Stock Trading Commandments

Never Turn Trades into Investment

When the market move against you, cut loss. When the you get it right, take profit. Don't be greedy. You won't know when it will turn.

Your First Loss Is Your Best Loss

When you trade turn awry, cut loss fast. The subsequent loss is likely to be more severe.

It Is OK To Take Loss When You Already Have One

Losses, realized or unrealized, are actual losses. Unrealized losses if not taken, may lead to bigger losses.

Never Turn a Trade Gain Into Investment

Do not be too greedy. Know when to get out. Market can turn anytime.

Tips Are For Waiters

Don't be fooled by hot tips.

You Don't Have a Profit Until You Sell (Close the Trade)

Paper gains can be wiped out when market swings.

Control Losses: Winners Take Care of Themselves

It is more important to pay more attention to losing trade and limit the losses. You don't have to worry too much for the winners.

Don't Fear Missing Anything

The opportunities will come again. Don't chase the price.

Don't Trade Headlines

News headlines are too brief and inaccurate. They just want to get it out quick. Read into details. The stock will not fly away.

Don't Trade Flow

Don't buy just because someone is trying to sell you and you think it is convenient. Do research before you buy anything.

Truth About Stock Price Movement and Fundamentals

Do you think you really own a piece of a company when you own its stocks? Personally, I do not think so. The stock exchange is way to disconnected from the company of the stock that is listed apart from requesting them to provide regular reporting. The prices of the stock is purely supply and demand. The market capitalization is not a real measure of the net worth of the company. It is a measure of the willingness of the market participant to pay to own the stocks at a certain point of time.

In the long term, say over 10 - 20 years, the stock prices will fluctuate resolved to the fundamentals. However, over the short term with 18 months, the price movement usually is not any reflection of the fundamentals. It is essentially a reflection of sentiment aka supply and demand.

ComfortDelgro - downside risk limited

I went into this counter recently at average price of $1.595. I must admit that this is not the best price but after looking at the recent movement, I found this counter steady during the heavy sell downs. This is a dividend stock with yield of over 5%. The price of the counter is steady and limited fluctuation.

Has the market bottom out yet?

Many investors like to use the term "bottom fishing" to describe their action in bargain hunting for under valued stocks. In essence, what they are doing is to try to catch bottom. However, for many experienced traders, catching bottom is a dangerous action. Here is why:

Market bottom is a process, not an event.

Why you can't catch the bottom. For investors, your only choice is to buy stocks on the uptrend, not downtrend. Let other people find the bottom for you. Just sit back and watch them fight it out. Conserve your capital and avoid taking unnecessary risks.

Just look at the mistake I made on Chip Eng Seng. I thought when the price dropped from over $1.10 to $0.83, it was a good time to enter. In the end I had to cut loss at 0.59 (yet another mistake for not sticking to my rules of cutting loss at $0.75). During the market crash, the sell down can be fast and furious. If you are not in front of the screen, you will be caught dead. Yes, I was on a consulting project during the period and when I look at it, it was already hitting $0.60. So, the notion of buy-and-keep is not always the best approach. As you can see, this counter has gone down from peak of $1.10 to $0.49 (more than 50% off) and yet still bottom is not in sight.

Chip Eng Seng Update 2

Chip Eng Seng went on to close at 0.49 yesterday. In general construction counters continue to show weaknesses. This is due to a few reasons. One, the real estate market is cooling off faster than expected. Nothing new, I was caught off guard 10 years ago resulting over half million dollars loses.
Two, material costs is sky rocketing. Three, new projects are not coming. All the fads built into the prices has to reverse out. Fall out from US sub-prime saga.

I am expecting these counters to go down further in the mid term. With the overall market bear trend continuing, the bottom is not in sight yet. However, there might be some short re-bounce due to bargain hunting at highly oversold region. If it breaks 0.47, it should further test 0.42 and 0.30.