(Source: Memegenerator.net)
Recently, a friend of mine suggests me to do an experiment. He will invest purely based on fundamental analysis without caring the price of stocks since those stocks are undervalued and fit his stock choosing criteria. He uses his formula to filter out 15 stocks across Asia countries to invest. And for me, I will invest in those 15 stocks he filters out fundamentally, but my role is different, I have to combine with technical analysis to buy at better entry. Throughout the experiment, we want to know the investing result difference.
Rule is simple:
1. He invests purely by fundamental; Me, fundamental + technical analysis.
2. Position sizing, I can allocate the stock proportion according my favor. Him, diversified investment in 15 stocks, in other words, each stock is allocated to 6.67% of total portfolio.
3. This experiment has no expiration, it is better to measure it at long term view.
4. No transaction cost, however we are exposed to currency risk as we record our transactions in Google Finance, the system will automatically convert to local currency.
Menu
1. Investing Method
2. Identify Trend
3. Technical Analysis
-To buy
-Not to buy
-My Watchlist
4. Portfolio
1. Investing Method
Before going into technical analysis of 15 stocks, I would like to explain my investing method:
Firstly, I will try to identify the trend nowadays. If the trend just starts in the early stage, I will jump in; If the trend already flied to mature stage or almost come to an end, I will try to identify the next trend according financial cycle analysis and jump in before anybody else.
Second, once I identify the trend, I will try to find out which industry will be benefited by the trend. Once the industry is identified, then I will go deep into individual company to find out which company is capable to earn profit throughout the whole trend. When a trend starts, you will find all stocks in same industry shoot up together, after the trend has been going on for a period, those speculative stocks will stop going up or even worse will go down more while those companies with good fundamental will continue going up to a high that nobody can ever imagine.
Third, once I will find out the company which I want to invest, then I will use technical analysis to identify my investing idea and my entry point. If my idea/ assumption is correct, the stock usually will at the bottom or consolidate quite long time already, if the chart is good enough for me to buy, I will buy. If the chart shows different story with my assumption, then I will go back to step 1 to check whether I understand current economy or not.
Fourth, decision making to hold or sell. If I want to invest in a stock which I can hold for 30 years, I will hold those stocks which making money 24 hours a day, for example, Warren Buffet's Coca-Cola company because this beverage is hardly eliminated by the trend, what's more, it is a human need to drink "water". Unlike telecommunication company, this kinds of company will earn big during a certain period, it might be eliminated one day as the technology is so advanced that you hardly imagine, so such company is hardly to hold for long term "30 years". Unless the company is monopolized in the industry, otherwise it is hard for me to hold a stock which can be eliminated by the trend.
This is the list of 15 stocks (the stocks above KLCI are extra options to buy, I use KLCI to separate it):
(Source: Investing.com)
2. Identify Trend
Globally, banking sector is moving up strongly. Same thing happens in
Malaysia, I have gone through all Malaysia banking stocks, the trend is
just started. The trend is initialized by President Trump. After 2008
financial crisis, President Obama implemented some laws on banking and
financial sector in order to restrict their business which caused
financial crisis. However this law also restricts their profitability,
now President Trump is releasing the beast. If you have studied cycle
analysis, every time bull market starts from banking sector and end at
consumer-related stocks. The logic is pretty simple, if the bank
releases liquidity to economy, their profit will increase. Once economy
receives liquidity from banks, they will spend money to expand their
business, then everyone who participates in the economy will receive
more money, so they will tend to spend more. In result, consumer-related
stocks go up which indicate bull market almost comes to an end.
Fed is hawkish to increase their interest rate. Interest rate going up
will increase the profitability of banks since traditional banks earn
profit from spread. However, bond market will collapse, the price of
bond is negatively related to interest rate, interest rate goes up, bond
price goes down. Thus, bond holders will have huge paper loss, but
don't be pessimistic. If bond holders hold the bond until maturity and
reinvest their coupon payment, actually the effect of reinvest will
boost the return of investment just like compound interest, of course
you need to wait it matures. Apparently banking and financial companies
which invest in bond will report huge loss in recent financial report,
however if we take a longer view, this loss eventually will become huge
profit when reinvest effect comes in, so in long run, it is very bullish
for financial sector, especially insurance company.
Previously, whenever Fed wants to increase interest rate, it will make
USD stronger. However thing changes after few time increasing the rate,
expectation on USD will be weaker, hence it is wise to invest in other
regions such as Asia. Before the USD becomes weaker, you use strong USD
to buy weak Asia currency and invest in local market. Once the USD
becomes weaker, Asia market already flies high and you can earn from
strong Asia currency in the same time.
In short, I will take a look on banking and financial industry. I'm very
bullish on Asia market, so I might go fully invest when I allocate my
portfolio.
3. Technical analysis:
-To buy
1. Ruentex
(Source: Investing.com)
Long-term view, it looks like downtrend or sideways. The lowest point of
last downtrend is quite near to previous downtrend lowest point, it
indicates no more power to go down further.
(Source: Investing.com)
Short-term view, recently it creates higher high, higher low, means it
is in uptrend. The place where I circle with extreme volume, you might
think this is ending of uptrend, reversal is coming soon. However to me,
it is not reversal signal. This is the signal which has tested the
pressure above. If you trade FCPO, try to look the FCPO chart, both of
them almost the same. After this look-alike reversal signal, FCPO
actually went up higher.
During trend identification, I already mentioned I will take a look on
financial industry. This company diversifies in many industries, but I
remember its main business is banking and insurance because I always
hear the name of this company when I was watching Taiwan financial TV
program. So this stocks might be benefited from the trend.
2. Cleanaway
(Source: Investing.com)
It looks a W bottom which indicate the support down there is very strong
. At least the chart tells you that downtrend is no more, might be
sideways or uptrend.
.
(Source: Investing.com)
This is recent chart. You can see that red line is very short and pink
line is very long. The chart is telling you, buyers take very short time
to push up the price while sellers take very long time to push down the
price. By the way, you can try to open Ekovest (Malaysia stocks) chart,
before the price shoots up to the sky, Ekovest has the exactly same
pattern like this.
Cleanaway is a company to provide recycle solutions and waste
management. If you read news, Taiwan recently implements to flush their
toilet paper after using toilet. Ya, I'm not joking, previously after
using toilet, they cannot flush the toilet paper, they have to throw it
into a dustbin inside the toilet. I don't spend time go deep studying
this company, so I don't know they are involved in this implementation
or not, but at least the industry is involved in this. Although it is
not financial company during trend identification, but it is a good buy
to diversify my portfolio, at least the chart tells me the possible
downside is very limited.
3. Com2uS
(Source: Investing.com)
This stock is very good, we no need zoom in to recent chart, look at
this big picture is more than enough. The red line is the major support,
once it is broken, it is long-term downtrend. However something
interesting happens, they broke the support without volume, means
sellers are not aggressively to sell the stocks, whereas the buyers buy
aggressively, so it stands above major support with volume. In technical
analysis, this is false breakout, so in futures, this stocks will shoot
up higher than 180000 Korea Won. In Malaysia stock market, AirAsia is
quite similar to this chart, that's why I recommend to buy AirAsia. Both
fundamental and technical analysis show AirAsia is a good buy, compare
to this company, this company chart is better than AirAsia.
Com2uS is a mobile game or online game company. I don't know much about
this industry as we Malaysia doesn't have a self-develop gaming
industry, our games are imported from other countries, but I remember
last time I saw a lot of Malaysians playing this company's mobile RPG
game.
4. Fresh Express Delivery Holding
(Source: Investing.com)
Later I will show you the stocks which I would not buy because some of
them are in downtrend or the downtrend just finished. We always like to
say: buy at bottom, since you say downtrend is finish, why don't you buy
it? After downtrend, usually it takes longer time to form a bottom
before going up. We never know when they will eventually go up, and our
capital will be stuck in this stock, furthermore this is a penny stock,
maybe they will not move higher in next 5 years, who knows?
This stock is very different. You see, I circle the downtrend movement
and the bottom after the downtrend, do you realize something? The bottom
is bigger than downtrend in term of size and time, which mean later if
this stock starts uptrend momentum, it is very easy to go higher than
previous high of the downtrend. One more thing, this chart is very easy
to understand, later you will see those very ugly and messy chart.
(Source: Investing.com)
In short term chart, I draw a red bold line, which is the support of
downtrend. You see, they break the support, means they should go further
down, but they didn't. Besides that, it takes one or two days to stand
above the support, so we call it "false breakout", and we buy in after
the false breakout. In other words, the downside is very small, using
this technique, we almost buy at the lowest of the bottom, so you can
imagine your upside profit.
-Not to buy (Still downtrend or downtrend just finished or sideways)
1. Shanghai Jahwa United
(Source: finance.sina.com.cn)
Downtrend.
2. Focus Media Information Technology
(Source: finance.sina.com.cn)
Downtrend.
3. Playmates Toys Limited
(Source: Investing.com)
Downtrend done, forming bottom.
4. Nanjing Sinolife United Co.Ltd
(Source: Investing.com)
Downtrend.
5. Grand Field Group
(Source: Investing.com)
This is penny stock, obviously last time it had been goreng, very hard to measure our profit target.
6. SundayToz Corp
(Source: Investing.com)
Downtrend is weak, but the bottom is too small, not safe to buy yet.
7. Chongkundang Holding Corp
(Source: Investing.com)
Downtrend.
8. Wonderful Sky Financial Group
(Source: Investing.com)
Like the chart of NO.5, Grand Field, it was goreng long time ago.
However this one makes different story, buyers keep buying it, however
we can know that the pressure is high, since buyers take so long time to
push up. Wait and see first, anyway, it would not go too high.
9. Telecom Service One Holding
(Source: Investing.com)
More like sideways, or maybe a very big triangle waiting breakout?
Seriously I don't know. Will do deeper research if I really want to buy.
-My Watchlist
1. Anxin Trust Co.Ltd
(Source: Investing.com)
I like this company, net profit margin is almost 70-80% !!! Which means,
after paying off goverment tax, expenses and liability, 80% of the net
profit belongs to shareholders !!! Furthermore I'm bullish in financial
industry. The price is very high for me to buy, wait retracement.
2. Pacific Online Limited
(Source: Investing.com)
Downtrend done. Bottom also quite big enough. However I have a doubt it
can fly high, compare to Fresh Express Delivery in my buy list, this
chart's downtrend is more sharp, we can foresee that the pressure is
pretty strong up there although it forms such big bottom to dissolve the
downtrend.
4. Portfolio
So far, this is how I construct my portfolio:
(Screenshot: Google Finance)
a. Ruentex (Taiwan)- 20%
b. Cleanaway Company (Taiwan)- 20%
c. Com2uS Copr (Korea)- 20%
d. Fresh Express Delivery (Hong Kong)- 10%
15 stocks are good in fundamental, then I use technical analysis choose
out only 4 stocks to invest so far. Actually some of the stocks I can
put in for short term play, however since this is long term investing
playing, so I pick those might be perform better in future without too
much portfolio adjustment.
You might think that my portfolio has diversification issue, since I
focus my capital merely on 4 companies out of 15 companies. First, we
already invested across different countries, this action somehow already
diversified political risks. Second, individually all stocks in my
portfolio are from different industry, I already diversified industry
risks. Although my capital focus on only 4 companies, somehow this
portfolio already being well diversified, unless market risk which
affect global market then might cause me facing huge loss. However,
fundamentally, these are good stocks, I use technical to find "timing"
to buy, so I already filtered the individual stock risks twice at least.
Besides that, I choose to buy at 15th March because that day midnight is
Fed meeting, if you read my previous mandarin article, prior to the
meeting, usually that day will have selling pressure and we can buy it
at lower price, that's why I purposely choose that day to buy in these 4
stocks.
So, this is my presentation, end of the month, I will adjust my
portfolio if necessary. And I will update in this series- Let's play a
game
Stay tune :)
http://xiaominvest.blogspot.my/2017/03/lets-play-game-01.html
