30 March 2013

What are we looking for in Shares Investment?

To me, investment is a combination of art and science. With limited fund, we could only invest in certain counters. Some would say shares investment is just like gambling. You can earn a lot but you can also lose a lot. As it is so liquid, that you can just simply buy and sell and try to earn the shares price difference to make the profit. But to me it is not a workable methods, especially it could affect my emotion when making trading decisions. 

I prefer a long term investment, but it does not mean that I should hold for a very long term. But it only tells me that, before invest in a company, I should do a due diligence, to make sure this company is worth to invest in long term, before putting my hard earned money into it. To me, I prefer to have "certainty" when picking up the counters. 

Example, if I know that this company still survive in long run, I could treat it better than Bond / Commodities / Real Estate asset classes. Due to Inflation factor, if the company has the bargaining power to pass most of the cost rising to its clients or suppliers, then I would consider it as a very good counter. For example, you can see the fast food restaurant like KFC or MacDonald can increase the selling price in 2-3 years, it means that the clients are still willing to buy it when the selling price is rising. 

I am looking for some stocks that in growth period. But this brings another question, will I have to pay more to get a growth stock? I could use discounted rate model to justify the intrinsic value. Anyway, as this is only a guess for me, I still prefer not to purchase a stock that has PE of more than 20, unless I am very sure that the future PE (e.g. few years time) could be reduced to below 10. 

I also know that to get a good result, we should buy low and sell high. Buy Low is the first action that can prevent us to Sell Low. But before Buy Low we should also select the correct stock. So it really brings back to the question - What do you looking for in Shares Investment. To Sell High, we can use two methods:

1. Switch to Other Undervalued Stocks
2. Switch to Cash

I prefer to switch to other undervalued stocks, as I believe in long run, equity is a better investment tools compared to Cash. But frankly speaking, I still like to hold in Stocks, unless I am pretty sure that the global market outlook is going to turn worse. Nonetheless, given my passed year experience, the only way we could make a decent return is when we can get a cheaper price during bear market. And normally Bull Market is longer than Bear Market. This is due to certain reasons: 1. Bull Market takes a longer time to build as the confidence level is not easily be built up. 2. People Tend to Avoid Risk of Losing Money. So you can see a faster pace of cutting lose compared to buying up. 

Eventually, I still believe in picking a good counter in good timing is one of the ways we could earn more in stock market. 

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