Happy new year! I consider my self a newbie in the Philippine stock market and I’ve asked for inputs in a number of forum and Facebook groups. I want to read yours as well.
What is your strategy in the stock market, are you a fundamentalist or technical analyst? Do you also read charts and if you do, what are the indicators / tools that you use?
Thanks in advance.
(Email inquiry via Ask Geri)
I started dipping my toes in the stock market in 2007 (after graduation) and I could say I have somehow developed a work-in-progress system since then. I continue to be a student of the market (and will always be) but after almost 8 years, I’d like to think I can now call my self a sophomore at the start of a new school year rather than a freshman.
I call my self a student because I’ve read and learned that having a student approach keeps us open to what the market is telling us. I’ve learned that we can never outsmart the market (at least not always), we can never always comprehend her, and that the market has her ways to always humble and humiliate us whenever we feel like we know everything about her. The market is just as is. We will make mistakes from time to time. So best to have the eager student approach.
I started out as a fundamentalist so I tried to study the financial statements of the companies. My best guide for this was Peter Lynch’s book One Up on Wall Street. I also rely on the the valuations provided by the online brokers I am subscribed to. I do some computations based on Lynch’s book but in terms of computing the target prices (TP) and fair value (FV), I leave it up to the experts and just use them as reference.
I also used to be a buy and long term hold guy and it worked for me during my early years because I know (and I have proven) that I’m holding on to fundamentally sound companies. The daily, weekly, and monthly fluctuations and price drops still bother me until now, but much less compared to my starting years, because again, I believe in my holdings.
I said “I used to” because now, I am also trying to time my entries and exits using technical analysis (TA). So in short, I try to be both. Some people call this an actuarian.
TA is much more tricky than being a fundamentalist because there’s just too many interpretations of too many charts and patterns. Too cluttered. Now, I’m less of a “buy and long term hold” guy but more of a “buy in tranches during dips” and “take profits during medium-term peaks”, then “buy again when temporary correction stops and the uptrend continues.” Admittedly, this approach has the potential to provide better returns versus the long-term hold, but it also takes much more effort, transaction fees and charges, requires higher risk appetite, experience and more time to monitor the stocks movements.
I try to comprehend the candlesticks and read up on what various patterns may mean. It is an ongoing process because Juan will only be good in reading charts by reading charts, by regular practice. I use only a few indicators that I can comprehend to time my entries and exits, such as Volume, Moving Averages, Trendlines, Resistance, Support, RSI, MACD and Stochastics (check Investopedia on what they mean and how they work).
I keep my indicators and my system simple because for me, the trick is to use what I understand and what works for me, rather than use too many tools and be stricken by analysis paralysis.
I also read and read on stocks forum, Facebook groups, daily news and disclosures etc to improve my skills in connecting the macronews to the stocks movements, to know what other people think, etc. But best to take other’s words with a grain of salt, best to filter the “hypers” from the sincere “teachers” because at the end of the day, it’s your money that’s at risk and Juan can never tell whether there’s a hidden agenda from their inputs.
Lastly, it takes a lot of patience, patience, patience. It takes time to build great things such as a big and profitable portfolio. The stock market is a not a quick rich investment, despite some braggarts claiming to have tripled their money in a weeks time etc. Let them be. Of course they will not brag about the bigger amount of money they have lost along the way right? Let them be. For me, if Juan is truly rich, he will not have to brag about anything.
I have many friends who just recently started investing in the stock market, and who have relatively smaller portfolio. With their purchase power it does not make sense to buy and sell frequently since they will just end up losing money due to charges. Not yet. At times, a stock they’re holding already made sizable double-digit gains but since they only hold a small number of shares, their gains may be double-digit percentage-wise but still just a few hundreds in actual amount, not yet enough to reinvest in other stocks.
Regular investing and time may help fast track one’s portfolio to reach an economy of scale wherein a more frequent buy (on dips) and sell (on temporary peaks) will make sense, wherein Juan can take advantage of the regular dips. But in the meantime, patience and openness to learning are useful as Juan steadily and patiently grows his/her portfolio.
Goodluck and I hope I have imparted some knowledge to your inquiry.
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Photo: Bull Market by Nathaniel_Zumbach