Why So Many Lose Back Profits

Observer 2, My plan is simple, depending on where the market is, the proportion of my cash will increase. History ha shown that the Singapore market ha the ability to break new height after a crisis. The height of STI is 3700. I then allocate an 10% buffer, so when STI hits 3400, I will cash out almost all my stock and hold cash. Doesn't know how long I will have to wait in the cold then, that's why my earlier question to h regarding what do 1 do when waiting for the bull to finish it's run. Then I will wait for the STI to fall half way from it's peak and I will re-enter in 3 tranches. In case market fall further. I will commit further when I am convinced that the bulls has returned or it makes economic sense to further av. Down. I think my plan is rather laughable as there is plenty of waiting involved. This is my plan I have thought out, whet I will have the discipline to follow it is another matter. However, I am more concerned about the risk in investing in s-chips as one can get nothing back and have no chances of waiting out am correction. To minimize the risk and thinking through, I think I will need some safety mechanism in trading s-chips. 1) when 1 of the 3 happens, cash out immediately. A) resignation of auditor, CFO or independent director. when borrowing increase significantly without utilization o internal resources first. C) when there is significant insider sell out, stake must be significant to avoid being overly cautious . 2) next, sell out sometimes after the 4th q results and wait for audit to be complete before re-entering. If price cheonh during this window period, too bad. Many of these plans are thought out as the auditing scandal unfolds. I know some of these might sound really silly to gurus here, I stand corrected I hope anyone can also share his risk management mechanism to others and so that we all learn and avoid losing back the profits we made.

Dear Forummers,
It has been a bad start to the year and I believe it may stay this way until second half of the year.
A very simple reason is the inflation issue facing the world. Nevertheless, the market is still there and it is still worthwhile to stay in the market to reap the harvest.
Presently, my portfolio stands at positive 13.5% year-to-date. Hence, I am the lucky few to still maintain positive returns this year.
Let me share a few points with all on how I invest;
Point One: Study Really Hard
I make it a point to study and learn everything about a company before I even buy one share in the Company. From the history of how the Company was started to the profile of the management, to the business model to the financial performance for the past 5 years to the uses of proceeds to the future plans. If I cannot understand one part of the equation, I do not buy this Company. Simple as that.
Point B: Margin of Safety -- Never dollar average
At times, I do find good companies that I am very keen to invest. But the valuation does not make sense. The share price is trading at lofty PE of 30-40x. In this situation, I wait. I wait until the share price fell to my comfort zone then I buy. I will buy slowly whether it is up or down as I learnt more about the Company.
Because of this rule that I set for myself, I never buy using dollar average. I just buy when I have spare cash and the price is within my comfort zone. To me, dollar average is a rule invented by fund managers because they want you to keep buying unit trusts from them.
Point Three: Exit Strategy
I have very fixed exit strategy. If the global environment changes and it has impact on the company, I will readjust my projection. If it is still within my estimates, I will keep the stocks. If it does not, I will sell.
A very recent example is the Japanese earthquake. This earthquake will have a very negative impact on the technology sector, especially those with Japanese customers and suppliers. At present, the Japanese suppliers are using inventory to cover up on their supply limitation while the customers are keeping numb on the demand orders. I believe reality will set in at the second half of this year. That's why I told the decision to sell all my tech holdings as the market recovers.
Take Mr Market seriously and I believe you will be rewarded.
 
Cheers and take care.

Dear MacGyver,
I have some questions, I agreed that we must study the companies we invest in inside out. You mention the profile of management. What are you looking at in particular when this is concerned.
What are the red flags in the profile of management are what are the pluses you are looking out for? Where do you get these information? The only information i think i can get from their annual reports or bloomberg website are their remmunration, years of exp., CV their relationship with each other, etc.
As I am an retail investor, a nobody, I am quite sure I will not be able to get close to the management like some the forummers here can, what are we then do to reduce this disadvantage.
Hope to hear from you
Regards, 
 Greenrookie

Dear Green Rookie,
The IPO prospectus is a good start.
Study the history of the management. How did they start the business, when did they start the business. Learn whether they have survived crisis before they list and whether they have professionals in their management team.
Look out for companies that were going IPO before they turn 10. Find out how did they grow at this accelerated pace when others have struggled for decades.
Read their financials. Most companies inflated their earnings before they list so as to get the best pricing. Usually, I take the average of the past 3 years earnings as the real earnings.
Also if you are looking at S-chips.. Search for their PRC subsidiaries on www.sina.com or www.baidu.com You can find more than what is disclosed in the IPO prospectus.
So far, I have managed to avoid all the S-chip failures in Singapore. Maybe I am just plain lucky or maybe I chose to believe that there is no free lunch in this world. Work hard and you will be rewarded.

WINNING THE WAR IN S-CHIPS
Thank you Greenrookie & MacGyver for your sharing.
The pointers given by MacGyver are very valid especially to the serious investors. I always like the point on “Study Real Hard” or “Do Your Homework”; as this, to me, is the road towards picking the right winning stock. Many people lose money investing in stocks and they tend to put the blame for their losses on the company’s management, the analysts or everyone else but themselves, when it is often a case of a failure to do their own homework. My ex-remiser used to complain that whenever he made a bad recommendation he would get scolding from many of his clients; but when he made a good recommendation, many clients would just tell him that they made money because of their own clever decision – in following blindly his recommendation.
I believe I am one of the very rare people who invested mostly in S-chips ever since 2003. Being aware of the “high risks high gains” nature of S-chips, I did some serious study on –

1. how to capitalize on the potential high gains of S-chips;
2. how to reduce the high risks of S-chips to a minimum.

I consider investing in S-chips as similar to the indulgence in FUGU (or Puffer) fish by the Japanese people. A valuable lesson here is to learn to overcome danger instead of just taking the easy route of avoiding it. 
I used the “Doubling Strategy” [explained earlier in this thread & reproduced here for easy reference] for investing in S-chips.
“The Doubling Strategy”: The idea is to identify the best growth stock in a sector basing on whatever data or information available at the time. The stock must be considered as one having relatively low downside risk but rather high potential capital gain (capable of achieving at least a doubling in its share price) This would invariably be a stock with low PER and usually having little investor’s interest – easy to find at the early part of the bull market & impossible to find at the higher end stage. Such a stock is to be completely divested on attaining a certain target (eg. PE of 10x or 15x), or on first sign of it falling below expectation as a growth stock. The proceeds can then be utilized to buy another growth stock with much lower valuation and downside risks. Potential gains beyond a PE of 10x or 15x (depending on the type of stock and the stage of the market) are to be consciously left behind for someone with a bigger risk appetite to take over the stock. As for the boredom while waiting for one’s selected stock to reach its target, one could always build up a small position of the same stock or other stocks for trading purpose.
From 2003 to 2007, I invested in 9 S-chips (as well as 2 other non S-chips) as core holdings using the bulk of my investment funds. Altogether, 7 of the S-chips (as well as the 2 non S-chips) met my expectation of yielding at least 100% capital gains each. One (China Paper) was divested with 10% gains while another (Unifood) was divested at break even level – both had management’s performance falling short of expectation. My investment in S-chips as core holdings over the past 24 months were as follows:
Oceanus – met expectation
Sinotel – met expectation
China Gaoxian – met expectation
Qingmei – yet to see results
Eratat – yet to see results
Two notable features of this investment strategy are –

1. Not more than 3 stocks are to be held at any one time.
2. Make provision for one in every 5 stocks to go completely kaput – complete write-off.

So far, none of the stocks required a complete write-off and interestingly, all the stocks divested later had problems of one sort or another, the latest being China Gaoxian.

Thank you Observer2 for your sharing. I think i understand what you mean by 'met expectations' for Oceanus, Sinotel, etc. but could you elaborate cos many people now have only dim views of these stocks as they have grossly underperformed in the last 1 year or so?