Wednesday, September 01, 2010

How to make a call?

Recently, I've received an unpleasant, albeit polite comment (from reader nmb), which I have appended below:
Although i had read your blogs for few times, due to the recommendation of a friend, i found your comments is too technically, mean u describe most of the counters based on technical point of view.

When u raise a particular counter attention, i am afraid most of the times, it is too late. You only state the counter that had fly high after some announcements.


Honestly, i dont think your blogs or comments makes much differences to many other investors like me which hope to get first class news and tips.
He further added:
I just wish that from the convenience of Internet, we can share some good news, analysis, or even insider tips (if we lucky), prior to the surge of a particular counters.

Finally, the conclusion is very simple, we want every traders to make profit from KLSE.

By the way, good job to Mr. Alex, and i hope improvements will be achieved.

This is a serious comment & it deserves to be addressed properly in a post. To start off, I would say that we are only human and we would much prefer flattery to unpleasant comments on our blog. However, I believe that continuous learning & self-improvement can only take place if one faces up to his or her shortcomings. In that spirit, I would like to address the comment posted by the reader nmb.

Let's begin with the purpose of this blog, which is a platform for me to communicate with my clients. Before I've started this blog, I used to write to them by emails. I find this to be a one-way communication, with very little feedback. In fact, this hasn't changed much as most of my readers are not my clients & none of my clients has ever posted any comments on my blog. However, I find the blog to be a better mean of communicating with my clients for the following reasons:
1. I can communicate with a wider audience which led to an improvement in my calls.
2. I can receive more feedback, comments & questions which allows me to look into different stocks or areas that I've overlooked.

The setting up of this blog has been a great learning experience. It is like taking a crash course in investment because one has to be familiar with something before one can comment on it. This led to a lot reading & studying. I have maintained a rigorous ritual of reading up on company news and announcements, especially results announcements. For example, I read about 800 results announcements in the last 2 weeks of August. This process is repeated in the months of November, February and May- as most of the listed companies have their financial year end at either December or June (with a small number in March) and as such, they must announce their quarterly results towards the end of the second month after the end of each quarter.

The information in this blog is generally published information. My input is mostly in the area of analysis & the drawing of conclusion. To do that, I rely on my working experience as a banker and remisier as well as my training as an accountant. I have also read up a fair bit on technical analysis which I strongly believe is critical to successful investing.

To make general market call, one must have some working knowledge of the economy & the impact of various policies or decisions taken by policy makers. That's one area that I am quite comfortable with. Before the age of the internet, I used to read the columns of Lester Thurow, Milton Friedman and Paul Samuelson in my school days (as my father was a subscriber to Newsweek) and today I continue to read up regularly on economics matters. This knowledge has come in very handy (here). I supplement this with my technical analysis of the main market barometers, such as DJIA and our FBM-KLCI (here).

When it comes to stock selection, I rely on fundamental analysis as well as technical analysis. A good stock satisfies a fundamental analyst but a great stock satisfied both the fundamental analyst and the technical analyst. Sometime, a stock satisfied the technical analyst but failed to impress the fundamental analyst or vice versa. We should not ignore such stocks because the fundamentals or the technicals of that stock may change one day. However, I would normally treat a stock that satisfies the technical requirement as a trading BUY.

If you do not do any fundamental or technical analysis before buying a stock, then you are either buying blindly or based on tips. Tips can come from many sources, with the usual one being your remisiers' tips and the more desirable (but illegal) one being the insiders' tips. The later is hard to come by and the former is hard to avoid. When you are in the market long enough, you would learn one very important lesson- there is no such thing as a sure thing. Similarly there is no such thing as first class information. A person with first class information would not want to share it with you unless you are his brother-in-law or until he is bloated with the same stock.

Having said what I must say in my defense, I must also admit that some of the points made by reader nmb are fair comment. Why call a buy on a stock that has gone up? Why not make the call them before they go up? I've tried to do the later but it is next to impossible. Many a time when you made a call on a stock that you think is about to move, the stock just do nothing but sit pretty (here). To be sure, I would rather make the BUY call when the stock has achieved a technical breakout. That would necessary mean that the share price has gone up- sometime a bit, but more often than not, quite substantially. When the readers get into the stocks, they may suffer a whipsaw. This happened very often when the stocks in question are fairly illiquid. Unfortunately, this is part & parcel of the game. The way to avoid this is to get in slowly or later but who can say whether the rally would wait for you. A train that has left the station would not reverse to pick up a few strays (here).

Finally, nobody can read the market correctly all the time. In a bull or a bear market, you appear smarter than you really are. In an uncertain market- either in its bottoming phase or its topping phase (like now)- you appear dumber than you really are. But, are we... dumber now or smarter then or just plain lucky?

To reader nmb, I would like to say thank you for the comment. I appreciate the fact that you take the trouble to give your constructive feedback.

33 comments:

  1. I've got to say this, Alex. You have my utmost respect for taking time and effort to respond to nmb.

    IMHO, nmb is a newbie for asking for certainty in the stock market. We've been in the market long enough to know that stock market is just like its namesake in Cantonese (ku piu), which translated means guessing. You can just ku ha, ku ha (guess around).
    But with Technical Analysis, your guess is better than the others in the long run.

    All in, GOOD JOB Alex. I've learnt to see beyong the stock price from your postings.

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  3. Thank you Alex for sharing so many good things with us and we really appreciate it. Good job and keep it up!

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  4. Very well said Alex, and you are such a calm and generous person.

    Insider's tips sometimes kill when the outcome comes the other way round. Those gamblers "cry also no tears".

    I agree that a mid-long term investment idea on value stocks(FA+TA) makes more sense.

    Support, definitely support.

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  5. I agree wholeheartedly with Sam and Alex assessment.

    Anyway statistics do tell us that only a few percentages of us mere mortals will really make profit ALL THE TIME in the stock market (in fact every stock player may have lost some amount of money in the stock market at some point in time; even the pros and Warren Buffett have lost some big moolas!)
    In fact the most certain part of stock market is you may lose money...if you treat it as some form of lottery or get-rich-quick scheme!

    If you can acknowledge this fact, and take it upon yourself to limit your losses and let your mind (not your emotion) to dictate stock investing or even punting,
    you may be able to stay and succeed not only in stock investing, but in other fields too like forex and futures.

    To Alex, do keep up the good job.

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  6. I agree with you Alex. I think it's not very nice for NMB to make such a remark. He's rather naive in stock market.

    This is just a blog - free for all. If Mr Alex were to give a tip, do you think you can get it without paying him a commission? We are not even his clients.

    And to his conclusion that "we want every traders to make profit from KLSE". It is not Mr Alex Lu's obligation to ensure all his readers make money in the stock market. If everybody makes money, then there's no poor beggar on the street.

    Finally, Alex, I appreciate your writing on your blog. I take your call as a reference and will do more research in it to gain more confidence before getting in a position.

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  8. Hi Alex, I concur with the other previous comments. Your in-dept in stock analysis is very much appreciated.

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  9. I wish to say thank you to Alex for giving a pointer or alert to potential stock moves which I have benefited many times. Base on the pointer, I made further study and decide after I make my conclusion.

    Technical breakout is the usual and more reliable approach in stock reading, but it does not guarantee sure profit.

    It is your duty to put protective stops, if you are in the game of trading.

    As many readers have stated, nobody owes you a living, especially when you are not paying for the alert and analysis.

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  10. Hi,Alex,
    I wish to tell you that you have done a wonderful job and you should not be angry at negative comments aimed at you.Blame will also be put on you if any calls of yours are not profitable.But I would gather that if these people were to make a profit on any trades,they will always attribute their gains on their own good acumen instead of your comments.Don't let such people stop you from doing what you have been doing so well.They don't pay you for any advice.And even if they do,where is it stated that calls and predictions will always be correct?

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  11. hi alex,

    i admire your coolness in responding to nmb. anyway, i must say what you have done so far on the blog is really excellent. keep up the good work and hope you dont feel despair because after all this is your blog.

    thanks
    maxwealth88

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  12. G' evening Sir.

    Perhaps nmb does not have the fundamentals to manage risk, like sizing management + entry & exit rules - thus he asks for "sure-ities", an impossibility unless one does insider trading (ngeek ILLEGAL!).

    As you're a seasoned trader, would you be able to share methods you've tried / tested on these basics to manage risks other than "stock picking" via fundamentals + technicals?

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  13. Hi Alex

    Nobody can really guarantee any good stock would make u money. We should take ur comments as more experienced and with better insight. Just dont be greedy. Keep up goood work. Thanks

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  14. Hye Alex,

    "I just wish that from the convenience of Internet, we can share some good news, analysis, or even insider tips (if we lucky), prior to the surge of a particular counters." - if you can give these, we all be millionaires.. haha.

    Anyway, could you give some comments on Fajar which announced, I think, impressive financials results lately with very low P/E ratio and treasury shares distribution. But I could not find any news online or papers or even comments from research houses on this Fajar.

    Thank you.

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  15. Alex,

    Keep up the good work. Investors, punters, traders are looking from varying perspectives and information.

    One thing is sure, the odds of hitting the jackpot for making the call 'just-in-time' lies in the hand of God.

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  16. Hi Alex,

    Can you share your opinion on HAIO and Zhulian ? What is their no. to accumulate.

    Thanks

    AL

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  17. Hi guys,

    Thank you for all the moral support. I think reader nmb is quite brave to say what he'd said but he is sincere in wanting to see some changes to the blog. What I can gather is that some readers may find this blog too skewed towards the technical perspective and also some may have difficulties understanding the technical outlook portion of any posts. In the future, I will try to provide links that will explain some of the technical terms used. The technical perspective will remain as stock trading is 90% technical. To take away the technical aspects from this blog, I would have to rename the blog- The-Next-Investment. Hmm... I think I would stick to Nexttrade.

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  18. Hi Ai Ling

    My take on HAIO and Zhulian are:

    1) Haio broke its medium-term uptrend line at RM3.50. It should have strong support at the horizontal line RM2.50. Haio is a well-managed company presently caught up in some regulatory problem and possibly unexciting products. Its potential lays in the new Indonesian market which it has ventured into recently.

    2) Zhulian is still in an uptrend line. It has good support at the horizontal lines RM1.80 & RM1.70.

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  19. Hi Ai Ling

    My take on HAIO and Zhulian are:

    1) Haio broke its medium-term uptrend line at RM3.50. It should have strong support at the horizontal line RM2.50. Haio is a well-managed company presently caught up in some regulatory problem and possibly unexciting products. Its potential lays in the new Indonesian market which it has ventured into recently.

    2) Zhulian is still in an uptrend line. It has good support at the horizontal lines RM1.80 & RM1.70.

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  20. Hi TheOne

    You seems to know the fundamental side of Fajar, i.e. impressive financial results, low P/E ratio& etc. Kenanga has a BUY call on Fajar. Our target price is RM1.51 which is based on PER of 10 times its FY2011 EPS of 15.1 sen.

    Chartwise, the stock is still in a medium-term line with resistance at RM1.07-1.08.

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  21. Hye Alex,

    Thanks for your opinion on Fajar and I concur with it. IMO.. it just a matter of time people will realise this gem (with good returns) to have the volume to break the current resistances as stated. Then the price will move up appropriately.

    Thank you sir.

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  22. hi alex. please comment on BJCORP. BJCORP keep dropping from RM1.80 to 96sen all the way. yesterday Credit Suisse annouced its acquired 8.51% stakes of BJCORP. what is this mean to us, it is a strong signal to enter BJCORP now??

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  23. Good job Alex for yours comment. Yet you a right, someone profit is the other loose. That the market, may be nmb need more reading and attend more market seminar.

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  24. Learn and progress, there is no exact right and wrong in this question. Alex, u have the wisdom to deal with this and this should be shared with NMB?

    What is yr take on SAPRES?

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  25. Dear Alex,

    There is no easy way to catch the stock. However, there are some patterns that is obvious to me, like Axreit is on the uptrend. It won't go up like a rocket but surely and steady is moving up. The pattern exhibit like flat bowl.

    Alex, there are patterns for sure. Some stock will consolidate long time before it makes the next move. Maybank was congested in a wedge form before it moved up to the current level.

    It is only worth to look at those companies with solid business and good track record.

    Petdag was moving up steadily (weekly chart) and you don't need tips to know this is a fine stock to own. To comment that it moved up like rocket does sound like "after math effect" and amounting to a useless comment.

    Thank you.

    Sky


    Commenting on the stocks that


    You might want to pa attention to this stock

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  26. Good job on this blog, Alex. While you have done a good job highlighting some interesting stocks from time to time, I feel that the fundamental analysis part is insufficient.

    Based on my observation, your typical fundamental analysis is a short paragraph on the latest quarter earnings and another paragraph comparing the latest earnings against previous quarters. Last, you have a paragraph on valuation base on PE.

    What is the fair PE ratio for the particular stock? Why is Petdag "fair" with PER 15 and Intergrax with PER 10? Because of high capitalization? Stronger cash flow? or what?

    By playing around with PE ratio, anybody can come out with any target price.

    Perhaps a small percentage of your readers hope for more intellectual discussions on stock valuations, either fundamentally or technically?

    :)

    Keep it up!

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  27. Hi Sky Quest

    Sometime it's hard to say whether a breakout is too late for a play. I remembered just 2 months ago when I failed to post on the breakout of Cocoland at RM1.50. The market was bearish and I thought let's give the stock a miss since it was up 20 sen. Look how far it went. Another example would be MISC a few years back.

    Petdag may fall into such category of stock. Whether one calls it pointless or useless comment, it is up to the individual reader. If the post does not appeal to you, there will be another one that may appeal to you next week or the week after.

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  28. Hi antyong

    You raised 3 points:

    1) Fundamental analysis is insufficient consisting of a short paragraph on the latest quarter earnings and another paragraph comparing the latest earnings against previous quarters.

    2) The valuation base is usually based on PE multiples. Why do I choose a certain PE multiple? Because of high capitalization? Stronger cash flow? or what?

    3) Insufficient intellectual discussions on stock valuations, either fundamentally or technically?

    My reply:

    1) I always tried to give a reason why the company did so well. The information is obtained from the financial statements. If the information is not available, I would try to fill in the gap based on my knowledge of the industry or some recent business reports. As such, my post will lack what you may find in full research reports where the full-time analysts can go & visit the company & interview the accountant or the owner.

    2) Your point on the valuation is noted. I should consistently include in a short comment on why I use a certain PE multiple for the stock. I normally made such a comment in the post but occasionally it may be left out unintentionally (due to time constraint). The PE multiple- ranging from 7 to 15 times - is determined by the size of the company & the nature of the industry. If you disagree with the PE multiple assigned by me or even research analysts, you can simply take out your calculator & assign another number in its place.

    3) On intellectual discussion, I have to say that I won't get into such things. Time does not allow me to engage in such luxury. For that, you may want to check out Malaysia-Finance.

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  29. Hi Alex,

    When I first came to know your blog, I was expecting some tips like nmb did, buy call before it rises...

    I fully agree with you, buy call shall be called once it breaks out its barrier.

    Good job Alex, keep it up!!!

    P/s: I gained >20k from P&O after reading your blog somewhere around end of July!!! Thanks!

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  30. hi , alex,

    i like your blog and admired your hard work on making this blog.

    for my general impression ,most of the remiser are just asking u to buy a share by telling u that share is good or some tips by some 1..thats all, not much analysis was provided. your decision is all at your own risk. and they take commision on it.( base on limited own experience),

    but your blog had provide alot of information, even though some of your buy call might come relative late , ie the share is already move, but it do provide much input to me, which can help me make a investment decision..

    i guess those who are your client will benefit the most...

    i fully agree with your analysis
    base on TA and fundamental...

    alex, good work and keep it up..

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  31. personally, i think you done us many favors by doing the analyses for us. For nmb, i think he is just a punter looking to make a quick buck off someone's hard work.

    keep it up Alex. i think many of us owe you a big meal or two :). i have certainly benefited to utilized your comments and analyses as a second but very honest opinion! keep well!

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  32. Hi alex,

    I have frequently read your blog and i find it very useful.

    I totally agreed with u that foundamental analysis is the most important factor in stock selection and technical analysis will be the timing for buying in and selling of share.

    In investment, patience is the most important factor because we need to buy in at a safe margin or discount price to protect our capital and sell off when reach fair price to make investment gain.
    Therefore, technical analysis is very imortant to ensure the above is acheive.

    I think IMHO is fairly new in share investment which think it is easy to make fast buck.

    I personnely appreciate very much your effort to share your knowledge and experience to fellow investor.

    Keep up with your good and thanks again



    I think IMHO still has a long journey ahead of him

    I think IMHO

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  33. Hi Guys,

    Thank you for the hearty support & generous compliments.

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