Monday, February 28, 2011

Know the Company before you invest

Seven years ago, Petronas published an ad at one of local news paper, looking for someone who interested to run a petrol station. So I applied for one too. After several interviews, finally I was told my application was rejected (due to government's policy, they are more encourage "bumi" to become partner with them, as one of the interviewer told me) One of my friend told me that time, "why so difficult go and apply, just buy their shares, since you know they going to expend their business, few years later, you might earn more than what you earn from a petrol station operator.  At that time, PetDag share price was around RM4.50, and today the price is RM13.++, after one round of one for one bonus issue. 

Let's do the calculation, with principal of RM150,000, bought PetDag shares at RM4.50, I can buy 33,300 shares. Today, after bonus issues, the total shares will become 66,600. With last Friday's closing price of RM13, the total market value is RM865,800, yet to include yearly dividend. That is RM102,000 per year or RM8500+ per month. This is actually better than operate a petrol station, unfortunately I did not invest into PetDag's share though I had study the company and know them well from management to financial result. Currently they are the top retail petrol station at Malaysia, after overtook Shell's position last year. 

Sunday, February 27, 2011

Sell the Loser or Sell the Winner first?

If you need the money and the only option is to sell some of your shares, which counters would you sell first? The one that already making money or the one that is in the losing position? You might take out the list and compare the cost with the current market price, most of the people tend to sell the stock that already making profit and retain the worst performing stock in their portfolio.  Almost 90% of people will do this, that's why only 10% of winner making money in stock market because the winner let the profit run but cut the loser very early to limit their down side.

Listen to the market, it can talk to you. When you buy a stock and is making money, the market is telling you are right, so let the profit run. When the trade is losing money and getting worse, the market is telling you to get out. A bad trade is like a dead fish, the longer keep it, the worse it smell.

Investor need to think like a winner, the winner don't add to or "average" losing position. They sell the losing trade and find the new opportunity. They may add to the winning trades, always remembering that any time market can turn and prove them wrong.

Sunday, February 13, 2011

Buy when stock price down or when stock price up?

Local market started go down, many stocks fall below 30 days moving average, experience investor know opportunity will come. One of the strategy for short term trader is “Sell when stock go down, Buy when stock go up”.  Many will think they should buy when market go down, but experience trader only buy when a stock started to move up.
The reason is if you buy when a stock price start to move down, you might end up catch a falling knife. For example, a stock fall from $3.30 to $2.80, would you buy at $2.80? If someone buy at $2.80 and the next day the stock price rebound, I would say he is a lucky guy. He may not so lucky every time. What if after he buy the stock, it keep falling to $2.50 and further down to $2.00 after few more days. What if the stock price stall at $2.80 for few months? Hence, it's wise to buy near the bottom and the best is only buy when the price just start to move up.
If you say, nevermind, I am rich and can afford to average down, I will keep on buying every 5% down until it reach $2.00. But doesn't it would be a lot better if one keep monitor the stock along the way when it go down and start to buy only when it rebond at $2.20 till $2.80, it would come with same result compare with the one average down, but more safer in later way. Because no one know if $2.00 is a bottom for this stock until it rebound at $2.00, what if it continue to go down to $1.50 after break below $2.00?
Hence, buying a stock should try to buy when it start to move up in price near the bottom, not the reverse.  A right time to sell is when it start to move down when the price near the high end. 

Wednesday, February 2, 2011

Investment or Speculation

Similar to traveling, investing need to have clear direction where we want to go. A ship without direction in the middle of sea will lost finally. Are you invest for regular income and cash flow or invest for capital gain? Many people say they want both. The reality is, you can choose only one, either regular return of 9 to 10%, or something not regular which can give you more than 100% or lost all your capital.

Not many want to choose investment return of 10% from dividend receive, they think it's too small the return. Almost 80% of people think that they can buy low and sell high to gain from capital return. However, many of them change their mind if after they buy a stock and the share price fall below their buying price. They dare not cut lose, but continue to hold until the lose become widen, some even exceed 50% of their capital. Some even think that they can get the dividend and hope one day the share price will recover.

If you are choosing to gain from capital appreciation, bear in mind you need to set the cut lose point should the stock price go against the direction. This is very important, because this will protect your capital from further loses. Speculation is something either you win or lose, the rules is try to win 6 or 7 times out of 10 then you will still gain in long term. There's nothing in the middle, where you want to gain from capital then suddenly change your mind to gain from regular income. As only certain stock can be invested for dividend, some volatile stocks are not suitable invest for dividend.  Have you set the clear direction?