Continued from Part 1 here.
NEXTINSIGHT READER
Reader: I have been an active trader on the Singapore stock market for a year using Technical Analysis (candlestick charts) and fundamental analysis (stock news and related industry news). However, I have still not been able to successfully generate consistent profits out of trading Singapore stocks.
I tried using contra purchases after I have picked my stocks and always look to get out within a week thus I always look at the daily to weekly charts.
What do you suggest to the young budding traders out there in Singapore who want to trade local stocks and do you think SGX stocks could be traded? If not, how can I make a living out of stock trading and how much capital do I need to start trading?
VALUE INVESTOR
Robert Stone: Dear reader, On the 1st January 2009 if you had taken ten darts and thrown them
at the stock listings in the newspaper, bought shares in those companies and held them for a year, you could expect to have reaped a gain of 50% or more with minimal time and effort
If you have not made considerably more than those returns employing your active trading strategy to compensate for your time and effort, you are right to question your approach.
The problem with active trading is that if the time frame is a week or less essentially you are playing a zero sum game. However, it is actually worse than a zero sum game as you must pay commissions. As an individual you are also at a disadvantage relative to many of your counter parties who will have access to better and more timely information than you do.
My suggestion to you is to become an investor instead of a trader. As an investor an individual does have some advantages over the big boys Firstly, an individual can afford to be patient. This is not easy but if an investor buys shares in a company that is growing in a sustainable way, as long as he is patient his wealth will grow as the company grows. The key is to pick companies that have good long term growth prospects.
Secondly, all things being equal small companies have greater potential to grow versus big companies. Picking small companies on a random basis is likely to be a riskier bet than buying shares in large established companies so it pays to do your own research. As only larger companies tend to get followed by analysts there can be great opportunities in small companies that are completely off the radar screens of most market participants.
Thirdly, if an individual investor follows the herd in buying the 'market darlings' he should expect to get the same returns as everyone else. To get exceptional returns you need to think different than the rest of the crowd.
An individual has an advantage in this regard as liquidity of any counter need not be an issue for him if his focus is long term. Professional money managers may not be able or interested to invest in non liquid stocks. They may also be focused on beating their peers rather than maximizing long term returns.
How to put these suggestions into practice? If I were in your shoes I would identify what I think are long term macro trends then do some research on listed companies that I think might benefit from these. I would pick 10 to 20 companies and buy a minimum of shares in each company. This would although me to attend annual meetings where you can meet the management and ask them questions about their businesses. It would also allow me to form an initial opinion on the capability and integrity of the management.
Having decided which companies have long term potential to grow and have sound management teams, I would start slowly and steadily buying shares. In the long term if you buy say 10 companies with these criteria only a few of them need to be very successful and your returns are likely to be much better than average.
Such a strategy is not for everyone as it requires a great deal of patience, the discipline and time to do your own research and some independence of thought. However, in my experience this approach has worked well.
The bottom line is if you want to gamble, go to a casino, have some fun and only lose as much as you enter the casino with. If you want to make money from investing, pick good companies, be patient and think long-term.
Robert Stone is a highly successful investor who has parked millions of dollars in, among others, Anwell Technologies and Singapore Windsor, and owns a wide range of stocks listed in bourses such as Singapore, Vietnam, Indonesia and HK. Read more about him Robert Stone reaps rewards of 3 decades of investing
SUCCESSFUL TRADER/INVESTOR
Winstorn: Dear reader, Many traders like myself had gone through many losses in trade before actually finding out what happen. If you are serious to become a successful trader, then first you must attend the full course on technical analysis that provides the following:
A. KNOWLEDGE
1. Concept of trends
2. Volume analysis
3. Support and resistance
4. Chart formations
5. Moving average
8. RSI, Stochastic, MACD, Bolinger Band, candlesticks, etc.
9 Money management (risk/reward factors including when to take profit and when to cut loss ).
10. Generate stocks to buy using some reliable software.
Fundamental analysis is not so important because any good news will be reflected in the technical analysis of that particular stock on the same day. Another reason why it is not important is because even if there is some very good news on that particular stock, and if no investor is interested or keen to buy into that counter, the stock price will not goes up.
The above full course is a MUST for any person who wish to do full time trading and if not he will end up lossing money without knowing why !!!
B. MARKET SENTIMENT
STI is mainly affected by how Dow Jones and Hang Seng stock market moves. They are like big brother and big sister to our market. If Dow Jones, Nasqad and S&P500 shows all red tonight, the next day, most asia market will follow, even if you particular stock is on the upward trend.
C. RIGHT TIMING AND OPPORTUNITIES
There is no clear cut winning formula for every trade and therefore one must practise when to buy and when to sell and take profit , unless you are a long term trader. Whenever there is a market correction, there will be opportunities to buy at the right time.
The right time to buy; is to study your chart ( technical analysis) OR to follow some of the reliable Big Boys who constantly share their views in the forum.
- 'Winstorn', 52, was a director of an import and export metal products company before he became a full-time stock investor/trader. He derives income mostly from the stock market. He constantly attends seminars organized by stockbroking houses or talks relating to stock market to improve his understanding of trends and sector plays. And he posts his views regularly on NextInsight's forum.
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