A need to be critical about my own style

It's been some time since I last update this blog and if anyone is reading, I'm am truly apoletic about it cos I am really just too busy with everything recently from work to study and lastly tuning my own investment style. I had a detailed discussion with my brother last week on investing strategies because we were contemplating of a merger(Sound likes a coroporate move eh haha) and although it is called off in the end but still I have learned heaps from it... My brother is an advocate of using trends and charts to make trade decisions and up to date, his system has proved to be efficient and applicable and that really inspires me though I'm a firm believer of fundamental analysis.. I know I will be flamed by some people because a true person who used fundamentals will think that charts are useless and all informations it displayed are not related to the company at all.... I used to think in that direction too but well, actually market price does affect the company fundamentals at all.. Have you wondered, if the stock price performed well in the market, the company can receive more money from issuing placement shares and the proceeds can be used for reinvestment which will beneft the business and improve their financial health too and from then, it might trigger the buying indicators for people who fundamental analysis. So as you can see, everything is interlated and maybe technicals and fundamentals are related too?

Let us imagine one scenario, one fine day, you have found a good fundamental reason but recently, this stock suffered a drastic slump in price but the market is still rising.. So what's the best course of action? Taking a position in this stock by going against the crowd or stay out from it until it forms a good trend again? In this situation, I will sniff out the possible cause of this and use my own judgement to determine whether if this is an overreaction from the market. Follow by that, I will compare the current value with my own derived intrinsic value of the company that I have calcuated prior to the purchase. Well, I used to buy the stock when the market value is below the intrinsic value and this system sounds plausible but will I allocate all my available funds to the stock? This links to another question, money allocation and how certain I am that my analysis is correct considering that all the information that I'm using is publicly available. Did I overlook some factors or my I just too optimistic in the company's prospect when I'm calculating the intrinsic value?

I still have more to write on this topic but due to time constraint (only a couple of weeks left to my cfa level 1 exam), I guess I have to continue next time. In conclusion, I think an one dimensional approach can't be taken towards investing and one has to be more opened to other methods and style to adapt to today's market but having said that, I'm still more inclined to fundamental analysis. Remember, stock market is a zero sum game so by understanding different trades, it will only do you good..

Weakness in my current System
1. Position Sizing ( Has to find a way to allocate funds to each counter systematically according to my confidence. Ways to quantify my confidence level)
2. Selling (Well, I do not have a clear set of rules for selling.. Maybe I will set weightage to different factors in calculating intrinsic value and allocate a small portion to market sentiments?) 3. Quite comfortable with picking good fundamental stocks but as for the entry price, I am need to fine tune it.... Taking a conservative or aggressive approach?
4. Not to pick stocks on intuition again! Recently, I have been picking stocks based more on intuition rather than analysis. I still do analysis on them but only at a basic level.. Well, the results are mixed but I have decided to trim down my porfolio by selling all the stocks that I bought on impulse.

Link
My brother's Blog

STI Soar to a record high again

STI soar to a record high again at 3800 and I have a hunch that it will hit 4000 at the end of the month. From what I have observed, the stocks which are surging upwards with strong buying demand are mainly blue chips so I was wondering if there's a possiblity people are funding it by selling growth stocks. Well, actually I guess daily trading activity is not as important as it seem to be and predicting it may even impair my own judgement but I just can't resist the tempation of viewing my portfolio performance every half an hr because it is just a click away!!!.. HA, I should have work at a place with no internet access (just joking ) ...

As what I have mentioned in my previous post, my portfolio consist of mainly growth stocks where they mainly move together with the economy.. The sectors which I'm currently vested are retail, construction, internet, beverage and water treatment. If I do follow strictly with Buffett's methodology to purchase only stocks with a economic moat (close to a monopoly of business), I guess I would not be holding any of the stocks except maybe for 1. I broke the rules mainly because I forsee them benefiting in the future from global demand and econmic growth but still, I only purchase them when they fulfill the following criterias :
1: Healthy financial Records (3 years Financial statment, balance sheet, Cash Flow)
2: Competent Management (Some indicators like ROE, ROA, Remuneration, Board indepedence)
3: Not purchasing them at an inflated price (Important)

It is extremly difficult deriving the company's intrinsic value using discount cash flow method. Firstly, I have to predict the company's inflow of cash flow for 10 years which is literally impossible because future is uncertain... The best I can attempt is to give a fair estimate to future cash flows to derive the present value of future cash flow but the accuracy depends how aggressive/conservative you define the discount rate.. After obtaining the price from the formulae , I will further discount it at a rate depending on the company growth and that will be my entry price.. Normally, you will get an entry price that is much lower than the current price so patience plays a key factor but having said tat, this isn't any magic number and need not be followed rigidly....

To be continued!..

Melynn

Cherish every second of your life

A couple of days back, a superior of mine got a mild heart attack and a bypass operation was needed because some of his artery was clogged. I visited him at the hospital today and realise that this was actually his first attack . What surpised me is that prior to the atack, he's leading a fairly healthy lifestlye and excerising frequently and the main cause for his attack was his dna, which is hereditary. From this small conversation, I have realised the element of uncertainty in life and also the importance of cherishing everything and not taking them for granted.... Haha, I'm aware all this sounds cliche but well, this can serve as a form of self-reflection in the future when I am unappreciative of things in life

Going back to investing, the STI plunges 50 odd points to 3850+ today... I'm trying to take a bullish and a bearish view on the market currently and below are some of my thoughts :

Bullish thinking
1. More inflow of new funds coming into our market particularly from China...
2. Singapore econmy is growing at a fast pace and with the operation of IR in 2010, more jobs will be created.

Bearish thinking
1 Economy in US is slowing down due to sub prime issues and I read from articles stating that we are not even halfway thru the problem so another bad news may trigger a massive selldown in the global market.

The stocks that I'm holding now are mainly companies which will benefit in the economy expansion period and though I'm confident that they will survive in the event of a recesssion, they may still suffer huge losses . This may result in a deep plunge of stock price due to lack of confidence from investors and I will be in a dilema whether to buy more or to unload them first.

To be continued!!

Melynn