Technical Analysis vs Fundamentals

I have shared some methods to invest before ...

When to Buy at What Price

Why use EPS and PE ?

...

Those are within the category of fundamental analysis.  Basically you are trying to understand what a business is doing and how it 'may' perform in future.  Fundamentalist is trying to differentiate the big and important factors from the smaller factors or rumors ...

Sometimes even though the fundamental of a business is strong but its stock price may still go down if the demand is suddenly drop while the supply remains the same.  So even a totally rediculous rumor can affect stock price seriously in a particular time, as long as the demand believes it.  As the description of this blog mention, 90% of the people will take silly rumors as truth.

Fundamental also include effect of news.  If a company announces good year end result, its stock price may most probably go up.  However, you may observe that the stock price actually go up even before the announcement is made - its called react before the news.

As you may see now, fundamental analysis is great for long term wealth accumulation from time A to time B.  However, there may be a lot of ups and downs in between.  If you are able to catch the ups and downs in between you may be able to gain more, like wise if you 'guess' wrong, then you may lose more than what long term gain can get you.

You may NOT be able go guess right the lowest and the top points EVERY times, but there is a SYSTEMATIC / Statistical way to identify (1) end of the lowest point and (2) the end of the highest peak.

In other words, you may use Technical Analysis to catch the

(1) after lowest point and

(2) after the peak

The idea is this ... no matter if it is rumor or insider news, it will be reflected on the actual buy and sell price.  That's why Technical Analysis can NEVER catch or predict the actual bottom or peak, but it can usually catch the after effect.

If all these are TRUE, this is what you can do to lower your risk while maintaining your reward.

1.  use fundamental to filter out which stock to buy ( can keep long term )

2.  use technical analysis to 'further' narrowing the 'in' and 'out' timing.

... stay tune ... you are able to reach the 'sure win' arena ...

Wiki : Usury

Usury (pronounced /ˈjuːʒəri/, comes from the Medieval Latin usuria, "interest" or "excessive interest", from the Latin usura "interest") originally meant the charging of interest onloans. This would have included charging a fee for the use of money, such as at a bureau de change. After countries legislated to limit the rate of interest on loans, usury came to mean the interest above the lawful rate. In common usage today, the word means the charging of unreasonable or relatively high rates of interest. As such, the term is largely derived from Abrahamic religious principles; Riba is the corresponding Islamic term.

I have posted many storiesabout how money turns evil ...

many people may says that capitalism is not good because the rich gets richer ... actually its not the capitalism, its just the way the money is defined.

Again ... its all about a large population of under educated public being abused by a small group of smarter people.

This problem has been known LONG ago and well documented almost in ALL kind of religions ...

Fund Managers Are Lousy !

I attended one pursuing session urging us to take their classes on technical stock assesment.  Half way through the following conversation took place :

speaker : You know who uses our services ? ( Technical Chart )

( pause a bit, no one answer, then speaker continue )

speaker : Profesionals ! ... You know who are the pros ?

( then he continued )

speaker : Fund Managers !

student : but .... its hard to say isn't it ?

student : all those mutual funds drop like hell so they are not any better than us.  How to say they are pros ?

The speaker didn't answer well and almost no one signed up with their offers.

Basically its a matter of size.

I used to sell lemonade when I was a boy.  I made about 100-200% profit a day.  Then when I grow up I built a factory to sell lemonade, I would be happy if I can earn 10-15% a year.

Selling lemonade from my garage required $100 capital while a facotry took up $1 million.  

Things get complicated

when size grows !

It is very hard for a $100,000 guy to understand how to handle $2 billions.

BIG guys like mutual fund managers do have some 'limitations' because they are BIG !

1) They cann't simply buy or sell too much funds by law, coz they may 'manipulate' the market at ease

2) They promised investors to keep '80%' of the fund in the market to qualify as 'quity' fund etc.

emphasize on Automated Saving again

Some of you who has been reading my blog may have seen this picture below many times.

Basically this diagram is almost all about what I preach about in personal finance.

The first thing to do is not to buy insurance nor any investment plans.  The first thing to do is to transfer money from your income into a "Money earn Money" (MeM) acount.

It should have a few unique qualifying features:

1.  It always have a positive interest, no matter how low it gets.

2.  has limited convinience to withdraw money out from this MeM acount.

So it could even be just a normal saving account with low interest.

The 'flow' from Income to MeM should be Automated.  Once setup, you should forget about this MeM account too.  That way this MeM is really passive, definitely accumulating and safe from weak EQ withdrawal.

Another version of Money Crisis theory

OMG, after I posted up how Money Turns Evil ( Part 1 Part 2Part 3 ) , more and more people mentioned it too.  Below video is another version of it - speaking in Chinese.

Famous Successful Business man talk about Finance Crisis using his own theories.

The way he talks may be a bit bore but he actually suggested how to solve today's crisis !!

by having a modern day barter system !! One of the post I drafted but haven't posted up yet.

Money As Debt Video

I have told a long story how Money Turns Evil in the past.  ( Part 1 Part 2 Part 3 )  The last part was actually more like a basic tutorial to forex trading as a matter of fact.

Anyway, I read from Meshio blog about an interesting video - Money As Debt.  The story line may have some similarity to my story but this video is 10 times better !!

A 47-minute animated short by Paul Grignon (via BB) explaining how the monetary system used to be, and how the existing mo

netary system works

 

Have FUN watching !!

Book : Get Your FIRST car FREE !!

I mentioned before the biggest personal finance challenge in Malaysia is to buy car due to its rediculous high taxation (read this old blog here).

However recently I received a book from my sifu's sifu titled "TOP Money TIPS for Malaysians".

( read how happy I was in my personal blog here )

Written by KC Lau, one of the pioneers in Malaysia Personal Finance Blogging world !!

... guess what !

This books shows you HOW you can get your FIRST car FOR FREE !!!

It is totally mind blowing !

How could I have NOT thought of it myself !!  I regret so much that by now I already have had own 3 cars.

Why didn't I read this book earlier !  Argh !!!!

Don't make the same mistake I did.  You should go get this book now !  ( Click here to read more about it and BUY IT ! )

One more thing, this FREE CAR tip is only 3 pages out of the whole 208 pages !!  Imagine all the other tips that can help you Save More, Make More and Protect your Money !

Different types of Incomes

One of the famous income categorization is the one by Rich Dad, Poor Dad:

E is when you get paid when you do your job, usually within a fix amount of time or a pre-determined achievement list.  The good thing is your income is relatively consistent.  If you are the 9-5 type worker, even if you go to work and surf the net the whole day, you still get paid that day !!

S is when you think you are doing a business but actually you are not.  Basically you are still selling your time and effort in a linear way.  At the moment you cut down your time or your effort, your income drops accordingly.  The good thing is if you are a very hard working person, you are mostly likely to earn a lot.

B is when you have an idea and you get other people to make that happen.  You are Managing it but you are NOT Doing it.  Significant differences between S and B is that B is operated within a well established "system" while in S, you are the system itself.

I is when you keep your money in FD and every month your money increases.

The problem of Robert's first book 

is that he didn't say 

this Quadrant is a concept, 

NOT a finite categorization.

May be he did but not emphasized enough.

For example, a worker who goes to work everyday, just do whatever asked to do and waiting for month end paycheck falls under E.

However, if another worker is expanding his personal network during his career in order to move up the rank and also join better bigger companies could be considered as S.  He could be treating his employers as his customers, whom he pleases the customers in order to get paid higher and higher.

E worker works from 9 to 5, selling time for money.  S worker may not appear in office all the time but his mind is definitely 24 hours online thinking how to expand his 'business'.  Most CEOs operate their jobs like a Self Employed business.

Beggar who beg 9 to 5 can be considered doing a 'job' as E.  Beggar who analysed what places to be at what time to maximize his 'income' could be a S.  Beggar who gather other beggars to learn his begging strategy while he no longer go out to beg but share a commision of what other beggars have beg could be a B.

So wherever you are whatever you are doing now, you can do it the E way, the S way or B and I ways.  Its a matter of HOW you earn your income, NOT what you do.

One more heads up ... I also think Robert miss out one very important category.  There are a total of 5 income category types, not just 4.

(the 5th income category here, published 7 Jan 2009)

Save $2400 get back $800 = 33% return ?

Someone asked this in a forum ...

Save RM200 a month for 21 years with 'Guarantee' RM 800 interest a year, payable every 3 years at RM 2,400.  

It sounds like saving RM 2,400 a year can get back RM 800 return GUARANTEE - that is 33% rate  !!  Is it a really a good deal ?

I always see this kind of question being asked, the answer is quite simply ... you have to plug in the number and run the analysis.  ( read about that here )

For above example, if you also take back all your saving of RM 50,400 then add together with your RM 2,400 x 21 / 3 = RM 16, 800.  You are getting a total return of RM 67,200 21 years later.

If you assume a FD interest of 2.65%, you will get back MORE THAN the mentioned return above !!!  

And it is not 33% return but only less than 2.65% return !!

Guess what ?  Today's FD rate is at 3% and most likely to rise for the next few years.

Take this rule of thumb with you ...

any kind of insurance guarantee return policy will provide you slightly less than FD return at that point of time !!