Trading: Portfolio Review

Here it is again. Almost 4% up since inception compared to only 1% up in the KLSE. It’s important to realise that although a share may be good, businesses and companies suffer from cyclical ups and downs, so it’s just as important to study when to buy as well as what to buy. I said earlier in the week the bulls would try to push this up past the shoulder level and they sure did. But, with oversold stochastics and decreasing volume, I am looking to lighten up even more. Perhaps to as much as 10%-90% equity-cash. In secular bear markets, it’s common to find strong violent bull retracements. Don’t get caught! This is a selling, not buying opportunity.

KLSE

Portfolio

Trading: Bkawan

I just want to alert you to a magnificent breakout by one of the stocks in my portfolio today. Bkawan, being a good plantation stock, is enjoying some added liquidity from buyers flying into quality. If you’re a swing trader looking to make a quick buck over the next few days, I can’t think of a better set up than this. But be careful to set your stops at 8.2 and have the discipline to pull the trigger if it doesn’t work out. This is a pure technical setup.

Trading: Load of Bull..

The Edge posted yet another article today remarking at the KLSE’s 7 week-high here. The last time they did that it dropped 2 days later by almost 30 points. That was on 12 July when I remarked that the smart money was going to push the market just slightly above the shoulder level at 932. Well, we are back at those levels today after a brief interruption by the Israel-Lebenon conflict. Now that geopolitical issues are out of the way, the sharks are getting back to the task at hand. I expect another spurt up before the fall. There are many telltale signs that the bears are sill gaining the upper hand: 1. Higher highs on weaker volumes, 2) Flight to value (defensive stocks going out). But I believe that any opportunity to offload stocks at a high price will be seized by people wanting to get out, causing liquidity to flow out of the market for the next few months. If we see strength in the next few days I will probably take the opportunity to lighten up to around 25-75%equity/cash ratio.

KLSE

Research on the 9MP

Running a country is just like running a business. You have to stay competitive. Your customers are the worlds consumers and investors and your competitors are other countries. Yes, we know that Malaysia is a relatively rich and developed country. But prices always reflect opinions about the future, and the question I am asking is whether Malaysia is doing what it needs to do to stay competitive in the future against the likes of Thailand, Vietnam and Singapore.

This is why the 9MP is so important. Check out this article to get a clear take it, and see why I am increasing my equity allocations to palm oil.

Happy Monday! 

My Trading Philosophy

Since I’m still waiting for the market to shake itself out and hunting for clues as to where the sharks are hiding, I thought that I would just share with you some of my own philisophies of trading in the meantime. In particular, I will describe how I determine how much I want to trade.

For me, trading is about capital preservation first and foremost and then profits second. Now, capital preservation means keeping your spending power intact. And note that this is does not mean the same thing as money, because $100 30 years ago is worth a lot more than $100 today. Why? Because of inflation. That is why keeping your money under a mattress at home is the worst thing to do with your money. So for me, in order to maintain your money’s spending power, you have to make it grow at the same rate as inflation at the very least. Now the difficulty here is that asset classes like shares, property, interest rates etc. have their own cycles and so do not always outperform inflation, so it is important to be able to determine which assets are outperforming and which are not. Currently, bank interest rates do not, equities may or may not, and property definitely does. So if you are one of those investors who have managed to keep in line with inflation, then congratulations, you are succesful preserver of capital and your children will thank you for it. In Malaysia, most property owners who do not trades equities fall into this category.

Okay, now we come onto profits. Being able to generate proits is important because we wil invariably need to spend our money to survive. It is no good keeping up with inflation if you are going to be spending the money as well. So the equation I always use is: profits = inflation + spending. If you can make this balance then congratulations, you have attained a level of financial freedom which will allow you to retire today.

For me, this is the only benchmark worth thinking about. You can forget about outperforming the KLSE, or FD interest rates, or whatever. The only benchmark which will give you the true financial freedom you desire, is to outperform your own spending requirement.

Now let’s examine the concept of profit a little more closely. You can see it as something which is actually made up of 2 components: risk + reward. Risk is the level of danger you expose your capital (or yourself) to in order to get the reward. As law abiding citizens, let’s just look at it from the capital perspective. Would you be willing to risk all your money on a football bet? No? Because the risk is too great. Ok, would you be willing to risk half of your money on a football bet? Maybe? What about 1/3? and so on and so on. I always ask myself how much money I am willing to lose in order to see some profit. The general rule of thumb is that the reward must always be greater than the risk, and that the risk must always be below a threshold which I am satisfied with. That is why I always like to measure my portolio in terms of equity/cash exposure. Equity roughly approximates with my level of risk and cash is where I am not taking any risk. An extra dimension to this is also how long are you prepared to keep exposed to a particular level of risk? You might be exposed all the time because you want greater rewards, but are you happy to be in that state 365 days of the year? I believe that mental sanity is an important thing to keep in mind if you want to have a life, so you will find that at times your willingness to take risk will be greater or lesser than others.

So finally, once I know how much I spend, and how much I am willing to risk, I look at the reward and then I calculate how much trading capital I need to achieve that. If you apply that rigorous test to your own portfolio, it will become quite apparent how much money you need to trade.

Here’s another moral to the story: MOST PEOPLE UNDERESTIMATE THE AMOUNT OF MONEY THEY NEED TO STAY IN THE GAME. That is why they end up taking bigger and bigger risks. Very simply, a person with a portfolio of $10,000 and a profit requirement of $1000 will need to perform by 10%, compared to a person with a portfolio of $100,000 and a profit requirement of $1000. He only needs to make 1%. So you just need to take a guess as to which of these people will last longer in the market  to figure out my point.

Have a great weekend all!

For the FX Trader: Yahoo’s LOTF group

One of the reasons why I like trading FX is because it tends to trend for a lot longer than your usual equity, so there is usually a good direction to it. But it can be a killer because trades are denominated in 0.0001 increments, so one can easily be stopped or whipped out. Nonetheless, it has been a great place for me to cut my teeth and improve my skills as a technical analyst. Another great benefit is that there is a good Yahoo site called Lords of the Forex where people from all over the world share their ideas. Sure, every now and then it get spammed by get rick quick trading program adverts, but the moderators do a great job weeding them out and I have made some great friends on this site, and if you are into forex, I suggest you check it out here.

I am just mesmerised by the latest in earnings reports over in the States right now, but my position hasn’t changed. Still standing aside and waiting, because I don’t trade on news and noise.

Portfolio Review:18-07-06

Tonite, my portfolio is up 2.82% versus -1.85% of the KLCI since its inception. I have only been 35%/64% invested in equity with the rest of it in cash and I’m now waiting for the market to make its next move whilst looking at what has been going on in the global markets, what with all that press in the blogosphere of the start of the great bear cycle and the Dow dropping to sub-8000 levels. I’m just glad that I’m not that heavily invested right now because although things are looking cheap, it’s worth noting that when the market drops, it always does so beyond most people’s expectations, so my hands are tied to my chair while I wait this one out. I still believe that emerging market economies will outperform the Dow sooner or later, but I am not going to guess when or how large the bottom is going to be. Over the next few weeks and months I expect there will be many opportunities to buy things for cheap so I am going to start saving now and be like an eager shopper in the next stock market sale!

Soundtrack Review: Pirates of the Caribbean 2 – Dead Man’s Chest

I was not as excited about this movie as the first one because, in my opinion, the real star of POTC I was Jeffrey Rush (y’know, the one said: “I am not inclined to acquiesce to your request…..(whispering) It means no.”). Everybody knows that a good action movie requires exceptionally well developed and well acted heroes and villains, which is why Spiderman had Willian Dafoe, X-men had Ian Mckellen and Superman has Kevin Spacey. In Pirates 2, they have an organ playing squiggly tentacled CGI character played by Bill Nighy (of “Underworld”) to face off against Jack Sparrow. Still, I was excited to hear that Hans Zimmer is back in the composer’s chair so I put it into my MP3 player this morning, eager to hear what he would make of this Hollywood pirates tale.

Well, first and foremost, Mr Zimmer does not use much, if any electronics. It’s good old full blown orchestra with choir. Secondly, POTC is based on a theme park ride, so there are quite a few themes in there (as opposed to brooding atmosphere like Batman Returns). Everyone gets a theme: the good guy, the bad guy and the romantic couple.

Having heard the soundtrack now I have to say that I am disappointed by most of it. I loved Jack Sparrow’s theme, which encapsulates his heroic cheekiness and transitions several times through both the lighthearted and cheery through to the thick and the dark. But I have no idea who came up with the cheap gimmick to make Davy Jones play the organ, because the theme, which naturally contains organ sounds, is not memorable at all. To date, no one has been able to escape from the shadow of Phantom of the Opera when it comes to the use of an organ. My rule is, if you’re going to make a character play an instrument on screen, you better make sure that what he plays is damn good.  Unfortunately that doesn’t happen very much and mostly fails so everytime I hear that instrument used in a movie I still expect them to break out with that the Phantom tune, just like when I see someone wearing cape in a movie I half-expect them to start floating like Dracula or flying like Superman.

Still, it hasn’t put me off the movie because the quantity can sometimes make up for quality so I will still go see the movie in lovely digital surround in Singapore’s Golden Village digital screen.

Trading: As if things aren’t hard enough…

Now there’s a bloody war going. Can anyone tell me how many people have died in Lebenon in the last 2 days? No? How about what the KLSE closed at today? Ha ha nothing to be shy about, my capitalist friends. Just remember to spare a thought or two for the innocent fallen. And now, political events have a real propensity to throw spanners into the mix. Just as we were about to anticipate a nice rise into August off the back of some earnings, along comes a bombshell or two, and just about everything except oil and commodities took it right on the chin. And judging by the dreaded black candle on high volume today, nobody was buying.

But in the grand scheme of things a correction was expected, so the big question now is how far?? Well your guess is as good as mine. My only advice under these circumstances is do not react to news and political events because they can always change. So stay calm and stick to your gameplan, and of course continue to read what the market is telling you and not the newspapers.

I’m back in Penang for the weekend enjoying the food again and catching up on my music listening so prepare for a music review or two very soon!

Trading: Post World Cup / Earnings Buzz..

It looks to me like the market is going through some short term strength (agreeing with another blogger here) and here’s why: RSIs on the KLSE are moving up in conjunction with the market, volumes are holding and the press has been muted regarding this recent strength. I expect that since most players are mesmerised by the upcoming shoulder resistance at 932 and holding off until they see it get penetrated.

So? I expect the smart the money to give things a push beyond that to snare in some more buyers before offloading their shares. And I want to be there when it happens. Standing aside and watching.