Tuesday, November 11, 2014

Trading Mistakes

There are not many posts worth reading in i3-forum. This is a good one to share. Thanks for the writing.

If you are newbies or novices, help yourself to be educated and read the above articles. NOT many out there telling you the TRUTH about trading in stock-markets. NOT MANY ... as they are in the biz of earning from us, retailers.

From remisiers ... broker houses ... trading courses/sifu ... media ... most of them are in biz-dealing and needs to generate income for THEMSELVES and/or their companies. IF large IB is "buying" me to write and promote them, I will ... as we all have a price!! At the moment, due to my blah-blah way of doing things, they will prefer professionals. Someone who could carry themselves ... and follow orders? Anyway ... it will be against my conscience to cheat?

1) PN17 stocks

PN17 stocks are companies in financial distress in Malaysia. They are usually very near to closing shop. When the stock exchange categorize a stock as PN17, that action by itself should be a Big Red Flag to current and potential investors. Hello, are you listening?

Well No, I shut my ears to all these “noise” because I thought the turnaround story on this Pn17 stock were genuine. Boy, was I wrong!

Later my own analysis told me that 80% of all PN17 stocks went bust, got delisted and never came back into the stock exchange.

TEH : MOST stocks in PN17 as they are LOSING money. Some in PN17 due to selling of their core-biz ... I remember THHeavy(ex Ramunia) and Adventa were in this category. But, majority of those in PN17 are lousy companies to invest/trade ... so, if u are NEWBIES ... never touch these counters. Sumatec was taken out from PN17 recently ... many chased? Talam was taken out from PN17 too, fyi.

So ... he written it very nicely ... don't be a sucker if you are new in markets. MANY out there to mis-lead you ... if you started badly with these mentality and habits, it will be VERY difficult to change to be a better trader or investor. I have known many of them ...

2) Long Term Loss Making Stocks

These are another category of stocks I love to buy early on in my investing life. They are loss making companies which were raking losses for many years – the main attraction of these stocks are they were cheap, speculative and usually have juicy turnaround stories which I bought into. Bad move!

I thought these were good signs of a stock, but in reality, they were Red Flags all over the place which Mr Market put up to inform investors to “Please stay away at all costs “.

TEH : We need to check the fundamentals of companies ... at least only buy into those making money companies such as banking stocks, many plantation stocks, Telco companies and such. With few hundreds to buy ... WHY buying into losing money companies ... with lousy management?

Give you one example that I used to buy/trade: KNM and GPacket. I was naïve and new then ... phew ... luckily I knew how to check on the financial health of the companies and no longer being a sucker! And if you are newbie, actually you do not understand what you are doing is NOT called trading ... it is called punting with huge dose to gambling senses. Never mind ... if u do not believe, buy whatever u think they are promoting to u .. blindly. You will know one day ...

3) Buying Overvalued Stocks

Buying stocks which were overvalued were not as bad as the two reasons I’ve listed above, but it was still a big mistake. Have you heard those veteran investors saying to “Buy low sell high” ? They are right.

I bought a lot of overvalued stocks and this is one of the main reasons I did not have much success to show during the early years of investing.

TEH : While many stocks are at NEW high and playing on news ... tho they are good companies, they are OVER-valued. Most IPOs are overly priced. Today, there are SO SO many over-valued counters ... and they are hot. Many are promoting these hot-stocks in forums. While we could ride on the trend, if we do not know how to exit ... or chase the stocks at high, it will normalize and going much lower to justify its valuation.

4) Buying Cyclical Stocks (At The Top Of The Cycle)

I bought cyclical stocks at the top of their cycle. They are stocks that are sensitive to the state of the economy – when the economy is booming these stocks will be priced at the top but when the economy shrinks they tend to drop very quickly.

The trick to catch these stocks is to buy when the economy is bad and sell them when the economy is booming. Unfortunately for me, I did the exact opposite. Lesson learned, oops ..

TEH : If we are investing, we will prefer to hear more bad news, recession and such ... when economies are in bad shape. Then, we could pick-up many good under-valued blue-chips or good growth companies. That is investing ... buying in 2008/2009 .. and hold till today, we could have gained so much. But, if we are trading (shorter time frame), we will like the up-down(volatility).

I will spend an hour or two tonight ... to speak of my mistakes I have done, hoping that will be an  eye-opener for many newbies. Well, ONLY 20% of those newbies will be in successful profiting position ... one day. May of those 80% losers will not last long ...

Time for lunch.


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