Cimb 24may2008 Ho
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6/3/2008
Make the RIGHT first steps to stock investment
Make the RIGHT first steps to Stock investment Workshop for CIMB Bank Clicks TRADER Saturday, 24 May 2008 9:00am to 12:00pm
By Benny Lee,
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION 1996 : • Got into the stock market frenzy while in college • Started attending some technical anaysis seminar • Got first charting software, MetaStock 1997 : • Started trading the futures market in 1997. • Was against the trend, Lost heavily 1997 – 1999 : • Worked in a Recruitment Agency (Need to pay back debts!). • Started to study about trading. Discovered and learned mistakes • Developed trading strategies and traded lightly. • Learned about Automated Trading Strategies
Benny Lee
1999 • Started trading privately. Stocks and Futures, Malaysia and Singapore. • Started learning TradeStation and Omnitrader. • Training Consultant to a Software Company. (This was when my training experience started) Copyright © 2008 by Benny Lee, NextView
1
6/3/2008
Make the RIGHT first steps to stock investment INTRODUCTION 2004 till present: • Still trading privately • Joined NextView Group as Regional Trainer, later as Chief Market Strategist
Training/Coaching Experience (More than 8 years): Professionals and Retail Investors in Malaysia, Singapore, Thailand, Vietnam, Pakistan and Hong Kong Speaking Engagements (More than 6 years): Malaysia, Singapore, India, Indonesia and Thailand Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION
Copyright © 2008 by Benny Lee, NextView
2
6/3/2008
Make the RIGHT first steps to stock investment INTRODUCTION – WHY SHOULD WE INVEST? •
Provide a higher return compared to fixed deposits. Average return on stock is about 10 – 12 % whereas fixed deposit is approximately 3–4%
•
2 SOURCES OF INCOME: Additional source of income from dividend. Averagely 5% dividend of $ 100,000 (Par Value = RM 1.00) is RM5,000 additional income a year.
•
Good chance of generating wealth for yourself from capital appreciation Buy IOICORP at RM 2.50 in 2006 and now RM 7.40. Profit of RM 4.90 (196% in less than 2.5 years / 78% per year). Buy PETDAG at RM 4.00 in 2006 and now RM 8.50. Profit of RM 4.50 (112% in less than 2.5 years / 45% per year).
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION – PLANNING YOUR INVESTMENT People invest according to their investment style, return expectation and risk appetite. Therefore, investors can be categorized as follows: 1. Value investors 2. Growth investors 3. Traders
Copyright © 2008 by Benny Lee, NextView
3
6/3/2008
Make the RIGHT first steps to stock investment INTRODUCTION – TYPES OF INVESTORS Value Investors: Buy fundamentally sound stocks that are selling below intrinsic value and hold them for years.
Growth Investors: Buy stocks with a good business model, and high sales and earnings growth.
Traders: More likely to be short-term speculators. E.g. Day traders, position traders, scalpers etc.
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION – TRADING VS INVESTING
Trading vs Investing Which is better? Copyright © 2008 by Benny Lee, NextView
4
6/3/2008
Make the RIGHT first steps to stock investment INTRODUCTION – TRADING VS INVESTING 1. REQUIREMENTS THE INVESTOR LOOKS AT THE INSIDE The investor finds value in the company and they buy believing that the company will continue to have profit growth, no matter what the price. THE TRADER LOOKS AT THE OUTSIDE The trader does not care about a company and they buy believing that the price is right, regardless of the company fundamentals.
2. COMMITMENT THE INVESTOR FALLS IN LOVE WITH A COMPANY The investor decides to last the relationship for a long period of time, despite knowing that they have its ups and downs THE TRADER INTEND TO HAVE A SHORT TERM RELATIONSHIP The trader is not willing to have down periods with the company, therefore only commit short term relationship Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION – TRADING VS INVESTING 3. ACTIVITY THE INVESTOR DOES NOT NEED TO LOOK AT SHARE PRICES ALL THE TIME Investors who buy and hold are not affected by market volatility, therefore they do not cre about price movements. They are only interested in dividends. THE TRADER IS ACTIVE AND LOOKS AT SHARE PRICE FREQUENTLY The Trader identifies opportunities to buy and sell at the right price and time. Therefore, they have to monitor the share price actively and also trade actively.
4. COST THE INVESTOR HAS HIGH COST MAINTAINING THE RELATIONSHIP The investor needs to have holding power a.k.a. lots of money to hold a long term position. Furthermore, dividends are taxable THE TRADER HAS LOWER COST The trader does hold a long term position therefore always have cash. Capital gains are not taxable. Copyright © 2008 by Benny Lee, NextView
5
6/3/2008
Make the RIGHT first steps to stock investment INTRODUCTION – TRADING VS INVESTING Advantages and Disadvantages Trading
Investing
Expected Returns
High
Lower
Expected Risk
Low
Higher
Cost (Commission)
Relatively Lower
Relatively Higher
Tax
Not Taxable
Dividends Taxable
Uncertainty Risk
Low
High
Opportunity Cost/Liquidity
Low
High
Capital needed
Low
High
More Workload/knowledge
Yes
No
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION – TRADING VS INVESTING
TRADING VS INVESTING
You decide which type that suits you and your objective! Copyright © 2008 by Benny Lee, NextView
6
6/3/2008
Make the RIGHT first steps to stock investment SETTING YOUR TRADING OBJECTIVE
What is your objective in trading?
BE PRECISE AND REALISTIC!
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment SETTING YOUR TRADING OBJECTIVE Laying Down your Objective Long Term Goal
: To make the first million from RM20,000
Intermediate Objective
: 40% per annum
Shorter Term objective : 10% every quarter How
: TRADING in the stock market
Methodology
: A Trading plan that uses Fundamental and/or technical analysis.
Capital
: RM 20,000
Capital Growth
: In 5 years - RM107,000 In 10 years – RM580,000 In 12 years – RM1.13m
Copyright © 2008 by Benny Lee, NextView
7
6/3/2008
Make the RIGHT first steps to stock investment SETTING YOUR TRADING OBJECTIVE
YOU Capital
HOW? THE ACTION PLAN
SUCCESS TRADING GOAL
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment SETTING YOUR TRADING OBJECTIVE The ACTION PLAN – TRADING PLAN As a blueprint leads to your trading goal. Providing clear ideas on stock selection and getting relevant information about selected stocks. Providing steps on when to buy or sell the stocks. Guiding investors through the process of money management and risk management.
Copyright © 2008 by Benny Lee, NextView
8
6/3/2008
Make the RIGHT first steps to stock investment SETTING YOUR TRADING OBJECTIVE
Trading Risks Your Trading Capital
Your Goal
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION There are 2 types of RISKS in trading: i) Information/Analytical Risk How much information did you get for this trade? Are your analysis good (Technical/fundamental? Do you have enough experience? What is the hit rate of your mechanical system?...etc ii) Monetary Risk (Position size) How much money are you willing to risk for this trade?
Copyright © 2008 by Benny Lee, NextView
9
6/3/2008
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION THOSE WHO FAIL TO PLAN, PLAN TO FAIL… What is a Trading Plan? A Trading plan is a set of ideas or rules to make trading decisions (entry and exit), often known as trading set ups.
We make trading decisions through: Quantifiable information – fundamental and price information - MOST RELIABLE SOURCE OF INFORMATION
Unquantifiable information (Second hand information) – news, rumors, tips, recommendations Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION If news, rumours, tips are not reliable, can we rely on experts?
$7.10
Loss of RM 2.10 (29%) in 3 months Copyright © 2008 by Benny Lee, NextView
10
6/3/2008
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION If news, rumours, tips are not reliable, can we rely on experts?
$4.18
Loss of RM 0.88 (21%) in 6 days
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION If news, rumours, tips are not reliable, can we rely on experts?
$9.20
Loss of RM 1.40 (15%) in 2 weeks
Copyright © 2008 by Benny Lee, NextView
11
6/3/2008
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION Fundamental Analysis I) FINANCIAL PERFORMANCE A good company has good financial performance. Performance based on the revenue, profitability, cashflow, gearing, assets etc. It is the blood of the company II) MANAGEMENT A good company has a good management team. The management team’s experience, contacts, exposure, leadership abililty, vision, mission etc. It’s the body of the company.
It takes years to be able to study the fundamentals of a company. To get fundamental information is another big obstacle/expensive.
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION Technical Analysis A study of price (and volume) actions in the past to determine future price actions. The study of price against time is done on a chart
A technical indicator, as its name suggests, indicates a price action and they can be in the form of chart patterns (that repeat frequently) and statistical indicators (like moving average).
It does not take a long time to understand how to analyze a chart. Price information is cheap and easily available. I will provide you with a solid foundation on how to use technical analysis today. Copyright © 2008 by Benny Lee, NextView
12
6/3/2008
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION OVERCOMING RISKS
Indicator 3: Finger - Touch
Indicator 1: Eyes - Look
Indicator 2: Nose - Smell
Indicator 4: Chemical – Chemical content
The more you understand, the less risk you encounter Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment TECHNICAL ANALYSIS AND WHY IT WORKS What are the factors that make price move ? • News and announcements,
• • • • • •
Speculations, Company’s performance, Economic and social conditions, Natural and man-made disasters, Different players in the market Many other factors
What do these factors do ? Affects the demand and supply of a particular stock
Copyright © 2008 by Benny Lee, NextView
13
6/3/2008
Make the RIGHT first steps to stock investment TECHNICAL ANALYSIS AND WHY IT WORKS What happens to stock price when demand overcomes supply? Price goes UP
What happens to stock price when supply overcomes demand? Price goes DOWN
MOVEMENTS IN PRICE IS REFLECTED IN THE PRICE CHART.
THE PRICE CHART IS AN AGGREGATE OF TRADING DECISIONS MADE IN THE FINANCIAL MARKETS.
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment TRADING PLAN: THE 5 SIMPLE STEPS TO PROFIT •
Step 1: Identify potential stocks.
•
Step 2: Select stocks with best probability of success.
•
Step 3: Study chart of stock to time purchase.
•
Step 4: Determine demand / supply of stock for confirmation to purchase
•
Step 5: Manage stock portfolio to improve performance.
Copyright © 2008 by Benny Lee, NextView
14
6/3/2008
Make the RIGHT first steps to stock investment STEP 1: IDENTIFY POTENTIAL STOCKS There are more than a thousand of counters listed in Bursa Malaysia Stock Exchange. So, how to identify potential stocks to trade? – News: Newspaper, television news, internet financial news, magazines, seminars and workshops – Research Reports: Research reports from stocking broking houses and independent research houses
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 1: IDENTIFY POTENTIAL STOCKS Research Reports from various sources using NextView Advisor Professional
Copyright © 2008 by Benny Lee, NextView
15
6/3/2008
Make the RIGHT first steps to stock investment STEP 1: IDENTIFY POTENTIAL STOCKS Research reports from Bursa Malaysia’s website (CBRS)
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 2: STOCKS WITH BEST PROBABILITY OF SUCCESS USING FUNDAMENTAL AND TECHNICAL ANALYSIS CRITERIA FUNDAMENTAL CRITERIA • Price-Earnings Ratio (PER) – Avoid small cap stocks with high PER (>50 times) or very low PER (<3 times). – Select stocks with EPS (Earnings per Share) growth > PER – Relatively lower PER in the industry that is growing •
Dividend Yield (DY) – Stocks with stable earnings & pay high dividend consistently.
•
Price/Book: – As low as possible – Less than 1
•
Return on Equity (ROE): – As high as possible – Greater than 10 percent. Copyright © 2008 by Benny Lee, NextView
16
6/3/2008
Make the RIGHT first steps to stock investment STEP 2: STOCKS WITH BEST PROBABILITY OF SUCCESS USING FUNDAMENTAL AND TECHNICAL ANALYSIS CRITERIA TECHNICAL CRITERIA • Price in a well established trend – Buy price that is in an up trend. Price stays above an average, and the average increasing – Buy when price dips to the trend support level. Support and Resistance levels are determined by trendlines, moving averages or more complicated indicators like Fibonacci retracements and extensions.
•
When price is in its “Base” period – Price is relatively low and have been in that level for some time. Usually when volume is also relatively low
•
Intermarket analysis – Development in an industry may affect stock prices in a sector. For example, rising Crude Palm oil prices benefits companies related to this commodity and therefore is expected to rise.
•
Potential Profit to Risk ratio – There is a higher potential upside than downside, by identifying major support and resistance levels. Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 2: STOCKS WITH BEST PROBABILITY OF SUCCESS
Technical Analysis Trend indicators Indicators are indicating a strong up trend The Crude Palm Oil prices are skyrocketing
Copyright © 2008 by Benny Lee, NextView
17
6/3/2008
Make the RIGHT first steps to stock investment STEP 3: STUDY CHART OF STOCK TO TIME PURCHASE
Determine Lower risk entry price Price is way above the underlying trend (average) and therefore overbought. Lower risk entry is when price dips to its support level and in this case, around RM3.00 to RM3.20. Wait for price to reach this level. Put this stock in your watchlist
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 3: STUDY CHART OF STOCK TO TIME PURCHASE (7 days later) from Step 1
1. Price now nears support level
2. Get ready to buy when price starts to reverse (Use the Stochastic indicator to indicate reversal)
Copyright © 2008 by Benny Lee, NextView
18
6/3/2008
Make the RIGHT first steps to stock investment STEP 3: STUDY CHART OF STOCK TO TIME PURCHASE
(10 days later) from Step 1
Stochastic crosses above its moving average, a price reversal has occurred. Time to purchase
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 3: STUDY CHART OF STOCK TO TIME PURCHASE Buy Price = RM3.40 Stop Loss = RM 3.00 (RM0.20 / 6% risk) Target Price = RM4.20 (RM0.80 / 23% potential profits)
Potential Profit to Risk Ratio = 3.8 : 1
Copyright © 2008 by Benny Lee, NextView
19
6/3/2008
Make the RIGHT first steps to stock investment STEP 4: DETERMINE DEMAND/SUPPLY FOR CONFIRMATION Time and Sales from NextView Advisor Professional 29 January, when stochastic provides price reversal signal; Total volume = 920,000 shares Buying Strength = 471,960 shares (51.3%) Selling Pressure = 448040 shares (48.70)
Selling Pressure
Buying Strength Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 4: DETERMINE DEMAND/SUPPLY FOR CONFIRMATION Get about 3 days of buying strength and selling pressure to determine whether the market has been dominated by the bulls or bears in the past few days. 28 January Volume Distribution; Total volume = 376,000 shares Buying Strength = 248,536 shares (66.1%) Selling Pressure = 127,464 shares (33.9%) 27 January Volume Distribution; Total volume = 1,548,000 shares Buying Strength = 783,288 shares (50.6%) Selling Pressure = 764,712 shares (49.4%) Total Volume Distribution for 3 days Total volume = 2,844,000 shares Buying Strength = 1,503,784 shares (52.87%) Selling Pressure = 1,340,216 shares (47.13%)
Copyright © 2008 by Benny Lee, NextView
20
6/3/2008
Make the RIGHT first steps to stock investment STEP 4: DETERMINE DEMAND/SUPPLY FOR CONFIRMATION Decided to Buy IJMPLNT at RM3.40, 10,000 shares.
Set Alert for Stop Loss at RM 3.00 Set Alert for Profit Target at RM4.20
Monitor IJMPLNT prices in portfolio.
You can set alerts and get portfolio management tool in NextVIEW Advisor Professional.
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 5: MANAGE STOCK PORTFOLIO What is a Portfolio? •
A portfolio is a collection of stocks, bonds, and other assets owned by an investor or organization.
What is Portfolio Management? •
Portfolio Management is about which assets (e.g. stocks, bonds) to invest, how much to invest in each asset, and monitoring the investment to maximise return and minimise risks.
Copyright © 2008 by Benny Lee, NextView
21
6/3/2008
Make the RIGHT first steps to stock investment STEP 5: MANAGE STOCK PORTFOLIO
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 5: MANAGE STOCK PORTFOLIO 4.20
18 trading days later from purchase date, Alert received with price at RM4.20
3.40
RM0.80 profits (23.5% profits) in about 1 month ! Copyright © 2008 by Benny Lee, NextView
22
6/3/2008
Make the RIGHT first steps to stock investment YOUR WINNING EDGE A winning trading plan will not be able to succeed if the TRADING INFRASTUCTURE of trading is not in place.
IMPORTANT TRADING INFRASTRUCTURE: 1. Your Trading tool 2. Your Broker 3. Your Mindset
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment YOUR WINNING EDGE NEXTVIEW ADVISOR PROFESSIONAL – The Ultimate trading tool for investors and traders
Copyright © 2008 by Benny Lee, NextView
23
6/3/2008
Make the RIGHT first steps to stock investment YOUR WINNING EDGE
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment YOUR WINNING EDGE THE MINDSET Avoid the mistakes of unsuccessful traders Based on trading experience, investors lose money because of the following reasons: – – – – – – – – – –
Do not have an investment plan. Do not practice money management. Lack investment knowledge. Highly emotional. No discipline. Greedy. Gambler attitude. Do not learn from mistakes and repeat them instead. Buy on tips and rumours. Do not cut losses when they are wrong. (Cut profit short, let losses run)
Copyright © 2008 by Benny Lee, NextView
24
6/3/2008
Make the RIGHT first steps to stock investment YOUR WINNING EDGE THE MINDSET Develop the habits of successful investors Develop the habits of successful investors by doing the following: – – – – – – – – –
Have an investment plan. Practice money management. Be patient, realistic, and rational. Do research before you buy the stock. Practice “Positive” and “Proactive” mental attitude. Establish a “Risk/Reward” ratio. Practice trading discipline by giving “Limit” Order. Have a cut loss strategy and cut your losses quickly. Keep a trade journal.
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment THE BEST INVESTMENT
“An investment in knowledge always pays the best interest.” Benjamin Franklin (1706-1790) author, printer, inventor, diplomat, scientist
Copyright © 2008 by Benny Lee, NextView
25
6/3/2008
Make the RIGHT first steps to stock investment
THANK YOU! I wish you all success in your trading [email protected] www.tradinglobby.com Copyright © 2008 by Benny Lee, NextView
26
Make the RIGHT first steps to stock investment
Make the RIGHT first steps to Stock investment Workshop for CIMB Bank Clicks TRADER Saturday, 24 May 2008 9:00am to 12:00pm
By Benny Lee,
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION 1996 : • Got into the stock market frenzy while in college • Started attending some technical anaysis seminar • Got first charting software, MetaStock 1997 : • Started trading the futures market in 1997. • Was against the trend, Lost heavily 1997 – 1999 : • Worked in a Recruitment Agency (Need to pay back debts!). • Started to study about trading. Discovered and learned mistakes • Developed trading strategies and traded lightly. • Learned about Automated Trading Strategies
Benny Lee
1999 • Started trading privately. Stocks and Futures, Malaysia and Singapore. • Started learning TradeStation and Omnitrader. • Training Consultant to a Software Company. (This was when my training experience started) Copyright © 2008 by Benny Lee, NextView
1
6/3/2008
Make the RIGHT first steps to stock investment INTRODUCTION 2004 till present: • Still trading privately • Joined NextView Group as Regional Trainer, later as Chief Market Strategist
Training/Coaching Experience (More than 8 years): Professionals and Retail Investors in Malaysia, Singapore, Thailand, Vietnam, Pakistan and Hong Kong Speaking Engagements (More than 6 years): Malaysia, Singapore, India, Indonesia and Thailand Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION
Copyright © 2008 by Benny Lee, NextView
2
6/3/2008
Make the RIGHT first steps to stock investment INTRODUCTION – WHY SHOULD WE INVEST? •
Provide a higher return compared to fixed deposits. Average return on stock is about 10 – 12 % whereas fixed deposit is approximately 3–4%
•
2 SOURCES OF INCOME: Additional source of income from dividend. Averagely 5% dividend of $ 100,000 (Par Value = RM 1.00) is RM5,000 additional income a year.
•
Good chance of generating wealth for yourself from capital appreciation Buy IOICORP at RM 2.50 in 2006 and now RM 7.40. Profit of RM 4.90 (196% in less than 2.5 years / 78% per year). Buy PETDAG at RM 4.00 in 2006 and now RM 8.50. Profit of RM 4.50 (112% in less than 2.5 years / 45% per year).
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION – PLANNING YOUR INVESTMENT People invest according to their investment style, return expectation and risk appetite. Therefore, investors can be categorized as follows: 1. Value investors 2. Growth investors 3. Traders
Copyright © 2008 by Benny Lee, NextView
3
6/3/2008
Make the RIGHT first steps to stock investment INTRODUCTION – TYPES OF INVESTORS Value Investors: Buy fundamentally sound stocks that are selling below intrinsic value and hold them for years.
Growth Investors: Buy stocks with a good business model, and high sales and earnings growth.
Traders: More likely to be short-term speculators. E.g. Day traders, position traders, scalpers etc.
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION – TRADING VS INVESTING
Trading vs Investing Which is better? Copyright © 2008 by Benny Lee, NextView
4
6/3/2008
Make the RIGHT first steps to stock investment INTRODUCTION – TRADING VS INVESTING 1. REQUIREMENTS THE INVESTOR LOOKS AT THE INSIDE The investor finds value in the company and they buy believing that the company will continue to have profit growth, no matter what the price. THE TRADER LOOKS AT THE OUTSIDE The trader does not care about a company and they buy believing that the price is right, regardless of the company fundamentals.
2. COMMITMENT THE INVESTOR FALLS IN LOVE WITH A COMPANY The investor decides to last the relationship for a long period of time, despite knowing that they have its ups and downs THE TRADER INTEND TO HAVE A SHORT TERM RELATIONSHIP The trader is not willing to have down periods with the company, therefore only commit short term relationship Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION – TRADING VS INVESTING 3. ACTIVITY THE INVESTOR DOES NOT NEED TO LOOK AT SHARE PRICES ALL THE TIME Investors who buy and hold are not affected by market volatility, therefore they do not cre about price movements. They are only interested in dividends. THE TRADER IS ACTIVE AND LOOKS AT SHARE PRICE FREQUENTLY The Trader identifies opportunities to buy and sell at the right price and time. Therefore, they have to monitor the share price actively and also trade actively.
4. COST THE INVESTOR HAS HIGH COST MAINTAINING THE RELATIONSHIP The investor needs to have holding power a.k.a. lots of money to hold a long term position. Furthermore, dividends are taxable THE TRADER HAS LOWER COST The trader does hold a long term position therefore always have cash. Capital gains are not taxable. Copyright © 2008 by Benny Lee, NextView
5
6/3/2008
Make the RIGHT first steps to stock investment INTRODUCTION – TRADING VS INVESTING Advantages and Disadvantages Trading
Investing
Expected Returns
High
Lower
Expected Risk
Low
Higher
Cost (Commission)
Relatively Lower
Relatively Higher
Tax
Not Taxable
Dividends Taxable
Uncertainty Risk
Low
High
Opportunity Cost/Liquidity
Low
High
Capital needed
Low
High
More Workload/knowledge
Yes
No
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment INTRODUCTION – TRADING VS INVESTING
TRADING VS INVESTING
You decide which type that suits you and your objective! Copyright © 2008 by Benny Lee, NextView
6
6/3/2008
Make the RIGHT first steps to stock investment SETTING YOUR TRADING OBJECTIVE
What is your objective in trading?
BE PRECISE AND REALISTIC!
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment SETTING YOUR TRADING OBJECTIVE Laying Down your Objective Long Term Goal
: To make the first million from RM20,000
Intermediate Objective
: 40% per annum
Shorter Term objective : 10% every quarter How
: TRADING in the stock market
Methodology
: A Trading plan that uses Fundamental and/or technical analysis.
Capital
: RM 20,000
Capital Growth
: In 5 years - RM107,000 In 10 years – RM580,000 In 12 years – RM1.13m
Copyright © 2008 by Benny Lee, NextView
7
6/3/2008
Make the RIGHT first steps to stock investment SETTING YOUR TRADING OBJECTIVE
YOU Capital
HOW? THE ACTION PLAN
SUCCESS TRADING GOAL
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment SETTING YOUR TRADING OBJECTIVE The ACTION PLAN – TRADING PLAN As a blueprint leads to your trading goal. Providing clear ideas on stock selection and getting relevant information about selected stocks. Providing steps on when to buy or sell the stocks. Guiding investors through the process of money management and risk management.
Copyright © 2008 by Benny Lee, NextView
8
6/3/2008
Make the RIGHT first steps to stock investment SETTING YOUR TRADING OBJECTIVE
Trading Risks Your Trading Capital
Your Goal
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION There are 2 types of RISKS in trading: i) Information/Analytical Risk How much information did you get for this trade? Are your analysis good (Technical/fundamental? Do you have enough experience? What is the hit rate of your mechanical system?...etc ii) Monetary Risk (Position size) How much money are you willing to risk for this trade?
Copyright © 2008 by Benny Lee, NextView
9
6/3/2008
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION THOSE WHO FAIL TO PLAN, PLAN TO FAIL… What is a Trading Plan? A Trading plan is a set of ideas or rules to make trading decisions (entry and exit), often known as trading set ups.
We make trading decisions through: Quantifiable information – fundamental and price information - MOST RELIABLE SOURCE OF INFORMATION
Unquantifiable information (Second hand information) – news, rumors, tips, recommendations Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION If news, rumours, tips are not reliable, can we rely on experts?
$7.10
Loss of RM 2.10 (29%) in 3 months Copyright © 2008 by Benny Lee, NextView
10
6/3/2008
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION If news, rumours, tips are not reliable, can we rely on experts?
$4.18
Loss of RM 0.88 (21%) in 6 days
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION If news, rumours, tips are not reliable, can we rely on experts?
$9.20
Loss of RM 1.40 (15%) in 2 weeks
Copyright © 2008 by Benny Lee, NextView
11
6/3/2008
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION Fundamental Analysis I) FINANCIAL PERFORMANCE A good company has good financial performance. Performance based on the revenue, profitability, cashflow, gearing, assets etc. It is the blood of the company II) MANAGEMENT A good company has a good management team. The management team’s experience, contacts, exposure, leadership abililty, vision, mission etc. It’s the body of the company.
It takes years to be able to study the fundamentals of a company. To get fundamental information is another big obstacle/expensive.
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION Technical Analysis A study of price (and volume) actions in the past to determine future price actions. The study of price against time is done on a chart
A technical indicator, as its name suggests, indicates a price action and they can be in the form of chart patterns (that repeat frequently) and statistical indicators (like moving average).
It does not take a long time to understand how to analyze a chart. Price information is cheap and easily available. I will provide you with a solid foundation on how to use technical analysis today. Copyright © 2008 by Benny Lee, NextView
12
6/3/2008
Make the RIGHT first steps to stock investment RELIABLE DECISION MAKING INFORMATION OVERCOMING RISKS
Indicator 3: Finger - Touch
Indicator 1: Eyes - Look
Indicator 2: Nose - Smell
Indicator 4: Chemical – Chemical content
The more you understand, the less risk you encounter Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment TECHNICAL ANALYSIS AND WHY IT WORKS What are the factors that make price move ? • News and announcements,
• • • • • •
Speculations, Company’s performance, Economic and social conditions, Natural and man-made disasters, Different players in the market Many other factors
What do these factors do ? Affects the demand and supply of a particular stock
Copyright © 2008 by Benny Lee, NextView
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Make the RIGHT first steps to stock investment TECHNICAL ANALYSIS AND WHY IT WORKS What happens to stock price when demand overcomes supply? Price goes UP
What happens to stock price when supply overcomes demand? Price goes DOWN
MOVEMENTS IN PRICE IS REFLECTED IN THE PRICE CHART.
THE PRICE CHART IS AN AGGREGATE OF TRADING DECISIONS MADE IN THE FINANCIAL MARKETS.
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment TRADING PLAN: THE 5 SIMPLE STEPS TO PROFIT •
Step 1: Identify potential stocks.
•
Step 2: Select stocks with best probability of success.
•
Step 3: Study chart of stock to time purchase.
•
Step 4: Determine demand / supply of stock for confirmation to purchase
•
Step 5: Manage stock portfolio to improve performance.
Copyright © 2008 by Benny Lee, NextView
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Make the RIGHT first steps to stock investment STEP 1: IDENTIFY POTENTIAL STOCKS There are more than a thousand of counters listed in Bursa Malaysia Stock Exchange. So, how to identify potential stocks to trade? – News: Newspaper, television news, internet financial news, magazines, seminars and workshops – Research Reports: Research reports from stocking broking houses and independent research houses
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 1: IDENTIFY POTENTIAL STOCKS Research Reports from various sources using NextView Advisor Professional
Copyright © 2008 by Benny Lee, NextView
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Make the RIGHT first steps to stock investment STEP 1: IDENTIFY POTENTIAL STOCKS Research reports from Bursa Malaysia’s website (CBRS)
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 2: STOCKS WITH BEST PROBABILITY OF SUCCESS USING FUNDAMENTAL AND TECHNICAL ANALYSIS CRITERIA FUNDAMENTAL CRITERIA • Price-Earnings Ratio (PER) – Avoid small cap stocks with high PER (>50 times) or very low PER (<3 times). – Select stocks with EPS (Earnings per Share) growth > PER – Relatively lower PER in the industry that is growing •
Dividend Yield (DY) – Stocks with stable earnings & pay high dividend consistently.
•
Price/Book: – As low as possible – Less than 1
•
Return on Equity (ROE): – As high as possible – Greater than 10 percent. Copyright © 2008 by Benny Lee, NextView
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Make the RIGHT first steps to stock investment STEP 2: STOCKS WITH BEST PROBABILITY OF SUCCESS USING FUNDAMENTAL AND TECHNICAL ANALYSIS CRITERIA TECHNICAL CRITERIA • Price in a well established trend – Buy price that is in an up trend. Price stays above an average, and the average increasing – Buy when price dips to the trend support level. Support and Resistance levels are determined by trendlines, moving averages or more complicated indicators like Fibonacci retracements and extensions.
•
When price is in its “Base” period – Price is relatively low and have been in that level for some time. Usually when volume is also relatively low
•
Intermarket analysis – Development in an industry may affect stock prices in a sector. For example, rising Crude Palm oil prices benefits companies related to this commodity and therefore is expected to rise.
•
Potential Profit to Risk ratio – There is a higher potential upside than downside, by identifying major support and resistance levels. Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 2: STOCKS WITH BEST PROBABILITY OF SUCCESS
Technical Analysis Trend indicators Indicators are indicating a strong up trend The Crude Palm Oil prices are skyrocketing
Copyright © 2008 by Benny Lee, NextView
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6/3/2008
Make the RIGHT first steps to stock investment STEP 3: STUDY CHART OF STOCK TO TIME PURCHASE
Determine Lower risk entry price Price is way above the underlying trend (average) and therefore overbought. Lower risk entry is when price dips to its support level and in this case, around RM3.00 to RM3.20. Wait for price to reach this level. Put this stock in your watchlist
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 3: STUDY CHART OF STOCK TO TIME PURCHASE (7 days later) from Step 1
1. Price now nears support level
2. Get ready to buy when price starts to reverse (Use the Stochastic indicator to indicate reversal)
Copyright © 2008 by Benny Lee, NextView
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6/3/2008
Make the RIGHT first steps to stock investment STEP 3: STUDY CHART OF STOCK TO TIME PURCHASE
(10 days later) from Step 1
Stochastic crosses above its moving average, a price reversal has occurred. Time to purchase
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 3: STUDY CHART OF STOCK TO TIME PURCHASE Buy Price = RM3.40 Stop Loss = RM 3.00 (RM0.20 / 6% risk) Target Price = RM4.20 (RM0.80 / 23% potential profits)
Potential Profit to Risk Ratio = 3.8 : 1
Copyright © 2008 by Benny Lee, NextView
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6/3/2008
Make the RIGHT first steps to stock investment STEP 4: DETERMINE DEMAND/SUPPLY FOR CONFIRMATION Time and Sales from NextView Advisor Professional 29 January, when stochastic provides price reversal signal; Total volume = 920,000 shares Buying Strength = 471,960 shares (51.3%) Selling Pressure = 448040 shares (48.70)
Selling Pressure
Buying Strength Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 4: DETERMINE DEMAND/SUPPLY FOR CONFIRMATION Get about 3 days of buying strength and selling pressure to determine whether the market has been dominated by the bulls or bears in the past few days. 28 January Volume Distribution; Total volume = 376,000 shares Buying Strength = 248,536 shares (66.1%) Selling Pressure = 127,464 shares (33.9%) 27 January Volume Distribution; Total volume = 1,548,000 shares Buying Strength = 783,288 shares (50.6%) Selling Pressure = 764,712 shares (49.4%) Total Volume Distribution for 3 days Total volume = 2,844,000 shares Buying Strength = 1,503,784 shares (52.87%) Selling Pressure = 1,340,216 shares (47.13%)
Copyright © 2008 by Benny Lee, NextView
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6/3/2008
Make the RIGHT first steps to stock investment STEP 4: DETERMINE DEMAND/SUPPLY FOR CONFIRMATION Decided to Buy IJMPLNT at RM3.40, 10,000 shares.
Set Alert for Stop Loss at RM 3.00 Set Alert for Profit Target at RM4.20
Monitor IJMPLNT prices in portfolio.
You can set alerts and get portfolio management tool in NextVIEW Advisor Professional.
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 5: MANAGE STOCK PORTFOLIO What is a Portfolio? •
A portfolio is a collection of stocks, bonds, and other assets owned by an investor or organization.
What is Portfolio Management? •
Portfolio Management is about which assets (e.g. stocks, bonds) to invest, how much to invest in each asset, and monitoring the investment to maximise return and minimise risks.
Copyright © 2008 by Benny Lee, NextView
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Make the RIGHT first steps to stock investment STEP 5: MANAGE STOCK PORTFOLIO
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment STEP 5: MANAGE STOCK PORTFOLIO 4.20
18 trading days later from purchase date, Alert received with price at RM4.20
3.40
RM0.80 profits (23.5% profits) in about 1 month ! Copyright © 2008 by Benny Lee, NextView
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Make the RIGHT first steps to stock investment YOUR WINNING EDGE A winning trading plan will not be able to succeed if the TRADING INFRASTUCTURE of trading is not in place.
IMPORTANT TRADING INFRASTRUCTURE: 1. Your Trading tool 2. Your Broker 3. Your Mindset
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment YOUR WINNING EDGE NEXTVIEW ADVISOR PROFESSIONAL – The Ultimate trading tool for investors and traders
Copyright © 2008 by Benny Lee, NextView
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6/3/2008
Make the RIGHT first steps to stock investment YOUR WINNING EDGE
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment YOUR WINNING EDGE THE MINDSET Avoid the mistakes of unsuccessful traders Based on trading experience, investors lose money because of the following reasons: – – – – – – – – – –
Do not have an investment plan. Do not practice money management. Lack investment knowledge. Highly emotional. No discipline. Greedy. Gambler attitude. Do not learn from mistakes and repeat them instead. Buy on tips and rumours. Do not cut losses when they are wrong. (Cut profit short, let losses run)
Copyright © 2008 by Benny Lee, NextView
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Make the RIGHT first steps to stock investment YOUR WINNING EDGE THE MINDSET Develop the habits of successful investors Develop the habits of successful investors by doing the following: – – – – – – – – –
Have an investment plan. Practice money management. Be patient, realistic, and rational. Do research before you buy the stock. Practice “Positive” and “Proactive” mental attitude. Establish a “Risk/Reward” ratio. Practice trading discipline by giving “Limit” Order. Have a cut loss strategy and cut your losses quickly. Keep a trade journal.
Copyright © 2008 by Benny Lee, NextView
Make the RIGHT first steps to stock investment THE BEST INVESTMENT
“An investment in knowledge always pays the best interest.” Benjamin Franklin (1706-1790) author, printer, inventor, diplomat, scientist
Copyright © 2008 by Benny Lee, NextView
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Make the RIGHT first steps to stock investment
THANK YOU! I wish you all success in your trading [email protected] www.tradinglobby.com Copyright © 2008 by Benny Lee, NextView
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