Sunday, March 27, 2011

Buy a business with reasonable price

As long as there's profit, you will not go bankrupt. This is the only way to survive in any business, similar for business buyer. The business you buy or planing to buy must be able to generate better return than cash, if not, why bother about invest in the business, isn't it more safer to put money in bank to earn interest? Hence, the reasonable return of any investment should be able to generate at least 3 times Fix Deposit can provide.

Buying a business, we may want to ask how much the return can we obtain per year after deducted the expenses. Use the profit figure divided by the principal, we will get to know how much of return in percentage per year. Today, if we are not buying the whole business, instead buying a few shares of the company, it work the same way.

I came to know a company, Mithril, listed 7 years ago, never seem to make any positive income, every year incurred losses. The boss should close down the business, better put money in bank, where can earn some 3% of interest every year. Wonder why still a lot of people willing to buy this stock everyday, the price is 6 cent now. If anyone still want to buy Mithril, I think it's better to buy it's loan stock, Mithril-LA, it will mature next year, having 1.5 times securities value, hence no need to worry if the company can not repay full value of RM0.78 plus 3% for 2 years.

Wednesday, March 9, 2011

Aware of the Trend, chase the up trend, cut the lost trend

The bull run market already reach 2nd years aniversery, nobody know when is the end of bull run. Hence, if anyone going to continue trading in the stock market, he should at least know the company before invest. Read news paper, blogs, research and come out conclusion on which industry having the greatest potential to continue the up trend for the next 6 months. Technically, in 5 years time, if you can hit right only 6 times, with 100% profit every time, 50 thousand become 1 million is not a problem.

Cut loss is very important strategy, this may cause you miss a chance of making some money in certain time, but it will help to protect the pricipal from bigger loses in most of the case. Some people would like to know how much percent to cut loss, I think it would be wise to cut lost if a stock already down 10% from the peak. 

Also, need to learn the opposite way, chase the up trend, do not cut the profit, let the profit run. Once you understand concept, you can apply "buy the up and not buy the down" investment strategy. Only buy the up trend stock (the stock that making profit) will ensure you continue making profit. Buying a losing stock (down trend stock) may only incurred more loses, as you might already making the wrong decision to buying company that going to turn bad or management is not honest. The strategy can combine with 10 days moving average buying method, do not buy those stock below 250 days or 50 days moving average.  

Let the profit holding continue remain in your portfolio, no need to take the quick profit, there's nothing to worry for the winning stock. This will ensure you having the greatest profit in the bull run. 

Invest in stock market is similar prepare a war, preinvestigation on current scenario is a must, knowing when is the right time to trade, what's the current trend, plan and execute the strategy, combine with technical and fundamental analysis, do not panic or fear when something unexpected happen. This will increase your successful rate.