Friday, June 23, 2006

The Anti-Change Concept

Most people, especially the naïve, like to buy all the way down. This is because of The Anti-Change Concept. When a stock moves from $1 to $1.50, the stock is deemed too high to buy. It then moves to $3.00, and then back to $1.50. Now at $1.50 it is considered too low to ignore. This is called The Anti-Change Concept.

Professionals like to buy all the way up. They look for the most odds. Amateurs like to buy on the way down. They have no stock market knowledge and wisdom. They lack experience and connections. Worst of all, they have no fear. Is there any wonder then, that they should expect to lose?

Success in whatever field needs your labor. A soccer team needs ball-handling skill, speed, stamina, tactics and a good coach. In the stock market you need knowledge, wisdom, discipline, patience, experience and courage.

So if you are about to go into the stock market without the above traits, better make your bets small; the smaller, the better.

If you want to lose money, here are some ways:

Believe everything you hear, especially tips.
Buy in a downtrend.
Take small profits.
Holding on to a falling stock just to get out even.
Average down and keep on averaging down.
Buy ‘rubbish’ shares at very high PE.
Go for the price rather than the value.
Buy when the market is most optimistic.
Buy when volume is at unprecedented height.
Bet on every race.
Be the last to buy and the last to sell.

Good luck guys and happy investing!

Wednesday, June 21, 2006

When is the best to time to buy, and when is the best time to sell?

“The darkest hour is the beginning of dawn.” (Xxxx) The market always turns around when it is most negative.

After the market is beaten down by The Bear Raid, many stocks become undervalued. You need to identify these stocks and track them. But firstly, you must know which way the market is heading. If it is still in a downtrend or side trend, you are actually going against the current if you buy. It would be much better if you go with the flow. However, if you are a genuine investor with plenty of cash lying idle, you can start your accumulation.

Safety of principle should be your first priority. So buy only solvent companies with good dividend yield, high earnings per share and efficient & reliable management. Look for companies with good track record. The nature of its business is important. Buy slowly and steadily. When the next bull market comes, you should make aplenty.

There are two strategies you can adopt. One is to buy low and sell high (BLSH). The other is to buy high and sell higher (BHSH). Which strategy to use depends on who you are financially and emotionally? If you have the patience and lots of cash you should BLSH. If you are not so rich and find BLSH unexciting, then you should BHSH. Both strategies are profitable if implemented correctly.

At the bottom, the market can trend sideways for a long time. So if you want to BHSH you must wait for the bottom to complete before you buy. The difficult part of this is that there are many false dawns. You need to study technical analysis and have lots of experience to be proficient. Don’t depend on others to do chart interpretation for you. Some chart analysis doesn’t even mention the volume. A chart without volume is close to being useless. If you want to make easy money, you have to work hard for it. “There is no such thing as a free lunch” is the proverbial phrase.

Now that you know when a good time to buy is, it is vital that you know when a good time to sell is. Premature selling yields little profits. When your stock is in an uptrend, don’t sell and take small profits. Short-term gain is long-term pain. You never get rich taking small profits.

A trend in motion is likely to continue. So let it run its course before you sell. You may be surprised at how high it may go. Generally speaking you should sell when the market is at its strongest. That is, when volume transacted is at unprecedented height or at least heavy. The beginning of the Bear Raid is the best time.

Wait for the durians to drop. Don’t pluck them.

Disclaimer: You are absolutely responsible for your own action. You buy and sell at your own risk.

Monday, June 19, 2006

The Bear Raid

Bears are those who sell down the market. The Bear Raid, when it comes will be harsh and severe. Many will get badly mauled.

After the market has hit the top, a fairly severe decline will follow after a slight downward bias. Many will think it is then safe again and start buying. This is actually a bear trap. Normally when the price goes back to where it has a downside breakout, it will start to trend down from there. From some soil erosion it will quickly turn into a landslide. The smart sell at what is given. The naïve hold on hoping to get out even. Sadly their hopes soon turn hopeless. Shares continue to trend down with unabated rapidity.

Suddenly there are no more buyers. Your broker calls you to average down. (If he does that, change to another broker.) Downtrend can continue for a long time. Wait for the bleeding to stop. Consider to buy only when a buy signal has emerged. Averaging down is compounding your error. If not discreetly done, the result can be devastating.

The first phase of a Bear Market is distribution which starts at the later stages of the preceding Bull Market.

The second phase is panic selling. Here buyers thin out and sellers become more urgent. Prices suddenly accelerate into an almost vertical drop with heavy volume. Immediately after this the market normally says “Sorry! Are you still there?” A small rally is likely to ensue with small volume. It soon turns sideways to down, and continue to drift aimlessly.

In the third and last phase, the downward movement is less rapid, trading turns sluggish, volume is down, the market becomes dull, and broker firms become empty. The “dogs and cats” are back to square one. Better grade stocks are almost there. The Bear Market ends when the worst to be expected has been discounted.

It will do well to remember the characteristics of a Bull and that of a Bear so that you are less likely to be deluded by the madness of the crowd.

Quotable quotes:

Great investors are not, and have never been, crowd followers. (Xxxx)

The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty – Winston Churchill

The heights reached by great men are not by sudden flight. While their companions are asleep, they are toiling upwards in the night. (Xxxx)

When is the best time to buy? Welcome to the next article at a later date.

Sunday, June 18, 2006

Beginners have beginner’s luck

In the latter stage of a bull market, volume and prices go up day after day. Speculative activities become rampant. Everybody is extremely optimistic. Positive expectancy is the order of the day. The cats and dogs are whipped up as well. It is at this stage of the bull market that beginners are lured into the market. They simply buy and they simply make. Now you see why beginners have beginner’s luck.

As the market rages on, more and more beginners come into the market. Dick, Tom and Harry are all laughing their ways to the bank. They put in more money and simply make more money. Everyone is boasting about his gains. The stock market is the topic of the city. Wherever you go, you hear people talking about the market. In the coffee shops, restaurants, market place and in every corner of the city, it’s the same. Every seat in the broker’s office is occupied. Every corner is crowded. Even the shoe-shine boys, ice-cream sellers and hawkers are involved.

As the speculators become mesmerized, share prices continue to shoot up. News that companies ABC, XYZ, etc is prophesied to sign big contracts here and there, and make great profits, make headlines everyday. Stocks are by now selling at exorbitant PE. “This time is different. The bull is here to stay, forever.” You heard someone remarked. The truth is that all trends must come to an end. No tree grows to heaven.

Sensing that shares are by now very much overvalued the wise start to unload. Slowly, carefully and quietly they go about their unloading so that the market will not be perturbed.

At the top, the market is the strongest. Full of hope and optimism, the naïve continue to buy and sell while the professionals are making their ways to the bank with their profits.

The partying continues. Excellent food, good wine, music and women, they are all there.

What happen after this? The Bear Raid (look out for the next posting)

Friday, June 16, 2006

Timing Is Crucial

"There is a tide in the affairs of man which taken at the flood leads on to fortune. Omitted, all the voyages are bound in shallow and in misery". - xxxx

Timing is everything. In the stock market, what you buy is important. When you buy is crucial. Failure or success depends very much on this. You need technical analysis (TA) to help you. Charts are designed to track smart money. Do not try to lead the market. Follow the leader but be one step ahead of the pack.

A man's action is the best interpreter of his thoughts. Watch what he does, not what he says. The first thing you must learn in the stock market is that stock prices move in trends. Never buy in a downtrend. The trend is your friend; never go against it. If you don't want to get wet, don't pee against the wind. Never catch a falling dagger!

By Ben Gan (March 23, 2006)

Quotable quote: Buy in gloom. Profit in bloom.

Wednesday, June 14, 2006

Stock Market Wisdom

I am Ben Gan from Bentong, Pahang. Investing in the Malaysian stock market is my hobby and passion. Lots of money can be made from the stock market provided you know the correct approach. The correct approach simply means that you must invest. Do not gamble. If you do, you are finished! Look at Genting. They make millions and millions year after year. In gambling, the sole winner is the house. In speculation, you have a little more than 50% chance of survival. You must however, make a lot of calculation and research. Calculated risk is okay but not blind betting. Value investing is the best choice.

What is Value Investing? Value Investing means buying undervalued stocks. It means buying a Toyota with the price of a Proton and then selling it for the price of a Mercedes. Never get married to your stocks. Once they become overvalued they must be sold.

Do not confuse value with price. A share selling at 5 cents may be costly; whereas one selling at $5 may be cheap. Know the chaff from the grains. Know what the company has and what it owes others. Other than that, the calibre of the management, future earnings, earnings growth and the nature of its business must also be considered. Earnings are the lifeblood of a company. Therefore, companies with little earnings or no earnings at all should be avoided. These companies are the problem of other people. Do not make it yours. Earnings should be considered as earnings per share (EPS) without the exceptional gains, if any.

To be successful in the stock market, you need to have knowledge, wisdom, guts, discipline and patience. Of course you must have cash as well. Knowledge and wisdom are two different things. Knowledge is knowledge. Wisdom is the right use of knowledge. Knowledge without wisdom is not effective to bring about profits.

Before you invest or speculate in the stock market, ask yourself whether you have the temperament and swift reasoning power to cope with some of the best brains in the world. If you do, you will find that hardly a day passes without the market offering you great opportunities in money making.

Recently I read an article dated 10 June 2006 about FSBM by Tee Lin Say in TheStar. The article is informative and extremely well-written. FSBM is definitely undervalued at RM1.30+ a share. I like the nature of its business. I believe it has great potential to grow big. It should be good for your portfolio.

Good luck.

Disclaimer: You are absolutely responsible for your own action. You buy and sell at your own risk, remember.