Vikram Pandit is a Loser; Berkshire Hathaway 2 - GIC 0

In the latest development of what must be the most eventful year in the history of banking, Warren Buffett's Wells Fargo has snatched Wachovia bank from Vikram Pandit's Citigroup. In what must be the most humiliating and daring bank acquisition to date, Wells bid and closed a $16b deal for Wachovia, an offer that trumped Citi's pathetic $2.1b and that has Pandit and his minions crying foul, or whining, rather.

But Pandit seriously doesn't have much of a chance. Wells Fargo is paying much more and is not requiring any assistance from FDIC, in contrast to Citigroup's relatively pathetic bid which involved "FDIC agreeing to absorb up to $42 billion in losses should Wachovia's $312 billion pool of loans later turn sour." The withdrawal of FDIC involvement will surely mean a goodbye to Citi's bid for Wachovia, but Pandit must have known better than to expect that his paltry offer would have been the best in the market.

Lee Kuan Yew Wrong Again! This Time, It's Oil.

Two months ago, Lee Kuan Yew, Minister Mentor of Singapore and Chairman of GIC, made the following statements about oil prices, as reported by the Straits Times:

Oil prices 'unlikely to rise further'
March 8, 2008 (Straits Times)

OIL prices are not likely to go higher, Minister Mentor Lee Kuan Yew said yesterday.

As crude oil prices hit US$105 (S$145) per barrel, MM Lee believes it is not likely to creep further up to US$110.

'The oil suppliers are testing the limits. They believe that China and India now form a new long-term base demand. They may be right,' he said.

'I don't think it can go up US$110, US$120, US$150 and the world economy goes on. Inflation will go through the roof.

'Economies of the West will go down, hyper-inflation in many developing countries. So it will go into reverse. There's no projection right to the end.'

Well, shortly after Lee Kuan Yew's pronouncement, Oil prices shot up above $110, and today is trading at above $125.

(Image courtesy of theenergycollective)

On top of that, just a few days ago, respected Goldman Sachs Analysts have predicted that oil could spike up towards $150 and even maybe $200!

Goldman Says Oil `Likely' to Reach $150-200 a Barrel
By Nesa Subrahmaniyan

May 6 (Bloomberg) -- Crude oil prices may rise to between $150 and $200 a barrel within two years because of a lack of adequate supply growth, Goldman Sachs Group Inc. analysts led by Arjun N. Murti said in a report.

``The possibility of $150-$200 per barrel seems increasingly likely over the next six-24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty,'' the Goldman analysts wrote in the report dated May 5.

Global fuel demand growth is outpacing gains in output. China, the world's fastest growing major economy, has more than doubled oil use since New York crude dropped to this decade's low of $16.70 a barrel on Nov. 19, 2001. That's soaked up most of the world's spare capacity amid supply cuts in Nigeria, Iraq and Venezuela.

Well well, wrong again, Mr. Lee Kuan Yew.

Wrong on energy, and wrong on banking.

Not only are the industry's most respected analysts holding opinions diametrically opposite to you, the world's most respected investors, such as Warren Buffett and Jim Rogers, have also made the opposite investment decisions compared to you.

Seriously, what is Lee Kuan Yew doing as the Chairman of GIC, Singapore's $300 billion investment fund? The man isn't qualified for the post!

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Related:
Lee Kuan Yew vs Warren Buffett: Part 2
Lee Kuan Yew Ain't No Warren Buffett
GIC, UBS & Jim Rogers

Global Alpha, or Global Omega?

Goldman Sachs is the most profitable investment bank in the world. Last year, its CEO was paid somewhere around US$56m. The recent credit correction, however, has demonstrated that even the best and the brightest are fallible.

In news just out, Goldman's quant fund, Global Alpha, was down 22% in August 07, and down 33% year-to-date and 44% from its March 2006 peak. The company's trades, which are based on mathematical formulae, are going terribly awry.

Even with such heavy losses, the fund managers are resolutely holding on to their beliefs in their mathematical formulae:

"We still hold our fundamental investment beliefs that sound economic investment principles coupled with a disciplined quantitative approach can provide strong uncorrelated returns over time,"

At the same time, "Goldman blamed its losses on too many quantitative funds making the same trades, and said in mid-August it would have to develop new strategies."

The same thoughts are probably running through the minds of other quantitative hedge fund managers which trade the markets based on a quantitative approach. Even with their losses they probably still hold to their 'fundamental investment beliefs.'

However, even though these hedge fund managers are probably super-smart and have ultra-high IQs, it means little when there are also other super-smart fund managers pursuing the same strategies. When markets turn against them, their computers simultaneously take the same cut-loss strategies, causing the market to move much more than expected and causing massive losses.

At the end of the day, I do not think that it is necessary to be a super-smart high-IQ individual to beat the market. You just need to think in a Contrarian manner - when the crowd is rushing towards the exits, that is the time to be buying. When the crowd is rushing in, it is time to get out.

And the good news is, Contrarian Investing has very little to do with intellect and IQ, it has much to do with emotional discipline. It has to do with doing your own home work, thinking for yourself, and having the courage to stand against the crowd.

And guess what, if you are contrarian, you will never run into the problem where there are "too many quantitative funds making the same trades," because you'll be making the kinds of decisions that few others are making.

Be a Contrarian today.