The Investment Scientist

Archive for October 2021

I gained a lot from my Oxford experience. Some of the gains are for me personally, some of the gains are for my business, and yet others can help me better serve my clients. I would count the latter as my clients’ gains.

The biggest gain undoubtedly came from Professor Sussman’s macroeconomics class. There I learned all the intricacies of macroeconomics, including how monetary policy is conducted. The class helped me understand a language called “Fed speak.” For instance, in March last year, when the entire stock market was in a tailspin, the Fed came out with an announcement of “unlimited” QE. The me without the Oxford education would have not understood what that meant. But alas, after the macroeconomics class, I knew exactly what the Fed was planning to do and understood its implications for the market. Thus in the depth of market despair, I was confidently rebalancing my clients’ money into stocks. Sure enough, the market snapped back quickly and has been rising ever since. 

Back then I wrote a newsletter article where I informed you:

With this much liquidity, an equity market rally is almost certain …

You can read the entire article here, “Fed’s Unlimited Asset Purchases: What That Means for You and Me?

The second biggest gain came from a part of the microeconomic class. I understood micro far better than macro, but I still learned something new from that class. In the past, the consensus had been that firms manifest a decreasing return of scale. That means as firms get bigger, it’s harder for them to make money at the same rate. Thus smaller firms are usually more profitable and often give investors better returns over the longer run. 

However, the latest research has discovered that with the advent of the internet, some big firms achieve the so-called network effect. That is, the bigger they get, the stronger they get and the more money they make. Think of Facebook, Google and Apple. These types of firms achieve the so-called increasing return of scale unheard of before.

This led me to move a substantial chunk of my clients’ money into stocks with the increasing return of scale characteristics. My clients’ portfolios have benefited since. 

The Behavioral Finance class also taught me a lot. It didn’t really teach me anything new, rather it confirmed my belief that our behavior as investors is much more decisive than whatever investments we select. It feels good to get a stamp of approval from Oxford and I’d like to call that the third biggest gain for my clients. 

I have personally benefited from the clarity I gained at Oxford as well. Before I went, I wondered if I should turbo-grow my business to multiple billions of dollars with hundreds even thousands of clients. Now I have the answer. I will keep the business unique, focusing on serving a small number of clients very well. Instead of growing my business, I’d rather grow myself as a person. It is also the best way to grow my clients’ wealth by focusing on them!

Schedule a 2nd opinion financial review, buy my wealth mgmt books on Amazon.

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Last Saturday I completed my executive MBA study at Oxford. The whole thing actually started quite serendipitously. A client of mine who is a physician studied there and he liked it so much that he encouraged me to apply. Today I’d like to share some funny moments on my journey.

As part of the application process, I went to Oxford for an interview. I booked a student dorm room at Sommerville college, and when I checked in, I was mesmerized. The dorm room looked and smelled like it was right out of a Harry Potter movie. The adjacent canteen looked like the Great Hall at Hogwarts, with walls adorned with huge classical paintings of accomplished women alumni. 

That night I was the only resident in the entire building, and it didn’t take long for me to notice that the bathrooms were not marked by sex, and in fact there were no male bathrooms. Later I found out that Sommerville is the first girls’ college at Oxford and Margaret Thatcher herself graduated from there. 

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Last week I completed the Venture Capital class at Oxford, and I have at least two take-aways  I’d like to share with my readers. Today, let’s talk about SPACs since a few of you have asked me if we should invest in those, and before I had not felt qualified to answer the question.

What are SPACs?
The name SPAC is a shorthand for the Special Purpose Acquisition Vehicle. These are companies backed by famous investors/entrepreneurs (sponsors) that raise a sum of money via IPO then search for a private company to buy.

For venture-backed companies that want to go public, this is a great option since they don’t have to go through the IPO process – roadshows, book building, the whole nine yards. All they need to do is to sell to a SPAC. 

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


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