Business and investing wisdom from Warren Buffett

Warren remarked in Berkshire Hathawat 1993 annual report, "It's only when the tide goes out that you learn who has been swimming naked."

The sage of Omaha's much quoted, and misquoted, comment was about inadequate preparedness in the U.S insurance industry with catastrophe. Those words are also of immense value of the exuberance in every other things from Chinese to Indian to Vietnamnese euquities to Indonesian Corporate Bonds to recently the bullishness of Singapore properties. In all bull markets, it is typical for all kinds of investments - great or lousy - to all rise when the tide rises.

Developers recently paid HKD42,196 (USD5,444) psf in Hong Kong, smashing the 1997 record of HKD18,357. Six real-estate companies have tapped the Alternative Investment Market in London this year to raise money to invest in India. Their pickings? More than £1.2 billion, or $2.4 billion. And according to The Today newspaper in Singapore, an investor who paid about 14 million Singapore dollars, or $9.1 million, last week for a 4,400- square-foot, or about a 400-square-meter, apartment near the main Singapore business district turned down an offer to sell it at a 19 percent profit, or an annualized 1,000 percent profit. He wants more, the paper said. Worst of all investment in my view is property because property by itself is not a value adding product in the value chain.

Investors recently offered more than 450 billion yuan, or $58 billion, for the shares of a Chinese rail operator in Guangdong Province. Guangshen Railway needed only 10 billion yuan. Qantas is offered by a buyout firm to bring it private, and usually buyout will not even look at the aviation industry to buy. Some teachers pension fund has been buying container shipper terminals in the West Coast of U.S.A. I wonder what these fund managers operating the teachers' pension fund know about the shipping industry.

It is apparent in some sectors structural weaknesses are being brushed aside. Global investors who snapped up $2.7 billion in international corporate- bond issuances by Indonesian companies this year are not at all perturbed about the dubious legality, under Indonesian jurisprudence, of offshore special-purpose vehicles that are routinely used in structuring such deals.

Graft and nepotism remain big headaches 10 years after the Asian crisis exposed weaknesses in governance. In Taiwan, President Chen Shui-bian's wife is being tried on a charge of embezzling state funds. She rejects the allegations.

In Thailand, businesses linked to the deposed prime minister, Thaksin Shinawatra, are being investigated by the junta that overthrew him in September, alleging corruption and cronyism. And look at the "flip-flop" blunder made by the hastily assembled setup by the Junta. It seems that to chop down a single tree, they destroyed the whole forest just to get the tree down. It is so easy to undo 10 years of reform that is put in by the previous business savvy regime.

The legal system in Indonesia is at best a work in progress: The building that will house the all-powerful Constitutional Court, set up in 2003, is still under construction.

Malaysia looks both unable and unwilling to stop clinging to an anachronistic racial policy that does nothing to add much needed dynamism to its economy.

As long as the tide of liquidity runs high and is left undisturbed, investors do not care about anything else, much less about the basic weakness in the structure of what they invest in.

A nationalistic whiplash against foreign buyout firms in South Korea is being shrugged off as par for the course.

Meanwhile, the Bank of Thailand this week tried to tax the deluge of funds entering the economy and it got punished. Stocks collapsed. The move had to be hastily scaled down. An incompetent ruling party is bad enough, the worst scenario is to couple and compound an incompetent decision maker who flip-flops.

Will sobriety return in 2007? Will there be a decline in the amount of cash chasing Asian assets? Perhaps not.

And that is because the investment slump seen in Asian nations since the crisis may actually be part of a more widespread phenomenon. And also importantly, there is so much excess cash with the money managers chasing after a limited number of assets, and to make it worst, a much limited number of assets which are great business. So naturally many scraps are treated as "gold."

Behind the surfeit of worldwide liquidity, there is a global shortage of new fixed assets, Raghuram Rajan, the outgoing chief economist at the International Monetary Fund, noted in a speech earlier this month.
"The glut has spilt over into markets for existing real and financial assets — real estate, high-risk credit, private equity, art, commodities — pushing prices higher," he said.

Except for Asian central banks suddenly draining excessive liquidity, skinny-dipping will continue to be all thrills and no embarrassment until the midnight strucks but then, too many people does not know the time when they are high on dancing.