System Formation of Personalized Investing Styles (破茧而出)

Ein55 Newsletter No 066 - image - Cave

Throughout our investing journey, we may have learned many fragments of skills along the way, a bit here and there, some fundamental, some technical, a little on property, a bit on trader psychology, etc.

Halfway in the exploration journey, we may focus on certain direction, eg. forex trading, property investment, REIT dividend investing, etc, depending on the interest and opportunity of one person.

Each advanced trader or expert investor will need to digest and generalize all the styles, forming into a trading or investing system which aligned with own styles. It may take years or even whole life to refine these investing habits which eventually become part of our life styles.

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I have done the same process before with formation of 55 Ein55 Investing Styles. Many years ago, I closed myself in a room for nearly 1 month, day and night working through my 20 years of trading and investing experience, aiming to form an universal system of trading and investing. The Ein55 styles of investing system is subsequently applied and tested with over 2000 graduates with diversified background, refining each day until now. It could be a lifelong process as I am also enriching my knowledge each day.

I also did something similar for my PhD degree in engineering many years ago, integrating all the scientific knowledge learned into a computer model, which is similar to a system. Subsequently in my professional engineering career, I have published over 150 technical papers before I could be recognized as an international expert in the field of engineering. As an extension of my interest, I have been integrating science and engineering into investing world.

This is similar to ancient time, a kungfu master has to hide in a cave for years, tidying up and integrating all the thoughts and styles, one day finally breaks open the enclosure when one has mastered the skills with formation of a personalized system, could be on kungfu, engineering, investing or our whole life.

闭关修炼、破茧而出。

 

Key Learning Points of Ein55 Traders Psychology Course with Charity for Lighthouse School

Ein55 Newsletter No 064 - 2017-03-19 - Donation to Lighthouse School

Congratulations to Ein55 Mentor James Hon who has successfully completed the full-day PA #1 Course on Traders Psychology. Who could believe he is over 70 years old, able to talk loudly nearly non-stop without a microphone to over 100 students for the whole day!

The students have learned the power of PA (Personal Analysis), understanding the importance of personality based trading plans and investing strategies.  Here are some of the key learning points:

1) Develop Wisdom by combining Knowledge and Life Experience:

Knowledge + Experience = Wisdom

2) ECP = Experience leads to Confidence, which enables your willingness to apply your system with Persistence.

3) The 3S of Trading Success:

Survive -> Sustain -> Succeed

4) Knowing where you want to be (Goal), you will be able to follow through (Persistent); persistence keeps you calm, calmness enables you to let go of emotional stress (Detach), then you will be able to attain result through careful deliberation.

知止而后有定,定而后能静,静而后能安,安而后能虑,虑而后能得。《大学》

知道应该达到的境界才能够使自己志向坚定;志向坚定才能够镇静不躁;镇静不躁才能够心安理得;心安理得才能够思虑周祥;思虑周祥才能够有所收获。

5) Gain the Awareness to define your own roadmap to develop the right Habits.

Ein55 Newsletter No 064 - 2017-03-19 - PA Course

 

Life is not just making money. To encourage successful Ein55 Graduates to help other needy groups, Ein55 Mentor James Hon and Dr Tee take the lead to donate to a charity organization, Lighthouse School. The school has been helping children with vision and hearing impairs to gain confidence in life through special education.

Ein55 graduate, Grace Poon, who is a volunteer and donor to Lighthouse School, has shared her experience in helping these special needs children through a choir. One of the motivation factors for Grace in learning investment is to help other needy group with the gains from investment. We hope her sharing could inspire more Ein55 Graduates to help other needy groups one day!

Let’s hear the beautiful sounds of these children in Purple Symphony, we could feel how the music has given a new meaning in life to them:

3 Levels of Investor Mindsets

Ein55 Newsletter No 058 - 2017-03-06 - Steps

There are 3 Levels of investor mindset, wisdom gained in their typical investment journey. So, which stage are you in now?  Learn how to be an investor with advanced mindset.

Beginner Mindset

Attend various free seminars, busy record the tips on what stocks to buy, having potential to make some quick money.  Apply “Buy & Hope” strategy.  When investing decision is wrong, holding to losing stock as paper loss, becoming a long-term investor.

Intermediate Mindset
Having some foundation in investment knowledge, could be burnt before during the beginners time when following herd mentality. Willing to pay to learn some useful knowledge in trading system or investing strategies. Apply “Copy & paste” Strategy to use the same methods for own applications.

Advanced Mindset
Learned most of the analysis methods around in the market, eg. FA (Fundamental Analysis) and TA (Technical Analysis), knowing what to buy, when to buy, when to sell. At this stage, a person will finally know that the biggest challenge is to know oneself, there is no single way to make money, having own independent view, adopting a consistent strategy aligning to own personality.

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Some people with more than 20 years investing experience may still have beginner mindset. Most people are at intermediate level of mindset, busy learning the best methods in the world. Only minority of people are advanced investors, level is not measured by years of experience, but by their mindset.

You don’t have to go through a painful learning journey of beginner and intermediate learners. Integrate 3M: Methods, Mind Control and Money Management, learning with the right mindset of Advanced Investors, even you are a total beginner.

Poker Game vs Investing

Ein55 Newsletter No 056 - image - poker game

There are many similarities between Poker Game and Investing. In fact, we could have more special edges or unfair advantage in investing but most people do not know.

1) Technical Analysis (TA) – Reward / Risk, Following Trend

For both poker and investing, we bid or invest more when the reward/risk is higher.  If we play Black Jack (total = 21 points), if you have 12 points, likely you will take the risk to add 1 more card because your chance (a card with 9 or less points, so that not exceeding 21 points) is high. Similarly, for trading or investing, eg. when stock price is near to the support, we would start to enter as the reward (upside) is more than the risk (downside).

Similarly, when a poker player has smooth win (good trend in winning), eg. facing a weak opponent, may add more position to maximize the gains.  This is similar to a trader who follows the market trend which is an edge.

https://en.wikipedia.org/wiki/Blackjack

 

2) Personal Analysis (PA) – Manage your emotions

A good poker player is calm, even holding lousy cards, will show confidence, so that opponents could not tell.  There is a poker game Bluff, the player could have lousy cards but pretend to have perfect cards. Opponent who challenges the truth could suffer as sometimes the player will purposely tell the truth. Similarly, a good investor will use the market greed and fear as a weapon, doing differently from the majority.

https://en.wikipedia.org/wiki/Bluff_(poker)

 

3) Fundamental Analysis (FA)

This is the main difference between Poker game and Investing.   Poker is a pure probability game, therefore TA & PA are the main edges. For investing, we could be selective to only consider strong business as they are more likely to grow in share price.

 

4) Optimism Strategies = FA + TA +PA (integration of all into strategies)

Strategies formation is important, integrating all the critical factors. Each poker player and trader / investor has own unique strategy, aligning to own personality, based on learning from positive experiences.  The strategies could change when the opponents (market) may be different, could be weaker (bear market) or stronger (bull market) opponents, which one would adjust the strategies accordingly.

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So, knowing the similarities and differences of poker game and investing (stock, property, etc), we understand that we could have the special edges or unfair advantage like Casino (more than 51% winning rate) if we know how to position Optimism + FA + TA + PA, aligning with own unique personality.

What is Investment?

Ein55 Newsletter No 055 - image - Investment

Investment is to take calculated risk, using special edges (eg. Optimism + FA + TA + PA) to give unfair advantages in winning rate over time, aligning to own personality with independent thinking.

Investment is NOT to copy and paste the methods with stock tips, news and rumours, following herd mentality with hope strategy.

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No one could know what will happen tomorrow. Guessing or hoping is not a reliable strategy for investment. Instead, we should know ourselves first, our unique personality which comprises of many aspects, eg. control of greed and fear, stress management, risk tolerance level, profit target, financial condition, holding power, resources available, etc.

Even if one only masters one weapon, it could give special edge, although it is limited. Eg:

Investor – using FA (Fundamental Analysis) weapon to find strong business
Trader – using TA (Technical Analysis) weapon to ride the trend of prices.

One should bridge between FA & TA:
FA + TA = FATA (发达)

Ideally, we could add 2 more weapons of Optimism + PA (Personal Analysis) to form a personalized strategy for any investment: stock, property, bond, commodity, forex, etc.

New Ein55 Investment Style 2017: Frog Cooking Theory

Ein55 Newsletter No 048 - image - Frog Cooking Theory

 

Although both were/are at historical peak stock prices with high optimism, there is a key difference between bullish stock markets of China SSEC (Year 2015) and US S&P and DJI (Jan 2017).  The chart below shows that the rate of index growth is much faster for China SSEC, therefore the high optimism was not sustainable, going up and coming down within months. US stock market is a gradual warming process, although feverish, it is more sustainable.

We may have heard the story of a frog swims comfortably in warm water, could be killed unknowingly when the water is heated up gradually. A frog could adjust the body resistance to temperature change, but there is a limit for the tolerance, eventually it will get killed if the water temperature is too high because it is so used to the environment, does not know how to jump out of the danger.

Sounds familiar to those in the stock market? If a stock trader or investor behaves like a frog, adjusting to the cooling water (i.e. stock market correction) and warm water (i.e. stock market rally), mild bearish or mild bullish market, but eventually when stock market hits extreme high optimism, one may not know how to escape when the market melts down, not able to react fast enough as they may not feel the risks when stock market prices grow up gradually.

The US stock market has been bullish recently, leading the global stock markets in the same direction, ideal for short term traders to buy high sell higher.  Dow Jones Index is above the critical 20,000 points, which could be the next future support over the time, while S&P 500 is near to the next milestone of 2300 points.  As long as the water temperature of stock market is heated gradually, best with some cooling in between, the “frogs” could still be safe for a prolonged period of time until a Black Swan swims in one day, then the unprepared traders or even investors, could be caught by surprise, may not know this will be a real crisis.

Ein55 Newsletter No 048 - image - Indices Growth Rates

You could call this as a new Ein55 style but since Dr Tee already has established 55 Investment Styles, I won’t give a new number, eg. #56. You may know the reason if you have attended my free courses to the public before.  This investing concept was already integrated into Optimism Strategies, it is just I did not label with a style in the past. We need to monitor the rate of change in Optimism which is different from Technical Analysis which focuses only on stock prices.  Ein55 Investment styles are usually generalized concepts with interesting stories, helping learners to apply the methods easily in daily life experience of investment markets.

Dr Tee: Successful Trading & Investing with FTP Analysis in Optimism Strategies

Ein55 Newsletter No 037 - image - Taiji

First things first, what kind of investor would you describe yourself as? Conventionally, we classify investors into two groups—long-term and short-term.

Long-term investors also tend to identify as value investors, who typically base their decisions on Fundamental Analysis (FA). In other words, they are not so into day-to-day trading, or watching stock charts closely as stock prices go up and down. Instead, they prefer to read company reports and seek stocks which they believe are trading for less than their intrinsic values.

Short-term investors…well, it is still debatable whether short-term trading can be called investing, but we know that it’s a much faster game with less waiting time, but more technicalities or Technical Analysis (TA) involved.

So, quick, choose one between the two, which type are you? It’s hard to stick completely to one choice, isn’t it?

Each side has its limitations!

I too would find it hard to just pick one and leave the other one out entirely, because I don’t believe that the two investing styles should be mutually exclusive.

In fact, each style comes with its own set of blind spots and shortcomings.

For instance, one could still lose money by buying a fundamentally-strong stock at a sky-high price.

In the case of short-term trading, it might easily turn into over trading, i.e. excessive buying and selling to increase the probability of successful trades. Such gambling behaviour, coupled with a lack of discipline, could cost investors heavy losses.

Therefore, I think it is advisable and even important to make use of both FA and TA, to enjoy the “best of both worlds”, and in other words, buying giant stocks at cheap prices and at the right time.

On top of that, the investor would also need to develop a kind of inner discipline. Thus, I would like to add another school of thought—personal analysis (PA) as well.

I have integrated 3 schools of thought: FA+TA+PA (FTP analysis) through the unique Optimism Strategies.

 

Ein55 Newsletter No 037 - image - FTP

More about FTP Analysis

People who are new to investment may ask the question, “So what is FA, TA, or PA? What can I expect to learn under each category?”

This is how I look at it.

When it comes to Fundamental Analysis (FA), it is more than just assessing a company’s business performance or intrinsic value (though that will be covered as well). We should also have an understanding of the macro economy (e.g. how countries/ economies are doing on the whole) as well as microeconomics concepts (e.g. demand and supply). I believe that the stock market and the economy are related like how the teeth are related to the lips—without the lips, the teeth will feel chilly.

As for Technical Analysis (TA), ideally we want to buy low and sell high, but it is not that straightforward. In order to enter and exit markets at the right timings, we need to look into trade volumes, values, patterns, trends, etc. I will also be sharing key points that include: relative and absolute technical analysis, as well as bull and bear market interpretation.

Personal Analysis (PA) is essentially a study of 4P: Investor Psychology, Political Economy, Winning Probability and Personal Indicators. It might be the most overlooked part, though I feel that it can even be more important than FA and TA sometimes. Market forces may be uncontrollable and unpredictable, but we can overcome our own emotions and also form personalized investing strategies.

How do we connect these three schools of thought together then? Having been an investor for 20 years myself, I think it can be summed up in one sentence: Identify strong FA stocks, and buy/sell at a time aligned with TA indicators, as confirmed by PA.

The unique Optimism Strategy developed by Dr Tee provides a special advantage to know which investment (stock, forex, property, commodity, bond, etc) to buy safely, when to buy, when to sell, including option of long term holding.  So far over 10,000 audience have benefited from Dr Tee high quality free courses to the public.  Take action now to invest in your financial knowledge, starting your journey towards financial freedom.

 

How to Capture Falling Knife Safely for Stocks in Crisis?

Ein55 Newsletter No 035 - image - Falling Knife image

Every crisis is an opportunity.  We have learned to be greedy when others are fearful.  However, not everyone is mentally prepared to buy low and sell high following one’s personality.  When a business is in crisis, the stock price is like a falling knife, one could get hurt when enters too early, buy low and may get lower, emotionally affected with the endless falling prices.

For example, over the last 2 years of crude oil crisis, stock prices of global oil & gas stocks are significantly corrected. Singapore oil & gas stock index is at 9% optimism (see chart below), a very attractive price level over the last 10 years, upside is much higher than downside from a long term perspective.  However, whenever there is a technical rebound due to good news (eg. recovery of crude oil price), there could be another negative news who correct it down further (eg. Swiber plans to wind up the business recently).

Ein55 Newsletter No 035 - image - Falling Knife

 

Here are a few important considerations for us to safely capture the falling knife of a stock in crisis:

1) Fundamental Analysis

Some weaker stocks may not survive through the crisis. It is critical to always consider giant stocks with strong fundamentals.  Based on the survival of the fittest, after the winter is over, these strong stocks will grow stronger, especially there are less competitors with higher demand then.  For more conservative investors, one could wait patiently for signs of reversal in the business performance.

 

2) Technical Analysis

While long term view of a stock could be at attractive low price, the intermediate price trend usually is bearish for a stock or sector in crisis, eg. commodity, shipping, casino, etc.  It is important to follow the trend before entry, waiting for the falling knife to drop the floor first, before pick it up safely.  Confirmation of uptrend is required, aligning Level 1 (individual stock), Level 2 (sector / industry), Level 3 (country / region) and Level 4 (whole world).

 

3) Personal Analysis

One should know own’s personality before deciding whether short term trading or long term investing is a more suitable approach.  It is hard to force a trader to buy low and wait for several years to have tremendous capital gains.  At the same time, a true investor could grab an opportunity even with counter trend in prices, ignoring the daily market news, using strong holding power to reverse the trend eventually, buy low sell high.

 

Café de Coral – Hong Kong Fast Food Giant Stock (Investment Trip with Personal Analysis)

Ein55 Newsletter No 031 - image - Cafe de Coral

In the vacation trip to Hong Kong with family, I also take the opportunity to study a few good Hong Kong stocks through actual involvement as a customer of their business.  This strategy is called Personal Analysis (PA), also applied by Peter Lynch, the best Fund Manager, who identified the best businesses through daily life observations.

Since we were hungry, we have decided to go around the Nathan Road near Mong Kok area. We ran across Café de Coral (大家乐), a local Hong Kong fast food restaurant. We could not even find a seat at 6pm, business was so good. Then we walked further, there is another branch, manage to find a seat after waiting.

We ordered baked rice, the portion is so big and the taste is good, although it was prepared in about 5 min. The business continue to be good, full house until 7:30pm when we left.  We walked further, seeing a few more Café de Coral. It seems to be more popular than McDonald in Hong Kong, so many branches and business are good.

Daily life observation is a powerful investing technique (Personal Analysis, PA) when combined with Fundamental Analysis (FA) to confirm Café de Coral indeed has strong earning and cash flow records. An investor could then apply Optimism Strategy to buy a share of this business through stock market, ideally at Level 3 or Level 4 crisis for investing, or Level 2 crisis for trading, adding Technical Analysis (TA) and macroeconomy analysis of Kong Kong if needed.

Ein55 Newsletter No 031 - image - Cafe de Coral Optimism

Café de Coral (HKEX: 0341) has increased in share price by more than 11 times in the last 16 years.  Long-term Optimism of this giant fast food stock is 9% at current share price, low downside (9%) and high upside (91%).  This is a rare opportunity for investor, share price correction is partly due to economy slowdown in Hong Kong and major correction in Hang Seng Index (HSI). Optimism is a probability calculator, we could estimate the reward to risk ratio, we could safely consider a good stock if we could wait for the giant to fall down.  However, the short term trend is negative due to bearish global stock market sentiments, therefore only investors with long term holding power could enter with counter trend (price could become lower in short term). If not, trading strategy could be considered.

 

 

Opportunity to Buy Stocks during Level 1 – 4 Crisis

Ein55 Newsletter No 024 - image - Crisis is Opportunity

“Be Greedy when Others are Fearful”, Warren Buffett. 

Many people buy stocks when they feel safe and comfortable, after seeing other people making money, only then they chase after the opportunities, sometimes caught again when market sentiments start to change.  A safe way of buying stock is to wait for crisis, when people worries about the stock market, only then they will sell their best value stocks at discounted price to us.  Every crisis is an opportunity!

There are 4 levels of Crisis:

Level 1 (individual stocks)

– company with falling share price or business, eg. Noble, Keppel Corp, Golden Agri, etc.

Level 2 (sector / industry)

– sector correction, eg. Oil & Gas stocks, Casino stocks, Shipping stocks, etc.

Level 3 (country / region)

– stock market correction, eg. Hong Kong Hang Seng Index, China Shanghai Index, etc.

Level 4 (world)

– Major economy slowdown, eg. China

For a falling stock price (Level 1 crisis), it is only worth considering if it is related to sector correction, not mainly because of own business is declining.  A business may go bankrupt but entire sector/industry would nearly always come back after the winter time is over.  A trader would require minimum Level 2 crisis to buy stocks, currently there are many opportunities for Oil & Gas stocks, commodity stocks, retail stocks, casino stocks, shipping stocks, etc.

However, an investor with higher profit target will need to wait for larger scale of crisis, either Level 3 (country / region) or Level 4 (global market).  The golden investing opportunity of life time is to buy stocks which consistently make money in business (even during crisis) but the stock prices drop more than half because people worry the sky will fall down during global financial crisis.

It can be very easy or can be very tough to grab on the trading and opportunities above to buy low during Level 2-4 crisis. If we follow majority of people to trade/invest normally, usually will end up buy high because we feel more comfortable in a bullish market.  If we could follow abnormal strategies like Warren Buffett did in the past, wait patiently for the giant stocks to fall down, buying them at great discount in Global Stock Sales (as if Great Singapore Sales, GSS) when other traders/investors are very worried, the reward could be significant.