Value Invest or Trading, how many % return you aim for ?

A few days ago, I have a talk with my friend, I asked him how many % he aim for .

He told me he aim for consistently 50% return. He is a FA guy using some TA to enter.

I'm telling him his target is a bit too ambitious. But he thinks is achievable.

We discuss, my opinion is traders may achieve, but FA guys only achieve it after

a collapse. But trading to achieve 50% would be very difficult to achieve. One

may argue, I achieve it before.

Lets have some scenario.

Assuming both traders earn RM3000 per month as a white collar employee. 

Scenario 1

Trader A put in RM10,000 as his trading capital. Lets say he set his stop loss at 7%, 

with a profit target of 10% for each of his trade . Good risk reward, right ? 

He would use RM10k for each of his trade in order to have lesser trades and quality ones.

So, each success trade he would gain 10%. 

Say he win  7 trades and loss 3 trades in one year, he would have achieve 49% in

return. A loss of 7% would mean RM700, he is able to absorb the loss emotion, even

he consecutively loss the 3 trade at 1 go in the middle of the year, he would still can

persist his strategy and still very stable on his emotion to focus on each trade. This means

Trader A can go around boasting he achieve around 50% return in 1 year.

Scenario 2

Trader B put in RM100,000 as his trading capital. 

He also set the same risk reward as Trader A.

Say he has the same luck & probability as trader A, Meaning 7 win & 3 loss.

In this Scenario 2, he is not able to complete all his 10 trades in a year as emotion sets in.

There is 2 case here, 

case 1 , Trader B put in RM100k for each trade.

case 2, Trader B puts in R10k for each trade.

Case 1

Why I say so. Say he win the first 2 trades, then he start losing the 3rd, 4th & 5th. 

Remember each trade, he would loss RM7k. The 1st lost would be already hard to 

swallow, imagine at the 3rd loss, he is down by RM21k, this big emotion will really

sets in where he would take less than 10 trades in that year, say 7 trades in all. 

Say the 6th & 7th trade, he wins but is year end already. So, total 4 win, 3 loss, which 

would mean he only gain 10%. See the 50% target becomes far away.

Case 2,

In the same probability calculation, he need to do 100 trade. Why ?

As each win, he only win 10% of RM10k, which is only 1% of his total capital.

Each loss is 7% of RM10k, which is 0.7% of his RM100k capital.

With 70 win, then only he earn 70% minus 30 win 21%, then he would  able

to achieve 49%. But the real case is not easy. To have 100 trades a year, he need

to trade 8~9 trade per month, and need to consistently win 70% of his 9 trades.

Imagine sometime  the market is in downtrend or volatile, you cant even take 9 trades.

 Even he insist to trade 9 trades, his probability would have drop or he may loss in this 

downtrend months overall. Say, he is followstrictly, in a downtrend of 3 months he does not trade. So, he left with 9 months. 

Meaning he only able to trade 81 trade. 70% win meaning 56 trades win 25 loss.

In overall he win 56% on his win trades and loss 25% on his loss trades of his capital.

All in all he gain 31% which is very very good.

That 31% is only achieve provided,

1) He do not loss focus, and do mistakes.

2) The downtrend and volatile months max is only 3 months, 

3) He has a solid strategy able to consistently maintain 70% success rate.

4) He will not be tempted to break his rules and jump into trades during volatiles period.

5) He able to overcome greed and fear.

Each of the 5 criteria normally, will be affected the trader once in a year. thus again the % win will

be less than the 31%. 

Thus in conclusion, one is able to win consistently year after year from 20% to 30%, he will be

on his way to the best trader in the world.

Thats really something to ponders on how one will able to achieve our target goal.

Value Investing Talks : Some pointers

Last month, I went to Maybank Investment talk (May). They invited a speaker from Equitiestracker to give a speech on value investing.

Here are some of his talk for value investing :
1) He said " Begin with the end in mind". Meaning you must set a profit target or when 1 or a few criterias is met, then you should sell the stock. If not having an end in mind, then you may hold the stock indefinitely and don't know when to take profit and may see your profit near your pocket but end up giving back to the market.
2) One should purchase a stock after evaluating the CAPITAL RISK. Meaning we should buy good stock only.
3) One should consider timing risk before pushing the buy button. Meaning buy at the right time, err...this mean buy when is ON Sale. Normally, a stock will be on sale when she is going downtrend. For those who have TA knowledge would be at advantage.

Value investing criteria according to its importance.
1) Operating Cash flow
2) Dividend
3) Consistent Net profit

There are 6 categories of stocks.
1) Investment grade stock (consistent fulfill all the 3 criteria in 10 years, boring, slow moving stocks).
2) Emerging grade stock (these are high growth stock)
3) Cyclical stock (depends on some external factors)
4) Turnaround stock (these stocks just started to go into profit zone, but to me these one will be higher risk)
5) Sunset/ Failing stock (profit margin deteriorating hugely, normally technology stock has this tendency).
6) venture/Speculative stock (these stocks is not in fund manager portfolios and usually are "goreng" stocks)

His strategy is buy some, if drop lower, buy some more, drop further , buy some more, then when turnaround, sell some, sell some more, then sell further.


He has mentioned he is monitoring  GAB, Airasia & AirasiaX (this one is higher risk, emerging stock).
I can't remember the actual date I went to the talk, should be around 17/May. Then these stock is around (13.86, 2.26, 0.755). Let review this in a year if I still remember .

For Maybank Investment themselves, they are promoting their Ezyinvest program. Some sort of unit trust but no annual commision fees and using "Dollar cost averaging" strategy. Suggested we keep for 4 to 8 years, the gain will be around 70%. Imagine one is to put their money in the FD, after 8 years, we would only gain 27%. This is to help newbies to invest and using the safest strategy. One can select from their 8 recommended stocks.
1) Ambank
2) digi
3) TM
4) TimeCom
5) GenM
6) Gamuda
7) Maybank
8) DRBHicom

Note : Caveat emptor and read my disclaimer on the left.

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3 Strategies separated into 3 Portfolio

Recently, I have started to separate my 3 strategy and categorise into 3 different portfolio to make it more tidy and able to analyse which strategy gain the most. I will evaluate these 3 strategy every end of the year,

Porfolio 1 (Value Invest - VI)
Buy and hold, mainly for capital appreciation and dividend collection. So, thats where I put my REITS.
Mainly very strong fundamentals and high dividend (>5%) paying company.
This portfolio will be very inactive and demand little of my time.

Portfolio 2 (VaIue Invest with Trend trading - VITT)
I'll buy and sell half when reach 2nd resistance and have the remaining half set with a trailing stop loss.
I will not cut loss if the the trade broke my 1st support instead will average down upon seeing reversal.
Mainly very strong fundamentals and dividend paying (at least higher than Fix Deposit) company.
Will sell all the remaining upon breaking my trailing stop point.

Portfolio 3 (Momentum Play- MP) 
I buy at support/breakout/flag/pattern/sym triangles, may sell all upon hitting 1st resistance, if number of bought shares qty is high, will sell half at 1st resistance and sell all upon reaching 2nd resistance .
I will cut loss upon break my stop loss point.
This one, I will not look too much into fundamentals but at least is not a high loss making company.

Share Tips !!!

Some history telling down my memory lane.

I just got myself burnt in 1997 as I bought shares from CLOB (a Singapore board to trade Malaysian shares). Thanks to Tun Daim decision to freeze all our Malaysia's stock portfolio bought in Singapore, I had my warrants becomes useless papers and some shares that did not able to survive through the crisis get delisted. I was not able to get a single cent back from these shares that I was holding as I'm not allow to trade as the Malaysia gov had freeze all shares bought under CLOB. I had to pay some commision fee a appointed company to transfer back my shares to Malaysia stock broker. Even so, they can only be released in stages throughout 2 years. By then, some of my shares like Renong-WA already expired and Promet being delisted.

Then came 1999 after our Asian countries had just bottom out from the financial crisis in 1997~1998 , STI have a bull run, I want to recover some of my losses but then again there is no one talking about learning TA and FA (at least all my friends doesnt talk about it). So,  I just bought shares based on TIPS !!! from broker or friends. With this TIPS, I do recover some of my losses, but not much as I do not have much bullet, just bought by contra.

Hmmm, with now after so many years, and the internet is so advance, there are so much information about TA and FA everywhere, but yet many people prefer to listen to TIPS ! I also do listen to TIPS but I would analyse it before buying. I heard from my sister, some of her friends bought some of the shares that I mention here that is good to buy but didnt even bother to read my blog content ( some I mention but is fully valued), she still bought into it.

Well, I did earn some money from HAPSENG recently which I got this TIPS from a friend and after analysing it , she is having a UPTREND, so I bought into it. I have just sold all of it though she is still trending , I may buy into her again. Lets see how she pans out in the coming days.

Finally the announcement of GE13

On 02Apr2013, there is already rumours spreading that PM will dissolve the Parliament on 3Apr2013, but then again, the CI was bullish climbing for 17pt. Finally, the announce came 3Apr, the CI was dropping furiously for -50 pt, in just a short time, the CI fight back to close somewhere -17 (not quite remember) at lunch time, and end closing +0.4 pt. Those who play future had bet on the parliament will dissolve on March , end up getting their hand burnt when they short the Mar contract. Now I see that even the announcement is on Mar, the shortist still get burnt as you can see today. Maybe those intra-day futures player will gain some and he had to be very experience and fast in his decision to take profit.
Check with one of my broker, she say foreign fund has been accummulating, that the reason our CI was bullish, even on 3Apr, our local funds is the one who is trying to push down the index but end up have to buy back after realising the foreign guys are still picking what they throw.
Hmmm, now one may wonder will the actual polling day, the index will have a big drop ? I really quite bad at guessing, so I will let the time to tell me.

What would you do after you strike your first bucket of gold ?

Smart People start to use money to earn more money after striking their first bucket of gold by doing business. Some of them get richer but some of them back to square one.

Lets put up a scenerio for discussion,

You just strike a Toto and the prize is RM3.5 million. Wow ! The whole night you would not able to sleep. Lets begin, you might use RM500k for giving yourself a treat, example a luxury car, a new house, a lot of electronic gadgets that you always dream on. Then you left with RM3 million. Lets talk business, how you want to let the money grow to ensure you have enough money to live the rest of of life by quiting your current pressure cooker job ! Imagine your family income (include your wife) is RM7.5k per month ( RM90k annually). Here are a few options

1) Put all the money into Fix Deposit and earn 3% annually = RM90k .
Pro : Your money is 100% safe and consistently you & your wife can quit your jobs and have RM90k to     spend annually which you can maintain your current life style
Con : Year by year, there is inflation of around 4~5%, thus your spending power getting lesser and lesser, which you may eat into your capital and you may have nothing much left over for your children by the time you leave this world.

2) Put all the money into a few Dividend stocks =  (around 6% for REITS would be good) = RM180k.
Pro : You can use RM90k for the 1st few year and re-invest back the RM90k into the dividend stocks, with this your capital will keep growing and this will definitely cover the inflation and also indulge into some extra luxury items or tours.
Con : Your capital may not guarantee to maintain if the stocks you purchase keep dropping in price. So, the annual income may also fluctuate though you still get RM90k annually if your stock price drop to half price from your purchase price.

3) Put RM1 million into FD (interest RM30k), RM1 million into dividend stocks (dividend RM60k), RM1 million to trade ( assume you have acquire the necessary TA skill needed to trade), well target 15% annually consistently . So total annual income would be RM240k.
Pro : You can upgrade your lifestyle and also grow richer than your current wealth with this combination as you can use the extra money earn that you did not finish spending for trading capital.
Cons : If you lose 10% for a particular year, then one have to eat into his RM3 million capital as the RM90k earn from FD & dividend is not enough to cover the 10% lost, not to say the daily expenses.

Personally, I would opt for option 3, test our for say 5 years, if the growth is lesser than option 2, then I will switch to option 2 .

So, which one would you choose ? Lets share your view ;)

Trend channel follow-up -Paramon

On 10Mar2012, I mentioned Paramon when she is trending near the bottom of her channel, see below for part of my comment or you may need to refresh in details what I have wrote at http://reiccs.blogspot.com/search/label/Paramon

......"So, how to play ?
To those traders that does not want to miss the opportunity, one should enter position if Monday intraday can goes higher than 1.61. These again based on probability, the true support may not be 1.58, so one should enter with a smaller position and keep some remaining bullets to average down at 1.52 if really the trendline A is the way the market really wants Paramon to go.

What about you are conservative ? So, just wait till 1.52 to enter, if she really doesn't goes down to this level, just forget about her and moves on to hunt for another better probability stocks....."



Today's comment

On 23Apr, she started to trade around 1.52 which even the conservatives also can enter. Remember ! even with TA, one cannot be accurate till the exact cents level when I mention about target entry price.

As of 21/June/2012 (is been 3 months +) , she has finally reach back her upper channel line, awesome right ? One can have his own sweet time to purchase around 1.51~1.62 as she fluctuate on these range for about 2 months. Meaning there is no rush in buying when she has reach the bottom of the channel line.

So, is it time to sell now? If on3 were to follow the trend channel game plan, it is time to sell. Again, remember one cannot get every juice out of an orange. She may breakout from the upper channel line but hey with this channel range, one already profit 18% for a mere 3 months period. One should not be greedy.

Follow up on TSH

On 18May, I post on the missing the cut loss point & hope for a fruitful rebound.
"d) What if you miss the boat, and now is too painful to cut, there is still a last chance where she may have a technical rebound back to 2.26 though the rebound may realize or may not realize. So, thats where the HA (Hope Analysis) come in.......;)"

 Finally, today she has reached the 2.26 initial cut loss point. For a Trader who follow his/her strategy strictly, today he should cut loss at 2.26~2.27 and do not "hope" there is further upside to recover his loss. This is due to his initial trading plan has failed and he has to bear the small loss. For a trader, the strategy is to maintain cash always to fight another day by having small loss and having more than 50% success rate of overall position taken.

But for an medium term investor, one would have average down around 2.12 and wait for this rebound to check one can profit from his average price. In this circumstances, being and investor and to let him escape the pain of being actual real money loss while bearing only paper loss. Being a medium term investor, he must have enough money in his portfolio in order for him to average down (the best method is dollar cost averaging).

So, which Method you prefer ???? Again whether one is a pure trader or investor, a well trained MIND, a proper defined and back test METHOD and MONEY MANAGEMENT still applies.

Lesson to be learned from May Momentum play

On 1st May , I wrote the below for TSH momentum play

" Entry would be around 2.44. (maybe can get around 2.42 or maybe 2.44 would be the lowest)
Stop Loss = 2.26
Profit = 2.67 (1st target) 2.81 ( 2nd target).
Target time = 2 ~ 4 week max "

On 16/May, she broke down & straight punch through the support without a pause. She then close at RM2.18 which is RM0.06 below the plan stop loss 2.26.  For such a BEARISH MARKET where index fell more than 20 pts, one would take action as below :

a) During intra-day, if he/she is monitoring the market closely, no need to wait for end of the day, immediately cut,  maybe can cut at 2.24~2.26. At least is still near or according to the plan cut loss.

b) If he/she is not monitoring the market, cut the next day, even the next day is an up day, just cut at 2.18 or just observed a bit if index up, so maybe can cut around 2.21. Remember a cut loss plan is a plan that must follow strictly as a trader though one may like to tweak a bit on the cut loss criteria (see comment c). In this scenario, she keeps going lower & further away from thecut loss target. On 18/May, she is at 2.10, you will lost another RM0.16 per share in addition to the cut loss target (-RM0.18). Imagine if you have 10 lots (10,000 units), you would have lost another RM1600 in just 2 day of hesitation or procrastination.

c) What if the scenario is the index is NOT in such BEARISH situation. If the stock slowly creep lower and broke below the 2.26, say by RM0.02. One can still wait for the next day to see how she closes. If close above the support, then there is a chance there is a whipsaw here or some syndicate purpose flush out the tight stop loss trader. So, is good to hold 1 more day to observe the price direction if the general market does not have a BEAR charging at you.

d) What if you miss the boat, and now is too painful to cut, there is still a last chance where she may have a technical rebound back to 2.26 though the rebound may realize or may not realize. So, thats where the HA (Hope Analysis) come in.......;)

3 levels as a Trader...Where am I ?

I've copy a small part of Alexander Elder's book (Come into my trading room) where he categorise a trader development stage.

1. BEGINNER
The minimal acceptable performance level for a beginner is a loss of 10% of trading capital in a year.
Many lose 10% in a month if not in a week.  If you can survive for a year, learn about trading, and lose less than 10%, your education is cheap and you are way ahead of the crowd.
The goal of a beginner is to cover trading expenses and generate annual return on his account equal to one and a half times a comparable riskless instrument (example Fixed Deposit or Sukuk). You have to charge the cost of software, data, classes, and trading/analyst books against your trading account. Beginners often throw money at gurus who promise the keys to the kingdom.
If you can cover them and then beat the FD, you’ re no longer a beginner!

2. INTERMEDIATE (SERIOUS AMATEUR OR SEMIPROFESSIONAL)
The minimum acceptable performance level for a serious amateur is return on equity twice the current rate on Fixed Deposit (I replace T Bills to FD as in Malaysia, I think it would be more realistic to make a reference to the most riskless saving instrument). Your improvement is evolutionary, not revolutionary. Cut some of your losses a little faster, grab some of your profits a little sooner, learn a few more tricks of the trade. Once you’re covering your trading expenses and making double what you could get from riskless paper, you’re miles ahead of the efficient market theorists.
The goal of a serious amateur or a semiprofessional is to generate a 20% annual return on equity. At this stage, the size of your trading capital becomes an important factor. If you are trading a million dollars, you may be able to start living off your profits. But what if you trade a relatively small account, say $50,000? You know you can trade, but 20% of $50,000 is not enough for a living. Most undercapitalized traders destroy themselves by overtrading, trying to squeeze unrealistic returns  from their tiny accounts. Take crazy risks, and you’ll have crazy results—both on the way up and on the way down. Better stick
to your trading system and leverage your skills by trading other people’s money .

3. EXPERT
The minimal performance targets are more flexible for experts. Their returns are steadier, but not necessarily higher than those of serious amateurs. You have to continue outperforming Fix Deposit —to fall behind them would be ridiculous. An expert may grab a 100% return in a good year, but trading a serious amount of money year after year, just staying north of 20% is a very good performance. Certified geniuses such as George Soros maintain a lifetime average of nearly 30% per year.
The goal of an expert trader is to put enough money into riskless investments to be able to maintain his current standard of living forever, even if he stops trading. Trading at this stage becomes a
game that you continue to play for your own enjoyment. Curiously enough, when you no longer have to stretch for the money, it starts flowing in faster than ever.

Rei : I'm judging my myself as able to graduate from the beginner stage and into the earlier stage of SemiPro. I need to consistently generate 20% annual return of my portfolio (say 5~7 years) then I'm considered myself graduating in the SEMI PRO stage. Well, being in the EXPERT stage is where what we call financial freedom or Abundance, see the above blue highlight ? " ...able to maintain his current standard of living forever even if he stops trading...........that is the final objective (ideal or achievable  ???) though not many really success till this stage. I believe even many Trading course Gurus are either in the beginning or middle of this Semi Pro stage.

So, one must be persistent, patience and having Great passion if one is to embark his journey into developing oneself to become a EXPERT TRADER !!!!

Anyone familiar with Street Fighter arcade ?

Well, last Sunday, feeling a bit bored, I pick up my Iphone and click into a street fighter arcade game. This game has been accompany us since the 80s. I believe those who like arcade game during that time will definitely had play this interesting and challenging game before. Do you like this game ? This game is my all time favourite since I was young. That time, it started with Street Fighter, then evolve to Street Fighter II, Street Fighter III and so on. They even have a Street Fighter combo with the Marvel Superheros. I remember in Street Fighter II, the programmer put in some  invincible  power for the fighter " Guile" where he can freeze other opponents & knock them out easily. But this invincible power can only be activated with some button pressing & joystick set up (I still don't know how to do it ). Really innovative for these arcade programmer.

When I reached the last stage, that is fighting with the most strongest opponent in the game, Bison. When I lose quite a number of game set, suddenly some thought came to my mind. Playing Streetfighter game is like trading in the share market. No matter how good I am, fighting with the initial stage opponents, I can win them in straight game. Then when I reach this last stage, I keep losing.

The more I lose, the more anxious I want to win. In other word, IMPATIENCE. Like in share market, if one has started to lose in a consecutive few stocks, one would get impatience and wanting to win back fast. And those skills that I have learned as "Ryu", I use them blindly without thinking and without carefully analysing Bison move, thus leading him to attack me and knock me down easily. What I want to say here, is when we lose our patience, we will lose all our logic & analytical skill that we have learned (even for years) while eagerly entering into trades to win back our loses. Then we will keep thinking how come our luck getting worse & worse as those trade we place keep losing.

So, the moral of the story is PATIENCE (MINDSET) is very much important in Trading & also Investing.

So, trade well with proper METHOD, MIND & MONEY MANAGEMENT.
Happy Trading & Investing :)

Support/Resistance complement with trendlines

Lets take BIMB as as example. I did mention about her on 18/Dec , http://reiccs.blogspot.com/2011/12/momentum-play-bimb.html
That day, I was entering at 1.94 which is a bit late base on resistant breakout play. I did mention I saw her later, based on Technical landscape which is still positive, I decided is still okay to enter.

Based on the chart, one should enter at 1.86 as she has broken a resistance, 20MA & 200MA, with all those MACD & Stochastic giving bullish signals. Today my post objective is about when to P . In my previous post I mention P should be around 2.07~2.09. Well, in 7 days time she did reached 2.07, so I have sold based on my plan. That time when I do this plan I just intend to make a short term MP. But if one to have more PATIENCE (an important factor for Share Trading), you can go for TREND CHANNEL strategies. Let see below chart.

I have sold on 3 Jan base on my trading plan (P at 2.07~2.09). In the above chart, I draw the trend channel which project the price will reach 2.28 at the upper trendlines. Indeed, she manage to climb till 2.28 and started retrace after this.

Further extension of the chart shown above, she again manage to push further after retracing to lower bollinger band and touch again the upper TRENDLINE which give a good 11% return at 2.40. So, the next questions is, will she retrace to lower band and climb one more time or this time she will retraces to the LOWER TRENDLINES around


 So, my story here is that no one strategies is the best or 100% correct, one must choose his or her best suited strategies & trading plan to trade and do not regret . Bottom line is PROFIT in most of our trade and my objectives is to be better than or at least on par with the best unit trust returns.

Trend channels which is which ?

Trend channels or trendlines are used widely by traders. Sometimes you may find the channels are giving more reliable signals for one to sell or buy than classical resistance or support. But there is a weakness when using trend channels, as my tittle said, which is which ? I used Paramon as a case . Paramon is a good FA stock though I did not monitor her closely.

In the 1st chart, which I named trendline A, it is still not the right time to buy, one need to wait till 1.52 which will be the bottom trendline support to go long. But then again, different people may have different viewing perspective which I come upon trendline B when I observed the chart further. In trendline line B, Paramon has rebounded from the 1.58 support and closes at 1.61 (a buy signal).

So, how to play ?
To those traders that does not want to miss the opportunity, one should enter position if Monday intraday can goes higher than 1.61. These again based on probability, the true support may not be 1.58, so one should enter with a smaller position and keep some remaining bullets to average down at 1.52 if really the trendline A is the way the market really wants Paramon to go.

What about you are conservative ? So, just wait till 1.52 to enter, if she really doesn't goes down to this level, just forget about her and moves on to hunt for another better probability stocks.

Hope you all gets my point. I may talk more on my first comment that trend channels are more reliable to buy & sell if I able to find a simple to understand chart to elaborate on this.

Is there anything to buy ?

One of my reader ask me why no new recommendation of stocks. Well, I told her I'm still offloading my current stocks that I purchase for quite a while as I believe current market is considered a bit risky to buy if one does not have time to monitor closely for a fast in fast out trading. I do not have this time luxury.

As recently, I'm damn busy and stress out, I just want to clear my long position and wait for market to correct before screening for stocks again. So, to trade/invest successfully, PATIENCE is one of the utmost criteria needed.

Well, btw I believe HSL has some more room to go, lets see how is it till the quarterly results season starts.

Should we predict ?

Below is a comment from anonymous reader (if you dont mind, next time log in with name and join as follower, at least I know in future you are my follower, I'm more willing to reply).....

Hi, Rei:
Been following your blog since Dec 2011 and I appreciate very much your sharing. Very new to the market and I am learning from your blog. Thanks.
Everybody says market going to crash this year, so why u still keep Coastal n others in vi? U can buy back later maybe @ cheaper price.

Hi Anonymous,

Well, actually everyone was yelling market going to have a big big crash in 2010, indeed there is a big correction 8% around May2010 lasted for 1 month. Then came 2011, there is a real crash ? where our KLCI drop by 16% lasted for 2.5 months, well, market recovered back again. Now came 2012, another big crash coming ??? Correction confirm will come but crash ? well I don't predict as I'm lousy in forecasting but there is still no clear technical signal yet. See many people can yell the bad things around, if nothing happens, he/she will keep quiet while those who do not believe will be profiting happily too busy too question his yelling earlier.

So, my question to you is should we predict ? I would say no. Ask yourself this question ? 

1) Are you a true die hard investor or just a trader ? 

2) Do Warren Buffet sell all his share during the 2008 crisis and wait till 2009 to buy back ?

For me, I can't be a die hard investor, not patience enough.  I'm a hybrid, touch some on VI , some on MP. 

1) For MP play, you won't worry about crash or no crash, as you have your tight stop loss to protect your portfolio.

2) To get rich/financial freedom through trading (TA), you need a lot time to monitor market, you need to learn a lot & experience a lot & ALWAYS  IN actual market. But as an investor (VI), you need lesser time to monitor the market but you need to spend quite some time to study a company before jumping into it . Have you heard of a story regarding one uncle (ignorant or die hard investor ?) who bought 10,000 units of hublic Bank 20years back that cost him merely around RM10K+ for her wife as a fund for her retirement. Not only he did not sell those share during peak or when market starts to CRASH or have BIG CRASH, he keep on re-investing her dividend back to purchase more shares. And now, the shares total worth is about RM1 million which, she has RM50,000 as dividend every year as her retirement monthly expenses. Can you find this type of stocks again ? Yes, he just spend merely a capital of RM10k+, and now they are living on the dividends every year, financially free and still have around RM1 million as her wealth to pass down. 

Anonymous : so why u still keep Coastal n others in vi? U can buy back later maybe @ cheaper price.

Rei : Why I still keep is related to these questions in my head. 

a) Has market crash ?

b) Has Coastal fundamental change ?

c) Is Coastal giving dividend? yes, 3% same as FD. If sell, where should I park my money ??? In FD?

d) Is Coastal already selling at cheap price relative to others ? actually is selling at 41% below her intrinsic value of 4.65 when I first mention about her ?

e) If sell, when should I buy back ? In 2009, where market started bull run around March09, still a lot of people does not believe market has recovered & having a bull run instead they waited till Sept 2009 and some till 2010, that time those shares are back to the prices where they sell first at 2008, and they lost their dividend during that year.

f) I'm thinking to sell some to put the money in my pocket if Coastal reach 2.19, then later change strategy to momentum play.

Having so much questions in my mind, I keep on asking myself, can I be same as the uncle, I still thinking....thats why I've decided, allocate some fund to be in VI and some in MP. Thats why I blog about this http://reiccs.blogspot.com/2011/11/know-yourself-are-you-suitable-to.html

Hope this answer your questions.

Do your Maths !

I would like my readers and myself to ponder on these questions.

Q1) What achievement should we get annually to be worth while to be in the market ?
Q2) At what annual return are you achieving in these 5 years ? Are we still far off ?
Q3) Are you persistent enough to learn/discipline to improve to achieve your target level ?

To answer these questions,
I recently realised that about 20% of Public Mutual Funds are achieving a compounding annual return of 10~15% in the last 5 years. The best Fund (Public SmallCap) is achieving 14.4% compounding annual return which means 100% return in last 5 years.

So, to be in market , one must at least Profiting 10% return annually CONSISTENTLY out of your total allocated portfolio. Someone may boost they are profiting 30% or even 100% from the price they bought. Say one bought supermx at RM3 and sold at RM6, yeah !!! a 100% return. But but but, do you use all your allocated fund to buy just one stock. Too risky right ? you may end up buying a stock that that 20 years to achieve 100% return.

See my title above, " Do you maths" !!! If one has allocated RM100k for trading/investing, meaning his portfolio must reach RM200k in 5 years time in order to achieve similar results as the best fund in Public Mutual. If not the best, he/she must at least win the good one at 10% annually.

Some may think is easy, say easier than to done, let target a 15% compounding annually return (which will make your portfolio of RM100k becomes RM201k.
Example
2009 = 30% return (impressive, you are wondering, wow I'm getting rich sooner but is a bull run...lah)
2010 = 10% return (tougher time as there is a slump for few months but you still think I making 10% what)
2011 = losing 15% (shit! due to this EU problem dragging whole world down),
2012 =forecast to achieve 15% (okay, lets do it and get back to track)
But in the 5th year (2013), oooops, you need to achieve a whopping 44% to achieve the compounding annual return of 15%. Shit ! how to achieve a 44%, I need a super bull run.....

Can't get it ? see below
1st year RM100K becomes  RM130K (30% profit)
2nd year RM130K becomes RM143K (10% profit)
3rd year RM143K end up with RM121.5K (15% lost)
4th year RM121.5 becomes RM139.7K (15% profit)
5th year RM139.7 becomes RM201.1K (NEED 44% profit)

So, knowledge & persistent is important. Losing 1 year will de-rail the whole compounding plan.
In trading/Investment, as Alexander Elder said, we need to master the 3M,  " MIND, METHOD & MONEY MANAGEMENT ". Studying is one thing, EXPERIENCE with knowledge is the utmost important.

Know yourself ! Are you suitable to Invest or Trade ?

Lets start off with a Trader mindset, I categorised it 2 type
Novice Trader ( aka Gamblers)
1) A impatient person, he like to take profit as long as he sees profit (2 days~ 1 month).
2) Like to look at the trading screen a few times a day (nowadays with smartphone easier).
3) Like to listen to tips without analyse further.
4) Very excited on the market news/index high fluctuation and don't want to be left out. (Have herd mentality)
5) No trading plan, or with one but do not follow strictly.

Professional Trader (Aka seasoned trader)
1) Have gone thru the novice phase and have gain strong Technical Analysis knowledge.
2) One look at the screen the time he needs to enter and check on the progress once in awhile but not frequent.
3) Listen to tips but would scrutinise the recommended stock begin planning to enter.
4) Take the market news/index fluctuation  into account when planning his trade.
5) Follow strictly to his trading plan but may use different trading plan/strategies for different trades.

I would also categories Investor mindset into 2 type.
Amateur Investor (aka Aunties Uncles investor)
1) Very patient person, will keep his stocks for years if is negative but will take profit when profit >20%.
2) Does not look at the trading screen & still using remisier to ask on the stock prices.
3) Buy based on remisier/family member/friend recommendation.
4) Not much feeling in market news/index fluctuation/herd mentalities as they don't understand much.
5) No trading plan, all by experience / gut feel.

Professional Investor (Warren Buffet type ?)
1) Very patient person, may wait for years before taking profit.
2) Once bought, check on the screen once a day.
3) Do not listen to tips much but will follow a few good/Strong fundamental stock's business progress.
4) No feeling on the external market news as his main focus is the company business model, P&L, Progress & Growth. (Understand that the stocks price will go down according to market sentiments but believe that she will bounce back to a higher peak when sentiments improved )
5) Strictly follow his investment plan, if the fundamentals have change or growth has stagnant, is time to sell.


Well, from the above, have you ever wonder what type of person are you ?
And choosing the right strategies to suit your personalities will help you gain in the markets.
Hmmm..... I believe many people in the market are novice traders & does not think that having proper knowledge & strategies will help them gain in the market consistently(average in years) beating FD/bond rate (at least).

Note : In the long run, Novice traders will definite LOSE money while Amateur Investors may or may not earn money (depending on his/her wealth luck !), while Professional Traders / Investors is the ones who consistently earning money from the market. In our era, especially before year 2000, Professional Investors GAIN the most as you can see Warren Buffett has become the riches man in the world (comparing to all those who earn money from the market).

In order to be the 10% in the market who profited or not losing to the market comparing the 90%, one must be very firm on his strategies.

I myself is splitting my share investment portfolio into 60% Value investment & 40% Momentum play (trading). Given such bearish market situation, as in Malaysia market, we cannot short, gaining in momentum play would be a difficult task as we need to do counter-trend trading (higher risk, really need some luck here, haha ). And one should limit himself/herself to about 30%~40% of his portfolio in the market in order to preserve some capital for better bargaining when the market gets more hostile.

KFIMA Follow#2

Remember the TA entry I mentioned on 24/Oct under http://reiccs.blogspot.com/2011/10/kfima-momentum-play-value-invest.html (Entry will be 1.64, Stop loss close below 1.55 & Profit at 1.69) ? Well, she need about 3 weeks to achieve the first Profit 1.69 target. And in my 2nd follow-up , I still maintain to call for HOLD if one that have entered the stocks much earlier.




2 ways of trading using TA,

1) if one using TA based on break out strategy, one would have entered on 27/Oct at 1.65 during closing but considering the non attractive risk reward ratio , he may hesistated to entered. If he were to enter, he may profited at 1.69 (gaining only 2.4%), as he would not wait further as the psychology overwhelms him during 28/Oct~10/Nov where KFIMA drops to 1.60.

or

2) using TA based on "Buy at Support" Strategy (back-up by MACD >0), one would have entered between 2~10/Nov around 1.60~1.61 and using FA (intrinsic value around 1.86) as psychological strength to counter the FEAR . Given such overall market bearish sentiment, one may decide not to wait till 1.83 (3rd resistance or near intrinsic value), he should take profit at 1.75 (gaining 9%).


In conclusion,

1) Buy at support strategy is always better than breakout strategy in such volatile/bearish environment.

2) Buying good FA (with low PE) and undervalue stock (entry price is below intrinsic value), will help in boosting up some psychology mindset to hold for 3 weeks plus before closing position while acheiving decent profit.

The Good and Bad of Fundamental and Technical Analysis

REI:  The below is an article I got from Alvin posted on July 26, 2010

There is always comparison between Fundamental Analysis (FA) and Technical Anaylsis (TA). There is enough supporters at each side of the house, claiming FA/TA is more superior than the other. So which is better? FA or TA?
The reason why market participants require FA or TA is because the flow of information is not perfect. This is especially so for the retail investors. Let’s imagine, if you are one of the first few people to know about something, you are able to act faster than most people. You do not need any FA or TA in this case. Hence, as a retail investor, whether you use FA or TA, you are indirectly trying to get this “information” as fast as possible. By getting this “information” faster than most market participants, you will earn a decent profit. In other words, the EARLIER and MORE RELIABLE information you get, the greater your profits. But then again, you can never do it better than the people higher up in the information chain.

The 2 considerations we will discuss are TIME and RELIABILITY. Let’s evaluate the pros and cons of FA and TA.

TIME – entry
FA allows you to buy EARLY (sometimes too early). When you spot a fundamentally good stock, you actually prefer to buy it when there is no hype or interest. Both volume and volatility (price fluctuations) would be low. This means that you would have got in earlier than most people, and wait for buying interest to come in when more people recognise the potential of the stock. You would be a very happy man, getting a profit in multiples of your capital invested. But there are 3 other scenarios that can happen. One, you bought too early, and you have to wait for very long, say 5 years, to see the results. Second, you bought early and the stock price went down, and stay down for a long time, proving you are wrong. Third, you bought early and the stock price went down. You recognised your mistake and sold off, only to regret when the stock rebound and reach higher heights.

TA allows you to buy EARLY ENOUGH (but less profits). On the other hand, TA allows you to buy “later”, but still early enough than most investors. TA is not able to prompt you to buy a cold stock. It will only shows a buy signal when the stock has shown it’s potential to move. But of course, you have to sacrifice some profits already. The good news is, you do not have to wait for a long time before you know you are right or wrong.

TIME – exit
FA valuates the stock price (or it is up to you when to sell). FA valuates the “true” stock price based on the earnings of the business. As a FA investor, you would usually sell when the stock price hits the valuation. If not, you are likely to hold as long as possible, provided the fundamentals do not change.
TA cut loss and profit take. For TA, the concept of cutting loss is very much embraced. The priority is to protect capital first. Once the stock price moves against your position and hit your cut loss price, you will get out of the position without questions. There are also some traders who exit when the price hits their profit target. They do this to maintain a consistent risk reward ratio. Others would want to ride the trend till it changes and reap as much profits as possible. But the key point is, TA always determine an exit point and it will save you from a market crash.


RELIABILITY
Maybe let me explain reliability first. When I say reliability, it means how accurate is it to pick a winning stock. We know that you do not need to be 100% right to win money in stocks, but you do need a certain degree of reliability to win money at the end of the day. To determine reliability, we need to know how stocks are priced. In my opinion, stock prices are basically perceptions of value to investors. And the perception is affected by valuation and emotion. Valuation means the expected worth of a particular stock while emotion refers to the state of greed and fear in the market. Sometimes, the price can be closer to the valuation, and at other times, the stock price can be ridiculously high or low.
FA is good at valuation. As mentioned previously, FA is about valuation of businesses. This is an area that FA does well. However, FA is not able to determine the market emotions. Some may argue that as more stocks becomes overvalued, it is a sign the market is euphoric. I would say it may not be so obvious, and it is also possible for you to find an undervalued stock during a bull run. And if the market crashes, your stock goes down with it.
TA is good at identifying market emotion. On the other hand, TA is basically trying to discern market emotions through the charts, and capitalise on the greed and fear of investors. The reliability of TA changes with market conditions. Some methods work badly in volatile market, getting whipsawed constantly. A FA investor would just ignore the volatility.

As you can see, FA and TA cannot cover both the causes of stock price. There are many pros and cons for FA and TA. For me, I like the FA entry, getting in at a discount. I like the TA exit, giving the ability to reap maximum profits and protecting me against a crash. It does not matter which method you use, the most important thing is to find your edge in the market. And it will take time, effort and money to find it.

REI : For me, I will split my portfolio to Momentum Play (purely entry & exit based on TA but put a little touch on fundamental, i.e. will not touch company that is losing money for years) and Value Invest (entry based on FA , eg. high discount from intrinsic value with some FA signals but will exit based on TA, i.e. tgt profit / trailing stop loss).

Steps of Value Investing

Well, when I put "Value Invest" under my Post title, these means I'm putting in my watchlist or Portfolio the stock mentioned under this post. Well, how do I play value invest stocks ?

Hmmm....let take Coastal for example, based on my last blog on Coastal http://reiccs.blogspot.com/2011/10/value-invest-coastal-5071.html,  she didnt pass my TA entry criteria (to close at 1.98 or above), but since I going for value invest play, I've started to accumulate her as she is a real gem in terms of her fundamental point of view.

I'm setting myself a guide/procedure to play value invest stocks as below:
a) start small qty buy when price is at 25%~35% discount to intrinsic value.
b) accumulate slowly if drop further, maybe every buy would be 5~10% interval (e.g. 1st buy is 35% discount, for 5% interval, next will be 40%, 45%, 50 % discount and so on from intrinsic value).
c) start accumulate more quantity when she starts showing reversal (e.g above 200MA).
d) The company announcement is important to understand.
e) Every quarter results is an important indicator to decide to further accumulate or cut loss.
f) Strong psychology to HOLD when watching day to day high fluctuation of regional and KLCI .
g) Start to sell some (one third? half?) quantity when she starts to give 30% profit from your average price.
h) Keep the rest to sell only when reach near to intrinsic value OR keep till trend reversal signals (e.g drop back below 200MA)