When talking about technical analysis, one major component is reading graphs... From various indicators, we try to determine the market trend and movement. We have indicators as volume, moving average, RSI,.......... sound complicated enough? Hehe.... Wait till you read the real difficult part...
As we look at the graph, we look at previous price and performance. To identitify the trend from previous performance is hard enough, but that is not the most difficult part. The worst part is the right edge of the graph. The more to the right, the harder it gets... To complicate the problem further, most indicators tend to give contradicting results when you needed them the most.... Sigh....
The past is solid and fixed, but the future is fluid and volatile. And we have to make decisions on the future instead of the past. So, in order to do it right, we need to be flexible and make your decisions based on probabilities.... However probabilities is not as simple as simple calculations... The probabilities to make mistakes is actually quite high... So, you can either wait for confirmation to increase the probabilities to get it right. But then again, even if you wait for confirmation to come, you can never tell if it is going to make a sudden turn in the trend...
This is the reason why before you decide to make any trade, the first thing that you need to do is to have a stop loss plan. Just in case your decision turns out to be wrong, you need to keep the loss as small as possible... So the most important mentality is "Keep the loss small and let the profit run". You need to keep the loss as small as possible in order for you to survive long enough to win... And in this way, you can increase the odds of you winning... So remember, NEVER EVER enter a trade without a stop loss plan....
Saturday, March 31, 2007
Tuesday, March 27, 2007
Price have memories?
In my previous posting I mentioned that techical analysis is based on the believe that history repeats itself. Which means price have memories... It will remember the highest price, lowest price, volume and etc...
Does price really have memory? Logically, price is not a living being, so how can it have memory? But it does behave in a certain pattern... That is why you can predict (roughly) the support, resistance, trend or range... How is this possible? To understand this, we must first understand how is price determined and what influences it? In my previous posting http://survivingstockmarket.blogspot.com/2007/03/does-company-performance-affect-price.html , I mentioned that price is directly determined by the balance between the demand and supply... And these demands are made by human beings, who are alive and have memories and emotions. If price is to have memories, it will be the memories of these people...
As mentioned, technical analysis will sum up everything about the market into graphs to be interpreted. One basic concept about price is that everyone has an idea of how much the company is worth... So based on this perception, they will determine what is the most expensive price and what is the most bargain price... So, everytime the price for a particular stock is pushed up by demand, it will reach a particular price where most people think that it is the most expensive or the highest price offerable for the stock.. So, they will start selling and this is when supply overwhelms the demand and the price starts to drop. As the price drops, it will reach a price where most people thinks that it is the bargain price... So the demand will increase. When the demand overwhelms the supply, the price moves back up. And the cycle repeats itself...
So, whenever the price reaches the highest point, it will come down again and this point is called the resistance. When the price reaches the point when people starts to snatch it up again, the price will go back up, this is called the support.
Now, do you think the price have memories or people have memories?
Please take note... This is an oversimplified version... Further details will be posted in the future.. This posting is just the most basic concept... Do come back often to catch the details.. hehe...
Does price really have memory? Logically, price is not a living being, so how can it have memory? But it does behave in a certain pattern... That is why you can predict (roughly) the support, resistance, trend or range... How is this possible? To understand this, we must first understand how is price determined and what influences it? In my previous posting http://survivingstockmarket.blogspot.com/2007/03/does-company-performance-affect-price.html , I mentioned that price is directly determined by the balance between the demand and supply... And these demands are made by human beings, who are alive and have memories and emotions. If price is to have memories, it will be the memories of these people...
As mentioned, technical analysis will sum up everything about the market into graphs to be interpreted. One basic concept about price is that everyone has an idea of how much the company is worth... So based on this perception, they will determine what is the most expensive price and what is the most bargain price... So, everytime the price for a particular stock is pushed up by demand, it will reach a particular price where most people think that it is the most expensive or the highest price offerable for the stock.. So, they will start selling and this is when supply overwhelms the demand and the price starts to drop. As the price drops, it will reach a price where most people thinks that it is the bargain price... So the demand will increase. When the demand overwhelms the supply, the price moves back up. And the cycle repeats itself...
So, whenever the price reaches the highest point, it will come down again and this point is called the resistance. When the price reaches the point when people starts to snatch it up again, the price will go back up, this is called the support.
Now, do you think the price have memories or people have memories?
Please take note... This is an oversimplified version... Further details will be posted in the future.. This posting is just the most basic concept... Do come back often to catch the details.. hehe...
Fundamental analysis Vs Technical analysis
We often come across these two terminology when we talk about stock picking. What are they? How do we use them to pick stocks?
Fundamental analysis looks into helps you select a fundamentally strong company. You can pick a company that is financially healthy using fundamental analysis. How to do that? You can find a posting on it here... http://survivingstockmarket.blogspot.com/2007/03/stock-picking-based-on-fundamental.html
How about techincal analysis? Techical analysis is based on the belive that:
1) Price or history repeats itself, which means they are using past trends to predict the future.
2) The price is the summary of the psychology and effects of public information on the crowd.
Basically, technical analysis tells you about the demand of the public towards a particular company regardless of the fundamentals of the company. There will be more postings on technical analysis in the future.....
In summary, like what Ben always say, "Fundamental analysis tells you which company to pick and technical analysis tells you when to buy."
Fundamental analysis looks into helps you select a fundamentally strong company. You can pick a company that is financially healthy using fundamental analysis. How to do that? You can find a posting on it here... http://survivingstockmarket.blogspot.com/2007/03/stock-picking-based-on-fundamental.html
How about techincal analysis? Techical analysis is based on the belive that:
1) Price or history repeats itself, which means they are using past trends to predict the future.
2) The price is the summary of the psychology and effects of public information on the crowd.
Basically, technical analysis tells you about the demand of the public towards a particular company regardless of the fundamentals of the company. There will be more postings on technical analysis in the future.....
In summary, like what Ben always say, "Fundamental analysis tells you which company to pick and technical analysis tells you when to buy."
Monday, March 26, 2007
Stock Picking Based on Fundamental Analysis
When doing fundamental analysis, we are actually analyzing about the company itself, its fundamental or intrinsic values. When doing stock selection using fundamental analysis, it is like you are choosing which company you want to own with your hard earned money…So you need to choose a company that will give you the maximum amount of profit return for your money invested…
Looks simple isn’t it? But how do we know if the company is worth your investment? You can do it from so many different ways… And it is so subjective that everyone tells you a different pick with their own solid reasons… However, there are some more simple and concrete methods or financial ratios that you can try to use as reference… You can use Price Earning Ratio (P/E), Net Tangible Assets (NTA), Dividend Yield (DY), Debt Equity Ratio (D/E), Return on Equity (ROE) and Earnings Per Share Growth Rate (EPSGR).
I will try my best to explain what are they based on my understanding… But try to use them as reference or basic understanding only… Most of these information can be obtained from the company’s financial statement, or you can derive them using basic calculations…
Earnings per share (EPS) can be obtained from the financial statement of the company. The higher the EPS, that means the more money the company is making… They normally would give the basic EPS or diluted EPS or both… It would be best to use the diluted one if it is available…
A few ratios can be obtained from this EPS, one of it is the Price Earning Ratio (P/E), can be obtained by dividing the current price a share to the EPS. For example, if company A’s share has the price of RM1 and the EPS is RM0.20, the EPS would be 1/0.2 = 5. If looking strictly at the P/E ratio point of view, the higher the P/E ratio, the more overvalue the company is. Thus, the more risky it is to buy the share… However, it is important that you compare the P/E ratio of the company with the companies within the same sector…
Another indicator is the Earnings Per Share Growth Rate (EPSGR) which is calculated by calculating the percentage of increase or decrease of EPS… Which means, to calculate how much earnings the company is making more or less compared to last year… It is recommended that a company has the EPSGR of at least 15% consistently for at least five years…
Return on Equity (ROE) is calculated by (Net profits – Dividends) divided by total shareholder’s fund and converted into percentage… Some financial statements state their ROE readily while some you need to calculate yourself… Recommendation of Warren Buffett is at least 15%.. Which means the higher the better…
Take note: Since EPSGR and ROE are derived from EPS, it is better to have a good and consistent record than to have a sudden surge in them…
Debt Equity Ratio (D/E) can be calculated by taking the total debt of the company divided by their shareholder’s fund… The lower the ratio, the safer it is to invest in the company…
Net Tangible Assets (NTA) measures the net worth of the company… NTA can normally be obtained from their financial reports… So you can use the price to NTA ratio.. Which means you take the market price of the company divided by NTA. The higher the ratio, the more risky the investment is…
Dividend yield is the dividend per share divided by the market price, converted to percent… The higher the percentage, the better it is…
Other than these methods, you can also decide on the worthiness of the company by using SWOT analysis… This however is too subjective and as I say, almost everyone have their own picks…
There are two very important point to take note when using the indicators I mentioned above when choosing stocks:
1) Compare the indicators among those companies within the same sector.
2) Consistency over the years are far more important than one or two years surge, especially when it involves earnings.
Good luck in your stock hunting!!
Looks simple isn’t it? But how do we know if the company is worth your investment? You can do it from so many different ways… And it is so subjective that everyone tells you a different pick with their own solid reasons… However, there are some more simple and concrete methods or financial ratios that you can try to use as reference… You can use Price Earning Ratio (P/E), Net Tangible Assets (NTA), Dividend Yield (DY), Debt Equity Ratio (D/E), Return on Equity (ROE) and Earnings Per Share Growth Rate (EPSGR).
I will try my best to explain what are they based on my understanding… But try to use them as reference or basic understanding only… Most of these information can be obtained from the company’s financial statement, or you can derive them using basic calculations…
Earnings per share (EPS) can be obtained from the financial statement of the company. The higher the EPS, that means the more money the company is making… They normally would give the basic EPS or diluted EPS or both… It would be best to use the diluted one if it is available…
A few ratios can be obtained from this EPS, one of it is the Price Earning Ratio (P/E), can be obtained by dividing the current price a share to the EPS. For example, if company A’s share has the price of RM1 and the EPS is RM0.20, the EPS would be 1/0.2 = 5. If looking strictly at the P/E ratio point of view, the higher the P/E ratio, the more overvalue the company is. Thus, the more risky it is to buy the share… However, it is important that you compare the P/E ratio of the company with the companies within the same sector…
Another indicator is the Earnings Per Share Growth Rate (EPSGR) which is calculated by calculating the percentage of increase or decrease of EPS… Which means, to calculate how much earnings the company is making more or less compared to last year… It is recommended that a company has the EPSGR of at least 15% consistently for at least five years…
Return on Equity (ROE) is calculated by (Net profits – Dividends) divided by total shareholder’s fund and converted into percentage… Some financial statements state their ROE readily while some you need to calculate yourself… Recommendation of Warren Buffett is at least 15%.. Which means the higher the better…
Take note: Since EPSGR and ROE are derived from EPS, it is better to have a good and consistent record than to have a sudden surge in them…
Debt Equity Ratio (D/E) can be calculated by taking the total debt of the company divided by their shareholder’s fund… The lower the ratio, the safer it is to invest in the company…
Net Tangible Assets (NTA) measures the net worth of the company… NTA can normally be obtained from their financial reports… So you can use the price to NTA ratio.. Which means you take the market price of the company divided by NTA. The higher the ratio, the more risky the investment is…
Dividend yield is the dividend per share divided by the market price, converted to percent… The higher the percentage, the better it is…
Other than these methods, you can also decide on the worthiness of the company by using SWOT analysis… This however is too subjective and as I say, almost everyone have their own picks…
There are two very important point to take note when using the indicators I mentioned above when choosing stocks:
1) Compare the indicators among those companies within the same sector.
2) Consistency over the years are far more important than one or two years surge, especially when it involves earnings.
Good luck in your stock hunting!!
Sunday, March 25, 2007
Winner Vs Loser
How do you differentiate a winner from a loser? You can tell from the mentality that they have....
One very significant and common mentality in a loser is DENIAL.... There are a few things that they deny about... The 3Ds.... And many times, they occur in a sequence.... I think it is important for you to identitify it and learn to overcome it one by one... It is a three step process to have a winner mentality ready....
1) Denial of failure
2) Denial of responsibility
3) Denial of no control
When someone loses money in stocks... They would try their best to hide it... Do you remember asking someone or being asked, "How are your stocks doing?".... Hehe... sound familiar? What answers do you get? Hehe... Typical one would be..."Ok la...", "Break even la...." or " Got loose a bit la....". Let me translate for you what they means... They all basically means almost the same thing... "I AM LOSING MONEY LAH! DUH!"..... They will not admit that they failed... Little did they know that to admit failure is just the first step of upgrading themselves into winners....
Lets say they managed to overcome their first obstacle and they are now willing to admit they they failed... Then, they will start to deny that they are responsible to the loss... They will blame everything that they can think of on earth, in hell or heaven... They blame their remisser, luck, wrong information, set up, and even bad karma.... The only one who did not and never made any mistake is themselves.... How can they ever improve themselves if they have such mentality? We should be responsible to our own actions and decisions... If we make money, it should be out of OUR good judgement, if we loose money, it is due to OUR poor judgement... It is always a good idea to keep a diary or a record of all transactions, and you MUST include the reasons why you buy and sell a particular stock, the gains or loss and what went right or wrong... Study the history... Don't make the same mistake twice...
If the person manages to go through the second test, now they shall have to test the "denial of no control". What does this mean? Denial of no control means the person denies that he is unable to control his greed and desire to gamble.... Someone who is in control will make his trade when he thinks it is the right company and the right time based on solid and sound reasons.... When they know it is not the right time, they will stay and wait for the time to be right... Someone who is not in control however, will put their bet no matter what... They takes unnecessary risks and takes risks with things that they cannot afford to loose (MONEY), for many reasons... Be it greed or excitement.... This is the thoughest test of all because most people will not be willing to admit that they are not in control of themselves... It is like crazy people never admits that they are crazy... But the problem is, they must accept that in order for them to get well...
So, are you able to withstand the test of these 3Ds? It is ok to have them now... Once you identitify them, pull them out from your mind with their roots... Set your mentality right... Then you have the chance to do well in stocks or in life and be the ultimate winner..... "Malaysia Boleh"..... Hehe....
One very significant and common mentality in a loser is DENIAL.... There are a few things that they deny about... The 3Ds.... And many times, they occur in a sequence.... I think it is important for you to identitify it and learn to overcome it one by one... It is a three step process to have a winner mentality ready....
1) Denial of failure
2) Denial of responsibility
3) Denial of no control
When someone loses money in stocks... They would try their best to hide it... Do you remember asking someone or being asked, "How are your stocks doing?".... Hehe... sound familiar? What answers do you get? Hehe... Typical one would be..."Ok la...", "Break even la...." or " Got loose a bit la....". Let me translate for you what they means... They all basically means almost the same thing... "I AM LOSING MONEY LAH! DUH!"..... They will not admit that they failed... Little did they know that to admit failure is just the first step of upgrading themselves into winners....
Lets say they managed to overcome their first obstacle and they are now willing to admit they they failed... Then, they will start to deny that they are responsible to the loss... They will blame everything that they can think of on earth, in hell or heaven... They blame their remisser, luck, wrong information, set up, and even bad karma.... The only one who did not and never made any mistake is themselves.... How can they ever improve themselves if they have such mentality? We should be responsible to our own actions and decisions... If we make money, it should be out of OUR good judgement, if we loose money, it is due to OUR poor judgement... It is always a good idea to keep a diary or a record of all transactions, and you MUST include the reasons why you buy and sell a particular stock, the gains or loss and what went right or wrong... Study the history... Don't make the same mistake twice...
If the person manages to go through the second test, now they shall have to test the "denial of no control". What does this mean? Denial of no control means the person denies that he is unable to control his greed and desire to gamble.... Someone who is in control will make his trade when he thinks it is the right company and the right time based on solid and sound reasons.... When they know it is not the right time, they will stay and wait for the time to be right... Someone who is not in control however, will put their bet no matter what... They takes unnecessary risks and takes risks with things that they cannot afford to loose (MONEY), for many reasons... Be it greed or excitement.... This is the thoughest test of all because most people will not be willing to admit that they are not in control of themselves... It is like crazy people never admits that they are crazy... But the problem is, they must accept that in order for them to get well...
So, are you able to withstand the test of these 3Ds? It is ok to have them now... Once you identitify them, pull them out from your mind with their roots... Set your mentality right... Then you have the chance to do well in stocks or in life and be the ultimate winner..... "Malaysia Boleh"..... Hehe....
Saturday, March 24, 2007
Bulls, bears, hogs and sheeps
Hehe.. came across this phrase recently: "Bulls make money, bears make money but hogs get slaughtered."
Basically, in terms of buying and selling... a bull is someone who is buying - with the believe that prices will go up. A bear is someone who is selling - with the believe that prices will go down... The term bull and bear is derived from the way these animals defend themselves... A bull will use the horn in a upward strike, so it is like pushing the price up... A bear fights by striking things down with their paws, like pushing price down...
How about hogs? Hogs are described as greedy individuals.... They are tempted to buy shares which they cannot afford because of their greed to make quick cash... So if there is fluctuations in the price which happens very often, they get panic and they make bad decisions... That is why they always get slaughtered in the end... But if their bet is right, the shares they buy do go up... They will have the tendency to wait till the price go higher then they sell, but they often end up falling down the clift.... They may have their planned their moves in the begining.. Like hogs planned to go out and search for food... But greed always win and cloud their decisions and plans... In the end... They fall into the trap... That is how people use food to trap hogs.... Hehe...
Sheeps are great followers... They don't have to make decisions... All they need to do is to follow the trend or tips.... But one thing is for sure, the stock market is a very highly competitive place... People don't give away tips.... For they need to stay in the front in order to get the profits.. Real tips are not revealed, and those revealed are lousy tips... So, sheeps who get tips, get slaughtered as well... Those that follow trends always happen to be the last and the most foolish of the block... They always enter the uptrend late and when smart people are making their exit.... So, they alone ride the slide downhill....
So, which one are you? If you are the sheep or the hog, it is still not too late to upgrade yourself into a bull or bear... Hehe... Knowledge, skill and wisdom is the only thing that can transform you.... So, good luck.....
Basically, in terms of buying and selling... a bull is someone who is buying - with the believe that prices will go up. A bear is someone who is selling - with the believe that prices will go down... The term bull and bear is derived from the way these animals defend themselves... A bull will use the horn in a upward strike, so it is like pushing the price up... A bear fights by striking things down with their paws, like pushing price down...
How about hogs? Hogs are described as greedy individuals.... They are tempted to buy shares which they cannot afford because of their greed to make quick cash... So if there is fluctuations in the price which happens very often, they get panic and they make bad decisions... That is why they always get slaughtered in the end... But if their bet is right, the shares they buy do go up... They will have the tendency to wait till the price go higher then they sell, but they often end up falling down the clift.... They may have their planned their moves in the begining.. Like hogs planned to go out and search for food... But greed always win and cloud their decisions and plans... In the end... They fall into the trap... That is how people use food to trap hogs.... Hehe...
Sheeps are great followers... They don't have to make decisions... All they need to do is to follow the trend or tips.... But one thing is for sure, the stock market is a very highly competitive place... People don't give away tips.... For they need to stay in the front in order to get the profits.. Real tips are not revealed, and those revealed are lousy tips... So, sheeps who get tips, get slaughtered as well... Those that follow trends always happen to be the last and the most foolish of the block... They always enter the uptrend late and when smart people are making their exit.... So, they alone ride the slide downhill....
So, which one are you? If you are the sheep or the hog, it is still not too late to upgrade yourself into a bull or bear... Hehe... Knowledge, skill and wisdom is the only thing that can transform you.... So, good luck.....
Market efficiency
What is market efficiency? We can measure market efficiency in a few ways… Market efficiency can be measured by how well the market react to news and information as well as ‘fairness’ between buyers and sellers. Hmm… what does this mean?
For example, when a positive news about a company is announced, the price will go up immediately. How fast the price responds to the news will tell you how efficient the market is… Take note: not only the response time is measured, the price should also move in proper direction. That means, when a positive news is out, price should go up, not down..
In an efficient market, ‘fairness’ is also an important measurement… What do I mean? First of all, all companies have their very own intrinsic value… Or how much the company is worth… And this price will be reflected in their market price… That means there is a balance between the supply and demand (how does this affect the price? You can refer to my previous post), there will be no overbought or oversold situations… Which means the companies are selling at their fair value…
Does this sound good to you? Hmm… If you ask me, this might not be such a good news to me…. Why? Let us analyze this: First, which method do you use when buying stocks? Do you use fundamental analysis or technical analysis? An efficient market is a very bad news for those that uses technical analysis (TA)… Because like it or not, TA earns from overbought or oversold conditions… From other’s panic selling or ignorance… So, in an efficient or fair market, how are they gonna earn?
How about those that uses fundamental analysis (FA)? This may sound like good news because an efficient market also puts price of stocks according to their intrinsic value… Which means, those that are masters of analyzing fundamental values of a company will pick up great stocks to invest in… They will be able to earn when the company expands fundamentally which will bring up the price or from their dividends… Sounds like a good news? Maybe not.. In most investments, the earnings can be divided into realized and unrealized gains… Realized gains is the money you get from dividends, unrealized gains is from the price increase which is enhanced many folds from overbought or oversold conditions… However, majority of the earning is from the unrealized gains component, and this can be seriously hampered in an efficient market…
So, the question now is, do you think Malaysia is having an efficient market? It’s a definite no for me… The next question is, do you want an efficient market? That is a definite NO from me too… But how do we survive this inefficient market? The answer is SKILLS… Be it fundamental or technical analysis… Skills is the thing that will decide whether you can make it or not in this inefficient market… So, let us enjoy this inefficient market to the most by improving our SKILLS!!!
For example, when a positive news about a company is announced, the price will go up immediately. How fast the price responds to the news will tell you how efficient the market is… Take note: not only the response time is measured, the price should also move in proper direction. That means, when a positive news is out, price should go up, not down..
In an efficient market, ‘fairness’ is also an important measurement… What do I mean? First of all, all companies have their very own intrinsic value… Or how much the company is worth… And this price will be reflected in their market price… That means there is a balance between the supply and demand (how does this affect the price? You can refer to my previous post), there will be no overbought or oversold situations… Which means the companies are selling at their fair value…
Does this sound good to you? Hmm… If you ask me, this might not be such a good news to me…. Why? Let us analyze this: First, which method do you use when buying stocks? Do you use fundamental analysis or technical analysis? An efficient market is a very bad news for those that uses technical analysis (TA)… Because like it or not, TA earns from overbought or oversold conditions… From other’s panic selling or ignorance… So, in an efficient or fair market, how are they gonna earn?
How about those that uses fundamental analysis (FA)? This may sound like good news because an efficient market also puts price of stocks according to their intrinsic value… Which means, those that are masters of analyzing fundamental values of a company will pick up great stocks to invest in… They will be able to earn when the company expands fundamentally which will bring up the price or from their dividends… Sounds like a good news? Maybe not.. In most investments, the earnings can be divided into realized and unrealized gains… Realized gains is the money you get from dividends, unrealized gains is from the price increase which is enhanced many folds from overbought or oversold conditions… However, majority of the earning is from the unrealized gains component, and this can be seriously hampered in an efficient market…
So, the question now is, do you think Malaysia is having an efficient market? It’s a definite no for me… The next question is, do you want an efficient market? That is a definite NO from me too… But how do we survive this inefficient market? The answer is SKILLS… Be it fundamental or technical analysis… Skills is the thing that will decide whether you can make it or not in this inefficient market… So, let us enjoy this inefficient market to the most by improving our SKILLS!!!
Friday, March 23, 2007
Does company performance affect price change?
Everyday we see price of stocks going up and down. When there is good news or high profit reports, the price of the company goes up. But if there is ill news or massive loss, the price goes down. Looking at the pattern, is the share price determined by company performance?
A very important point that you need to understand here is that the share price is not 'directly' determined by the company's earnings and performance... It is directly determined 'directly' by the balance between the demand and supply.
What do I mean? I'm quite sure you would have noticed that news and earnings would affect the company's price.... When there is good news or when the company reports a good annual profit, the price would go up. But if there is ill news or negative earnings, the price will go down... Then, why do I say performance do not directly affect the price? Haha... Noticed that I use the word directly?
The share market price works something like inflation, when demand overwhelmes the supply, the price goes up... And the same goes opposite... More buyers than sellers, then the buyers will offer a higher price in order to get the product (shares). So the price goes up... So that is why I say, the demand is the factor that 'directly' affects the price..
However, company performance do affect demand. When a company do well, there will more demand for their shares, and the price will go up... So, indirectly they do have some effects... Hehe...
So, it is important that you don't freak and go into panic buying or selling when there are news about the company.. The news will only have effect on the price when it is significant enough to cause a change in demand.....
A very important point that you need to understand here is that the share price is not 'directly' determined by the company's earnings and performance... It is directly determined 'directly' by the balance between the demand and supply.
What do I mean? I'm quite sure you would have noticed that news and earnings would affect the company's price.... When there is good news or when the company reports a good annual profit, the price would go up. But if there is ill news or negative earnings, the price will go down... Then, why do I say performance do not directly affect the price? Haha... Noticed that I use the word directly?
The share market price works something like inflation, when demand overwhelmes the supply, the price goes up... And the same goes opposite... More buyers than sellers, then the buyers will offer a higher price in order to get the product (shares). So the price goes up... So that is why I say, the demand is the factor that 'directly' affects the price..
However, company performance do affect demand. When a company do well, there will more demand for their shares, and the price will go up... So, indirectly they do have some effects... Hehe...
So, it is important that you don't freak and go into panic buying or selling when there are news about the company.. The news will only have effect on the price when it is significant enough to cause a change in demand.....
Thursday, March 22, 2007
Investor Vs Trader, Which one are you?
A lot of people including me, did not know what is the difference between an investor and a trader. I did not even know the existance of these two terms.. Until.......
My first email to Ben from http://bliswise.blogspot.com/ . And that was the first time I heard of these two terms...
So, what is an investor and what is a trader? An investor is someone who looks for fundamentally strong companies to invest in... But a trader, invest when the graphs and technical analysis tells them that the price of the particular stock will be going up... In other words, fundamental analysis looks into the intrinsic value of the company or how much the company is worth to invest in, hence - Investor. A trader however, looks at the company like a 'product'. Whether they can buy the stocks now and sell it with a higher price later... Which is like measuring the demand for the stock. Confusing? It's ok, there will be some postings in the future that will discuss more on fundamental and technical analysis.
Why is it important to know which one are you? Why is it so important to set the mentality right? It's because both have a very different game plan. How is it different? That will also be posted on future blogs... Hehe... Like that then can keep people coming ma... Hehe.... Anyway, this is just an introduction to the concept of investor vs trader. Something like a point to ponder and look into... Hehe....
My first email to Ben from http://bliswise.blogspot.com/ . And that was the first time I heard of these two terms...
So, what is an investor and what is a trader? An investor is someone who looks for fundamentally strong companies to invest in... But a trader, invest when the graphs and technical analysis tells them that the price of the particular stock will be going up... In other words, fundamental analysis looks into the intrinsic value of the company or how much the company is worth to invest in, hence - Investor. A trader however, looks at the company like a 'product'. Whether they can buy the stocks now and sell it with a higher price later... Which is like measuring the demand for the stock. Confusing? It's ok, there will be some postings in the future that will discuss more on fundamental and technical analysis.
Why is it important to know which one are you? Why is it so important to set the mentality right? It's because both have a very different game plan. How is it different? That will also be posted on future blogs... Hehe... Like that then can keep people coming ma... Hehe.... Anyway, this is just an introduction to the concept of investor vs trader. Something like a point to ponder and look into... Hehe....
Modify your dreams or magnify our skills
Haha... I copied my comments that I had posted in Ben's blog http://bliswise.blogspot.com/2007/03/modify-your-dreams-or-magnify-skill.html ..
Hi Ben, that is a very nice one...I remembered my school teachers and a lot of motivational books would always say aim high... If you aim for the sky, if you don't reach it, you will probably fall to the roof only... But in stock market and many other investment and business out there, if you aim for the sky when you obviously cannot reach, you may end up in the drain instead of the roof... I always believe when you aim, you should be realistic... as you stated, too much failure due to unrealistic aims and goals lead to demoralization... So it is always better to set goals that is achievable... When you reach it, set another higher one... Continuous achievements, though small, can be very good positive reinforcemets... I am still in the search for the right method and and techniques in the stock market.. Although i am facing a lot of failures and set backs... They will not stop me.. For i am gaining experience with each fall... I believe i will be able to use all these experience to enhance my skills... Especially now that i have found very good and experienced leaders here that are willing to guide me.. Thanks guys and gals...
Hi Ben, that is a very nice one...I remembered my school teachers and a lot of motivational books would always say aim high... If you aim for the sky, if you don't reach it, you will probably fall to the roof only... But in stock market and many other investment and business out there, if you aim for the sky when you obviously cannot reach, you may end up in the drain instead of the roof... I always believe when you aim, you should be realistic... as you stated, too much failure due to unrealistic aims and goals lead to demoralization... So it is always better to set goals that is achievable... When you reach it, set another higher one... Continuous achievements, though small, can be very good positive reinforcemets... I am still in the search for the right method and and techniques in the stock market.. Although i am facing a lot of failures and set backs... They will not stop me.. For i am gaining experience with each fall... I believe i will be able to use all these experience to enhance my skills... Especially now that i have found very good and experienced leaders here that are willing to guide me.. Thanks guys and gals...
Why companies want to go public?
We say we buy stocks or shares of a public listed company, but do we know why would a company want to go public?
So, why would a company want to go public? Why would they want to go through all the procedures and restrictions once they go public? Well, one of the reasons could be to raise a large amount of money for whatever purpose, for company expansion or some mega-projects. Now, there are a few ways out there for them to raise money, one is to loan form the bank, or to 'get' from the public.
Notice that I use the word ‘get'. It is not a typing mistake... When I say the company ‘get’ the money from the public, it means the company is going public and by offering shares. Of course there are rules and regulations that the company needs to follow.
Now, since the company is gong to get listed, they need to offer their shares to the public for the first time. They will go through a process called “Initial Price Offering (IPO). It is like offering their shares at a discounted price to the public because the price will normally be lower than the market price.
How much can they raise? That will depend on how much shares are offered. Just imagine, if they offer one million units of shares at RM1 a unit, they can actually raise RM1 million. And the best part is, they never need to return that money… That is why I say they practically ‘get’ the money from the public.
So if they can just get money from the public, what does the public get in return? Why would we want to buy their shares? How do we make or loose money then? Haha… Got lots of question? They will be revealed in the coming postings…
To be continued….
So, why would a company want to go public? Why would they want to go through all the procedures and restrictions once they go public? Well, one of the reasons could be to raise a large amount of money for whatever purpose, for company expansion or some mega-projects. Now, there are a few ways out there for them to raise money, one is to loan form the bank, or to 'get' from the public.
Notice that I use the word ‘get'. It is not a typing mistake... When I say the company ‘get’ the money from the public, it means the company is going public and by offering shares. Of course there are rules and regulations that the company needs to follow.
Now, since the company is gong to get listed, they need to offer their shares to the public for the first time. They will go through a process called “Initial Price Offering (IPO). It is like offering their shares at a discounted price to the public because the price will normally be lower than the market price.
How much can they raise? That will depend on how much shares are offered. Just imagine, if they offer one million units of shares at RM1 a unit, they can actually raise RM1 million. And the best part is, they never need to return that money… That is why I say they practically ‘get’ the money from the public.
So if they can just get money from the public, what does the public get in return? Why would we want to buy their shares? How do we make or loose money then? Haha… Got lots of question? They will be revealed in the coming postings…
To be continued….
Why bother about the basics?
As I have mentioned earlier, this is a learing blog. So the first on the agenda will obviously be about the basics.. I think it is very important that we have a strong foundation first before we do anything..
How high a building can be built will always depend on how strong the foundation are...
So, before we move into Fundamental or Technical analysis, let us look at some basic knowledge about stocks....
How high a building can be built will always depend on how strong the foundation are...
So, before we move into Fundamental or Technical analysis, let us look at some basic knowledge about stocks....
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