A Simple Stocks Story

Hahaha..its time for another short story to end the week..or should I say start a new week....Lesson number 2: When trading with Singapore stocks, unless they have really good fundamentals, neber hold for long term!

I remembered some time back, I asked my Business Finance teacher Mr Bobby, "Sir, if you are to buy a stock, would you choose on positive techinical analysis or positive fundamental analysis?"

He replied."Fundamentals of course. Technicals are for short term and unless you feel extremely confident, go with the basics, i.e. companies with good fundaments."

It was a number of years back when I started trading stocks. One of the first local companies which I invested in was Allied Technologies Ltd. It was a good move then. The market was booming and all the technology stocks were all in high volume. Allied Tech was one fo them. I see it grew beyond 100% profit! I was trilled when I calculated that I could earn a neat sum of 10k if I was to sell at that moment in time! My first mistake was my greed and I wanted more thinking the stock should be able to reach a higher peak.

Disaster struck and it went tumbling down...everyday. My second mistake was watching it fall withou doing anything! I was thinking..."whatever goes down will go up again!" Of course a person's greed will make him fall. I was thinking that why should I settle for a profit much lesser than before! I mus wait for that moment again! But....that moment never came. It fell rock bottom and now that stock has dropped beyond the price which I initially bought! It was a turnover of at least 150%!

It was a painful lesson which I have learnt and never will forget! Always monitor the market closely; Do not let greed guide you instead of fundamentals; Minimise losses or profits when necessary.

A Simple Warrants' Story

Seeing the listed Warrants on the SGX website reminds me of a story on how Warrants can make or break. By the way the story's lead is me...hahahaha....anyway I did quite a lot of research on a few companies that have very high volume for their warrants back then...including DBS, Capitaland, Semcorp Marine etc.

My first trade of warrant, I pocketed a net profit of 2K from a DBS warrant offered by Deutsche Bank. My second trade was Capitaland's warrant....profited another 2K....another Capitaland for my third trade...yet another 2K....and all these was earned within a month or I should say three weeks....I was excited by the high returns....so I bought SemMarine warrants thinking the good outlook for the company will push the warrants sky high....but disaster struck and the market was due to a huge correction....blue chips went way down..and due to the gearing effect..the warrants fell big time.I was at a loss whether to minimise losses or to wait for post-correction. The decision has to be made FAST because the warrant was going to expire soon!

I made a wrong move and i waited....within 3 weeks or waiting....I lost 6K which offsets all my efforts for the past 3 trades! I was very frustrated that all my hard work went down the drain. But well, its was a good lesson learnt.

An analogy: If the small fishes want to swim slowly and steadily, they take the calm seas. All is peaceful but takes longer time. If the small fishes want to swim further faster, anticipate the big fishes and swim with them through the stormy seas. But when the big waves come, the big fishes live, but all the small fishes will die.

8 Criteria of Choosing Stocks

Adam Khoo's 8 Criteria of picking good stocks!

1) History of consistently increasing sales and earnings
2) Sustainable competitive advantage
3) Future Growth Drivers
4) Conservative Debt - Low Long term debt
5) Return on Equity (ROE) must be consistent and high
6) Low Capital Expenditure required to maintain current operations
7) Honest & Competent management
8) UNDERVALUED: Share price < Intrisic price

Pretty basic stuff, but these are the things which we always overlook...

Warren Buffet's Two Rules of Investing

Investing Rule 1:
Never Lose Money.

Investing Rule 2:
Never forget rule number one.

I find this very interesting. Apparently, Mr Buffet, world second richest man, world most recognized investor, neber invest when he do not have confident of making profits. I always thought he made money from single BIG investments, but what he does is manage a balanced portfolio and generates only about 20 to 30% each time.

I also read up Adam Khoo's "Secrets of Self-Made Millionaire" and I agreed with him on the part on local stocks (SGX stocks). I quote,

" US stock market is so huge and there is so much money pouring into it, the market is a lot more efficient as compared to Asian markets in general. As a result, stock prices tend to follow stock earnings more closely.......In Asian and emerging markets, where the market is small and where prices depend a lot on foreign institutional investors, stock prices may not reflect the value and earnings of the company......there is not enough liquidity, or cash in the market."