What’s controlling us?

Whether on sports, games or duties, there were times when we performed superbly and there were times when we underperformed.

In the stock market, how many times have we picked a well-reasoned stock in anticipation of a price rise which never came? How often have we patiently waited, become disgusted and eventually sold off just when the stock began its upward moves?

What about the times when we kept holding on to a falling stock only to sell at the bottom? Again there were times when we delayed our purchases in an advancing stock only to buy at or near the ultimate top? Why so precisely wrong?

Is knowledge, wisdom, experience or charting the solution to these errors?

Jesse Livermore popularly known as the greatest speculator and trader made 100 millions in the 1929 cash. He became the richest American. For more than 30 years he had been successful in trading in commodities and the stock market. Who would have thought that Jesse would one day end tragically?

Jesse made two fatal errors. According to his tape-reading, Union Pacific was under accumulation. After he had bought 5000 shares, a personal friend, Ed Hutton, a great financier and owner of a broker firm, told him that he had inside tips that Union Pacific would tank. Acting on this tip, he sold his 5000 shares at $162 per share and made a profit of $10,000. The next day the stock jumped 10 points which meant $50,000 additional profits if he didn’t sell. He vowed never to listen to tips again.

There was a time when he shorted cotton. He was doing well when Percy Thomas, the “Cotton King” came into his life. Percy was a great talker. Before long, Jesse was under his influence. He covered his shorts and began to go long when cotton price was declining. The price of cotton continued to decline. For some mysterious reasons, he started to average down and kept on averaging down against his own principles. Eventually he lost 90% of his capital before he finally came back to his senses and sold out his stake for $300,000.

He tried to make a come back in the stock market. But from then on, his decisions were never right. From brilliancy to stupidity, he lost all his money; he was in debt to the tune of $1 million.

Eventually, he became a bankrupt in 1934 and committed suicide in 1940. He left a suicide note to his wife admitting that he was a failure.

Why did Jesse, a master speculator and trader with ample experiences, go against his own principles? Did God send Percy to bring about his downfalls? Is he destined to end in tragedy?

God helps us in mysterious ways, but he also brings about our downfall in the same manner.

What looks easy may not be easy

In the stock market we have bulls, bears, stags, chickens and pigs.

Bulls are those who buy in anticipation of a rise in the market.

Bears are those who sell in anticipation that the market will drop.

Stags are those who will only apply for new issues in the hope of making a profit.

Chickens are very scared to enter the market. They keep their money in the banks, in bonds or in treasury bills. When chickens turn bulls, the market will be at a very late stage of a bull market. At this stage, the market will be most tempting and the most dangerous.

Pigs are lazy; they will not do any research; their ideology is to wait for a good tip to make them rich. They forget that in this world, you can’t get something for nothing.
The market has a way of fattening the pigs, and then sending them to the slaughter house.

Lately, monkeys have also come in.
There was once a monkey who saw some fish swimming about in a river. As it was watching, a flock of wild ducks also came to swim and play happily in the water. The day was hot. The lure of the cool water was too tempting to resist. As the monkey watched, it said, “ Oh! Swimming is fun, it’s enjoyable and it’s easy. I also can do that even without any practice.” The monkey then jumped into the river. It tried very hard to swim and keep itself afloat. Unfortunately, it did not have the skill and drowned.

Which character would you rather be? You are the one to decide.

Good luck.

Black Fury Energy (New Energy Drink)

Hi guys/gals,

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Go to www.blackfury-energy.com, register your Yahoo/MSN ID, and change your avatar and status to participate. Take less than a minute to do. The earlier you join, the higher the chance you stand to win.

Good luck!!

cheers,

~KEGan

The danger of the ‘Bigger Fool Concept’

Initially people are attracted to the market because of earnings and good dividend yields. As the market moves up from undervalued to fairly valued, more and more people come into the market. The quickening of the market tempo pushes the market into the overvalued territory. It is here that a bubble is created. As the market moves up further, the bubble becomes bigger and bigger.

The magic lure of a constantly rising market soon becomes too much to resist. Now people are looking at future earnings, prospective dividend yields, and big contracts to justify buying. Little did they realize that the bubble has become much bigger and a burst can happen anytime.

In a prolong market advance, people become accustomed to the daily market rise. They soon throw cautious to the wind and start to buy in earnest. They think that with stop orders, they can limit their losses and hence only a small amount is at risk. In the meantime they can luxuriate in yielding to the herd instinct.

In real trades, stop orders may not be executed when they matter most. A suspension or sudden drop in price very much below your stop order can often happen at any time. This can inflate your limited loss to a catastrophe loss which may result in your inability to bear. And this can be disastrous.

The market gives and the market takes away. Don’t expect too much from the market if you don’t want to get hurt too deeply. The market does not owe you anything. Bet only what you can afford to lose.

When you are seduced into buying a stock you know is overvalued and hope to sell it a little higher to make a quick buck, this is a good indicator that a severe bear market is about to follow.

In the well-known philosophy called the ‘bigger fool concept’ it involves buying very date in a bull market in anticipation of a bigger fool to pay a higher price for your purchase. As the stock changes hands, the price hastens to the ultimate top. Eventually the person holding it finds that there is no one willing to pay a higher price for it. Thus if you do not find someone willing to pay a higher price for an overvalued stock, you must quickly sell it at a slightly lower price. Had the poor souls who bought Hwa Tai in 1997 at 200 sold it at 180, he would not have to ‘cut his limps’ when it subsequently dropped to below 3.

This blog disclaims all liability for your perusal of the above article. Whatever action you take, intelligent or otherwise, you do so at your own risk absolutely.

The KLCI, What happened in the last ten years?

1997 High 1,278.94 --- (Feb) Volume for the month 9,282,000 units
Low 512.41 --- (Nov) Volume for the month 5,791,000 units

1998 High 764.94 (Feb) Weekly volume 4,259,000 units
Low 261.33 (Sep) Weekly volume 1,542,000 units

1999 High 870.39 (July) Weekly volume 5,702,000 units
Low 488.90 (Mar) Weekly volume 455,000 units

2000 High 1,021.20 (Feb) Weekly volume 5,188,000 units
Low 673.74 (Dec) Weekly volume 122,000 units

2001 High 737.56 (Feb) Weekly volume 780,000 units
Low 547.72 (Apr) Weekly volume 590,000 units

2002 High 816.94 (April) Weekly volume 2,168,000 units
Low 614.00 (Dec) Weekly volume 510,000 units

2003 High 818.57 (Oct) Weekly volume 5,027,000 units
Low 615.77 (Mar) Weekly volume 921,000 units

2004 High 920.57 (Dec) Weekly volume 3,261,800 units
Low 769.29 (May) Weekly volume 2,017,500 units

2005 High 953.88 (Aug) Weekly volume 2,849,100 units
Low 858.84 (June) Weekly volume 2,262,600 units

2006 High 1,110.12 (Dec) Weekly volume 4,893,800 units
Low 883.29 (June) Weekly volume 1,671,200 units

From the above data we can easily see that the volume at the highs is very much greater than that at the lows. This means that if you want to buy low and sell high you should buy when the volume is very low and sell when the volume is very high. Also to be noted is that the favorite month of the year for the yearly high was February.

Looking at 2007, a top was established on 26 February with very heavy volume transacted in the previous few days. The top was followed by a correction that lasted for six trading days. The CI closed at 1,090.39 on 5.3.07. Support came in the next day. From a low of 1,113.29 it resumed it uptrend.

Yesterday the CI closed at 1,363.40 with 1.533 billion shares traded. This volume is moderately high considering that the lowest of the year so for was 808,100 shares and that the highest was 4.7817 billion traded on Feb 22.

I believe we have not seen the best of 2007 yet. The valuation gap between the blue chips and the second liners and mesdaq counters is too wide. Until the lower liners and penny stocks are whipped up as well, the ultimate top will not be formed yet. When people are fearful of a crash, the crash will not happen. It is only when everyone is most optimistic; when new comers come in droves to drive the market crazy; when permanent prosperity is deemed everywhere; when price rises are the norm and expectation of the day and when the market is at its strongest, then and there, a crash will suddenly come.

When will this happen? Nobody knows. The market itself does not know where the ultimate top is. So how can anyone know? Wait till you see people behaving like lemmings trying to cross the ocean in search of food or flying insects mesmerized by a fire in the darkness of the night and performing as kamikazes.

For the present, the good time is likely to continue.

The above point of view is my personal opinion only. You are entitled to your own.

Cash Flow

To enable you to have a better understanding of what is happening in a company; you need to have a good look at the Cash Flow statement. Whether in good time or bad time, cash is still the king. With cash, you can even ask the supernatural to push cars for you; without it, to move one step forward is difficult. (Chinese proverb)

Cash flow is cash coming in and cash going out. Operating cash flow is net cash inflow from operating activities.

A profitable company may have liquidity problem if its cash inflow is inefficient. That means its incoming cash derived from its services or products is not enough to meet its outgoing cash obligations, such as salaries and wages, rental, utility bills, telephone bills, etc.

Operating cash flow minus tax, interest, and capital expenditure is called free cash flow (fcf). Thus fcf is cash that is left after all essential bills and what must be paid to stay in business, have been paid.

The management has the option to decide what to do with the fcf. It can be paid as dividends to its shareholders; for share buy-backs; for acquisition or simply be retained in the company. What it does is reflective of its view for the company going forward.

Thus, don’t forget to look closely at the Cash Flow statement when you evaluate the solvency of the company.