20 August 2013

Buy & Sell Strategy - Aug 2013

When I said strategy, it means that it's just used as a guideline, as we can't perform exactly the same for all investment for different timing or whatsoever. But we can keep on learning the mistakes we made and produce our own strategy to 1. Reduce the mistakes made 2. Increase chances of winning 

Some focus on buy strategy as this is the crucial part to determine the profit / losses. For example, if you buy 80c, it's 25% profit if you sell at 1dollar. But if you buy at 90c, the profit reduced to 11% if you sell at the same price. Anyway, above is just a theory. As price fluctuates, I am not sure if you think it's good to average down when price drops to 80c, or you just hold it until $1.00, or you just cut loss at 80c. It's really depends on different scenario. 

To be more successful in investment, we have to set a target selling price first. Or we should set a target profit for each investment. For some traders, they target for 3-10% profit each trade, some only aim for 0-3%, depending on their strategy. For longer term investors, they target on 100% - 1000% return for say 3-10 years investment period. 

As time is money (learnt from Inflation Monster Story), so we should always aim at the return rate much higher than the long term inflation rate. If we just use the real estate as key inflation rate measurement, then we should always look for average target annual return rate of more than 10% to safeguard our hard earned money. 

Nonetheless, it's also waiting our time if we just keep on parking $$ in bank saving account, so it's good if we can have a strategic asset allocation that allows us to adjust the asset allocation based on market condition. We should always keep aside some cash even if we know that the bull market is still there for us to generate more profit. This is to allow us to cover some un-expected expenses & enjoy lesser fluctuation when the market is in chaos. Different investor would have their own strategic asset allocation, so that they won't be affected by daily fluctuation, instead they can focus more on long term journey. 

To me, it's always a good decision if we can sell off counters in reasonable price and buy in counters in undervalued price. It would take some time for us to understand more on what is so called "reasonable" and "undervalued", when the stock price keeps moving up and down. So once we understand that, we can apply margin of safety, so that we only buy those counters with share price < intrinsic value. The intrinsic value may change over the time, but it should not be as volatile as the stock price. To determine the intrinsic value, we can always look at two aspects - tangible & intangible. Tangible is presented in the financial report such as the net asset value & free cash flow etc; intangible can be extracted from the financial report as well, such as the quality of the management, the overall industry trend etc. 

I prefer a company with stable & increasing ROE and healthy debt level. After all, we just have to know our limitation & focus on our competence circle. We may expand our competence circle by trying to know more infor from the employees, suppliers, customers & competitors. Always bet big on sure things. 




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