Author Archives: Chok Leong

About Chok Leong

I am an Electrical and Electronics engineer.

2017 The Market Capitalization of World’s Stock Markets

The data in this post is extracted from Pocket World in Figures 2018. It contains economic data that provides insights towards understanding the world better. Grab a copy if you are interested.

Here is a list of world largest stock markets ranked according to market capitalization.

MarketEnd 2015 ($bn)End 2016 ($bn)Diff (%)
NYSE177871957310.04%
Nasdaq - US728177796.84%
Japan Exchange Group489550623.41%
Shanghai SE45494104-9.78%
London SE Group38793496-9.87%
Shenzhen SE36393217-11.60%
Euronext330634935.66%
Hong Kong Exchanges318531930.25%
Deutsche Börse171617320.93%
TMX Group1592204228.27%
SIX Swiss Exchange15191415-6.85%
BSE India151615612.97%
National Stock Exchange of India148515343.30%
NASDAQ OMX Nordic Exchange12681260-0.63%
Korea Exchange123112824.14%
Australian Securities Exchange1187131710.95%
BME Spanish Exchanges787711-9.66%
Taiwan SE Corp.74586215.70%
Johannesburg SE73695930.30%
Singapore Exchange6406491.41%
BM&F BOVESPA49177457.64%
Saudi SE - Tadawul4214496.65%
Mexican Exchange402334-16.92%
Moscow Exchange39362258.27%
Bursa Malaysia383363-5.22%
Indonesia SE35343422.95%
Stock Exchange of Thailand34943725.21%
Tel-Aviv SE244215-11.89%
Philippine SE2392400.42%
Oslo Bors19423420.62%
Santiago SE19021211.58%
Borsa Istanbul189158-16.40%
Qatar SE1431558.39%
Warsaw SE1381412.17%
Irish SE128121-5.47%
Abu Dhabi Securities Exchange1121218.04%
Wiener Börse961015.21%
Tehran SE8910113.48%
Colombia SE8610319.77%
Dubai Financial Market84-NA
Total6766770556

Interesting observations

The total market cap for Taiwan Stock Exchange is USD 862 Billion (end of 2016) which is roughly equal to the market cap of Apple (APPL, USD 847 Billion as of 1st of September 2017).

The total market cap for Singapore Exchange is USD 649 Billion (end of 2016) which is roughly equal to the market cap of Alphabet (GOOGL, USD 659 Billion as of 1st of September 2017).

The total market cap for Bursa Malaysia is USD 363 Billion (end of 2016) which is roughly equal to the market cap of Johnson & Johnson (JNJ, USD 351 Billion as of 1st of September 2017).

Final thoughts

Imagine a whole country’s stock market value is represented by a single company. This is incredible but true.

Investing in a single country is similar to investing in a single company. For example, buying stocks in Bursa is like buying Johnson & Johnson (JNJ) stock.

The Bursa Malaysia ONLY represents about 0.51 % (363/70556=0.00514) of the total market capitalization of world top 40 largest stock markets. It is a small fish in a big ocean.





Low Hanging Fruits

Low Hanging Fruit is Luck in Disguise

Low hanging fruit is tasty. It is actually tastier than the one hanging higher on the same tree.

Fruits can grow on any branch of a tree. Usually, the fruit quality is distributed evenly all over a tree (e.g.: rambutan). However, based on the position or altitude of the fruits, some are easier to reach than others. This is because fruit tree can sometimes grow really tall like a skyscraper.

Those within arm reach are easier to harvest than those hanging high at the top of the tree. Therefore, the cost of harvesting is higher for the higher hanging fruits. Not to mention that the risk of injury is also higher if there were accident when climbing the tree.

When the fruit quality is about the same, I prefer the low hanging fruit over high hanging fruit. It is tastier because the effort spent in harvesting is lesser. When there are enough low hanging fruits, I can safely ignore the high hanging ones.

Low hanging fruit is luck in disguise

Life is uncertain because it is complicated and governed by randomness. I spent a lot of time thinking about luck and randomness in life. And I find two factors that have great influence on luck:

  • Initial condition
  • Amount of accumulated resources

Factor one: initial condition

Where you started matters. Some places will have more resources than others. For instance, some places have gold mines and some others have oil. Some are deserts.

Initial condition even determines how successful a person can be. I read the following example from an article.

Imagine two equally capable graduates looking to become a professor at a highly reputable university. However, the university only has one spot available. Since both graduates are equally qualified, one of them will be chosen while the other need to look else where for work (e.g.: at a lower rank university).

The graduate who becomes a professor at the highly reputable university has greater access to resources: better students therefore lesser work at teaching, better tools and equipments for research therefore more productive and more academic papers are published and becomes more well-known in the academic circle.

The other graduate who becomes a professor at a lower rank university need to work and teach harder since the university has looser criteria for selecting students. The professor is also less productive due to lack of resources and time for research.

In the end, one professor is judged as extremely successful while the other not so due to the initial distribution.

In a poker game, just like in the game of life, people are being dealt with different cards. Those cards determine the initial condition.

Where the fruits are being distributed over a tree is the initial condition. Where you are located is also the initial condition.

Factor two: amount of accumulated resources

Different initial conditions put different people into power. CEO has great access to company’s resources and therefore power to change the environment the way she likes.

No matter where you started, you can accumulate resources that are available to you by focusing on the low hanging fruits. You can collect as much low hanging fruits as possible that are accessible to you. By the time you accumulated enough resources, you can create your own luck.

Having resources allows you to change your environment. In other words, the more resources you have, the luckier you get. I can even go as far as claiming that how much resources you have is a measure of how much luck you get.

Luck is proportional to the amount of resources that you have.

Low hanging fruit is luck in disguise.

Harvesting low hanging fruits is an optimal strategy to maximising wealth

Something that you had tried very hard to obtain can cost a lot. Trying too hard is not the right thing to do given that you have limited resources.

The point of low hanging fruit strategy is not to try too hard but to identify your low hanging fruit as not to waste it: the low hanging fruit that is available uniquely to you given your initial condition.

Low hanging fruit is available for you and is what you can easily reach for. It is your advantage. It is what money cannot buy. It is your edge.

Everyone is in his/her own unique position in space and time to exploit his/her low hanging fruit available to him/her.

Harvesting low hanging fruits significantly reduces risk of failure. It is robust. It gives margin of safety as in providing high return with low risk.

In computer science’s term, low hanging fruit has low computational cost. It is something that is easy to do.

When there is too much to do, pick the easiest tasks with the highest payoff. Over time, you will accumulate much more resources this way.

Overall, we have done better by avoiding dragons than by slaying them. – Warren Buffett

Do what you do best and is the easiest to you

I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over. – Warren Buffett

When you are a giant, you can easily walk over a 1-foot bar. You can even help others to cross the 1-foot bar. It is harder when you encounter a 7-foot bar. In this case, you need other giants to help.

Everyone is unique and has different strength. Some might be a giant in one domain but weak in others as illustrated in table below.

Person/Domain Domain A Domain B
Person 1 Giant Dwarf
Person 2 Dwarf Giant

If I have seen further than others, it is by standing upon the shoulders of giants. – Isaac Newton

Do what you do best as you are already a giant in your domain. You can easily cross as many 1-foot bars as possible in your domains.

The 1-foot bars are your low hanging fruits.

Over time, you have gone a long way and collected more resources and you might be able to grow and become a giant in other domains. The condition will change, just as the initial condition changes at different point in time and space.

Look for the obvious things. Things that are obvious to you may not be obvious to others. You can see opportunities where others don’t.

Be the best in your domain is rewarding.

The will always be low hanging fruits

In the stock market, whenever there is someone saying the market is overvalued, other will point out that he/she is still able to find undervalued stocks and profit from them.

Exceptions are everywhere. Exceptions are part of our life. It is part of the rule. There will always be exceptions as there are outliers in a normal distribution.

Outlier

Outlier

The market is big. You will get different conclusion based on how you approach your search and also based on your initial condition.

Peter Lynch’s famous advice is to buy what you know. This can be translated into grab your low hanging fruit relative to you.

Warren Buffett has been harvesting low hanging fruits for his lifetime with unbreakable investment record.

Exceptions are low hanging fruits in disguise. Find your exceptions. Your initial condition may put you at exceptions.

Exceptions are few and rare

There will not be many exceptions. They will not be available all the time. But it is better to have one exceptionally good idea from time to time than to have 100 average ideas all at the same time. The former is much more enjoyable while the latter is overwhelming.

That is the beauty of exceptions. That is why low hanging fruit is tastier.

Final thought

You will find something as long as you are searching. Low hanging fruits are everywhere.

Exception is part of the rule. Whenever other says there is no hope, you know better.

Explore and exploit low hanging fruits. It is your best bet. It provides a framework for optimal decision making for maximising the use of resources.

The best thing in life is free. The second best thing is cheap. The worst thing is expensive. Low hanging fruit is cheap and sometimes it is free. Look for free things.

Hunt for low hanging fruits. The world is your playground.

Theory of Boredom That Explains Human Behaviour

Behavioural finance is a relatively new field in the financial world that explains why people make irrational financial decisions. It is mostly influenced by Daniel Kahneman, the author of the best selling Thinking, Fast and Slow and a Nobel prize winner for his contribution in this area.

Daniel Kahneman, together with Amos Tversky, developed prospect theory that describes how people make decisions under risk and uncertainty.

Prospect theory provides insight on the phenomena where people consistently make irrational decisions under uncertainty where they are expected to maximise their wealth which is typical in economics model. Their behavioural biases often lead them to make irrational decisions that make them worse off.

It is a breakthrough discovery. However, the theory does not explain how people behave when there is too much “certainty” (when there is nothing new happening in their everyday life).

I would like to know how people behave when there is too much certainty (where they think they know what is going to happen)?

What would happen when people eat the same food over and over everyday for their life? They would get bored even if the food involved is their favourite food.

Theory of Boredom

Theory of Boredom is a complementary theory to prospect theory. It explains how people behave under too much certainty. It explains why people do things they do when they are bored.

Theory of Boredom suggests that under situation where there is too little change, people make dumb (wealth destroying) decisions on purpose just to see some action.

Boredom kills (literally) certain people. They make decision because they want something to happen. People act irrationally because of boredom.

In the case of stock investing, they sell good stocks simply because the prices don’t move. They act on impulse.

The impact of boredom in human’s life is huge. Life is a long journey which is filled mostly with mundane activities.

Combining theory of boredom with the prospect theory, it seems that human behaves irrationally most of the time under both high certainty and low certainly situations. Situation where there is high certainty is now. Situation where the is low certainty is in future.

We need to protect ourselves due to our limited rationality. We are sane only up to a point. We are not sane all the time.

Conquer Boredom for Extraordinary Achievement

Having the capability to endure boredom is key to extraordinary achievement.

There is scientific evidence for this. Remember the marshmallow experiment that studied delayed-gratification? Kids were given a treat (marshmallow), they could eat it immediately. However, if they could wait for 15 minutes, they would get another treat. There are correlations between the results of the experiments and the success of the children many years later. Those who got the second treat “were described more than 10 years later by their parents as adolescents who were significantly more competent.”

People who can endure boredom have higher chance to succeed. They practise more when learning a new instrument. They can do the repetitive task to perfection. They don’t make stupid decisions just to see ACTION.

People give up because they are bored.

In another words, people who can endure boredom have grit. There is a best seller book Grit: The Power of Passion and Perseverance by Angela Duckworth which talks about the merit of grit.

How Warren Buffett makes money?

Once being asked how he makes money, he answered “By snoring.”

Most of the money Warren Buffett earned is in the waiting. Indeed, according to report, in 2013 alone, Buffett made $37 millions every single day by doing nothing. For us, it is like hitting jackpot every day.

He earns more in one day than the majority earn for their whole life (or even multiple life times).

If Buffett was bored of seeing the same thing happening everyday, he might decide to make changes to get excited even to the detriment of his portfolio. However, he didn’t.

The ability to conquer boredom is one of the most underrated skills.

Good things take time to develop. This is especially true in stock investing. A 100-bagger takes an average of 25 years to deliver as documented in 100 Baggers: Stocks That Return 100-To-1 and How to Find Them.

Imagine waiting for 25 years doing nothing for your investment portfolio. Most people would go insane. They would give up as predicted by the theory of boredom. Therefore they won’t live to see the result of 100-baggers.

As Charlie Munger points out, human achieves great things by avoiding BIG mistakes. It is less about making wise decisions. “It is just avoiding stupidity.”

What Charlie said has deep implication: it means that anyone with common sense can be successful as long as the big mistakes are avoided.

How people conquer boredom?

Some people are able to conquer boredom because they are not bored in the first place. They allocate their attention to the right place. Attention allocating skill is an important concept. People who have a better control of their mind have a better attention allocating skill.

Research (as documented in The Organized Mind: Thinking Straight in the Age of Information Overload) shows that by simply focusing on object A makes you ignore object B.

How not to think about a polar bear? By thinking of an elephant!

These people have a goal. Their goal is a story that they belief in. They have a “belief” system.

For instance, if you believe in education and its grading system, your grade is a mere reflection of how much you believe in the system. People who believe in the system will get a better grade than those who do not believe in it.

The same goes for wealth building, your wealth is a mere reflection of how much you believe in the economic system.

The more you believe in something, the more you invest your TEA (time, energy and attention) in it.

Different belief leads to different decisions and thus behaviour. Different behaviour leads to different outcome.

Having a belief system is useful because the system rarely change but our emotion is. Our emotion tricks us into irrational decision of abandoning the system.

Believe in value

Theory of boredom describes the behaviour of people who don’t have a belief system. These people will get bored easily and commit stupid mistakes.

However, it is not enough to have any belief system. Having the wrong belief system is more damaging than having none at all.

A belief system must be based on value with solid reasons behind.

Here are two example mindsets that I find useful as a guide to create a belief system:

  • scientific mindset: hold only the best (or the luckiest?) idea. The best explanation wins. Constantly search for the best idea. Believe only in the best idea. Track, measure and analyse. Experiment. Similar to growth mindset, the mind grows with every new piece of evidence/knowledge.
  • entrepreneur mindset: turn scarce resource into productive assets. Explore and exploit inefficiency to create wealth. Solve problems.

Final Thoughts

Having a belief system makes the world a meaningful place. It is no longer boring at all.

It is the mindset that we have that matters in the end. The world outcome depends on how we see thing. It is all in our mind.

Remember how Buffett makes money? By snoring. There is so much to learn from one of the world greatest investors.