Come, Prosper with Me

Fortune favors the prepared mind

Will you go into a virgin jungle without maps or guides, untrained and unarmed looking for gems? The answer is obvious. Yet this is exactly what people do when they go into the stock market . Is there any wonder then, that they failed to come out unscathed, let alone a profit?

No doubt, fortunes can be made in the stock market. But firstly, you must be well armed and well trained. Do you know what causes the stock market to move up and down? The simple answer is supply and demand. When supply exceeds demand, prices fall. When demand exceeds supply, prices rise. The next question, of course, is what causes demand and what creates supply?

Factors, many and varied, affect supply and demand. Inter alias are: corporate earnings, interest rates, inflation, manipulation, speculation, political unrest, government policies, natural calamities, commodity prices, discoveries, new inventions, change of management and major shareholders, etc.

The position of the heavenly bodies can also affect share prices. Surprised? Well, let us look at it this way. Heavenly bodies can affect the weather, which in turn can affect commodity prices and our emotion. Our actions are controlled by our feelings. A man’s action is the best interpreter of his thoughts. Watch what he does, not what he says, to know what he means.

In the stock market you can either invest or trade. Each calls for a different strategy. Let’s look at investing first. To invest in the stock market means to give your money in exchange for equities in the hope of a return in the form of capital gains or dividends. One thing you must keep in mind and always keep in mind is that earnings are the lifeblood of a company. Without earnings, a company will eventually collapse. Earnings are dependent upon the capabilities of the management which must also have integrity and a high moral value. If you do not know the management, look at their track record. The nature of the business of the company should not be overlooked. In our globalize world, the company must be able to compete competitively in the global arena. A small-cap stock with explosive earnings growth, a high-entry barrier, little borrowings and reliable management is the ideal choice. If you spot one, please let me know.

In every endeavor, success needs your labor. The stock market is no exception. After you have bought your shares, you need to monitor them fundamentally and technically. Keep yourself informed of what is happening to the companies’ fortune and share prices.
Never get married to your stocks. Sell when there is a sell signal. When you see smoke coming out of the kitchen, it’s okay. But when you see smoke coming out of the library room, you should check immediately to see what is happening.

Here are some tips which I hope are useful if you wish to invest in the stock market:-

Buy undervalued stocks with good earnings and good dividend yields.
Management must have capabilities, integrity and a high moral value. Avoid the bad and the ugly. If you do not know them, refer to their track record.
Plan your trade and trade your plan. You must have discipline to succeed.
Never go against the trend or swim against the current.
Study your charts. They are designed to track smart money.
Change according to circumstances. Follow smart money, but be one step ahead of the pack.
Don’t listen to rumors, do your homework.
Be patient to wait for a good opportunity. Good things come to those who wait.
Learn fundamental and technical analysis before you start.
Be smart from the beginning.

The above stock market wisdoms are only the tip of the iceberg. Learn as you go along.

Now let us talk about trading. Trading is much more exciting than investing. It is, however, much more dangerous. If you wish to trade, you must learn all about technical analysis first. There are many good books on the subject. Read and learn as much as you can from them. The most important tool for trader is the stop-loss. Will you drive a car without brakes? Of course you will not. Then you must not trade without the stop-loss. There should be no limit as to the amount you can win. But there should be a strict limit as to the amount you can lose.

Manipulation and insider trading are necessary evils in the stock market. Without them, the stock market will be very uninteresting and dull. Charts are designed to track these activities. Forget about the news. Everything is reflected in the charts. Actions speak louder than words. If you wish to ‘play’ the stock market without the necessary knowledge and wisdom, be prepared to lose.

Many have lost in the stock market. This does not mean that you have to lose too. Once you have mastered technical analysis, every trading day will be an exciting day. Henceforth, money should be coming your way.

Bye now folks, happy investing! All feedbacks and comments are welcome. Ben Gan can be contacted at bewise.gan@gmail.com.