Today i face another tough question which raise up by my customer. Stevent, will this counter go up further? Should i hold longer to aim higher profit? I guess those dealer/remisiers facing many repeated question in their work when dealing with clients.
So, let take 1 case as example.
If a person bought a stock who fell from as high as 1.00 to about 0.25. This person keep on average down all the way as he believe this counters will never die. Possible he been making good money in the past as this stock trading at 4.xx at the peak. So, he is having a thought this counter will go back as high as 0.80 which i guess is above his average price with a decent profit.
So, i have thought my student if using my 1 cross 4 approach. So, it is totally wrong to make big profit. You should not be making more than 20% profit even there is more upside to go up as high as 80-100%. Listen carefully, it is TOTALLY MAXIMISE PROFIT and it is a DISASTER. How can a profit maximization is a disaster?
It very simple, the original plan was mean for short term and later switch to long term due to change of macro outlook or fundamental of the stock itself. So, there is a change of the method from short term trading to investment holding approach and using short term trading method. So, does it sound right over here?
It is totally wrong. It is a person who got no discipline in trading plan and keep on changing. Therefore, if a person benefit from the so call profit maximization. They will tend to change their trading plan in the future and their gut become bigger and trade with bigger risk appetite, end up losing money at the end.
Do not let your greed control your emotion. Everyone want to earn big money? It is easy to pick 1 super stock with high target price in term of percentage or a few stocks with a lower target price in term of percentage but require more trading.
Obviously, the answer is the counter who have a lower target price in term of percentage is likely to hit compare to higher target price in term of percentage.
Let play a game.
Scenario 1
1 counter with target price 50% upside but in order to achieve 50% it may take 3 months to 1 years time frame
Scenario 2
1 counter with target price 10% upside but in order to achieve 10%, it may take 1 week to 1 month time frame
As we know, long term investment will be subject to more uncertainty factor compare to short term. This is for sure.
If you look into bond yield, fixed deposit, people are getting higher interest rate? Why, because they are losing opportunity cost and time value factor take into consideration. Therefore, a person who put into safe investment for long term, they will be getting compensation with higher interest rate.
So, if we take such statement put into stock market. It mean there is more risky if you adopt long term investment unless you invest into AAA grade stock such as HLB, PBB, NESTLE in the past.But with such high valuation at this current price, it is still worth to do enter this so call fundamental good stock for value investing. I can't comment much on this as i am not a fundamental guy, but i know one thing for sure you already miss a good entry point in the past. That mean you are having higher risk/reward ratio. That is all i can tell. Remember one thing, if recession come, there is not a single stock so called AAA stock can maintain their shares price even the nature of business was not affected by recession. Why, because there is no standard PE in the industry. It just a reference PE for the industry. Let take GLOVE sector, average PE was around 25-30. Who say it can't go as low as the PE OF 10 when recession come even revenue still showing positive growth and growth in the profit. It is the problem of the company itself. It is the market being hurt painful and people wish to cash out from the capital market.
If you can pick the right counter and making 10% profit each trade. 5 consecutive winning trade which equal to your 50% target profit already achieve using relatively shorter time frame, but this require more commitment for stock monitoring. If a person don't have such time to monitor then is not easy to achieve.
So, if you look into it. People are telling the success story of long term investment. True,there is such story and it really happened in our daily life.
Let see those so called fundamental stock such as GAMUDA, MYEG, TM, AXIATA, BSTEAD, GENTING. Is it all this stocks being hurt badly since change government after the GE 14.
I am not saying value investing is bad, i am not saying fundamental is not good. What i am saying there is no perfect approach for every market cycle. Even my method is not perfect as well.
But, we need to flexible to adopt the changes of the investment environment.
when market is heading for recession. Half way toward the end of recession is the good timing to adopt value investing. Meaning those people able to collect shares slowly at low price with small quantity transaction but slowly accumulate the quantity. To me, value investing is buying a good company at discounted price. Not during the uptrend with high valuation price. That is call fundamental trading.Not value investing.
Market is heading consolidation and start the bull trend is the time for the so call fundamentalist enter market.
When market 25% -75% of the uptrend, the so call swing trader will come into the picture.
when market 50%-100% of the uptrend, more player such as intraday player, contra player, swing trader, punter all will be coming in. So, this time is the good timing for those people who accumulate at the low to dispose their holding.
Therefore, when we notice super huge volume trading at the higher price range it is the time we should be aware even there is more upside to go. It is always be safe rather than later regret.
This is just my personal opinion. It may not suit your investment strategy, but i am here to create the awareness to let people see thing from different perspective.
Happy Investing or Trading Journey.
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