The Investment Scientist

Archive for June 2016

tumblr_m2hyojmKqo1qes27do1_1280.jpgI was an amateur pilot. I remember vividly an episode happened during a training class ten years ago.

That was a very windy day. Up to that point, I had only experience flying in calm weather. As soon as my Cessna took off, I immediately felt the difference. My plane was tugged and pulled in all directions by cross winds. I felt like I was losing control of the plane, and fear swelled up from the bottom of my spine to the top of my head. I sat stiffen in the pilot seat and my sweaty palms grabbed tightly at the control handles like a sinking person holding onto a straw.

My trainer sensed my tenseness and she asked: “Are you OK?”. Not willing to acknowledge my fear, I asked her instead: “Is it more dangerous to fly in turbulent weather like this?” The trainer smiled and said: “It is not more dangerous to fly in turbulent weather. The plan was built to withstand any turbulences. But occasionally, an amateur pilot would lose his cool and do something stupid. That’s the real danger.”

Read the rest of this entry »

According to research by Dimensional Fund Advisors, Inc, only 33% of mutual funds that outperformed the market in the last five years continue to do so in the next five years.


A week from now, there will be a referendum in Great Britain to determine if the UK should stay in EU or should leave for good.

A mere month ago, the stay vote still won by a comfortable margin. Just showing how political wind can shift, the odds are now 50/50 that the leave vote might win.

Here are some consequences I believe a leave vote would entail:

  1. Copycat referendums in other EU states, and within a few years, EU might not exist.
  2. London’s reputation as world financial capital on par with New York may be diminished.
  3. Disruptions to trades and investments, since UK’s relationship with Europe and the rest of the world, will have to be renegotiated.
  4. Pound Sterling, London stocks, and property prices might go south. Potential capital flights from the UK.
  5. More volatility in global stock markets.

As an investor, what should you do about it?

Well, all of the above can be called informed speculations. They are not actionable Read the rest of this entry »

Screen Shot 2016-06-03 at 11.42.23 AM.png

On May 27th, 2005, I started MZ Capital Management as a hedge fund with  “Double Your Return” as my first marketing tagline.

Shortly after the Enron debacle, Congress passed the Sarbanes-Oxley Act, which  requires company insiders to report their trades to the SEC electronically within a day of the trades taking place. I created a computer program to query the SEC’s database in real time. So as soon as, for example, IBM’s CEO reported that he bought 10000 shares of IBM, I would know it right away.

On a typical working day, I would be half naked lying on the beach of Palm Beach and I would get a text on my dumb cell phone (sent to me by my computer working hard on my desk.) I would call my broker right away to follow the trade. Then the news would get to the WSJ one week later, the price of IBM would pop and I would sell for maybe a 5% to 10% gain.

Just like that I was making 20% to 30% return every month!I calculated that at this rate of compounding, I would become a trillionaire in about 10 years. I was so confident, I started the hedge fund to share the wealth.

Lest you don’t know yet, I did not become a trillionaire hack, not even a billionaire. So what went wrong?

A few months into my hedge fund, I noticed a small website, where for a $20 a month Read the rest of this entry »


Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


%d bloggers like this: