My Portfolio

Wednesday, April 1, 2009

Philosophy on Investing part 3

The aggressive search of a holy grail for a perfect strategy to enter the market has been everyone's dream but is it really as important as position sizing(money management) and defining the selling point where one will not be entrapped in his own emotions(greed, fear)?

My first part in my journey to create my own system will begin with entry point... Under entry point, following are the questions I need to go through.... 

1) Stock fundamentals

a) Analyze the company's 5 year annual result and come up with a basic analysis like the one I earlier posted for Tat Hong...        
b) Come up with an estimated price using DCF model and relative models like (P/E, P/B, P/S). Only used as a guideline as the estimates are derived using past info therefore might not be very accurate..   
c) Analyze the company's latest quarterly posted result
d) Possibility of the stock price getting doubled. Like improving results current price at a huge discount..     
e)  Market Capitalization..

2) Technicals
a) Determine the volatility using  indicator like ADR.
b) Using moving average to determine the buying point.. Might conflict with fundamental as I will probably be buying "higher"     

c) Volume analysis
d) Analyze the trend and momentum


3) Big Picture

a) Macro econ indicator
b) Current market sentiment (Bullish or Bearish)


4) How much should I buy? How can this be determined? Any way to derive this figure based on fundamentals..

5) Always think "how much will I lose" by taking this position instead of "how much can I win"

6) Should I cost average when price plunges drastically?

7) Determine the amount I would risk.

The only way which I can think of now to blend this 2 technique is to design a sort of point system.. Assuming, I'm a mid term investor(holding period < 1 year) and have more confidence in fundamental than technical. I can start by weighing my system more towards fundamental (70%) than technical (30%) and only buy the stock when the total points exceed certain predefined benchmark. This is just an idea. I am still unsure how can I go about doing this.. Will explore more on this option and improve on it... 

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