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。

 

Invest in Golden Goose or Golden Egg?

Businessman holding a goose that lays golden eggs

In the investment world, a golden goose can be a giant stock with growing or highly profitable company.  The golden eggs could be the quarterly or yearly dividend distributed by the business to shareholders.  The golden goose or business could grow in size and therefore could produce bigger golden eggs in future.

If one could have a golden goose which could lay a golden egg once a year, should the investor sell the golden goose to exchange for a big sum of money in short time or collecting the golden eggs patiently over a long time?

This is exactly the dilemma of some investors who hold on to a stock which has both passive income (eg. yearly dividend which is a golden egg) and capital gains over the time (golden goose becomes larger in size).  They may get disappointed at later time if they keep the golden goose (stock) but the size (market cap and capital gains) could vary over the time, sometimes could have a weight loss or price loss of 50% during global financial crisis.

On the other hand, if they decide to sell the golden goose, it is a one-time profit, they may regret later when the golden goose becomes larger with more eggs laid consistently each year.

In fact, there is no right or wrong choice. They key is to ensure it must be a golden goose or a strong business.  Whether buy low sell high (selling the golden goose) or buy & hold (growing the golden goose and collecting the golden eggs) is just a choice, matching own’s personality. In general, we should have 10 golden goose in our investing farm. Sometimes we may sell a goose for immediate gains when the goose grows faster than expected.  When the crisis comes, we may use the cash from the gains to buy other golden goose at cheaper price.  At the same time, the farm has some other golden goose which could lay eggs consistently even during the global financial crisis, providing stability to our overall investment.

One has to learn how to choose a golden goose, knowing when to buy / sell the goose and whether to keep the goose for golden eggs.

 

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 Special F&B Stocks in Singapore

Ein55 Newsletter No 063 - image - F&B

Food & Beverages (F&B) stocks are usually cash cows, collecting cash or credit cards for payment after meals. It is easy to monitor the business, even if one does not know how to read financial reports, you just need to be a customer one time, see whether you will go back again to the same restaurant. Let’s analyse 3 different types of F&B stocks.

Jumbo (SGX: 42R) is a young giant stock to be proven further in the next few years.  I still remember a few years ago when I visited this restaurant, they requested the dinner must be completed by 8pm when we went there around 6:30pm, this is how they could maximize the capacity by giving fast service.  Its business fundamental has been reported strong since IPO, one way which earning could growth is through more successful expansion plan overseas. Now we could also enjoy their chili crabs in 3 branches in China.  Perhaps one day it may be like Breadtalk, can be found in global major cities.

 

Breadtalk (SGX: 5DA) will help Ding Tai Fung, the famous Taiwanese Restaurant (usually full house or long queue), to enter the UK market.  Market is no longer limited to the small 5 millions population of Singapore, whole world is the market but the judgment of taste could vary from one country to another country.

Breadtalk has been recovering from low optimism over the last 1 year when price was below $1.10.  Congratulations to Ein55 Graduates who have taken action, recent share price is around $1.30, more than 20% gains.  For Ein55 Graduates, they have learned how to position for Breadtalk through a homework.

 

Auric Pacific (SGX: A23), another F&B stock, is acquired by the main shareholder.  This is truly a F&B stock in Singapore, covering our 3 meals, owning familiar brands of Sunshine Bread (breakfast), Food Junction (Lunch) and Delifrance (Dinner).

Auric Pacific is not really a giant stock (based on Ein55 Giant Detector) but the share price dropped to half in the last few years, creating opportunity for main shareholder to buy low and fully own the company.  The offer price of $1.65 is at 100% Optimism, a selling price worth consideration for existing minority shareholders.

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There are about 50 F&B stocks in Singapore, we should only consider the Top 5 stocks. Super Group is rated as No 3 F&B Giant, acquired a few months ago.  How to know which are giant F&B? Ask yourself, where will you and your friends go for breakfast, lunch and dinner?  Too subjective?

Alternatively, apply Ein55 Giant Detector to identify the F&B giants in Singapore and globally, then use Optimism Strategy as investment clock to own these cash cows when other people are fearful or not interested. Investing is as easy as that but not everyone has the patience to wait for the “meals” to be served for so long!  Know yourself, finding the right business partner for you by owning their shares.

 

Blessing in Disguise: US Interest Rate Hike

Ein55 Newsletter No 062 - 2017-03-14 - Interest Rate Hike

We could observe the emotions of market, how it affects the stocks in both ways. Last few years, when global economy was lagging, news of US interest rate hike is a negative factor. Now, interest rate hike becomes a neutral or even positive news as the market assumes it means the economy is strong, therefore stock market and other investment market (property, etc) will follow the uptrend.

Stock market is emotional, people interpret the market based on the mass market sentiment, following the herd mentality. If we are one of the herd, our investment performance could be average. If the market is a zero-sum game, who will pay for the people who are making money?  Unfortunately, some people need to lose money.

Ein55 Investment Style #22 (Blessing in Disguise) describes exactly the stock market and economy relationship in the last few years till now. When I taught this principle several years ago, some graduates may not fully understand why it is a blessing disguise until they observe the QE tapering about 2 years ago and then US interest rate hikes over the past few years. Ein55 Investment Styles will be appreciated more if we could relate to stock market behaviours. This is the reason of my sharing from time to time here.

I have also pointed in many earlier public workshops and investment eBook (Market Outlook) that both QE tapering and US interest rate hike would become blessings in disguise. However, this opportunity is more suitable for a trader to ride the uptrend and one must know when to get out from the uncontrolled roller coaster at new peak one day.

A blessing in disguise could become a real crisis when more people are optimistic.  Pay attention when US interest rate is over 2-3% range, a black swan may swim in quietly while others are celebrating for the bull.

 

Power of Compound Interest

Ein55 Newsletter No 061 - 2017-03-10 - Compound Interest

Albert Einstein is my idol, his scientific mindsets could be applied in investing world (inspiring me to establish Ein55 Styles of investing). He said “Compound Interest is the 8th Wonder of the World”.  It is important for an investor to know which role to play, receiving or paying the compound interest.  The results can be very different.

 

1) Receiving Compound Interest

Growth stocks receive compound interest with growing business and share price.  An investor could become richer at faster rate because the growth stock may not pay dividend. Instead, the earning is invested back to the business to enlarge the market share, revenue and income.  Even after a business has reached its maturity, the excess income could be redistributed as dividend to shareholders who could invest in other growth companies.

 

2) Paying Compound Interest

Junk stocks pay compounding interest with declining business and share price.  An investor could become poorer at faster rate because the company business could be in crisis, not making money but still need to pay high interest of debt yearly. The worst is the company may still pay dividend to the shareholders with past saving while the company is still losing money, need to borrow more money externally at highest interest rate.  This is a process of burning money.  Eventually, the company could go bankrupt and the investors could lose all the money invested in a short time.

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Compounding interest is a double-edged sword, if we use it correctly, the business could grow faster, an investor could benefit from larger capital gains and passive incomes from dividends.  If this weapon is generalized, it is not limited to “interest” literally, it could be any method which could give the special edge to an investor or trader, eg:

1) Optimism Strategy – Reward/Risk ratio

2) Fundamental Analysis (FA) – Business Strength

3) Technical Analysis (TA) – Momentum / Trend Following

4) Personal Analysis (PA) – Contrarian to Herd Mentality

Ideally, we could integrate all the 4 weapons of (Optimism = FA + TA + PA), into a mega compound “interest” to accelerate the growth in investment.

Jardine Group and UOB Group with Cross-Holding Stock Network

Ein55 Newsletter No 059 - 2017-03-07 - Jardine Cross Holding

Company A owns Company B. In return, Company B also owns Company A. This is a complex cross-holding of stock network. Let’s learn how smart investors in Jardine Group and UOB Group, using the complex structure to hide their undervalue gem of stock.

Jardine is a giant group of stocks with nearly 200 years of history for Jardine Matheson Holdings, originally from China/Hong Kong, then having dual stock listing in London and Singapore stock exchanges. Ein55 Graduates have already considered Jardine Group of stocks: Jardine Strategic Holdings (SGX: JSH), Jardine Matheson Holdings (SGX: JMH), Jardine Cycle & Carriage (SGXL C07), Hong Kong Land (SGX: H78) last year when their Optimism levels were still low, share prices have gone up more than 20% since then when the market fear has subsided.

There is an interesting history for the cross-holding structure for Jardine group (image source: seekingalpha).  Hong Kong richest person, Mr Li Ka-Shing planned to increase ownership in Hong Kong Land in 1980s, the Jardine group with Keswick family defended their control, forming JSH which owns JMH, in return JMH also owns JSH, very hard for any hostile takeover with this complex share structure.

UOB chairman, Mr Wee Cho Yaw also has a similar cross-holding network of stocks under UOB Group. There is a hidden gem in Wee family stock portfolio.  Ein55 Graduates have learned in the last Charity Course (Discounted Asset Stock) on this special stock.  The stock structure is so complex that undervalued stock could not be seen easily.

Ein55 Newsletter No 059 - 2017-03-07 - Wee Cho Yaw

Normal investors could only buy at fair price because they don’t know how low is considered low for a share price. Traders would buy at high price, following trend to sell at higher price.  Speculators would consider when there is good news with surge of more than 20%, buying at higher price, hoping to sell at highest price.  Due to difference in entry prices, their reward / risk ratio will be different.

Ein55 Graduates have learned to buy giant stocks at unfair price with low optimism.  For long term investors, some even consider low optimism from level 1 (business), level 2 (sector), level 3 (country) to level 4 (world).

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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.

Crisis Stock: Noble Group vs Iceberg (壮士断腕、可悲可泣)

Ein55 Newsletter No 057 - image - cut arm

Poor Noble Group (SGX: N21), just about to recover, Iceberg is back with new report. Similar to Ezra and Cosco, it is a crisis stock with declining business and stock price.

It is not suitable to apply conventional method to analyze Noblle Group. Technically it is like a new company now, most of the good assets are sold to save the company by paying the debt. It may not have the same power to recover to the past glory.

Since it is a trader stock, fundamental will be relatively not so critical as in a bullish market, even weak fundamental stock could rise many times under speculation. It is more suitable for short term trading, using short term TA signals. 23 cents support was broken downward, combining with Iceberg (negative PA), tough on Noble. It is still above the intermediate support of 20 cents.  There is no need to guess for trading, prices with support and resistance will show us the probability.

NAV (Net Asset Value) criteria may not be suitable for Noble Group as it becomes asset light business, the asset quality is also a question mark. Good assets are properties and cash, many company have these quality assets, some with discounted share price.

Iceberg may be shorting all the way on Noble to low optimism with profits. If Iceberg is profit driven, similar to hedge fund, they could change to long position to “accept” Noble now, so that they could profit from recovery of Noble. Since Iceberg is still consistent in their negative views, it deserves some respect as they have principles. At low optimism, even for lousy business, very little profit potential to short a stock. With recovery of commodity market, Noble could have survived the greatest business crisis.

In ancient time, a warrior could cut off own arm to save one life when bitten by poisonous snake. Noble has cut his arm of core asset to save from 2 “snakes” with multiple bites from Iceberg and Muddy Water, starving in a cold winter (commodity crisis).  It deserves a chance to recover.

壮士断腕、可悲可泣。

 

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.