Koon Yew Yin 21 Feb 2021
The fastest way to make money is investing in the stock market if you how to do it. Moreover, all the profit is tax free. It is also the fastest way to lose money if you don’t know how to do it.
How to do it?
You must know the followings:
1 Technical analysis, charting. This is most important
2 Fundamental analysis
3 Business sense
4 How to control your emotion of fear, bravery and taking risk
5 Value investing
I use Supermax price chart for illustration.
The above price chart shows that Supermax shot up from 80 sen when the Covid 19 pandemic began about 1 year ago to peak at Rm 11.89. It has gone up about 1,500%. For no logical reason it has been dropping in the last 5 months to close at Rm 5.80.
Its 1st quarter ending Sept EPS 30.58 sen and its 2nd quarter ending Dec EPS 41.14 sen. Total EPS for 1st half year is 71.72 sen. Assuming its 2ndhalf year is the same as its 1st half, its annual EPS will be Rm 1.43 per share. Based on PE 10, its share price should at least Rm 14.30.
1Technical analysis, charting. This is the most important share selection criterion. On every trading day the are many buyers and sellers. If there are more buyers than sellers, the share price will go up and when there are more sellers than buyers, the price will drop. The daily trading is like a voting machine. It records the result of the daily trade to form a chart. It will take a long time to fully explain about charting. In short, Investors should only buy up trending stocks and never buy down trending stocks. For example, the above price chart shows that Supermax shot up from 80 sen when the Covid 19 pandemic began about 1 year ago to peak at Rm 11.89. It has gone up about 1,500%. For no logical reason it has been dropping in the last 5 months to close at Rm 5.80.
Those chart believers would have bought earlier when the chart started to show an uptrend and sold when the chart started to show a down trend. They would have made a lot of money.
2 Fundamental analysis. Among all the stock selection criteria such as NTA, cash flow, debt, cash rich account etc. The most powerful catalyst to push up share price is profit growth prospect. When an investor buys a stock, he expects to gain from dividend and share price increase. Almost all the listed companies in Malaysia do not give out more that 6% dividend per year. So, investors depend solely on share price increase to make money. Investors should only buy if the company can report increased profit for 2 consecutive quarters.
Currently the Covid 19 pandemic is affecting all the listed companies except medical glove and medical products and a few tech stocks. As a result, all the glove makers can easily increase their selling prices to report more and more profit.
3 Business sense. Investors should have some business sense to know the current market condition; what are good profitable businesses and what are bad businesses. As I said earlier, the pandemic is affecting almost all the listed companies, investors should only invest in companies that can constantly report increased profit. For example, currently there are so many unsold properties everywhere and most of the property development companies cannot report increased profit. That is why their share prices are dropping.
4 How to control your emotion of fear, bravery and taking risk? Every investment carries some risk. To be really successful investors should be able to control their emotion of fear and be willing to take some calculated risk.
5 Value investing: Investors should know the intrinsic value of the stock before they buy it. But this is not the most important share selection criterion. Profit growth prospect is the most important. For example, Supermax has been dropping in the last 5 months. On hindsight investors should have sold as soon as the price started to drop. But if investors did not sell earlier, they should not sell now because it cannot continue to drop for whatever reason. Sooner or later, it will rebound. Investors should buy Supermax now. It is like buying a stock with an insurance to prevent loss.
