Friday, June 03, 2011

Asia Charts : Strategies for income and wealth?...

This article is meant for people with more than a passing interest in investments and the financial markets.

On 10 Jul 2009, I wrote an article called "The Simplest Investment Advice" [Link]and that is the only advice I would give when someone comes to me. If you have followed that advice and invested in stocks or property during the last recession, you would be sitting on pretty good returns. Once again that simple advice has proven itself effective....don't need to attend investment seminars, trading courses, etc. The reason this is the only advice I give is most people can follow it properly anything more complex tend to get misinterpreted.


I don't attend investment seminars or pay for investing courses because I believe they are often run by dubious characters out to make a quick buck. A few days ago I decided to make an exception when I saw the above advertisement. There are 2 reasons for the exception - the seminar is free and Leong Sze Hian's picture appeared on the ad did lend some credibility to the whole thing - I thought he was going to appear at the seminar so I can get to meet him in person.  He was in Siberia attending a conference and didn't appear at the seminar.

Let me tell you why I have an interest in this area. Many years ago when I started working, I wanted to figure out how to invest my money and I wasn't too busy with work so I thought I spend some of my spare time to figure out what kind of strategies would work, what kind of stocks to buy, how much I can lose in a bear market and how much I can make in a bull market...whether stocks move before or after a recession is over and so on. I had hunderds of questions to be answered, the Internet had not arrived in Singapore so how to I get the data to figure out the answers to all the questions?  I found a company that sold a stock charting software together stock price data, another that published the last 5 years of financial data on companies listed on Singapore and Malaysia exchanges and other publications that had past economic data.  I used this vast amount of data to answer the questions I had one by one. I found that there are events that occur consistently during business cycles, correlation between the economy and stock market that are reliable and discovered what commonplace  ideas that were misconceptions. For example, I found out that stock markets turn around long before the economy recovers usually after the worse point in the recession and if you invest when the recession is over or when the economy is back on its feet, you are buying at much higher prices.  Other questions include what are the best stocks to buy for the long term, what are the stocks you buy during the bull market.  I was a computer programmer at that time and found it quite easy to use the charting software to generate scripts that will give answers to numerous "what ifs" questions I had - e.g. what if you try to limit your loses selling your stock everytime it drops by 10% is it a good strategy? If you had a stock that went up 30%, should you buy more or sell?

One of the questions I tried to answer was what are the best stocks to buy from the start of a bull market right up to the peak if you want to make a "hell lot of money". I found out that there are quite a few stocks that would go up 300%, 400% or even 1,000% during a bull market. These stocks are generally divided into 2 categories growth stocks with fast earnings and speculative stocks - lets call them super-stocks. It is quite rare for well established blue chips to go up by more than 200% during a bull market. I took a look at the price movement of the super-stocks and found that you can pick them out at the initial part of the rally because they have price movements that are stronger relative to other stocks. However, you need to be able to exit these stocks properly because they can fall as fast as they rise. The movements of these super-stocks are non-random and they maintain their trend for extended periods counter to what one expects from EMH (Efficient Market Hypothesis) ...that was what I found. I will give a possible explanation for this later on.

Asia-Charts is a small company started by a group of "private traders" that teaches investors how to a trade stocks using a strategy built around the buying and selling of these "super-stocks". From what I gather from the preview, they use a "breakout" system for stock entry - enter the stock when it breaks out of a trading range and exit the stock when it falls below a trading range - this trading band is based a proprietary formula. They seem to have put together elements a workable strategy which includes entry and exit points and money management strategies. From the general principles ( you get the details only if you attend the course) in the preview seminar and the stock data I analysed,  the strategy is workable during bull markets and would have made moneyfor those using in past few market rallies, in other words, it is a positive expectation system....compared the strategies used by herd of investors who lose their shirt and pants at the stock market.  Together with this strategy the company also teaches short term trading based on pullbacks( I have no idea what it is or whether this works). The company has a separate course on forex and futures trading. The forex/futures trading strategy from the material I gathered from their office is likely based on a trend following system known as Turtle Trading System which also has some validity if you look academic research on the positive expectation of such system in the futures market.

I don't recommend anyone attend their course to learn something relatively simple, you have to make your own decision  here- the price looks quite steep to me although they are not more expensive than other trainers who teach totally useless stuff. The preview is conducted by the founder of the company Mr CK Ee, quite an  interesting chap who keeps it entertaining and educational. There is no hard sell but he does use an endless flow of  positive examples to show that the system works and numerous testimonies and results of past students.  The preview would be an eye opener for investors who invest using company fundamentals because it shows you how a simple technical approach can also generate high returns during bull markets. There are however a few caveats and words of caution. Any system that becomes popular also destroys the inefficiency in the market it is exploiting so if Asia Charts courses become very popular and they train tens of thousands of investors to use the same strategy, the system will become suboptimal as a large number of investors try to enter and get out using the same signal - this is a problem for "super-stocks" which are very often mid or small cap stocks. There is no guarantee that any system that has worked in the past will work in the future. The stock market also spends plenty of time going sideways during which it strategy cannot be applied or might generate wrong signals (commonly known as false breakouts). You also need to check the system yourself to have a good understand of its behavior for under various market conditions to understand how the system can possibly fail.

I enjoyed the Asia Charts preview a lot but was a little disppointed that Leong Sze Hain did not show up. I wanted very much to ask him whether he endorses the course personally and what he thinks of it. Given the price and various potential pitfalls, I'm quite surprised Leong Sze Hian allowed his picture to be used for the Asia Charts ad. There is a real risk that the system stop working as with many trading systems in the past and he will be linked to it which may not be 100% wise and that was why  I wanted to ask him personally what he thought about it.

For those who are interest in learning more about investment strategy and have more than a passing interest in stock investment, there is a relative low cost source of information and resource available on the Internet. It is maintained by AAII (American Association of Indvidual Investors) www,aaii.com. It monitors a wide range of investment strategies and how they have performed over the past few years. These include the CANSLIM strategy, Motley Fool stock criteria etc. Suppose you learn from somewhere that investing in stocks trading at discount to their book value is a good approach, you can check the AAII website to find out how such a strategy have performed in the last 5 years. Suppose someone tells you that investing in stocks with high dividend payout is a good strategy - check it out so you know what to expect. There are actually hundreds of successful strategies that will make you money but the bad news is there are thousands of ways to lose money! 

30 comments:

Non trader said...

Stock trading is a high stakes games especially trading in SGX.

The fees are high for buying & selling each time an entry is made, even if done through the internet.

There is the temptation to trade on margin and once caught, you can lose big time.

Its certainly not for the faint hearted.

I buy shares, register them with CDP and throw away the key.
You make some money and you lose some too.. but overall it should be positive, returns based on dividends can be between 3% to more than 100% and capital appreciation ( share price ) can be more than 100% also..

This is possible only if you keep the shares longer than 10 years.
and interest rates have been falling since 1998..so the returns are better from holding shares.
I believe the price moves with inflation.

You are right about shares in companies dealing in properties..
but some people disbelieved.. like me.. I continue to disbelieve...

Anonymous said...

Stock trading at best can only be a secondary income. At worst many lost money which they cannot afford to lose.

Forget about getting rich if you do not have a good job or do good business to make the bulk of your money, save or spend wisely.

Lucky Tan said...

anon 14:27,

Well said. Few things are more certain than collecting an income from a job well done.

Anonymous said...

Normally stock fall due to recession is about 6 to 9 month. So just buy most popular b r the a month the probability for making p will p very er.

Anonymous said...

Normally stock fall due to recession is about 6 to 9 month. So just buy most popular stock after the 9 month the probability for making money will be very high.

Amused said...

If you don't want to lose money, never invest in a mainland company that is not listed in China/HK. There are many such money losers listed locally!

Anonymous said...

Lucky this is for you.. none of the coursemates I know are using these so called "strategies" you mentioned anymore, in fact we ALL stopped after the first few months. I think u could do better to attend clement chiang's course if it is still around. just my opinion.

Lucky Tan said...

Anon above,

didn't I specifically mention that they don't work in all markets phases and I believe they work during periods when the market is strongly trending up or down.
These systems just helps to to get into fast rising stocks with large gains in a systematic fashion with an exit plan when the stocks reverse.

I doubt you can use it day in day out to make money. Especially when the market demonstrate random walks...nothing works. But from experience, the market do have spectacular run ups and spectacular collapse - I think these systems help you to do well in these phases. If you're using it all the time, you probably lose money until you give up when the time comes for a big rally when you can make money.

Anonymous said...

"But from experience, the market do have spectacular run ups and spectacular collapse..."
Lucky Tan

Ya, but happens in a long, long time.

Spectacular collapse? I can only think of 1998 and late 2008/early 2009. And I missed the buying opportunity on both.

So when will be the next one? I am hoping to go in for a big buy. All my current liquid assets are in savings and FDs only. Very safe but terribly pathetic returns for quite some time already.

Anonymous said...

didn't I specifically mention that they don't work in all markets phases


So.. dump it sonny before you lose your trousers!

Anonymous said...

last time we only hv 2 million people in country,but we still can manage to climb up from 3th to 1st world.why today??? why we need so many people????excuse and excuse again,why not just tell the people more people = more tax to fill your salary,all ready money face,too greedy,simple logic,teather never teach them izzit,”GREED” will lead them deadly one day

DanielXX said...

a word of advice. SG will be in the dumps due to policy risk. look to malaysia instead.

panamera said...

stock trading hardly feed my adrenalin, i only buy beaten down stock in a strong economic environment.

the stuff i do on a daily basis is to play the index futures market. no need for any strategy. it is just capital, discipline and balls!

Lucky Tan said...

DanialXX,

I thought Singapore stocks will be in the dumps because the US economy is slowing and I notice everytime the US falls it has a negative impact on the bottomline of many companies especially the small ones.

DanielXX said...

there is limited upside because there is limited headroom (infrastructure bottlenecks, popular discontent) for using the same morally corrupt strategy of increasing immigration as economic growth steroids. from here, Singapore is projected to have just average GDP growth potential within ASEAN, compared to Thailand, Indonesia, Malaysia. I like Malaysia because they have political stability compared to the other two and have undergone the transition to a sustainable political system already. Their plans even if half implemented will already be a massive catalyst for the next 5-10 years.

hyom said...
This comment has been removed by the author.
hyom said...

Hi Lucky,

Thank you for the interesting post. However, I would very much prefer your earlier simplest advice. That advice works even for people who fall into the unfavorable end of the intelligence bell curve. It is a universally applicable advice. Having said that, it is easy to apply but not easy to follow through. I am speaking from experience as a failure. Sigh ...

Trend-following is an old trading technique. It has its origins in the 1970s when commodities were hot. Check out Richard Dennis who was the father of the Turtles and made a fortune trading commodities. Several hedge-fund managers (Paul Tudor Jones and Louis Bacon) with a trend-following style hail from Commodities Corporation.

Although trend-following still works to some degree today, it has lost some of its magic compared to the earlier days. It may work better in less mature markets where trend-following traders are lesser. A trading formula cease working the moment it becomes widely practiced.

Any trading technique taught publicly in trading courses are the 2nd-rate ones which have lost some of its magic of yester-years. The best techniques are always kept secret by the traders. Renaissance Technologies will never reveal its secrets to outsiders ... maybe until they stop working as well as before.

Lucky Tan said...

hyom,

I'm well aware of the pitfalls of trendfollowing. But I think it would have worked spectacularly in the last 3 years. The collapse during the banking crisis and subsequent rebound in various markets are ideal markets for trendfollowing techniques.

There were periods in the 1990s when the technique has dismal results and people gave up when they lost their money. My sensing is it has positive expectations over the decades. There are a few reseach papers that showed that - you can just look them up.

I believe (by faith?) that the increasing interconnected-ness of markets and the overleaveraged economic system lends itself to trends.

If you're interest in what works or has been working the www.aaii.com website that I recommended gives a good account of the track record of various strategies. Working strategies are not so rare, I think the Motley Fool has been able a to demonstrate a "rule breaker" portforlio that has worked for years. The only issue is where working strategies continue to work.

Lucky Tan said...

DanielXX,

You like Malaysia? I thought they have greater discontent there! I think there is policy risk in the housing sector but I think the govt is going to do something for public housing and I don't think they will sledgehammer the private market...something else is going to kill this market later.

I always thought you were some kind of value investor. So perhaps there is value here because people think there is policy risk? After the hot money pulled out of emerging markets back to US & Europe since March, they seemed to have jumped into the hot soup there with the reemergence of the Euro-crisis and US economic slowdown. My instincts tells me there is so little short term "hot money" in our market, it will start to appear resilent vs the falls on Wall Street. The low interest rate environment makes stocks a favorable vs almost all other asset classes and the valuation of stocks are still very far from form of overvaluation. Given funds now hesitate to put money in Europe and US....guess where the alternative is for the next 3 months. I think there is a good chance of the reversal of the flows out of our markets (+HK+BRIC) to return as inflation fears subside.

DanielXX said...

Luckytan,
It's not the general level, but rather the gradient of change that matters! I sense Malaysia is stabilising while Singapore is destabilising.

We have to be careful. If not handled properly, the soon-to-be transition and unbalanced economic growth model is going to swamp us all.

Lucky Tan said...

DanielXX,

How do you know these things correlate with market performance?

I always like to look at troubled economies and troubled countries to see how well and how quickly the market discounts the troubles. Suppose you invested in a country and suddenly you wake up one morning and it was revealed that its economy is in dire straits, its govt is about to collapse. The next day the market opens with a sdrop of 15%. What do you do? Sell or Buy?

Take the basket cause of Spain. Everyone knows that unemployment there is 20% and the govt just lost its recent elections and its debts are crippling....gues what...

The 1 year performance of the spainish stock market is better than the STI. So is the 3 month performance. The uncertainty translate into wider swings and not necessarily poorer performance over time....interesting isn;t it? The stock market of a very very bad basket case economy actually performs better than Singapore with near full employment and every sector firing in all cylinders.

I wanted to cite this example to show the pitfalls of using economic performance to choose where to invest. Buffett always says he has a "F" in economics the reason being he completely ignores economics.

If one is a value investor, stick closely to finding value as there is long term correlation between discount to book, free cash flow etc to stock performance. Don't try to second guess govt policy or use economic indicators....

So with the US economy slowing down does this mean it is the wrong time to be in the market?...hmmm..it is hard to ignore the talking heads on Bloomberg and CNBC but the fact is the value of using well known economic performance numbers is limited....

Anonymous said...

Patient Watch and Wait says

Everybody is cashing in on 'expertise and brand" - fact is they are as often right as wrong but chose only to talk about their wins.

There is a disconnect between markets and value as market react to fear and greed. Ultimately value is what an item is worth to you, the market just gives you a mechanism to buy or sell what you think you want or need.

Listen to the experts and be taken for an expensive4 ride because markets always needs new suckers.

Be aware of a possible second dip!

Read historical factual work by Rogoff and Rheinhart and watch for signs of the tsunami yourself or pay 2% for a team of monkeys to gamble on your behalf. You will get "free" dinner and lunch if your 2% fee is large enough.......

simpleton said...

Massive generation of liquidity by releasing and creating more supply of credit is the only way to go.

It is impossible to stop the credit train.
But stop it can... and along comes world war 3.

So, all world leaders dont want that.

And the music will continue to play.

Stock market crash? decline maybe.crash no.

Commodities? bubble? soft release maybe.. burst? no.

Housing Market crash?.. I thought it already did ( USA )
Will it happen in singapore? maybe but who cares? you still have a roof over your head right?

No jobs?.. many are already jobless anyway and more are on contracts.. so there is a live span.

Doomsday for the financial world?

No way Jose!.. the music continues

No one is going to change fractional banking, credit spending, loans and mortages.. it is the only system we have.

Just park your money in stocks and property.. you'll be fine... except if you are greedy and want more all the time..

Alex Tan said...

Hi Lucky

I attended Mr EE's seminar and I can really say his teachings is a delight. I didn't sign up for his trading course but I would like to advertise his services here in return for that enlightening session. His follow-up services includes an investor forum, where he post trading videos and tips sharing(or homework as he called it).

www.asiacharts.com

Alex Tan
zhixiang8787@gmail.com

Anonymous said...

Hi Lucky,

I tried to access the www.aaii.com but there is a problem - most of the content are paid content. Do you know how to get around this to access the website for free?

I don't think it is a good idea to pay unless the contents are really useful and works for me.

They don't even have a month trial free membership when I can log in to download everything for free!

Lucky Tan said...

Alex Tan,

Yes, I enjoyed the preview too and believe most people would.

Lucky Tan said...

anon 00:23,

I used to have a subscription. While I'm not sure what your interest and needs are, the database there was very useful for me and the also have a quarterly (month?) magazine which they give with the subscription.

I no longer have a subscription for the AAII site but the US$29 I paid to access the stock screens and the website was good value for money for me.I used it for 3 months and gave the account to a friend after that.

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Ninja said...

Yes agree that we should not be paying expensive or more than $500 courses for just one or two days. Learning should be on going and hand holding session is important. There are a few broking houses offer free education courses for their client. A free one coming up on 9-June-2012 Saturday at SMU. RSVP at http://www.meetup.com/Singapore-FOREX-Group/events/65975872/

Georgina said...

It won't truly have success, I suppose this way.