After an outing tonight with friends, I have learnt the value of combining FA and TA. Previously, I had friends who mentioned this before but tonight it was more clearly elucidated to me in detail. Basically, FA is for choosing the right companies; while TA is for choosing the right time to enter the companies. Markets are irrational and operate based on the semi-strong concept of the EMH (Efficient Market Hypothesis), meaning the share price should reflect all PUBLICLY available information.
The problem is investors are all humans and are thus prone to mood swings. There will be wild periods of exuberance and long periods of fear and moodiness. All these emotions affect the stock market. My friend once commented that the stock market is a "barometer for human emotions". In a way, investing is like a game (not gambling !) of investing and psychology. Psychology lets you see the market trends and tells you when to do something, while rational research and analysis of the company's fundamentals tells you WHAT to do and WHICH companies to pick.
A cut-loss strategy was adopted by my friend who took all losses stoically. I, on the other hand, practice the hold-wait-and-see attitude. Though I do have the holding power, I may have inadvertently given up opportunities to invest my money elsewhere where the returns may be higher. This is basically the concept of opportunity cost and I have yet to learn to mitigate this risk fully.
Perhaps with time and patience, I will be able to successfully combine TA and FA to form a winning combination. In the meantime, I will hold on to my below-water stocks and wait for the market to go bullish again.
Market Update - 30 May, 2006
A short update today. The STI closed at 2,441.54, up 1.63 points on close. It managed to reach an intra-day high of 2,453.02 but retreated sharply near closing time because of concerns that Wall Street would weaken. Notable plays were Yellow Pages, which slid 13.1% to S$1.19 after reporting a less than spectacular profit of S$14.5 million, lower than the expected S$16.1 million. Celestial was also played up 14 cents to close at $1.29 after reaching an intra-day high of $1.32 as investors went bargain-hunting. Hongguo leapt up 8.5 cents to 57 cents after JP Morgan issued a BUY call with a price target of $0.85 (the report can be obtained from my stock links on the right-hand panel). Sentiment is expected to remain weak for the rest of the week as there are no major catalysts to push the STI higher.
Novice Investor Knowledge Section
Lesson 1 - What are shares and how to trade them
I have decided to dedicate a small space to educating novice investors about the stock market. There will be a small write-up every posting to explain various aspects of the market as well as the terms and jargon used. Note: These are from my personal knowledge and are NOT taken from any website.
Buying shares in a company means owning part of a company. A share entitles you to vote at an Annual General Meeting and also means you are entitled to dividends paid by a company on profits made for the financial year. Shares are issued by both private and public companies but only public companies' shares are listed on an exchange (e.g. SGX). An investor has to open an account with CDP (Central Depository Pte Ltd) in order to be able to hold shares.
In order to trade shares, you will need to open a brokerage account with any broker in Singapore. Some examples are Phillips Securities, Kim Eng, CIMB GK Goh and UOB Kay Hian. Once the account is approved, there are 2 ways of trading: either through a broker (a person) or through the Internet using a web-based software (e.g. Phillips' POEMS). Next lesson: More on how the stock market works, the trading hours and how to queue buy/sell orders.