lack of confidence among investors at the economic fundamentals,” especially a continuing slowdown in corporate profitability.

But the goal of the long-anticipated reforms is “much more than a simple market-saving effort. It is geared towards the institutional build-up of the Chinese financial market”, says Mr Zhang. The measures will increase liquidity and weed out amateur investors: “Those who can’t read the market will ultimately be filtered out.”

Jing Ulrich, head of China equities for JPMorgan, said: “The new trading mechanism will fundamentally change the ‘one-sided’ nature of the A-share market, allowing investors to profit from falling as well as rising markets.” She added that in the long term, securities lending should contribute to the stability of mainland markets.

But in the short term it could lead to further volatility “leveraging market participants’ capacity to engage in momentum trades on the expectation of falling or rising markets”.