Weekend Reads for Finance Pros: China, Retirement, and Investing Mistakes

This week's roundup of interesting bits of news and analysis comes to you via Hong Kong, where all eyes (and ears) were on the opening of China's annual session of parliament. One of the top stories to emerge was the government's announcement that it would increase the defense budget by 12.2% this year to 808.23 billion yuan ($131.57 billion), its biggest rise in military spending in three years. As Reuters noted, this was a strong signal from President Xi Jinping that Beijing is not about to back away from its growing assertiveness in Asia, especially in disputed waters.

The overall 2014 budget is a staggering 15.3 trillion yuan, or about $2.45 trillion. This graph puts the spending in perspective:

Another big topic, of course, was air pollution. In particular, Beijing's seemingly ever-present, oppressive smog. But somewhat serendipitously, the pollution cleared this week, leaving blue skies, sunshine and clean air in Beijing.

There was also some interesting banter on Twitter about the state of China's property market. In a short Wall Street Journal video clip, SOHO China's CEO said the country's credit crunch is going to worsen, liquidity will dry up, and cash will be very limited. She noted that the firm is sitting on a pile of cash that is "ready, just waiting for the market correction." (The firm recently signed an agreement to sell two big commercial properties in Shanghai.)

In a series of tweets, China-watcher Patrick Chovanec, chief strategist at Silvercrest Asset Management, noted: "from everything's I've seen, SOHO's Zhang Xin has played China's property bubble like a violin. . . . SOHO built up cash stockpile and used 2011/12 crash to buy up choice properties cheap from overextended debs. . . . now SOHO China is cashing in before things get ugly again."

To which Esther Fung, the Wall Street Journal's property reporter, responded: Li Ka-shing (Asia's richest man) "has also been selling assets in China. It's quite telling."

Real estate is an important sector for China, and if "things get ugly", as Chovanec suggests, the economy will certainly slump. If you have a global portfolio, the news out of China could come in handy.

Here are a few other stories you may have missed in recent weeks.

Mathematics and Statistics

• By hiding math's great masterpieces from students' view, @edfrenkel argues we deny them the beauty of the subject. How our 1,000-year-old math curriculum cheats America's kids. (LA Times)
• Statistician David J. Hand on eerie coincidences and playing the lottery . (New York Times)
• Economic cycles, the Poisson process, and statistical modeling: "Briefer Economic Cycles" (Statistical Ideas)

Retirement

• In Warren Buffett's annual shareholder letter, he asks the trustee of his estate to put 10% of his wife's cash inheritance in short-term government bonds and 90% in a low-cost S&P index fund. "I believe the trust's long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions, or individuals," he said. Does the 90/10 portfolio hold up for other people? See: "Will Warren Buffett's Investment Advice Work for You?" (Reuters)
• "Save for Retirement First, the Children’s Education Second" (New York Times)
• "Our Next Big Crisis Will Be a Retirement Crisis" (MarketWatch)

Investing and Behavioral Biases

• Five common mistakes that investment firms make and ways to manage each of them. (Credit Suisse, PDF)
• Bill Gross channels Yeats's "The Second Coming" in his latest investment outlook: "The Second Coming." (PIMCO)
• "The Great Divide over Market Efficiency" (Institutional Investor)
• "The 50% Rule: Keep More Profit in Your Wallet" (Wealth Strategist Partners, PDF)
• "Low Risk, High Rewards: The Low Volatility Anomaly" (The Psy-Fi Blog)
• "Learning to Hit a Kill Switch" (Behavior Gap Newsletter)
• Is Markowitz wrong? Investment lessons from the financial crisis. (CFA Digest)

The Fed and the Financial Crisis

• "The Greatest Propaganda Coup Of Our Time?" (ZeroHedge)

Bitcoin

• "Bitcoin is more accurately understood as an ideology": The Cryptopolitics of Cryptocurrencies (Harvard University Press Blog)

Your Advisory Practice

• "Best Practices in Client Communication for Financial Advisors" (Nerd's Eye View)
• "Michael Zeuner, on Transparent Business, Comp Models" (Wall Street Journal, subscription needed)

And Now for Something Completely Different

• "What to Do When You Have Been ‘Dreedled’" (Financial Times)
• "Stunning and Amazing: Northern Lights Wow U.K." (NPR)

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

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