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 Fundamental vs Technical Analysis, What do you prefer?

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cherroy
post Jan 27 2007, 04:36 PM

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QUOTE(ckeenkheong85 @ Jan 27 2007, 04:21 PM)
Hmm... from the sentence, i think you get the thing wrong for speculator, the term of speculator is the one that with a lot amount of asset which try to speculate the market price which is not a normal trading environment, to meet the criteria of speculator, u need to have large amount of money at least more than RM1 Million(depends wat stock and price also)� to c movement the market, we as trader, there r 3 type of trader, first based on fundamental, second based on TA, another one is hybrid trader, if� you think we a speculating, haha, this part is funny coz our fund not tat big, cant even move the stock price.

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Speculator is just a term that reflect a person or organisation that bank on the price differential to gain money from it. More or like numbers game, so what stock, lousy, chap ayam, don't care, just the the price can go up will do or goes down (if can short)

But 1 million is peanut in stock market, can't move the share price much or at all.

This post has been edited by cherroy: Jan 27 2007, 04:39 PM
TSckeenkheong85
post Jan 27 2007, 07:06 PM

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QUOTE(cherroy @ Jan 27 2007, 05:36 PM)
Speculator is just a term that reflect a person or organisation that bank on the price differential to gain money from it. More or like numbers game, so what stock, lousy, chap ayam, don't care, just the the price can go up will do or goes down (if can short)

But 1 million is peanut in stock market, can't move the share price much or at all.
*
haha, i do know, i also stated there, depend on the pricing of the stock, is like supply and demand, when sudden move of the stock which can make an impact of the stock, most people will jump to the bandwagon regardless whom they are, coz human r fill with greed, when that happen, people tend to follow the trend but most of them don't understand tat some one is trying to speculate the stock.

I do understand, u feel us which using TA as some kind of legal thief, right? Depends on our perception, you have your own stand, i also have my own stand, but i respect your thought. Different people have different view in investing but our goal is earn profit right? smile.gif Cheers

Bro u working in finance field?

But my opinion, using TA to earn money in stock is better than joining MLM scheme

This post has been edited by ckeenkheong85: Jan 27 2007, 07:14 PM
luqmanz
post Jan 27 2007, 08:24 PM

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QUOTE(legiwei @ Jan 27 2007, 02:44 PM)
I have a very simple question, since it's on technical and fundamental. And I do notice that people here recognise the difference between an investor and a speculator.

Can anyone name me a person/fund who consistently beats the market for several years/decades other than those that came from the "value investing" school of thought?
http://en.wikipedia.org/wiki/SAC_Capital_Partners
A whopping 40% (after deducting 50% service charge from the profit) per year in 1996-2001.
There are many speculators that consistently beat the market for many years. George Soros is one of those legends.
Another one is Richard Dennis (turtletrader.com) who started with USD 400 when he was young, after 18 years that account has become USD 200 mil (after he withdrawn from that account several time for living expenses). That's compounded return of 107% per year for 18 years. But this guy is not stock trader, he trade commodities futures.
QUOTE
Some of you seems to sound like making 15% per annum on a compounded basis seems to be extremely easy and as far as I know, there is only one person who makes his fortune/living from the stock market on a very consistent basis.

The rest are speculator who come and go. I have a simple question, do you guys here consider a person using technical analysis (chartist) to be an investor?
It's normal to hear traders/speculators making 5% a month actually. But then again managing RM 10,000 is not the same as managing RM 10 mil. A trader managing 10,000 with return 5% a month is not necessarily better than fund manager managing 10 mil with 8% a year. There are many reasons that causes this.
dreamer101
post Jan 27 2007, 10:00 PM

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QUOTE(legiwei @ Jan 27 2007, 02:44 PM)
As far as I know, the people that came from the school of "value investing" has something call "margin of safety" and who pays attention to the price you pay. This are the guys who as far as I know always ask the question "how much".

A pure "value investor" will never go for an overpriced stock, no matter how good the prospect is if my understanding isn't wrong.


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Legiwei,

My system is to buy good solid stock with good dividend yield. So, you NEVER have to sell the stock. You make money every year without selling the stock.

Dreamer


Added on January 27, 2007, 10:10 pm
Folks,

I use Asset Allocation model for investing. However, you cannot do this in Malaysia since we have NO diversification and NO low cost index mutual funds.

Under asset allocation model, you do ZERO analysis on the market. You just decide how to slice out you asset based on asset class that you want to invest: US stock, International stock, commodity, bond and so on. Then, you just invest on that ratio and rebalance every year.

Dreamer

This post has been edited by dreamer101: Jan 27 2007, 10:10 PM
legiwei
post Jan 28 2007, 03:31 AM

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QUOTE(luqmanz @ Jan 27 2007, 08:24 PM)
http://en.wikipedia.org/wiki/SAC_Capital_Partners
A whopping 40% (after deducting 50% service charge from the profit) per year in 1996-2001.
There are many speculators that consistently beat the market for many years. George Soros is one of those legends.
Another one is Richard Dennis (turtletrader.com) who started with USD 400 when he was young, after 18 years that account has become USD 200 mil (after he withdrawn from that account several time for living expenses). That's compounded return of 107% per year for 18 years. But this guy is not stock trader, he trade commodities futures.

It's normal to hear traders/speculators making 5% a month actually. But then again managing RM 10,000 is not the same as managing RM 10 mil. A trader managing 10,000 with return 5% a month is not necessarily better than fund manager managing 10 mil with 8% a year. There are many reasons that causes this.
*
1996-2001 doesn't seem very long to me. Further, in the later part of wiki, it is stated that this fund is highly secretive and it kinda seems to be that the figure might after all be plucked from the sky.

Ok, but is it normal to hear a trader/speculator making 5% a month CONSISTENTLY? I will really think that people following down your path are more likely to lose than gain than a person who follows sound investing principles.




mucklampir
post Jan 28 2007, 10:07 AM

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QUOTE(luqmanz @ Jan 27 2007, 08:24 PM)
http://en.wikipedia.org/wiki/SAC_Capital_Partners
A whopping 40% (after deducting 50% service charge from the profit) per year in 1996-2001.
There are many speculators that consistently beat the market for many years. George Soros is one of those legends.
Another one is Richard Dennis (turtletrader.com) who started with USD 400 when he was young, after 18 years that account has become USD 200 mil (after he withdrawn from that account several time for living expenses). That's compounded return of 107% per year for 18 years. But this guy is not stock trader, he trade commodities futures.

*
i'm quite curious y soros regards as speculator. if i'm not mistaken, speculator is those whom not use fundamental to invest. but i read once, he said he used fundamental. when he make a position, he believe he is right. as example when he broke the bank of england, he borrowed money to do so. he not diversivied since from fundamental, he know it will happen. if he is speculator, he should have diversify to reduce risk


Added on January 28, 2007, 10:26 am
QUOTE(cherroy @ Jan 27 2007, 04:36 PM)
Speculator is just a term that reflect a person or organisation that bank on the price differential to gain money from it.
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doesn't it is arbitrator?

This post has been edited by mucklampir: Jan 28 2007, 10:26 AM
luqmanz
post Jan 28 2007, 11:52 AM

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QUOTE(legiwei @ Jan 28 2007, 03:31 AM)
1996-2001 doesn't seem very long to me. Further, in the later part of wiki, it is stated that this fund is highly secretive and it kinda seems to be that the figure might after all be plucked from the sky.
Not sure about that. But that hedge fund is very well-known in Wall Street community. Who in Wall Street doesnt know Steven Cohen ?
QUOTE
Ok, but is it normal to hear a trader/speculator making 5% a month CONSISTENTLY? I will really think that people following down your path are more likely to lose than gain than a person who follows sound investing principles.
*
Consistently ? Of course not. That 5% figure is averaged. In trading you cant really aim to make certain percentage every month. Maybe this month you make 40%, maybe next month 5% and then -10%, 3% and so on. Averaged 5% a month (calculated at end of year) is pretty normal.

Traders who trades their own account for a living usually dont have the "monthly income" mentality like those who works for companies. They measure their performance quarterly, yearly and so on. Trading for them is like running a business.

QUOTE
Speculator is just a term that reflect a person or organisation that bank on the price differential to gain money from it.
*

That's what we call arbitrageur.

QUOTE
i'm quite curious y soros regards as speculator. if i'm not mistaken, speculator is those whom not use fundamental to invest. but i read once, he said he used fundamental. when he make a position, he believe he is right. as example when he broke the bank of england, he borrowed money to do so. he not diversivied since from fundamental, he know it will happen. if he is speculator, he should have diversify to reduce risk

Soros and his partner, Jimmy Rogers uses both TA and FA. They are both investor and speculator. But Jimmy Rogers is a pure FA guy.
mucklampir
post Jan 28 2007, 12:13 PM

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QUOTE(luqmanz @ Jan 28 2007, 11:52 AM)

Soros and his partner, Jimmy Rogers uses both TA and FA. They are both investor and speculator. But Jimmy Rogers is a pure FA guy.
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why i never heard anybody regards as forex investor? no such term eh?? or onli me never heard it blush.gif
mentos
post Jan 28 2007, 12:20 PM

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no such term la
rarely use
coz almost all retail Fx player is speculative Fx player
legiwei
post Jan 28 2007, 01:24 PM

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QUOTE(luqmanz @ Jan 28 2007, 11:52 AM)
Not sure about that. But that hedge fund is very well-known in Wall Street community. Who in Wall Street doesnt know Steven Cohen ?

Consistently ? Of course not. That 5% figure is averaged. In trading you cant really aim to make certain percentage every month. Maybe this month you make 40%, maybe next month 5% and then -10%, 3% and so on. Averaged 5% a month (calculated at end of year) is pretty normal.

Traders who trades their own account for a living usually dont have the  "monthly income" mentality like those who works for companies. They measure their performance quarterly, yearly and so on. Trading for them  is like running a business.
That's what we call arbitrageur.
Soros and his partner, Jimmy Rogers uses both TA and FA. They are both investor and speculator. But Jimmy Rogers is a pure FA guy.
*
I wouldn't want to go further but knowing a person is another but fund history is another. So, does this mean that if that guy is famous meaning it will be very probably that whatever that is rumoured/said about his fund must be true too? I will just like to say nobody knows for sure.

Ok, no problem, a 5% per month on average is exactly what I mean by on a consistent basis. Meaning to say, 5% on average per month will get you a whooping 60% return per annum. Now contrast that with the most succesfull stock market investor in history which only have a record of about 15-20%(forget the precise number) on a compounded growth for the last 30-40 years.

In other words, the return on your funds for a 5 year period will have taken Buffet approx 17+ years to do so. You are putting alot of great investor to shame here where in today's marketable securities "investing" community, most fund are even struggling to even beat the F.D return. It should also be noted with the power to compound and assuming all returns are reinvested, the difference will be even more significant as years go by.

I am talking about investing here not some side money where you can just pour in and couldn't care less if you win or loss. A 5% return per month on average for investing purpose on a long term basis is NOT normal. It is exceptional, superb.


luqmanz
post Jan 28 2007, 04:21 PM

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QUOTE(legiwei @ Jan 28 2007, 01:24 PM)
I wouldn't want to go further but knowing a person is another but fund history is another. So, does this mean that if that guy is famous meaning it will be very probably that whatever that is rumored/said about his fund must be true too? I will just like to say nobody knows for sure.
He's famous for his superb performance in managing funds. Secretive doesn't mean nobody knows his performance, secretive means that hedge funds never reveal their techniques or their clients (unless the clients themselves reveal themselves).
QUOTE
Ok, no problem, a 5% per month on average is exactly what I mean by on a consistent basis. Meaning to say, 5% on average per month will get you a whooping 60% return per annum. Now contrast that with the most succesfull stock market investor in history which only have a record of about 15-20%(forget the precise number) on a compounded growth for the last 30-40 years.

In other words, the return on your funds for a 5 year period will have taken Buffet approx 17+ years to do so. You are putting alot of great investor to shame here where in today's marketable securities "investing" community, most fund are  even struggling to even beat the F.D return. It should also be noted with the power to compound and assuming all returns are reinvested, the difference will be even more significant as years go by.

I am talking about investing here not some side money where you can just pour in and couldn't care less if you win or loss. A 5% return per month on average for investing purpose on a long term basis is NOT normal. It is exceptional, superb.
*
Nobody is at shame here. If you manage small money like RM 50k speculating, it's not surprising if you can get great returns like 60% a year. It's not weird at all.

A good fund manager who manage RM 1 billion with value-investing strategy can make 15% year. I think that's great too.

Notice the big difference between them ? Yes, its the fund size. Small money is easier to grow than big money. You cant compare the performance of 50k funds with 1 billion fund. I can elaborate more on this if you wanna know why.

Comparing the performance 50k fund manager and 1 billion fund manager is not apple to apple comparison.

Think of fund business as a normal business. A restaurant with 50k capital can make 10k profit a month. That's 20% a month. Can we say restaurant owner is better than 1 billion fund managers ? No.

Give 1 billion to that restaurant owner. Can he produce RM200M in the same month ? Of course not.

So if people make 60% a year, why are they still not as rich as Warren Buffet? Simple, because they cant. The bigger the money, the harder it is to grow it, the higher the risk. So people keep their accounts small and take out all the profits to pay living expenses and buy real estate.
cherroy
post Jan 28 2007, 08:09 PM

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It is quite impossible to make 5% per month consistently throughout let say 5 years. Yes, it might possible for a year or two when market is bullish time but consitently long term basic, no. On the way, stock market always up and down so sometimes making loss also. Just recent 2-3 years, stock market performs relatively quite well so people tends to forget you can also making loss in stock market, always look for xx% gain but forget there is also downside risk behind.

There are some hedge fund that can making a whooping 100% per annum but if suddenly market turn against then the whole fund become insolvent. Just happend recently a hedge fund bank on crude oi will hit USD100 then it gambled to long the the natural gas contract instead now oil hit low at USD50, so the fund loss almost 60% in 2 months time. (due to leverage on futures contract)

Don't always look at the bright side only, you need also look at the ugly side. It is just like some unit trust company claimed it past 3 years record is making 30-40% gain so invest in UT is good but if you track back to 10 years at peak (1997 when market peak at 1200) then there is still some fund that only manage to break even only after 10 years. Also, using 3 years data is good since at 2002-2003 there was bird flu incident that dragged the market down so the comparison basic is low.

Sometimes, it is just how you manipulate the data, if last 3 years performance is good then surely they will use it to lure investor to invest since last 3 year, stock market is relatively good but nobody want to use the data between 1995-1998 (1998 market crash time), a handful of fund lost more than 50% of its value during that period.

There are plenty example, just like internet bubble happened during 2000. Before the bubble burst, a lot of tech fund are making 100-200% per annum especially Nasdaq peak at near 6000 while there are plenty of fund managers looks down WarrenBuffet said he is outfashioned already since he didn't touch the tech stock at all. But now although tech funds are makign some ground, still way below. So if you picked 3 years chart/performance, surelly it is up with xx% per annum but for 6 years chart then you get huge -ve return until now.

One thing for sure, for long term, stock market especially those blue chip that has sound fundamental and well managed always give you a quite good return rate ranging from 10-20% as history tell us.

This post has been edited by cherroy: Jan 28 2007, 08:13 PM
luqmanz
post Jan 29 2007, 07:22 AM

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For value-investing followers, these book tells you why anyone can beat the market experts if they do their homework in stock-picking.

Learn to Earn: A Beginner's Guide to the Basics of Investing and Business by Peter Lynch and John Rothchild (Paperback - Jan 25, 1996)

Beating the Street by Peter Lynch and John Rothchild (Paperback - May 25, 1994)

One Up On Wall Street : How To Use What You Already Know To Make Money In The Market by Peter Lynch and John Rothchild (Paperback - April 3, 2000)

The author was a mutual fund manager who grew 20 mil to 9 billion in 13 years. He's now retired and manage his own account. Even better, these books teaches you how to find such stocks.

For Malaysian stocks, take a look at Ho Kuk Mun's book (How to Make Money from Your Stock Investment even in the Failing Market). You probably can learn something from him.
sdock06
post Jan 29 2007, 11:59 AM

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For technical analysis, you need history data and live quotes for the real analysis,

for fundamental analysis, you need the company fundamental info like history, industry, management, financial ratios...

i would like to suggest a website for both of you: www.InvestAsiaOnline.com

you will find both of kinds can get the info you want..

See the picture below, you can easily get all the financial data for your preferred stocks in just a click and it's absolutely FREE! But, sure, you need to register to be our InvestAsiaOnline.com member first. The registration is free also.

At the stock search box, no need to remember the symbol or the stock name accurately, just key in the first several alphabets of the stock, then select from the list displayed automatically, you will get your stock info quickly and effectively.


user posted image

After this, the details of the company info would be:

user posted image
user posted image

www.InvestAsiaOnline.com

This post has been edited by sdock06: Jan 29 2007, 12:04 PM
TSckeenkheong85
post Jan 29 2007, 09:09 PM

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QUOTE(luqmanz @ Jan 29 2007, 08:22 AM)
For value-investing followers, these book tells you why anyone can beat the market experts if they do their homework in stock-picking.

Learn to Earn: A Beginner's Guide to the Basics of Investing and Business  by Peter Lynch and John Rothchild (Paperback - Jan 25, 1996)

Beating the Street  by Peter Lynch and John Rothchild (Paperback - May 25, 1994)

One Up On Wall Street : How To Use What You Already Know To Make Money In The Market  by Peter Lynch and John Rothchild (Paperback - April 3, 2000)

The author was a mutual fund manager who grew 20 mil to 9 billion in 13 years. He's now retired and manage his own account. Even better, these books teaches you how to find such stocks.

For Malaysian stocks, take a look at Ho Kuk Mun's book (How to Make Money from Your Stock Investment even in the Failing Market). You probably can learn something from him.
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Peter Lynch one of my favorite investor, i agree with luqmanz, manage huge amount of fund is much much more harder, haha, i think most average fund manager if can earn 10%-15% pa is consider good edi. simple as it is, imagine buy use USD 1 Billion to buy one stock, when the price rise, can we sell all with the price we want it to sell? No, coz in a sudden 1 Billion of stock will flood the market, and later on will cause instability. Risk management and fund allocation management is important with large amount of fund+diversification. smile.gif

legiwei
post Jan 29 2007, 10:24 PM

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Hi ckeenckeong,

I think the quote quoted in your signature belongs to Benjamin Graham instead of Warren Buffet.

Secondly, I thought initially not to bring this out but using the argument of difficulty of managing a huge fund size due to price pressure is only applicable to very very huge fund size since you will probably need to find investment opportunities to tailor to your fund needs.

However, if we were talking about in the millions, it is still not significant enough to warrant a price movement. My mother works for a institution that deals with the stock market. She does handle the trading account for the company and she has noted to me that selling in the millions at the very same price is not a problem at all.

And when we were talking about fund size, some people tend to argue that they can't make huge profits as they do not have enough funds to speculate so in the end they will lose out to bigger players in the market.

If big fund size were so detremential, why in the world will hedge fund limit a minimum investment? Why in the world that so many firms are so heavily involve in M&A although Michael Porter came to a very contrasting conclusion that majority of mergers and acquisition are likely to fail.

And talking about diversification, Warren Buffet has give a very explicit advice saying that the extensive diversification benefited will be heavily offset by the cost needed to manage such a huge portfolio. Warren Buffet does not have lots of computers or a large team of analyst to help him yet his funds weren't that diversified given the size of his fund.

Tracking the performance of his company, it is pretty much consistent and returns posted by his portfolio isn't all that volatile, he did as well in the billions as he did in the millions. Perhaps his investment approach is different given his fund size, but his investment principle doesn't. Warren Buffet and Peter Lynch consistently educate investors on following sound investing principle. It is this principles that greatly helps an investor to avoid making bad decision resulting in huge loses.

Therefore, it is kinda ironic that Luqmanz differentiate a person that makes 60% return per year with the likes of Warren Buffet on the reasons of fund size, where, in reality, the actual truth will probably lies in investing approach/principle.

Again ironically, I recall Mr Buffet didn't much side the group of "60% return per year" and often critise them instead. I have always thought that Benjamin Graham says that when market act illogically, it is people like Buffet that will take advantage and make a profit in the expense of such groups.

To me one of the very main reason why a person couldn't be as succesful as Warren Buffet lies in consistency. It is his investing appraoch and philosophy that gave him such a huge success. He knows how to manage funds. He is a very good capital allocator. He calls himself nothing but good at allocating capital. He takes control of companies and leave it as it is with the existing management and change nothing except that he has a say in allocation of capital. He didn't act like a fund manager and diversify his portfolio so thinly that it probably takes many computers and brain power to manage it.

I find it quite funny that a person who could make tons of money but will probably lose all just because his fund became too "large". Just maybe, perhaps, his fund loses value due to market votality. To make matters worst, he now has to sell more of his shares and might be difficult to sell all of it and would probably suffer more loses than it is if he had traded smaller.

And really, one of the only conclusion that a person could make 60% return per year is to particpate in highly speculative shares. But the question is, just how many right could he get? Since it is a norm to make such an amount, it must be many many times. Now, even if we were to remove the assumption of fund size, I still highly doubt that an investor could consistently make 60% return per year. It is near impossible!

The reason that differentiates this two class of investor again is not the fund size but the investing philosophy and approach! Don't get me wrong, it is not my very own conclusion, I merely borrowed it.

Correct me if I'm wrong, but what I do know is that Peter Lynch's book is not to tell anybody in the street to be able to beat a market expert, but is to introduce sound investing principle. I don't think he speak in such a manner "if you read this book, you could beat a market expert". In fact, none of the good investors that I know speak in such a way.

I find it funny, I somehow find him trying to make it sound like investing in the stock market is easy and you should be expecting returns in the 30++ range. The only reason why you can't go big is because of fund size and has nothing to do with consistency.

From what I can gather, he is very enthusiatic and optismistic, some of the very character that works very well in other fields, but when it comes to share market, this could be disastrous.

So, it is just me that I find it extremely difficult to take what luqman say as what I've read and gathered has always been saying otherwise. Some of the forumers may agree with me too. Perhaps I'm not that wise yet.

And I'm not a value investor or anything. I just believe in sound investing principle and if anybody that don't belong to the "school of value investor" but has sound ideas, I would gladly love to learn it too.

This post has been edited by legiwei: Jan 29 2007, 10:41 PM
TSckeenkheong85
post Jan 29 2007, 11:39 PM

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Hi legiwei,

To answer your doubt and question, it won't come out in a definite conclusion. A good investor or speculator doesn't give too high of chance for every decision they make, a good investor will think of 50:50 chances of gain/loss. Consistent, this word quite not so reliable when u apply in trading market, coz trading doesn't reflect the same way like fixed deposit which give u certain fixed amount of interest.

There are a lot of investing principle out there created by all those success in investing, me, you and others just use their principle and change until it is tailor suit to your style of investing, if u think Warren Buffett is consistent, when u calculate it out, does he consistent in earning every month? We r just human being and we cant control all things around us.

The stock market is simple, is like a supply and demand chart, when the supply is too much, the stock will have a correction until it meet the equilibrium. Therefore, manage a large amount of fund is not like manage small amount of fund (but sometimes is not truth either, it depends).

Lastly, haha, i don't think we have any argument over here, just sharing out thoughts in investing. Those who earn money from the idea and structure of investing and success in the end, they will come out with books. There is no definite answer in investing, just u need to find the way that suite you and proven success for you.

About the quote, haha, Warren Buffett using the quote to remind himself, for me, i also use it to remind myself either.

If you get your hand in trading, come and share your skills smile.gif

One more thing, diversification doesn't mean i ask you diversify until so thin, we can't manage to deal will so many things in the same time

This post has been edited by ckeenkheong85: Jan 29 2007, 11:41 PM
legiwei
post Jan 30 2007, 12:40 AM

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When I say consistent, it means proven track record that runs in decades. That means more than 10 years preferably. I do not and have not actually perform comparison and calculation in months, not till luqman kinda broke the news that it is quite common for a trader in KLSE to earn 5% a month emphasied in bold here to me. I was surprised as this is news to me.

Then, he goes further to tell me it is on an AVERAGE, which is an even bigger news to me. I simply extrapolate the graph to project the earnings in annums, my eyes pop out.

And to answer your question, yes, Mr Buffet is consistent, and that is the prime reason for his success today. He did nothing but grow his funds by about 15-20% per annum on a compounded basis since the inception of his holding company, Berkshire Hathaway. It should be noted that it used to be a failing textile manufacturing company which has in the course of business switch to insurance business. It has and still is till today remain as his main business. His company does not come under the category of a "holding" company although it generally is but it is categorised as "reinsurance" or "insurance" couldn't remember precisely. Anyway, he has significant presence in both the market.

Yes it is true that market forces are determine by supply and demand and abitrage takes place when market is not in equilabrium. We have plenty of theory to support and argue with this notion alone. I will say nothimg much on this.

However, as I approach the topic on investing (note not speculating), I look at the ways of TA or using charts, so called Fundamental Analysis and finally I found the Warren Buffet-like appraoch or rather, investing in share market just like how you invest in a business appraoch.

First of all, I thought, hey just maybe by using sophiscated technique coupled by charts, I may be able to make abritrage gain from the market. Note that isn't TA using pass share price movement to predict future price movement? Note that the share price is determined by supply and demand so why must it follow a certain trend? But I guess people tend to think that using TA gives you confidence in analysing the psychology of the market, whether it is bullish or bearish.

And to this, I only have one answer, that, Warren Buffet under such circumstances has profited alot from this people using his investing appraoch. If people were to rely on charts, in a bullish market, people will be likely to buy overpriced shares since the volume is heavy and appreciation is taking place, hey, it's a good sign in the chart isn't it. Benjamin Graham calls this over optimistic. Mr Buffet mainly profits from the other way round, Graham called it unjustified pessimism.

This is when the market comes under heavy selling pressure, don't you agree that in a bear market, TA indicator will be bad and most likely point to a psychology that the counter/security is during badly, hence don't buy. So it will tend to fall below it's "fair/intrinsic" price.

Mr Buffet profits directly from this people. So, eventhough people like to say that they use charts to provide them with a better overall view on the psychology of the market so that they will not let their emotion to get the better of them, they still get profited by people like Buffet.

I think dreamer makes a very good statement before, you make your gain not because of selling but buying the share. It is really in a way very consistent with Buffet and is a sound investing principle. Buffet gets to where he is today initially by getting bargain hunts, shares that suddenly plunge below it's "intrinsic value" due to current/short term circumstances.

However, the main thing that seperates all of us from the likes of him is not because of investing technique, in fact, I believe he doesn't use complicated formulas to appraise his investment, he places more importance on non-financial information too. It is his ability to understand market movement, provide valuation to securities so forth that beats all of us, allocate capital, understand business, etc.

I find no other approach to be as convincing as his. The only problem is whether you have that "circle of competence". He does not care about share prices. He has till today almost never sell any of the shares he bought. He only increases it.

Haha, but that quote does not originate from him, it was his teacher. smile.gif

Anyway, I'm not pro Buffet, I just find his method more logical and sensible.
dreamer101
post Jan 30 2007, 03:10 AM

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legiwei,

1) Peter Lynch is a growth investor.

2) Warren Buffet is a value investor.

They are two different styles of investing. They both can works. It is all dependent on what kind of person you are and what you good at.

By the way, lately, value is more fashionable than growth.

Dreamer
luqmanz
post Jan 30 2007, 09:30 AM

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QUOTE
To me one of the very main reason why a person couldn't be as succesful as Warren Buffet lies in consistency. It is his investing appraoch and philosophy that gave him such a huge success. He knows how to manage funds. He is a very good capital allocator. He calls himself nothing but good at allocating capital. He takes control of companies and leave it as it is with the existing management and change nothing except that he has a say in allocation of capital. He didn't act like a fund manager and diversify his portfolio so thinly that it probably takes many computers and brain power to manage it.

I find it quite funny that a person who could make tons of money but will probably lose all just because his fund became too "large". Just maybe, perhaps, his fund loses value due to market votality. To make matters worst, he now has to sell more of his shares and might be difficult to sell all of it and would probably suffer more loses than it is if he had traded smaller.

And really, one of the only conclusion that a person could make 60% return per year is to particpate in highly speculative shares. But the question is, just how many right could he get? Since it is a norm to make such an amount, it must be many many times. Now, even if we were to remove the assumption of fund size, I still highly doubt that an investor could consistently make 60% return per year. It is near impossible!

The reason that differentiates this two class of investor again is not the fund size but the investing philosophy and approach! Don't get me wrong, it is not my very own conclusion, I merely borrowed it.
Legiwei, I think you and I are not playing the same game. My points are more about "trading", this covers futures, CFD, commodities, currencies and options. Warren Buffet and Peter Lynch are not in this league hence we cant say things like "If Buffet cant do it (or say it's impossible), no one else can" thus denying other traders achievements.

QUOTE
If big fund size were so detremential, why in the world will hedge fund limit a minimum investment? Why in the world that so many firms are so heavily involve in M&A although Michael Porter came to a very contrasting conclusion that majority of mergers and acquisition are likely to fail.


The minimum investment is to limit the number of clients. It's easier to have few clients than having too many clients to deal with. Warren Buffet is known to return investors money when he couldn't find any good companies to invest in. Big money is harder to handle since wealth in this universe is limited. We don't have that many opportunity all the time. There's no such thing as open-ended equity fund simply because the bigger the money is the harder it is to grow it. (Even Public Mutual open-ended fund got a max limit, not really open-ended that can accept infinity cash).

Generally, you are right about stocks. Stocks are better managed using value/growth investing principles.

This post has been edited by luqmanz: Jan 30 2007, 09:37 AM

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