There are 1,100 listed companies in the Malaysian stock market. As an investor only wants to buy a few stocks to make money, he should be able to find them. But unfortunately, statistics show that most investors lose money in the stock market. There are more losers than winners.
Before I buy any stock, the first thing I must look at is its latest quarter result. It must show that it has made increased profit. Never buy if the company cannot even start to report increasing profit.
Investors should not buy any stock because it has secured new contracts or it has diversified into other businesses or it has new plans to do this and that. Do not buy in anticipation of future profit.
My expensive mistake
I will never forget my most expensive mistake in buying too many JAKS in anticipation of its future profit from its coal power plant in Vietnam when completed and I ignored its property development business which is like the company has cancer. All big power plant will have initial teething problem. Even if the power plant is completed it will take sometime to show profit. Jaks has been reporting reduced profit in the last few quarters. Moreover, it has called for right issues before and now it is calling again. This shows that the company has too many unsold properties. I remember the CEO, Andy Ang’s personal company was in joint venture to with JAKS to develop the Star land in Petaling Jaya. The joint venture company has to pay Rm 50 million to Star for late completion. Shareholders should find out if Andy Ang has sold his shares to JAKS.
Chart cannot lie. The chart is showing a down trend. Investors must not take the risk to buy any down trending stocks.
The current Covid 19 pandemic is hurting most people and listed companies. That is why most investors are losing money. Almost all the listed stocks are dropping except medical gloves and other products that can prevent coronavirus.
Here are some useful tips for you:-
Among all the criteria such as NTA, dividend yield, debts, cash flow, revenue etc. the most important is profit growth prospect which is the most power catalyst to push the share price up. This best indication to know whether the company has profit growth, is to look at the latest quarter report. It must show increased profit. Never buy any stock if the company reported reduced profit in its latest quarter because you don’t know when it will start to report increased profit.
Do not buy any stock based on any other criteria except profit growth.
You must only buy if the company has just reported increased profit. For safety you can assume the company can make the same profit for the next 3 quarters and its projected P/E is less than 10.
Any stock cannot continuously go up or come down for whatever reason. After sometime its trend will change. But you don’t know when its trend will change. You must not take the risk to buy a down trending stock because you don’t know when it will change trend. You must always buy an up- trending stock, at least you know it will continue to go up in the near future.
Never buy or sell any stock based on rumours and follow the crowd, like a sheep. You must decide for yourself based on your own knowledge. However, you must not forget to sell at the right time. It is not which stock you bought is so important. It is when you sell that really matters.
Stocks to avoid
I do not buy any stock that is not showing good profit growth especially if the company reported reduced profit in the latest quarter. You are not sure that the company can report improved profit in the next quarter.
I don’t buy Government listed companies (GLC)) because they are managed by Civil Servants and politicians.
I do not buy Oil palm stocks and property companies even they are selling below their NTA because of over- supply. Moreover, they are not reporting increasing profit. I do not buy property developing companies because there are so many unsold properties in every town and city in Malaysia.
I do not buy Oil and Gas stocks because I cannot predict the future oil price.
I do not buy big companies with too many types of businesses because it is difficult to monitor. It is better to buy small company with only one type of business operation.
I do not buy Banking stocks because their profit growth is too slow although steady.
Unless you have the necessary experience, you should not take the risk to use margin finance to buy more shares. Margin finance is a double-edged sword. It cuts both ways. You can double your profit if you pick the right stock and sell at the right time. If you pick the wrong stock you will double your losses. In any case, you should not use margin finance to its limit to avoid margin call and forced selling your holdings.
When to buy
To be able to make more money, you must be able to control your own emotion of fear and greed. If you know for sure that the stock you have selected has very good profit growth prospect, you must not be afraid to buy more during price correction with margin finance. In any case, you should not use margin finance to its maximum limit to avoid margin call.
When to sell
I will start to sell as soon I see the company reported reduced profit. When you see one of your holdings has been going up higher and higher, you must not be so greedy to expect it to shoot up continuously. You should sell some to reduce your margin loan. Unless you sold some, you would not have funds to buy back at cheaper prices during price correction
This is how stock markets work!
A very cold winter!
It was autumn, and the Red Indians asked their New Chief if the winter was going to be cold or mild.
Since he was a Red Indian chief in a modern society, he couldn't tell what the weather was going to be.
Nevertheless, to be on the safe side, he replied to his Tribe that the winter was indeed going to be cold and that the members of the village should collect wood to be prepared.
But also, being a practical leader, after several days he got an idea. He went to the phone booth, called the National Weather Service and asked 'Is the coming winter going to be cold?'
'It looks like this winter is going to be quite cold indeed,' the weather man responded.
So the Chief went back to his people and told them to collect even more wood. A week later, he called the National Weather Service again. 'Is it going to be a very cold winter?'
'Yes,' the man at National Weather Service again replied, 'It's definitely going to be a very cold winter.'
The Chief again went back to his people and ordered them to collect every scrap of wood they could find.
Two weeks later, he called the National Weather Service again.
'Are you absolutely sure that the winter is going to be very cold?' 'Absolutely,' The man replied. 'It's going to be one of the coldest winters ever.'
'How can you be so sure?' the Chief asked.
The weatherman replied, 'The Red Indians are collecting wood like crazy.'
This is how stock markets work!