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本帖最后由 老鼠爱小米 于 27-10-2009 20:12 编辑
My Views on Share Trading
1. Introduction
a. I am not one of those so-called “very experienced”, “expert” or “professional” traders. With almost 30 years on the stock market, I’m no novice too.
b. The first third (or half?) of this period, I was a contributor to the market because I lost a lot more than I made. My savings gone, my monthly salary (less living expenses) also gone. On top of that, a good part of my investible CPF also gone. Adding salt to wound, I borrowed (small amounts of course) from colleagues. Fortunately, I was wise enough not to resort to loan sharks, because that will be a deadly route.
c. I became sober after that disastrous period. So, I tamed down. I hardly traded, except on medium-term blue chips strongly recommended in Stock Analyst reports. During this period, I slowly built up my bank & CPF savings which I used for Long-term Investment in later years.
d. Finally, I understood the virtue of investment after I read the first book on Warren Buffett’s investment principles. Then I bought a few more books on him.
e. Though not able to follow his principles fully, I have already recouped a good part of my past losses. Caution: There is no magic in his principles. You need:
i. discipline,
ii. patience,
iii. timing, and
iv. knowledge of the companies you buy.
f. Recently, I have put aside a very small pool of funds to experiment on short-term trading (no Contra, please) based on a combination of the following factors:
i. Candlestick reversal patterns,
ii. RSI or Stochastic (I prefer RSI),
iii. MACD,
iv. at least 6-month chart landscape to spot resistance & support,
v. MA of Traded Value,
vi. volume momentum,
vii. PE & RPE, and
viii. Broad market conditions.
g. A word of caution: No technical indicator or combination of indicators can guarantee that the projected price trend is going to be successful. Also, different people looking at the same indicators may have different views. If there are mathematical formulae that can predict prices accurately, then there will be no poor people. There are many charting services that can provide these technical information.
2. Investment & Trading Strategies
a. Long-term – 5 years or more (what Warren Buffett advocates)
b. Medium-term – 1-3 years (my view)
c. Short-term – less than a year
d. Gambling – contra basis without enough funds to pick up
3. Risks & Benefits
a. There is no such thing as ‘no risk’.
b. Based on the strategies above, ‘Long-term’ has the lowest risk provided you follow the rules. The risks are war, some natural disasters, and unforeseen events like what happened to Lehman Brothers.
c. The risk increases as you come down the list.
d. Gambling has the highest risk. This is equivalent to gambling in casinos. You certainly anticipate the stock price to shoot up when placing the Buy order. Who won’t? But if it doesn’t, you are forced to sell the stock even its price has fallen a lot.
e. When you place an order to buy, you need to weigh the chances of making a profit against a possible loss during your targeted investment time-frame. Profit and Loss should take into consideration the amount of brokerages and fees you have to pay.
4. Long-term Investment
a. Don’t buy a company unless you can keep it for 5-7 years or more. The company’s fundamentals must be good.
i. Good projected Growth Rate (Revenue, ROE & ROA) at least within your investment time-frame.
ii. Healthy Operations Cash Flows in the last few years.
iii. Reasonable Debt-Equity ratios.
iv. The company has excellent competitive advantage over its rivals.
b. Buy only when its valuation is low.
c. Best time to buy is when few people are buying. This is usually during a stock bubble burst, or there is some kind of financial crisis. The last one was the Financial Crisis kicked off by the subprime mortgage loans. Before that was the Asian Financial Crises. If I’m not wrong, it started from Thailand when the Baht went into difficulty.
d. Best time to sell is when the broad market becomes too hot, valuation is unbelievably high. There are information and feeling from the ground that business is not as rosy as was reported. And there are too many people jumping into the bandwagon thinking that they can make easy money from the stock market. I usually get this kind of feedback from wet markets, coffee shops and other public places.
e. From a superstitious point of view, this low-to-high cycle usually takes about 7 years (the so-called ‘7-year itch’).
5. Medium-term Investments
a. These are variations of Long-term Investment with a shorter time-frame.
b. Reasons why you select these strategies are:
i. Your investment capital has a maturity date. You need them for other purposes some time in the future.
ii. Based on the ‘7-year itch’ believe, you think the next market crash won’t be too long from now.
6. Short-term Trading Strategy
a. I believe many professional Traders adopt this strategy.
b. The Trades are based on a combination of factors:
i. News & Information from their inner circle.
ii. Analysts’ reports.
iii. Announcements
iv. Charts & indicators as I have mentioned in (1.f).
7. Gambling Strategy
a. Honestly, I should not call this a strategy because there isn’t any.
b. You buy with the hope that the price will rise about 5% within 3-4 days so that your in-pocket (net) profit is more than at least 5 times the amount of brokerage & other fees you have to pay otherwise you become a ‘slave’ to the brokerage firms.
c. You buy based on information you got from:
i. Remisiers. I believe it is not their intention to give you information about a stock that will rise a few % within 3-4 days. The stock may rise within a week or two.
ii. Gossips from friends. Many of them unreliable. You take a bet. Last year or so, I got one ridiculous tip that a particular stock will ‘shoot up’ in a few days. Yes, it did. $0.005, not enough to cover brokerage. Fortunately, I didn’t bite because I extracted their Financial Report from SGX website and found that the company has negative capital. That is to say, the accumulated losses over the years have exceeded the entire paid-up capital. There are some reliable ones, but they usually come in too late for you. By the time you hear it, the price has already gone up too high, probably in the RSI region of 75-80%. You jump into it? You may end up holding the ball.
iii. Threads from internet stocks & shares forums. Those without basis are more or less like those mentioned above. However, some techies may show you technical analysis like charts showing support & resistance, volume analysis, price momentum and others. Well, it is a question of whether they tell you at the right time. Remember, there is no guarantee that the forecast will be successful. Even if it is successful, remember you are buying with Contra, you have little time and patience to wait for the climb unless it is a shooting star and you catch it at the right moment.
iv. Real-time displays of
I) Top 20 Gainers
II) Most Active Counters
III) Hottest Stocks
8. Lemmings Phenomenon
a. The Longman Exam Dictionary defines “Lemmings” as a small animal that looks like a rat. Lemmings are known for following each other in large numbers and killing themselves by jumping off cliffs into the sea.
b. In at least 2 of the books on Stock Market I have read, I came across the mention of Lemmings Phenomenon. The stock market investing public is like Lemmings. When a group of people chase up a stock, many of the others will follow not knowing the consequences. The smart few will get out fast and survive richer, but the rest will have broken bones. |
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