Why You Should Own Both Blue Chip Stocks and Penny Stocks

        After taking a few sips from my cappuccino at a renowned franchise coffee shop, a friend of mine suddenly popped the million dollar question. What is the best combination for stock investment? Is it holding blue chip stocks or is it trading penny stocks? As a beginner, the options lying in front of him had put the most brilliant brain into a twisted dilemma.

         I cleared my throat and clarified a few things. First of all, neither of the answers were correct nor wrong. Based on the records, many successful traders who have traded penny stocks eventually reaped huge profits. On the contrary, many seasoned investors have flourished by holding blue chip stocks over a long period of time. For instance, the investor gurus such as Benjamin Graham, Warren Buffett and Peter Lynch. My friend was bewildered and demanded further explanation.

          "It depends on your characteristics," I told him. I resumed my explanation by dividing the investors into the stubborn investors and punters. The stubborn investors are those who have carried out well research on the fundamental and the earning of the companies. They commonly buy shares because they long to own the companies and they earn money through dividend payout, right or bonus issues and potential gain throughout the years of holding the companies. Typically, stubborn investors will choose blue chip stocks because the companies have expanded to gigantic size and most probably the leaders in the industry. Blue chip stocks are less volatile in term of share price and they are enjoying stream of incomes from one or many businesses. These stubborn investors are normally experienced investors with plenty of cash in hands.

           On the other hand, the punters are investors who use trading to gain profit in term of capital gain. Simply put, they would have bought shares at low price and sell the shares at higher price to make money. Equipped with less capital in hands, the punters purchase penny stocks to minimize the cost and to gain maximum profit. They will opt for the companies which are mediocre in size by now but these companies are heading towards the fast track of growth in the future. Punters trade with the help of technical analyst to gain the best timing for buying and selling.

            At the end of our conversations, I asked my friend to consider what kind of investor he decided to become. I also asked him to assess himself in term of risk tolerance. If he could tolerate higher risks for higher return, then he should choose to become a punter. Otherwise, if he has less appetite for risk and returns, then he should play safe by becoming a stubborn investor instead. For me, I choose for a blend of a stubborn investor and a punter. I put 80% of my portfolio into blue chip stocks and 20% into penny stocks. Using this method, I can enjoy both stable income and occasional surprise of windfall profit.


watch some videos:




look out for the sunglasses:

ABC in selecting winning stocks

                   

                  Imagine that investing in stocks is like cooking a broth. The most essential ingredients for this special broth is picking up the winning stocks. Choosing the potential stocks is utterly important to gain massive profit in stock trading. Nevertheless, the techniques to choose the winning stocks don't require the knowledge of rocket science. Instead, picking up the winning stocks could be as easy as ABC. 

                    The letter "A" here stands for Analysing the fundamental of the company. Fundamental of the company is the ability of the company to gain profit and maintaining it that way. Fundamental analysing helps to decide which companies or stocks to buy. Another matter which needs attention is the checking the company's liabilities and assets. Keep track of the financial records annually or half-yearly t monitor the company's cash and loans. Take into consideration for the company pay out generous dividend. Companies which are able to give out attractive remuneration show that they are sitting on abundant of cash and are comfortable to give out high dividend consistently. Next, paying dividend also implies that they have a management team who cares about the welfare of the shareholders and their business has stable incomes. 
    
                   Furthermore, the letter "B" represents Beware of the technical signs. Unlike fundamental analysing, technical analysing tells us when and what price to buy and sell. As technical advances by leaps and bounds, technical analysing consist of sophisticated tools and state-of-the-art pricing chart model. However, you only need to master 3 sets of skills. First, use price chart to learn about the resistant and support level. Buy at support level and sell at resistant level. Secondly, use Relative Strength Index of better known as RSI Indicator, which notifies you about when the stock is overbought or oversold. Next, use candlestick for checking the change of trend. There are many other technical indicators out there but mastering these three skills is sufficient in making decision of buying and selling stocks.   

                   The finale is the "C" which is Care about the news. The news here could vary from the news about your selected companies, their competitors, the sector and commodities, the country's fiscal policies or even the news from the Federal Reserves of the United States. Remember the old saying in the stock market which is "buying on rumours and sells on news". Normally, this simple method would do the trick. Remember the mnemonic ABC and good luck.   
                  
                    This sounds like mumbling but he is telling the facts and truths about trading...watch this video and listen to his advice...


if you are trading future...the technical signs are critical...

9 Intolerable Rules in Successful Stock Trading

1) Always Have Written Trading Rules and STICK TO IT! 

A lot of people out there set many rules and find themselves to disobey them! It sounds ridiculous but it is true! So, avoid impulsive buying or panic selling so as you are not emotionally-attached to your decision making. Set realistic and practical rules. Rule like winning 50% for each trade just sounds too good to be true. Have a trading record and write down the practical reasons of buying and selling the stocks for each transaction. For an instance, you buy Microsoft shares because the company is fundamentally sound and earning money consistently. You only sell it if the profit of the company turns lower or some major events take place that change the company's financial health drastically. Or if the company faces stiff competition from the competitors until its profits sink and suffer losses. Simple, right? 

2) NEVER Let a Profitable Trade Change to a Losing Trade

You can achieve this by setting cut loss and cut profit. Set a 5% cut loss point to prevent massive loss. Remember that every huge loss starts out as a small loss at the beginning. Always count your break even price which is your entry price add with brokerage fees. For example, if you buy 1000 shares of Microsoft stocks at US Dollar (USD) 1 each unit and the brokerage fees is 1 % of the total sum. Then, your break even price will become USD 1010, not USD 1000. Get it? 

3) Let the Profits Run and Cut the Losses Short. 

This is easier to say than done. To continue with the example just now, if the Microsoft shares that you bought fell to USD 0.80 and another shares in your possession rose from USD 1 to USD 2, keep the rising shares and and sell out the losing one especially when it hits your 5% target of cut loss mechanism. The earning from the rising shares will cover your losses in the market. 

4) Buy In Partially and NOT One Lump Sum at a Time

Remember that wealth is accumulated, not created in overnight! You monitor the stocks for some time and buy in partially whenever the market consolidates or facing healthy correction. Consolidation here means the market is not facing a major crash! This strategy is only applicable for those companies with strong fundamental and they keep a good track of earning lustre for at least, the past 5 years. Avoid using this strategy for penny stocks (stock that has price less than USD 1 or RM 1 ) because penny stocks are normally more volatile in pricing. Hence, penny stocks are usually traded, not accumulated. 

5) Diversify, but not Overly-Diversified 

Don't put all your eggs in one basket, right? Thus, don't concentrate on one stock only but it is always better to take a few good stocks, and keep them in your pocket. Wait for the stocks to realize their real intrinsic values, then sell them off for good. Another hint is don't hold more than 5 stocks at one time. The reason is simple, when the market really crashes, you might not know which stock to cut off first. Holding too many stocks are over-diversified and beside lowering your risk, it might as well lowering your profits too. The optimum option should be holding 2-4 stocks, depending on how much capital you have in your hand. If you have USD 1,000,000 in your hand, then there won't be much problem for owning a mere 5-20 stocks at a time. Imagine if you only have USD 2,000 and you want to diversify it to 5 stocks? So, be flexible.  

6) Never Add to a losing Position 
Don't add to a losing position, unless that is your strategy. There is an accumulative method called "dollar cost averaging". This strategy uses a very simple method which is buy in a small portion of a particular stock or a few stocks whenever the stock price falls. However, there is a real danger in applying this lazy-man method. It is not suitable for investors with small or little capital and it is not eligible for penny stocks or companies which have fundamental problem. Back in year 2008, many people flock into buying Lehman's Brother bank when it dipped. Eventually, they all lost their hard earned wealth or pension. When this huge, third largest financial institution in the United States of America finally collapsed, it wiped out the wealth of many Americans.

7) Study The Pattern of the Stocks Before Buying. 
Do your own research of the stocks because like human, every stock has its own characteristics too. At least, research whether the stock is on up trend, down trend or trading side way. Let say for the year 2012, Microsoft traded the highest price at USD 400 and the lowest at USD 300. Now, it is trading side way at the range of 350-360. Therefore, wait until the market consolidates and if the stock price is close to the historical high, most probably you want to sell half or all of it. So does vice versa. Again, buy and sell partially, not all.

8) Let the Market Shows You What To Do
If the market is in the bull or up trend, buy in whenever the market is in correction. If the market is in the bear or down trend, only buy in when the market stops falling and starts to rebound. What if the market is trading side way? Be flexible and buy in dividend stocks. Buy more when the market falls and sell some when the market goes up. Aim 20% of profit instead of 50% or 100%. Target the biggest company in the sector because when the market falls, they sustain but when the market comes up, they are the first to up and arise!  


9) Avoid Trading When It Comes To Important Date or Earning Announcements.    
Rumours normally fly around one or two weeks before the announcement of quarterly results. Check with your brokers or brokerage house websites. Avoid trading before the announcement of Quantitative Easing (better known as QE) or any polling dates. 

Also, watch some videos : 

5 Practical Thumb Rules that Suit All Kind of Stock Traders

5 Practical Thumb Rules that Suit All Kind of Stock Traders

     For the amateur or newbies in stock trading, getting the right guidelines is life-saving. The following are a few guidelines proved to be useful and practical in preventing losses and securing profits. 

1) Make Your Trading Decision when the market closes. The reason for this rule is simple. Making your trade decision and strategies after the market closes to avoid emotional attachment. The knowledge of market could be learnt throughout the years but it is always the sentiment that inhibits you from reaping massive profits from stock trading. Avoid feeling of greed and fear! If you want to monitor your stocks, check the prices during lunch break or after the session of the day ends. 

2) Focus on your Long-Term Goal and not the Short-Term ones. Don't be too harsh on yourself on one winning or losing trade. Focus on your longer term objective of investment rather than the short-term profits. A day-trader however, don't have to do this! Daily trades means daily review and techniques change more often. Longer-term finance weather and economical outlook don't bother day trader. Usually, day-trader focuses on daily attributes rather than the longer outlook. 

3) Envision Your Financial Goal. Visualize your dream car, dream house or other quantitative dreams that motivate you. List down the dreams that you want to achieve in your life and paste the posters of the objects on your wall. See them everyday and visualize them in your mind. Motivate yourself from inner sub-conscious mind. 

4) Don't Always Invest. There is a Chinese preaching that means : A good apprentice knows when to buy, a good master knows when to sell but the great grandmaster always take a break! Hence, keep some cash in your hand. There are always some opportunities to invest here and there. Keep a trading diary to manage your finance. Keep track of the record to diversify your investment and save some cash. 

5) Learn Your Mistakes !  This is always easier to say than do! Normally, we learn from both earning profits and suffering losses. However, mistakes are more painful hence we learn more form them. Keep track of trading gains and losses in a book or excel page but don't write them on rough papers so that revision can be made.                                                                                   

Check the following links : 

Bumpy road ahead for Southeast Asia Stock Market

Recently, two incidents have sparked my attentions towards global stocks market especially South East Asia market including Malaysia stock market. 

 1) The plunge of Precious Resources - The Yellow Bricks, Gold 

 2) The bear-turning market for the Country of the Sun rises - Japan 

      For the second incident, the recent plunge of the Japanese Nikkei for over 6% has started its bear market when the Japanese stocks market has fallen more than 20% from its historical high into the recent low at 12,445.38. The world's third largest economy in the world, Japan, has plunged significantly due to the recent concern over the stopping or reduce of the stimulus package by the US, triggered by the Federal Reserve Chairman, Ben Benanke, who had not only once, but twice indicated that the US 4 years stimulus package or more famously known as the Quantitative Easing (QE) might have come to an end. The head-first dip by the Japanese market stocks was one of the biggest contributor if not the sole contributor, to the recent market buoyancy and volatility. 

       The imminent fall of the gold and other precious resources (excluding the commodities like crude oil)was also another indicator pointing that the stock market might have come to yet another series of consolidation. Gold has seen a steady rise in price since early 2000. It hit a new record of $500 an ounce in 2005. By 2008 it had reached an all-time high of $1,000 an ounce. In November of 2010 gold climbed above $1400 for the first time. It hits its highest peak ever in September of 2011, closing at $1921 an ounce. And then it dropped. It hit $1800 an ounce last October and dropped below $1600 in February of this year. Ever since, gold has lost its momentum and is heading into another greater fall, as most of the experts have predicted, USD 1000 by the year 2015. 

      For Malaysia, I couldn't help but have the eerie feeling of "deja-vu" for the price of the real estate market. Ever since 2009, the price of the real estate has boosted up into more than 100% for some hotspots like Bangsar, Petaling Jaya and Cheras areas. One of the phenomena which gives me the eerie feeling is the entrance into the real estate by totally outsiders especially the youths, because they are earning easy money. This is the similar reflection of the same phenomena which struck the Malaysia stock market back in 2006-2008 period. Many young engineers, IT workers, sales representatives who have not even the slightest clues of what was happening in the stock markets had braved themselves into the stock market dealers, unit trust agents because there was easy money to earn. Look at what had happened in 2008! The stock market crashed! 

       Hence, for the investors who are already in the stock market, however, there is no reason to be panic yet...For my personal investment, I suggest 2 simple strategies to ride through this troubling yet full of opportunity market. 

 1) First, I have grown significantly conservative about the stock market ever since the polling day in Malaysia, 5th May 2013. Yes, the market has grown more than over 50 points in KLCI after the polling date due to the clearing of the uncertainty which engulfed the market since September 2012, last year. Yes, some experts have anticipated that the stock market will grow higher at the end of this year. Yet, despite the optimism, there is no more stimulant of good factors to the market, at least, not now. The recent downgrade of the REIT in Malaysia has deepened my concern. Therefore, I recommend more conservative and defensive stocks at the moment. Bjtoto, a few selected of number-forecast company, is still paying a generous dividend of 5-7% per annum, could be well-considered. The price is stable and the company has ridden out of the 2008 financial meltdown almost, unscratched. CBIP, a palm mill company, paying handsome dividend of 7-10 % per annum (based on last year performance). Uchitec, a small- medium size company fix to its niche market of being the world's only coffee machine module operator and manufacturer, is also giving a good dividend around 7-10% per annum (based on last few years' performance). Of course, there are many more...but watch out because some companies which pay good dividend have already skyrocketed and the dividend per share will drop significantly due to the soaring price.

 2) Open a future account right now. Future or options allow you to hedge against the market to protect your stock when the market falls. Of course, it tends to have higher risk compared to the stocks because it is timely-fashioned. 

 3) If you are not in the stock market now, hold some cash in your hands. As the market becomes uncertain, or even turn into the bear, "Cash is king". We never know when the market will plunge to its low and at that moment, you will wish to have some cash in hand to pick up some good companies at discounted price. 

Look at some videos : 

Why Gold Will Crash To $1,000 - Nouriel Roubini Price Prediction

Jim Rogers predict global depression in 2013-2014

*The above mentioned strategies are my own personal opinions, and they don't carry the meaning of indicating any recommendation of buying, selling or holding any stocks. It is just for sharing purpose only.

Herding...the mentality of many

1) The mentality of an investor 

First of all, I think the mentality of an investor is the utmost important ...: 

Over the time I had discovered that many successful investors like Warren Buffet, George Soros, Jim Rogers, Peter Lynch, Benjamin Graham, John Templeton, Mark Morbius, and many more, they all have something in common. They all are very dedicated in their jobs...which is investment although varies in strategies and approaches, however they all show high level of commitment and dedication as well as discipline. 

This has something to do with their belief system (BS) and their core value system. Over the time, they had successfully developed a working system and stick to their strategies and earned massive profits in the stocks market.

This is indeed something we had to learn from the gurus before we becoming as successful as they are.   

As such, one mentality which we should avoid the most is about herding. It is a basic instincts in our nature to ensure our own survivals...For a long time, scientists think that the mimicking behavior of animals is somewhat irrational and extraordinarily..."stupid"! It is as though the animals fail to respond on their own and go to following the herds even when the herds are falling over the edge! 

  I am not kidding...the herds in goats, zebras, elephants and other animals apply the same kind of herding to ensure the survival of their species...humans too. The one reason why they react in such a way is...to gain security and staying in the comfort zone.. 

  Another thing why herding is hard to avoid is that...it has become a conditioning... A term you find out very familiar in psychology...since small, we have been taught to follow the crowd to avoid embarrassment, humiliation and so that we are exactly like anybody else...normal. We follow some celebrities from half of the other globe and try our hardest effort in learning the same fashion, styles, languages and even learning behavior. Therefore, we react by mimicking others to get the "safe" and "secure" results. 

   But, in investment, most of the time, following others is not a rational way of making a good deal, not to mention a profit-earning ones. Herding in investment normally pointing to chasing a "hot stocks" even though the prices already sky high ! And...in the market, the stocks normally reach the highest points before starting to tumble down ....crash and burn...That's the most obvious reason why a lot of people suffer huge losses no matter who brilliant they are. 
     Therefore, to avoid this, we must re-condition our behavior by reversing our fear and greed. Yes, these two emotions are the basic emotions which control the market as well as ourselves. Like Warren Buffet always say "Feel greed when everyone else is in fear and feel fear when everyone else is in greed. " This is a very interesting video which I found very fascinating in describing fear and greed in herding behavior. 

The Beginning - Passive Income Creation

The Beginning - Passive Income Creation

 It all started back when I was 19 years old....I came across a book that struck my attention and got fixed to it for many years...it was one of the many books written by a famous investment Gurus- Robert T. Kiyosaki. 

I was intrigued by the idea of creating the passive incomes through many ways....real estate, stocks investment, business, or any other investment in paper products (options, futures, commodities, currencies, bonds etc...)

         The latest one is ...internet marketing....I am of no investment guru or so...yet I strongly believe I have come to the correct path after all....

         Hereby, I would like to shares some of my mistakes (actually many of them) so that you would not make the same mistakes as I did...and maybe you can share yours so as I can excel better....

                                                                      By, Raymondlcm 21Nov2012

Back in those years...about 5-6 years ago....I was in the game (the rat race game by Robert T. Kiyosaki) and well-understood that by keeping my expenses at incredibly low then I can save some money to started learning investing and with some minimum passive income I can lift myself up and out of the rat race most people are still trapping in...Although many years had past by, I hadn't thrived in making sufficient passive income to do so...Therefore, my question will be: 

1) Which is the utmost important thing, earning the passive income first or create your wealth first then start investing ? 

(Most of the time I get the answer is to making them both...)

Whatever your answer is, please take note of the groups your are in now...and try make it into the "I" group which stands for investment...IF you have no idea what I am talking about, please refer to the below chart...

The idea is simple : 

The CASHFLOW Quadrant is divided into four types of people.

E is for Employee

S is for Self-Employed or Specialist

B is for Big Business

I is for Investor

On the left side of the quadrant are Es and Ss. They pay the most in taxes and trade their time for money.

On the right side of the quadrant are Bs and Is. They pay the least in taxes and create or invest in assets that produce cash flow for them even when they’re sleeping.

It’s my belief that the dividing line between those who are struggling in today’s economy and those who are prospering is the line between the two sides of the CASHFLOW Quadrant.

In this downturn, it is employees and self-employed people who are struggling as jobs are scarce and the cost of living is rising. Because they have only their time to trade, and that is not in high demand, they are at a disadvantage. Additionally, the products they need in order to live like food, gas, and more are becoming more expensive.

On the other hand, those who own big businesses and who invest are becoming richer and richer. Corporations are sitting on piles of cash and investors are cherry picking the best assets at rock bottom pricing.

Many in the E and S quadrants are holding on for the economy to pick up, and if it does, they will do well as the demand for people’s time—employment—goes up. That being said, the will still pay the highest in taxes and still be under the mercy of their employers and the economy. Until then, they will struggle because they have nothing else to offer and no other way to make money. Employees and self-employed always do badly in a down economy.

Those in the B and I quadrants, however, are doing well and taking advantage of the downturn to get richer. And if the economy picks up, they’ll also do well as the assets they’re investing now will pay dividends at the lowest tax rates—sometimes zero—in the up market, all while retaining control over their money and investments. Unlike, Es and Ss, Big business and investors can do well in both down and up markets.

If you’re struggling in this downturn, I encourage you to begin changing your mindset. Start making plans and taking action to move from the left side of the CASHFLOW Quadrant to the right side. Invest in your financial education, begin a side business, or start investing for cash flow.

Start small and move onto bigger things, but have a goal to become a B or I. It won’t happen overnight, and it will be hard work. But if you’re diligent, plan well, and execute your plan, you’ll be much better off in the future whether the markets are up or down.

The above statement is quoted from the website rich dad poor dad to enhance people's knowledge of the cashflow quadrant. No offenses means..

Please check the link : 

http://www.richdad.com

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