Understanding Our Emotions

Some people invest like Warren Buffett, calm and easy; others invest like a bull dog, simply “hit” whenever they listen to any rumours. Sad to say that, not everyone is fit to invest in the stock market. Majority of the investors plunge in by emotions at the wrong time and bail out by emotions at the wrong time. In general, stock market preys on fear and greed, and it’s not designed to reward the masses. Warren Buffett said, “Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”Let’s take a look at the following common mental mistakes, and see if you can handle them well:
1. Herd MentalityWe see this trait in the animal kingdom, such as a school of fish, a flock of birds, and a herd of sheep. Like the animals, we feel comfortable in doing things together – if more and more people are buying a particular stock, most likely we will follow suit if we happen to have some money in our pockets. The way to profit from this phenomenon is to resist the herd mentality and try to be a leader. In any crowd, or group behaviour situation, the ones that lead are the ones that draw all the benefits, while the ones that follow blindly are the ones that take all the risks.
2. Gambling Behaviour and SpeculationIt is believed that gambling behaviour and speculation are part of our human basic trait. Statistics showed that 1.1% of men and 0.5% of women are “probably compulsive gamblers”. In general, speculators often dictated by factors such as tips and rumours to take advantage in the stock market. This behaviour is usually unpredictable, short term and unwarranted.I would strongly advise genuine investors to avoid following the crowd blindly as it is always double edged situation – either huge profit or heavy losses.
3. Greed and FearThere are two cardinal sins: Greed and Fear, which are inherent in human beings. For instance, we bought some stocks and we are starting to make profits. Assuming we made a 50% profits in a particular stock, our greed will tell us not to sell, as we are hoping the price to go higher. However, it didn’t, instead it fell back to the original price. One month later, the price moved up by 10%, and our fears kicked in, spurring us to take profits. So without a proper strategy plan, we are blinded by our own emotions and instincts that prevented us from making the right decision.Hence, we should never let our emotions cloud our trading judgment. What we can do is to turn the crowd’s fear and greed to our advantage! To exploit the market psychology, we must act in a contrarian way when the crowd falls prey to their emotions.
4. OverconfidenceOverconfidence can cause investors to underestimate risks when investing in stocks. Studies have proved that investors who have recently earned high returns will tend to take more risks in their future investment (in stocks.) I’ve seen many of my friends who fall prey to this emotion. They initially made tens of thousands of dollars. However, due to overconfidence, they invested more heavily than before and they even tolerated with much higher PE ratios. As a result, they give away the gains back to the stock market!So, if you happen to have more than two of the above common mental mistakes, please put your money into reputable unit trust funds where you have professional portfolio managers to invest for you.

Investor act like crisis never happened

Investor act like crisis never happened

Investor act like (2000-2003) and (2007-2009) crisis never happened. Investor have very short memories and the major economies of the world are not as strong as the market world have us believe. But investor should be very careful in this very crowed trade. During market rally the investors buying the stocks as it there was no tomorrow, thought it was a good oppurtunity to gain in this bullish market.
Do you know how much money was lost in the world-wide markets in 2007-08? That total was estimated at twenty-one trillion dollars (Credit Suisse Global Investment Returns Yearbook 2009). But shouldn't the real question be: WHY was so much lost?
Market conditions turned severely bearish in 2007 and stock markets began an historic decline not seen in generations.
Most investors just hunkered down, hoping to ride out the storm. What they didn't understand though, was their investments were NOT positioned to withstand the ferocity of a full-blown bear market.
When the sell-off struck, millions of investors’ dreams of wealth, retirement and security were crushed. Retirement accounts were reduced to half in a matter of months.
"I wonder where markets are going?"
No matter whether you are a long term investor, a swing trader, or even a day-trader,..Successful investing is can often be counter- intuitive to how most investors want to trade.
You see, an average stock investor will only enter a position once they "feel" comfortable with the idea that stock markets (or their stock) are likely to keep rising. Unfortunately,  that's usually the time for FUND is getting ready sell.
To compound the problem, investors frequently end up selling in a panic after markets have moved substantially lower. Again, that's usually the time when institutional traders are getting ready to buy.
That behavior is the reason why investors keep complaining, "How come stocks always seem to go down whenever I get in...or go up when I finally get out?" Don't take it too personally, it's really a basic problem of human nature.
Everyone wants to feel sure about their decisions, and because of that, wait until they feel safe before taking action. The need for feeling sure is so powerful in fact, you'd almost have to be psychopathic to act against that impulse.
In the booming 90's, you could have picked almost any stock and watched it climb for what seemed like forever. But "forever" came to a screeching halt in the bear market of 2000. Since then, even the stocks of well managed companies have become subject to more wild, short-term swings, triggered by broader market volatility.
Blame it on computerized trading, hedge fund trading, or changes in trading regulations, but the fact that huge volumes of stock can be executed in a matter of seconds can have a dramatic impact on the markets.
That volume comes mostly from institutional traders, who control as much as 70% of the daily market volume. But that volume also becomes an institutional trader's liability...
Think about it. Fund managers cannot simply push a button and freely move millions of shares of stock without also unbalancing markets against themselves. In order to unload or accumulate positions, institutional traders are often forced to allocate trades over days and sometimes weeks in order to keep prices from moving too far from their target range.
It's that potential imbalance issue which will become your trading advantage.
Imagine what you could do, by knowing ahead of time, when big money is about to change direction. What if you also knew how long their wave of buying or selling would last?
With that kind of market foresight, all you would need to do is position yourself in direction of their upcoming trades, and let their following massive volume do all the heavy lifting for you!!!

Disciplines And Strategies In Share Market

A single Strategy is not nearly enough. You need several Strategies. A single Discipline is not enough. You need a variety of Disciplines. You must develop your disciplines around flexibility. The market changes constantly. Its biases change. At one time it favors momentum investors, and at another time it hammers them. Your rules for buying and selling must be adaptive. If you develop disciplines that are adaptive to the varying whims of the market, and your strategies are suitable to the prevailing market climate, you will prosper. Consistent profitability in the market is not about how you "feel," or about the fact that a company has a great "story" and that its stock should go up. Emotions have no place in the equation. Study to learn tactics and tactical considerations. For example, what are the implications of a "hanging man" candlestick formation after a long uptrend? What tactics are worth considering in the placement of rising stop-losses relative to a rising trendline for a volatile stock as compared to a less volatile stock? Remember that there is either a person or a computer on the other side of every trade you make. That person or thing is betting that you are wrong. What tactical difference would it make in the placement of your stop-loss if a stock's pattern suggests the stock is frequently "gunned" near the trendline? A stock is "gunned" if a specialist sees a group of sell orders (perhaps stop-losses) just below a trendline and he forces the stock down by dumping some shares in order to buy up the shares offered for sale at the lower price so he can resell them later at a higher price. This is more likely to happen if the stop loss orders for those shares are set too close to the stock's current price. If this is a pattern for a particular stock, how would you approach the problem? What tactics do you use to buy breakout stocks? Do you buy on the breakout, wait for a pullback, or wait for a pullback and bounce? Even though it takes time, work, and some losses to develope your skills as a trader, you will find that it can be a very interesting and even a fun way to make a living. Think of it as the world's largest computer game. The money in your account is how you keep score. Even a beginner can hold his own if he is careful. There are a lot of people in the market who have no discipline, strategy, or self-protection systems. Protect your portfolio with a good stop-loss system. Do your homework. If you do these two things, you will be way ahead of most of the people in the market.

Discipline implies "teach" & "train." You are not disciplined if you do not study to learn from your mistakes and modify your behavior accordingly. Discipline means to govern. You have no discipline until you learn to govern your emotions. Discipline can involve chastening. The market will do that for you if you do not exercise the other meanings of the word. If you are disciplined, you will regulate your behavior so that you do not deviate from your planned procedures. A Disciplined investor or trader will combine lessons the market has attempted to teach him with lessons gleaned from his past behavior to provide self-generated tutorials that will lead to success-generating behavior.

Strategy suggests at least a general plan. However, to be a consistent winner (which does not mean always winning) you need more than simply a generalized plan. Successful stock market strategies are more complex than that. You need a detailed blueprint that is designed to gain you an advantage over other participants in the market. "Strategy" involves adapting means to desired ends. To this end, real strategies must incorporate at least some general rules of behavior. Think of your strategy as the skeleton of your enterprise. Think of your "system" as the organs, muscle, and ligaments of your enterprise. Your strategy maps out the general structure of your endeavor. Your system gives life to it.

A "system" is more defined than a strategy. That is, a system has many subsets of rules that address various contingencies. Like the ligaments of the body, these subsets work in concert with each other to support the goals of the enterprise. However, "system" often implies more than a set of rules. The term may be expanded to include external support systems. That is, the word may include the set of rules, tools, indicators, and formulas that tell the trader what market actions to take. Top traders learn the rules of their system like a student of karate practices his katas (combinations of positions and movements) so that they become automatic responses in a combat situation. Similarly, all the rules of your system must be learned so that your behavior becomes automatic. Otherwise, the danger is that emotion will overrun your rules. A so-called "system" without contingency rules is not a real system in the sense of being a money-making blueprint. Without a system to give life to your strategy, your strategy is dead.

Discipline, Strategy, and System These three are the triumvirate that will lead you to success in the market. Your overall "strategy" will be made up of various sub-strategies that define your general approaches to investing under various market conditions. Will you look for breakouts, gaps, surges, use stop losses, or sell short? Your system consists of the set of rules and procedures you will follow to carry out your strategy (an example would be the set of rules in R.C. Allen’s triple moving average system). The meaning of "discipline" can also envelop the whole package or overall structural matrix of your enterprise. However, for our purposes here, we will define discipline to be what holds your system and strategies together. It is the persistence, care, and accuracy with which you implement your set of rules. Without discipline, you will not follow your own rules because the market will defeat you psychologically. Without the correct implementation of your system, you really are not in possession of an effectual strategy. You may have a strategy of buying stocks that have certain behavioral characteristics. However, no strategy is fail-proof and all people make mistakes. Effective systems deal with possible failures. At any given time, there should be a well-defined answer to the question, "How will you deal with each type of failure that could occur if you take that position?"

Rule Of Investing Long-Term

1. Always limit your losses.
2.Sell only the losers and let the winners ride.
3. Avoid buying stocks based on hot tips.- you should realise that nothing is free and nothing is ever for sure.
4. Do not rely too much on P/E ratio.
5. Do not try to time the market.- Leave the task to the so-called technical analysts who try to beat the market in short run.
6. Do not wait for the market to correct itself.
7. Price is irrelevant.-What is more important is its potential to rise.-you should not pass a chance to buy a stock because you think the price is too high and you can afford only a few lots. On the other hand, you should not buy heavily the so-called penny or low priced stocks because you think they are too cheap and you can afford to buy many lots.
8. Do not try to find the intrinsic value of a stock.-recognises the quality of a stock before the others are aware of it.
9. Do not fall in love with a stock.
10. Value is not equivalent to price.- buy the stock when it is selling at a bargain price, regardless of its true value.

Overconfidence/effect In Share Market

It is human nature for us to overestimate our abilities and become overconfident. Studies show that investors are often overconfident when it comes to their ability to predict market direction. Oddly enough, this is something that happens more often among novice investors. Compared to experienced investors, those who are new to the market tend to set higher return expectations and end up being overwhelmed by the unfavourable outcome. As a result of overconfidence, some investors tend to trade too frequently only to get unsatisfactory returns or worse yet, losses. With the convenience of online trading, some even quit their full time jobs to dabble in day trading, thinking that they have the ability to predict the market and earn fast money. These are the people that usually end up getting burned if they do so without proper understanding of what they have been buying and selling, especially when the market is highly volatile.

Understanding The Stock Market

A finance professor and a student who came across a $100 bill lying on the
ground. The student went to pick it up, the professor said, “Don’t bother – if it
were really a $100 bill, it wouldn't be there.”
This is the essence of Efficient Market Hypothesis where it says that investors
cannot make any exceptional profits through fundamental and technical analysis.
Because if there is any, it would be quickly taken by professional market players
in the market. However, in Malaysia and the rest of the world, our stock markets
are not completely “efficient” yet. We are at the stage of semi-strong form to
strong form market efficient.
So, fundamental and technical analysis CAN be rewarding to investors if they
really do their homework well.

The Stock Market Cycle

Next, we must learn how to look at the big picture of the stock market. Like any
other business cycles, the stock market has its own cycles as well.

It is not difficult to understand the concept of a stock market cycle. Just remember
this: “What goes down must come up; and what goes up must come down!” The
stock market cycle has four stages namely:
• Stage 1 The Trough,
• Stage 2 The Expansion
• Stage 3 The Peak, and
• Stage 4 The Contraction
A winning investor should understand how a normal stock market cycle operates
over the time. Particular attention should be paid to recent cycles. Usually, a bull
trend (the uptrend from stage 1 to stage 3) would last for about 9 to 18 months. A
bear trend (the down trend from stage 3 to stage 1) would last approximately 6 to
12 months.

Is The Market Cycle Self-Fulfilling?

Many market gurus have used cyclical analysis over the years to predict
forthcoming crashes and bull markets. As believers of these prediction gathers
momentum, market cycles can become very much self-fulfilling.
For example in the US, the Dow Jones Index often form lows during October. This
is the month when some of the historical stock market crashes occurred and so
people become more prone to overreact on bad news at this time in the market
cycle. They sell in anticipation of history repeating itself, thus causing the market
to move downward.

Even Warren Buffett said, “An investor should act as though he had a lifetime
decision card with just twenty punches on it.” If we have a lifetime of 75 years
and we started stock investing at 25, it simply means that we invest in the stock
market every two years!

Do not try to “get rich quick”. You’re bound to make mistakes! We must wait for
the best investment opportunity to come. If you think the stocks are too
expensive (with high PE ratios), just stay out of it. Look at the big picture: what
goes up must come down; and what comes down must go up. Be careful when
the market is over bullish, and treat every economic recession as a golden
opportunity to accumulate blue chip stocks

KLCI may fall to 1474 again?

I have warning you it's time for you to sell all your stocks since last 2 weeks. How accurate? Its pure base on my trading decision and not rumours. In my memory,  In May 2010, our local stock market, FBMKLCI, corrected 7.5% in one month. To add insult to injury, we experienced the euro debt problems and the infamous Flash Crash on 6 May 2010.

This year i make a same decision i clear all my position before May because of inflation and Japane crisis, I am sure this Quarter result may report a poor profit due to that impact. And another thing is Dow hit a triple high which may make a correction in any time btw our klci the volume keep reducing, is a signal of correction soon since last 2 weeks.

Foreign fund also leaving since last month and the last transaction they are buying is begining of month April. From the foreign fund flow chart the % of share holding is reducing so. Rising liquidity, rotational interest in various sectors.......bla bla bla..., Due to many many more reason i make a decision i Stay Sideline.

Buiter also warned that authorities in emerging economies such as China,
India and Brazil could be falling behind the curve in policy tightening
to tackle inflation.