Since my retirement as a founder director of IJM Corporation Bhd about 30 years ago, I have been investing in our local and Hong Kong stock markets. I also have read books to learn the methods practiced by legionary experts such as Peter Lynch, Benjamin Graham and many others.
At the beginning I made some mistakes and I learned from my own mistakes to improve my skill.
Now I am able to write down some simply guide lines to help investors make more money. You do not need a higher tertiary education to make money.
1 KYY golden rule for stock selection: Before you buy any share, you must make sure that the company can make more profit in the current year than last year by looking at its profit for the last 2 quarters and the projected P/E ratio is less than 10. If it has very good profit growth prospect, you may buy it at higher P/E ratio.
2 Up and down trend charts: You don’t have to be an expert in chart. All you need to know is what is up trend and down trend. Never buy down trending stocks even if they are selling below NTA because you don’t know when the price will go higher than your purchase price for you to sell to make money. For example some of the property companies are selling below their NTA. As you know there is an oversupply of properties in every town and city in Malaysia. If you buy property shares, you have to wait a few years before the property market turns around.
3 Buy up trending stocks provided they have good profit growth prospect and selling at low P/E ratio. The advantage is that after your purchase, you can see the price continues to go up. But you must remember that no share can continue to go up for whatever reason. You must sell to take profit.
4 Cut loss will limit your losses: After you have bought a share and the price did not go up as you expected, you must cut loss when the price drops more than 10% of your purchase price.
5 Control your emotion of fear, greed, ego and over confidence to think logically is the key for successful investing. Most people cannot control their emotion to think logically. If everyone can think logically, all the shares would be fully valued and there would not be any underpriced share for sale. That is not the case. If you can control your emotion you would know when to buy and when to sell to make money.
6 You must develop some business sense. Quite often you can see share prices of really good companies remain flat or keep dropping for no reasons. If have some business sense, you dare to buy. But if you do not understand business, you would miss the chance to make money.
7 To maximize profit, you must have patience. Every day you can see how share prices fluctuate. The day’s high and low can be quite a wide difference. If you have patience, you can buy at the lowest price or sell at the highest price of the day.
8 You must own a maximum of 8 stocks so that you can keep track of the companies’ progress. All businesses have different challenges and obstacles at different time to overcome. If you can keep track of them, you know when to buy or sell to make more profit.
9 You should use margin loan to increase your profit provided you really know all the above guide lines. The current interest rate is 4.8% pa. You can easily make more than the interest rate to increase your profit.
10 Share investing is not an easy venture. If you cannot afford to lose, don’t try. There are more losers than winners in the stock market. If you have not been successful after a few years, you must stop. Otherwise you and your family will suffer.