In this weekly series titled JUST ASK, we invite readers to send in questions on stock investing, and personal finance. We will ask an expert to provide answers. Below is a question from a reader on how to be more successful in stock trading. We asked three people to give their views:
a) Leong Sze Hian, President of the Society of Financial Service Professionals;
b) Musicwhiz, a 30-something value investor who does his homework on a business fundamentals before investing.
c) Robert Stone, 51, a highly successful investor whose investments include Anwell Technologies and Singapore Windsor - in both companies he is among the top 10 shareholders.
d) Winstorn, 52, a full-time trader and a former director of a private company, who actively posts his stock ideas on NextInsight’s forum.
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?
FINANCIAL ADVISER
Leong Sze Hian: Dear reader, it is never easy to trade and make decent profits consistently. Especially when we study the same books, use the same techniques and strategies as everybody else, listen to the same gurus. I don't really have the answer to your question.
A suggestion I have for you is to try this strategy - buy if price falls 4% sell, if up ride the profits until it falls 4% from the high. If you are wrong 4 times out of 10, right 6 times and is able to ride a decent profit on 1 of the 6, you may be happy!
If you can generate 20+% per annum consistently - you are already in the league of Warren Buffet! The key to long term success in investing is managing the risks, and not focusing too much on the returns.
- Leong Sze Hian as been a Wharton Fellow and alumnus of Harvard University, authored 4 books, quoted over 1,000 times in the media, and invited to speak more than 100 times in about 20 countries on 5 continents.
He has served as Honorary Consul of Jamaica, Chairman of the Institute of Administrative Management, the UNESCO Leadership Chair Council and founding Advisor to the Financial Planning Association of Brunei and Indonesia.
He has 3 Masters degrees in Financial Planning & Financial Services, 2 Bachelor degrees in Economics & Insurance, and 13 professional qualifications.
VALUE INVESTOR
Musicwhiz: Dear reader, it's very tough to make a living out of trading (especially contra) because of the short-term uncertainty as to where market prices are headed. With contra, you are relying on a window of 3 days to determine if prices will rise or fall according to whether you have "longed" or "shorted", and this is akin to gambling.
In fact, frictional costs such as brokerage are already sandpapering your gains away and magnifying your losses with every trade, similar to the "house advantage" which casinos have. Over time, contra is a losers' game and close to 100% of people lose money doing it.
Trading full-time is also not a feasible option as it requires too much time, is very nerve-racking, psychologically demanding and there is, of course, always the question of trading costs and whether one can consistently beat all the other traders out there.
Consistency and capital preservation should be of utmost importance in the stock market; and a proper investment mindset and philosophy can get you there. By doing research on companies' fundamentals and prospects, one can invest with a margin of safety and enjoy many years of good dividend yield and capital gains.
The key is to be disciplined, patient and to have the mental fortitude to withstand market fluctuations and take advantage of them. Thus, I would advocate value investing over trading for you to "grow rich slowly". Good luck!"
- Musicwhiz is a 30-something investor who has been investing for about 5 years in the Singapore stock market. He practices value investing and does his own research into potential companies to invest in. He posts regularly on NextInsight's forum, and writes regularly on his blog http://sgmusicwhiz.blogspot.com/
Views of Robert Stone & 'winstorn' Continued here ===>>>