Saturday, July 17, 2010

Interesting Quote

I have been " blowing water " with a friend of mine last night. I bragged about the share market and so on. Told him that I have not been updating my blog recently for I do not have any idea what to share here. He joking said " Go and talk about World Cup and all these bookies " .... I brushed him off smilingly said " Hei brader , my blog is talking about financial related matters lah .... fren ... "  He fight back and saying ( not exact sayings, " tambah tambah to make it dramatic a bit :P ) :

" Let me tell you this. Investing in share market is actually like betting in English Premier League. Look around and ask around your friend who is a betting on their favourite team. Man U lah, Liverpool kah whatever.... Have any of them won big ? Most of the time they lose. So all you need to do is bet against them. Just check the paying rate provided by the bookie you could roughly know which team is the generally preferred team of the match. Go bet against them. If all the preferred teams score, all these bookies " makan tahi " liao.... All this while the bookie is prospering like hell man.... All the matches are fixed lah .... Just like investing in share market lah... when everyone is loosing money, it is time to get in lah... When everyone is making money... run lah ...but if you ask me how to choose share.... I will have to ask you lah " .....

An very interesting contrarian indeed. Is this a behavior financing ? Bravo Brother... Well said....

" Louis, I think this is the beginning of a beautiful friendship."
                                                             ~ Rick Blaine ( Casablanca (1942))

Thursday, July 1, 2010

Diversification Vs Concentration

They are several ways to reduce the risks. Diversification, hedge, insurance and etc. The professionals have all the options they want but general public like me. Diversification should not be treated  as buying the top 30  market capital companies. In fact, it is easier to buy the index  than buying 30 companies with the pro-rated weight on each counter. Text book told us that after 30 counters, additional counter would not reduce the risk much further.

So basically the term diversification is measured with the index as a reference. If the DOW is going down hill, there is no point of being proud because we beat the DOW but lost an arm. Putting eggs in several basket would not actually reduce the risk. We may loose our focus for watching too many  baskets at the same time. I would certainly feel safer to buy only Public Bank than buying Affin, AFG and RHB bank combine. It would be safer to put eggs into a basket and watch it with the eagle eyes.

Hence concentration would be a better risk aversion method. Great guru like WB or Bill Ackman prefer concentration investing. Certainly do I. The question is how many counters should we hold ? In my opinion, that depends on the inital capital. Spreading 5K over 10couters is totally different from spreading 500K over 10 counters. Here is my to cents.

1. < 50K  = 1 counter
2. 50K<100K = 3 counters
3. 100k<150K = 5 counters
4. 150<300K = 7 counters
5. 300k<500k = 9 counters
6.500k<1 mil  = 11~ 15 counters
7. > 1 mil = ????

The reason being for only 1 counter at Level 1 is to get to higher level soonest possible. No fun lah to be at Level 1 for 5 years right ? That is why it is very important to strike big at the beginning. Imagine you bought 50K worth of Hartalega 12 months ago. You would be at least at Level 4 now. But what if we couln't make it right at the beginning ? ... Well, that is NO what if ... If too many " what if " susah lah ... apa pun tak boleh jadi. I beleieve as long as one put real effort and study hard on it, he would strike eventually. Study, study and keep on study.... and put guts .... real guts into it when the chance is there. Take action... cakap saja only no point......

Of course this is a double edge sword method. When you strike you strike big. If you don't, it would probably bring to to Holan... Imagine you bought Transmile at 0.90 and now at 0.36.... You could only hope or prabably pray for it to go back to 0.90 again.... So the beginning is extremely important.... If we are thinking to strike big in a matter of new months by buying hot stocks without checking the back ground of the companiesit like worse than playing Poonton/Black Jack at Genting Highland. At the very least you would get a close to 50/50 odd. ... get what I mean ? Remember Kenmark, Iris, ... ohhh yes you could be very lucky and strike it big.... I won't rule out that possibility.... You could bet 50K on Holland over Brazil later tonight to get a 100% return in matter of 90 minutes ...;) ....

Once we reach Level 4, the aim should be skewed  to capital protection. No sane man would like to go back to Level 1 again. If you strike 100% return at Level 1, you have a return of 50K. But if you have a 25% return at Level 4 and Level 5, you reruen would be 75K and 12K. You can do the math for the higher level and get what I mean. Icapital return of 30% is nothing compare to a 15% return of Bershire. The higer the capital higher the difficulty to manage.

As I said before and again I eat my own cooking. Long Big Time Hartalega & Top Glove for I see the potential to strike again by holding these 2. Happy Trading..:).. ANother lousy posting... Everyone knows that :p

P/S : This is a very funny Japanese Anime Series...

" Go To DMC, Go To DMC, Go To DMC, Go To DMC.... "

                                           ~      DMC Fans  ( Detroit Metal City )