Thursday, June 16, 2016

Should we keep cash?

Morning ... it is 5.30am.

KLCI has been down ... so, many are being quiet again. Keeping cash to wait for any rebounds.

As I was told that market-crash is around the corner (not 2016, I hope) ... I will have less than a year to prepare. It is still fresh in my mind about what he told me yesterday ... I have read many article stating the crash is in 2016, but from what I could see and understand, the crash will not be at 2016.

It could be 2017 .. 2018 ... or beyond. It is up to everyone's guess. One thing I m certain ... no one could predict when the market is going to crash. Not Warren Buffett ... not Soros (by the way, he shorted markets now). It has been since 2009 ... since the bottom-out of the subprime-crisis crash .... a matured bull of 6-7 years ... DOW nearing peak 18000 level again (huge share buyback in many huge companies to support the prices).

With tonnes of stimulus ... negative interest rates, liquidity is aplenty. Where all the funds moving too?

Gold surging higher to 1290 level ... recently hit 1300 and dived to 1200 level ... in days, it recovered sharply. Gold has always been seen as 'safe haven' during uncertain times.

Yes ... it is everyone's guess ... as many analysts using different charts to argue their ways! It is confusing ... but whatever at all, we still have to CUT-LOSS of whatever we are trading/investing ... if we are buying in 2016. One of the most bearish sector now is O&G. If we caught Armada, Perisai and such at high level ... we could be 50-70% down by now. CUTLOSS could be too late, too painful?

Market not crash YET .... but many stocks not performing and lowering. From yesterday's conversation ... the experienced investor (call him Mr T) said avoid MBSB ... avoid SKPetrol ... avoid AirAsia. These are three stocks I heard he said we should avoid. If I have time to probe further, certainly he will tell me many more stocks to avoid.

Yes .. fundamentalist will avoid highly geared counters such as AirAsia. But as for traders, we could always buy/sell AirAsia ... as it is one good trading stocks (up and down --- volatile).

With many at low ... some trading stocks shooting high (JHM in mind). We do not need fundamentalists to tell us that many of these stocks are gorenged and speculative in nature.

or Comcorp's breakout in play.

So ... as traders, we could still trade (buy to sell ... not hold). As we might still see more stocks reaching new high ... generally, these are selected stocks that they pushing it up (to distribute to greedy newbies ... and many of them will be stuck once game is over).

Just do not get caught inside, that is the rule of the game now. Otherwise ... ask those around you(or in forums ... they will NOT tell you truth, anyway) who are caught inside AMedia, Sumatec and many more. I have cut-loss many of these (painfully) as I could only blame my over-trading and greediness for the un-necessary risk I took.


Generally, we can still trade ... but it is advisable to keep 50% in cash. Yes ... we should not use more than 50% of our funds in trading in 2016 onwards. BUY only good blue-chips or index-linked counters for trading purposes, during market correction/pullback ... that is the best of strategy. Take profit if it is there ... cut-loss when our support broken.

Ok ... back to the question  Should we be keeping cash and wait for market to crash, then only buy hugely?

In theory ... YES. Of coz that is the BEST of Warren Buffett's strategy.

But, in reality ... majority retailers still STUCK inside BEFORE market suddenly crash. Many are still stuck in many of counters (such as O&G counters) ... and the price could be halved during crash.

No ... we should not be totally out of markets. Why? Because we need the experiences of UP and DOWN. Just make sure we punt/trade in small positions ... not totally out.

Imagine that we do not ride the rollercoaster ... and suddenly, someone inviting us for bungee-jump. This is an example I always give ...

7.40am : Breakfast time ... sent my girl to school in my old kap-cai.

Nescafe 3-in-1 and ta-pau bread from home (peanut butter and butter spread).

Note : Mr T said he hold Nestle stock he bought for ages ... never intend to sell. His entry price was RM8.50

Nestle ... uptrend ... uptrend ... at RM77 now. When to sell? He said ... never. Haha ... so, it is WBuffett style ... buy-hold. During crash ... can top-up. Haha.

So ... we do NOT get rich in trading ... we get rewarded handsomely if we could BUY a strong fundamental stocks such as Nestle during CRASH.

So ... shall we hold cash now?

My answer is still NO.  We should not avoid stock-market in total. There are many of my trading members stopped last year, citing ... busy etc etc ... and some said they will come back to me during market crash. Well ... I could never know the truth (failed to cut-loss and stuck might one of them ... or losing more than winning? I am still doing more winning than losing in 2015 ... but 2016 is much more challenging ).

Somehow ... if you are new (less than 3 years in KLSE, you are newbies in my definition), you do not have the experience of seeing market-crash. It is really a bungee-jump vs current roller-coaster! So, more reasons for NEWBIES to be in market. Be smart .. you are here for EXPERIENCES, not to profit. Take profit is a bonus ... but practising the CUT-LOSS is a valuable painful experiences all NEWBIES need to go through. I will write MORE of CUTLOSS as that will only create the awareness (as one of my market crash preparation).

Trade ... take SMALL positions. MUST TRADE ... must be in markets. If you leave in total, it will be NEAR IMPOSSIBLE to buy during crash.


Easier said than done.

That is why I have spoken to many (coffee-date, call me out if you have ideas or opinions HOW we could prepare for crash .... we do it together, ok?). I am seeing another person tmr night for coffee and two of my recently 'graduated' e-learners on Sat ... and next week another person(he intends to join my coming e-learning to learn trading!). Get a date with me ... I will be glad to share what I m currently doing in preparation for crash :

#1 : Capital Preservation

#2 : Raising funds

#3 : Instruments and platforms

#4 : Knowledge and experiences

These are my four main points I will share and discuss ... and will continue to write about them .. till the crash-period. Yes ... I m noisier when market is coming lower as I m excited (tho have to cut-loss many of my trades!!). So excited yesterday when someone as experienced as Mr T telling me ... SOON ... we shall see crash.

Keeping CASH at the moment will be losing my POINT #4 ... we need to increase our knowledge(in FA, TA and reading of strategies) and experiences. While 'keeping cash' will point to #2 ... and cutloss is for point #1 ... we still cannot NOT to have #4.

Yes ... I need to point out clearly here that we need pointer #4 ... NO ONE could teach us experiences, but we could increase our knowledge by reading, talking to experiences traders, attend market-talk/workshops(I attended 4 so far) ... do anything to increase our knowledge .... but ...

Knowledge is empty without practice ...

Practice means ... REALLY involving in the thick of trading stocks. We do not need to move-in-out often ... but at least we stay in-tune to the market pulse!! Oh boy ... I speak like one of those speakers during market talk! Haha ... well, IBs (or brokers) will like ALL retailers to trade as often .. for obvious reasons (remisiers earn commission when we trade, banks take half ... you win or lose, they win). So ... do not entice by their BUY CALLS ... as they want us to trade. Read with the 'pinch of salt' ... and see if we could manage the risk.

DOW minus .. FKLI opening soon ... hope I have written about some of my thoughts ... on why I am still trading and not holding cash ... not yet, till end of 2016?


1 comment:

cs said...

I think it is important to trade and practise during bear market.

It is a perfect time to train and do research and trade and control emotion and greed.

Market crash is perfect time to enter. I suffered big loss before the subprime, luckily I was just 3 months into trading and I was glad I learnt my lesson at early stage. After the crash, everyone was "Stock king" because during the recovery any share you will make 100-200% if you can stay long.

I simply wish people learn the basic, FA, TA. Buy simple company that we can understand and not simply follow Bloggers. ( I learnt the hard way)