KLSE - Investment 101 - for punters

[currymee]

Dear Readers,

A few forumers and I thought it might be fun and hopefully educational for us to share some thoughts and ideas on KLSE, investments and stock market in general. Before we begin, please read the disclaimer that I "borrowed" ....

DISCLAIMER: (copyright and credit to Salvatore Dali - email: malaysiafinance@gmail.com - Malaysian Finance Blogspot - since it is well written and I cannot do any better than that):

The content on this site (read forum thread) is provided as general information only and should not be taken as investment advice. All site (forum thread comments) content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the (respective) author(s). Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

YOU MAKE THE FINAL BUY/SELL DECISION, YOU TAKE THE RISK, IT IS YOUR MONEY -OK ?

[currymee]

Note: Before I begin writing anything, I have emailed S.Dali (Malaysian Finance blogspot sifu) for permission for his copyright disclaimer - so please wait. I will start with one simple GOLDEN RULE:

1) CAPITAL PRESERVATION aka don't lose money !!

[currymee]

While waiting for Mr Dali to reply, I recommend checking out this websites - good for better understanding of investements:

http://malaysiafinance.blogspot.com/ (more fundamental analysis)

and

http://www.traderstruthrevealed.com/ (more technical analysis)

2nd GOLDEN RULE: EMOTIONAL DISCIPLINE - you must not let your greed or fear control you - easier said than done - messed up many times myself

[currymee]

3rd GOLDEN RULE: PATIENCE - usually only applicable when fundamental analysis is applied as the basis.

Fundamental players normally look at share prices, EPS, EBIDTA, NBV, NTA, debt, gearing, etc and from there they take a position with a target timeframe of around 6-12 months and normally, they aim for 15- 30% profit margin - hence, the staying power (holding power) comes into play - do a quick check on the trends of EPF and PNB investment strategies will show similar applictaion framework.

If the profit target % is achieved earlier, they will sell and then wait for the next cycle - one of my favourite counter to watch such interplay is EPF with YTL counter

DISCLAIMER: (This disclaimer is the copyright and credit to Salvatore Dali - email: malaysiafinance@gmail.com - Malaysian Finance Blogspot - since it is well written and I cannot do any better than that):

The content on this site (read forum thread) is provided as general information only and should not be taken as investment advice. All site (forum thread comments) content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the (respective) author(s). Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

YOU MAKE THE FINAL BUY/SELL DECISION, YOU TAKE THE RISK, IT IS YOUR MONEY -OK ?

[currymee]

4th GOLDEN RULE: It is not PERSONAL, a stock does not know that you own it ....

(quote from Buffett, meaning don't go for crazy feelings like "revenge", must make back from same counter, fall in love with one, never sell coz I love it ... etc etc ... )

You have no idea how many people suffer from this "psychological" syndrome including me ... hence my reason for writing here is TO REMIND MYSELF ALSO Transmile - **&&&$$$$$$ ****

[currymee]

5th GOLDEN RULE: Always ask question about the shares of the company you want to buy/sell (and not limited to just prices going up or down )


This rule is an important as a defence against hustlers (buayas) - ask why? , what is the trend?, what happened?, what is new?, what is the prospect?, why is the company doing that?, what is the cost?, what is the impact on top and bottom line?, who is "frying" and why? , even questions on the technical analysis aspects, like MACD, Fibonacci, Elliot Waves ... etc etc .... these questions prompts you to think and make calculations/judgements and thus help to reduce unnecessary risks.

THERE IS NO RIGHT OR WRONG - IT ALL DEPENDS ON YOUR OWN JUDGEMENT AND ASSESSMENT - take a look at NYSE, almost 90% of analysts say a "correction" is coming BUT it is now past 10,000 or take a look at KLCI, to me fair value is around 1,000 pts , it is 20% more than I estimated .... *&$#@*&

You may say, I can ask BUT who will answer .... well, try your remisers, read analyst reports (which all remisers have - if not, change !!), check the news, forums, read, read .... WHY - COZ IT IS YOUR MONEY AND INVESTMENT YOU DON'T TAKE CARE - WHO ELSE WILL?

[currymee]

6th GOLDEN RULE: MARGIN OF SAFETY - a concept in financial analysis proposed by Benjamin Graham and made popular by Warren Buffett. In my understanding, you buy a share at a price you think is lower than what you believe it is worth then that "gap" is your margin of safety - layman's punter's concept, not too complicate it too much.

I will use a hypothetical case: Say Share ABCDE true worth/value based on fundamental analysis with calculations and projections to be around RM1.00 but the current market price is around 0.70, thus, you have a margin of safety of around 30% - this is different from potential upside coz most analyst will predict a slightly higher value of around RM1.20 - an additional 20% on top.

Another view of margin of safety is that of market price against net asset - I always highlight this value NTA whenever I look at a counter coz the original Graham method always look for companies trading below its NTA value. Having said that, I prefer Buffett's enhancement to his mentor's approach, by taking into account the nature of business and managment and not just purely NTAs.

MY TAKE: Margin of Safety rule is a KEY CONERSTONE in all my share dealings and work most closely with Rule#1 - Capital Preservation - don't lose money !! The other rules revolve around them and if these two key rules are violated - NO GO !!!


DISCLAIMER: (This disclaimer is the copyright and credit to Salvatore Dali - email: malaysiafinance@gmail.com - Malaysian Finance Blogspot - since it is well written and I cannot do any better than that):

The content on this site (read forum thread) is provided as general information only and should not be taken as investment advice. All site (forum thread comments) content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the (respective) author(s). Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

YOU MAKE THE FINAL BUY/SELL DECISION, YOU TAKE THE RISK, IT IS YOUR MONEY -OK ?

[currymee]

It is after 5pm, so as far as a punter is concerned, it is TOMORROW liow
No-lah, just finish writing out what I wanted to highlight as Golden Rule #7 and also tomorrow, I want to focus on Budget 2010, so maybe no time to post - so post now lah !!

Golden Rule #7: Pick like Buffett; trade like Guppy - in another words, pick good stocks and solid busineeses with all the fundamental criteria applied by Warren Buffett and his mentor Benjamin Graham with ample margin of safety. After that trade them with the technical analysis rules etc like those highlighted by Daryl Guppy which include the all important stop-loss, risk management etc ... Why?

Reason 1: None of us are as loaded as Buffett to be able to hold for long term - remember, that old man gets around USD100million A DAY to play with. We can get RM1,000 per day already laughing until boh-geh !! However, his concepts and rules based on his mentor's Mr Market and margin of safety are good and valid in helping to select good stocks to invest in.

Reason 2: After selecting the good stocks, we trade like a full-time trader and best example that I always refer to is Daryl Guppy (Aussie bloke) methodologies and concepts. We trade like a trader (punter) coz we don't have the money to hold for very long like Buffett, we need to "roll" the small capital we have and provide food on the table - so holding forever in this case is preferably the NEXT 5 MINUTES make money - cabut and start again !!

Someone PM me and ask why only 20 stocks ... not 10 or 30 - SIMPLE - my PC monitor screen is only big enough to view 20 counters lah !! Next time when I strike big, I will consider buying a huge 42" plasma LCD and then maybe monitor around 30-40 !! Just joking - reason for 20, I find that number comfortable for me to monitor and keep good tabs on as well as go down in depth on their operations, financial performance, etc etc ... i.e Buffett concept of "circle of competence". Having said that, since I am trading in Casino de KLSE, I allow for an additional 2-3 super-speculative counters that fail all the Golden Rules but for pure "hit-and-run" example: Compugates - aiya ... good boy also got bad streaks !!

I normally allocate capital around: 25% for long-term (more than 1 year), 25% - dividend play, 25% - short-term (5 minutes - 3 months) and 25% - speculative.

HOMEWORK - You need to review your stock selections every 3 months after each earnings quarter - to check and see if the counters still deserve to be in your top 10-20-30 list and also to look at new fresh counters that may give a better return - company performances do change over a period of 3-6 months - so constant refreshing will help you to stay in touch as well as to understand their businesses better. In Casino de KLSE, the earnings reporting seasons are usually in the following months: February, May, August and November - these are the busiest months just before the KLSE deadline for reporting.

Note: I prefer calling the market KLSE sounds better than Bursa (sounds like BURST -- !!) - bad juju !!

DISCLAIMER: (This disclaimer is the copyright and credit to Salvatore Dali - email: malaysiafinance@gmail.com - Malaysian Finance Blogspot - since it is well written and I cannot do any better than that):

The content on this site (read forum thread) is provided as general information only and should not be taken as investment advice. All site (forum thread comments) content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the (respective) author(s). Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

YOU MAKE THE FINAL BUY/SELL DECISION, YOU TAKE THE RISK, IT IS YOUR MONEY -OK ?

[currymee]

Golden Rule # 8: Regard corporate figures (numbers) with suspicions and don’t sweat the maths !!

As an investor/punter, we must always pay special attention to the corporate figures (numbers), news, debts, reserves, accounting changes, footnotes etc ...yes, hard work again!! We must learn to be wary, cynical and skeptical. I have learned this lesson the hard way (i.e. got burned by Transmile accounting fraud) a few years back … still got bitter taste in mouth whenever I talk about it. And don’t sweat the maths – the maths should be simple and straightforward. If higher maths (like calculus or complex algebra) is used, BEWARE – RED FLAG – IMHO, complex theories are being used to substitute for experience and give speculation the disguise of investment - BEWARE ! Like Buffett says, if it takes more than a few minutes to understand, CABUT !! (not exactly like that, but basically SIMPLE to understand ...)

Most recent INFAMOUS example is: The Gaussian Copula Function (see links for more details: http://www.cnbc.com/id/33383261/?slide=10 )

This mathematical equation is attributed as one of the key cause of the Wall Street Financial and Global collapse of 2008-2009 and the recession that we are all in today!! The equation was extensively used by derivative traders on Wall Street. The equation allowed for the modeling of risk and default correlation and used in trading of CDOs. Some analysts claimed that the formula had been misused and should not be blamed for human error …. sure, sure, when bombed, it is misused; when money rolling in … secret success formula hehehe …

No wonder, everybody around the world playing CDOs kena whacked – how many people esp in Wall Street and financial sectors in Tokyo, HK, Singapore etc … (with big egos) dare to say they don’t understand, everyone will nod and say “AH yes, the formula, SETUJU !!) …. I read this 5x also I blur in how they apply it ….

Forbes.com columnist, Susan Lee called it “The Formula from Hell” – (http://www.forbes.com/2009/05/07/gau...risk-debt.html)

Other related links:
http://www.wired.com/techbiz/it/magazine/17-03/wp_quant
http://en.wikipedia.org/wiki/Copula_(statistics)

[currymee]

Golden Rule # 9: Understand the Business Language (Accounting) and READ, READ and READ !!

This Golden Rule is fairly self-explanatory. However, it is the Golden Rule that separates the speculators/tip-followers from the investors. Warren Buffett was once asked what was the most important tool that helps him to invest and his answer was a GOOD PAIR OF READING GLASSES

While it is advantageous to have studied accounting or have an accounting background, it is more important that the investors understand at the least the basic ideas, terms and treatment of financial data/statements. This Golden Rule ties in with Golden Rule # 8. You cannot detect fraud or creative accounting (to use the business parlance) if you do not even understand the language, so to speak.

Special care must always be placed on understanding of footnotes etc ... this is where the majority of Houdini acts are performed. The cash flow statement, balance sheet or other key financial statements are usually straight forward; it is the little, little superscripts and subscripts on the individual items that should be ringing your bells and raising RED FLAGS!!

Apart from revenue, costs etc .....always pay attention to debt and gearing. It can make or break a company. Also take note whether the company revenue/profit is due to normal operations or exceptional one-off items, this can be misleading and should be treated with care.

And, it is ok if you don't fully understand the first time you read, but with regular reading and reading, soon, you will get the hang of it and before you know it, you will automatically start to look at previous years performances whenever you start to look at any new counter - HAPPY READING

Note: I used to have a book that treats Msian-based financial statements in a simple manner - book by Lazard (something like that), I cannot find it on my bookshelf at the time of writing - must have misplaced it or sau-kau -poo-chee, since it is way out-of-date already (my version was 1996). Newer versions are available in the bookshops.

[currymee]

Golden Rule #10 : Think for yourself !!

This is the last and final Golden Rule, and IMHO, the most important

There are 3 requirements to be successful in investing/punting:

1) You have TO THINK CORRECTLY - that is why I share with you the Golden Rules as an example of the investment framework that I use - different people have their own, some 5, 8, ... even 101 Mine is just 10 ... anything more are just derivatives or rule of thumbs from the 10.

2) You have TO THINK INDEPENDENTLY !

3) DO NOT EVER STOP THINKING !!

Thank you for reading this KLSE thread, I have reached a natural conclusion with the end of the Golden Rules. I hope you will find the Rules as useful and helpful as they have been for me.


(NOTE: Time to focus on KLSE to make SOME SERIOUS money - the opportunities are coming !!)

[currymee]

Dear Readers,

After having done some soul-searching, and in the BEST interest of the forum and all of us including myself, I will stop posting any more thoughts/ideas/opinions/discussions/analysis whatsoever on this KLSE thread.

I realised that there is an inherent DANGER that some of the readers may unintentionally misinterpret and misunderstood what I post and hence may lead to some financial losses. That thought alone is too heavy a responsibilty for me to bear even if I do not know any of you personally and that I have clearly highlighted a DISCLAIMER.

With that, I bid you adieu and HAPPY INVESTING

Note: KWChang (Admin) - I leave it to you to decide if you want to close this thread or not.

[kwchang]

Since the 10 rules put up by currymee can be useful advice, I will remove all posts here and leave only the 10 rules for reference and move this back to money matters.

[currymee]

Dear Readers,

As a parting gift from the KLSE thread - an updated reading list.

Here is a list of references that may be helpful to you to further your understanding of the Golden Rules listed in earlier posts. Some of these books may no longer be in print nor widely available in the bookshops. I am listing their full title, author, publisher, edition including ISBN for your references - hopefully, you may be able to still obtain them at some of the shops or online.

1) The Intelligent Investor by Benjamin Graham, Harper Collins Publications, 4th Edition, 1973, ISBN: 0-06-015547-7

2) Share Trading by Daryl Guppy, Wrightbooks (imprint of John Wiley & Sons Australia), 10th Anniversary Edition, 2006, ISBN: 1-7-4031-1-68-x

3) How to make money from your stock investment even in a falling market by Ho Kok Mun, Kanyin Publications, 1st Edition, ISBN: 983-3789-03-X

4) Investing Your Savings by Yeoh Keat Seng, Star Publications, 1st Edition, 2004, ISBN: 983-9512-15-3

5) Warren Buffett Speaks by Janet Lowe, John Wiley & Sons, 1st Edition, 1997, ISBN: 0-471-16996-X

6) Security Analysis by Benjamin Graham and David L.Dodds, McGraw Hill, The Classic 1951 Edition, ISBN: 0-07144820-9 (Special Note: Warren Buffett considers this edition to be the last "pure" edition written by his mentor before it was co-authored in subsequent editions ... )

7) Common Stocks and Uncommon Profits by Philip A. Fisher, John Wiley & Sons, Reprint of 1958 edition (1996), ISBN: 0-471-11927-X

8) Bulls and Bears - Investment Strategy by Dr C.E.M. Anderson, Pelanduk Publications, 1990, ISBN: 967-9783-83-9

9) Regular monitoring of CNBC.com, Bloomberg.com and FT.com websites for international business news.

Thank you for reading, ADIEU and HAPPY INVESTING