Post by oldman on Oct 19, 2013 7:04:59 GMT 7
Your First Million, 2nd Edition
Chapter 2: The battlefield
When I was new to the market, I tripled my money within a year and I thought that I was gifted in investing. It was a bull market then. Well, three years later I lost it all, as my bets got bigger and bigger. Luck can come, but luck can go just as quickly.
You can do all the research you want but your research will be based on available information, which tends to be dated, whilst up-to-date information flow is imperfect. Running a business is not like turning the TOTO lottery wheel, in which everyone gets to know the number the moment the ball drops out. In a business, before deals can be made, many people have to be in the know, such as lawyers, business partners, bankers, accountants and public relations consultants. Hence, even before a deal is announced, many are already in the know. As investors, we must realise that there is this shortcoming in the market.
This is why if you are a typical punter, it is likely that you will be among the last to know. Your chances of success are unlikely to be more than 50%. As a long-term investor, you stand a much better chance, as you are not trying to catch the sudden ups and downs of the market. Put another way, if you believe in the future of a company and invested early, it really does not matter if information flow is not efficient, as you will be able to ride the company’s eventual share price rise, whether or not the share price went up before a particular announcement.
Investing successfully requires a combination of experience and foresight. It is very tough to get all these experiences when you are young. I always encourage those who want to be successful in the market to excel in what they are currently doing first, as every occupation teaches you something in the university of life. Thereafter, they should try their hand at running businesses. Only after that should they consider investing as a career, as I don’t think you could learn life’s experiences by clicking your mouse and clacking on your keyboard.
Many stocks in our exchange exhibit the behaviour of rising before the news is out and succumbing to profit taking thereafter. The fact that there are rumours before the actual news suggests that information had been leaking out. In other words, there may be insider activities. However, the way it is reported is as if this is a normal occurrence in our stock market.
In an ideal stock market, of course this should not happen. But in the real world, it does and everyday we see instances of this happening. However, I feel it is not correct for these instances to be reported as buy on rumours, sell on news. It is as good as saying that there were insider activities and this is OK. It should not be OK to have insider activities before the release of news.
In fact, in the ideal world, whenever this happens, the authorities should be on the lookout for insider activities. Because there is this gap between those who know and those who don’t, I believe that the best way to invest in the stock market is to look for fundamentally sound stocks and hold on to them. With this strategy, it really does not matter if there are insider activities before the release of news because one would have bought the counter way before the news leakage.
Chapter 2: The battlefield
When I was new to the market, I tripled my money within a year and I thought that I was gifted in investing. It was a bull market then. Well, three years later I lost it all, as my bets got bigger and bigger. Luck can come, but luck can go just as quickly.
You can do all the research you want but your research will be based on available information, which tends to be dated, whilst up-to-date information flow is imperfect. Running a business is not like turning the TOTO lottery wheel, in which everyone gets to know the number the moment the ball drops out. In a business, before deals can be made, many people have to be in the know, such as lawyers, business partners, bankers, accountants and public relations consultants. Hence, even before a deal is announced, many are already in the know. As investors, we must realise that there is this shortcoming in the market.
This is why if you are a typical punter, it is likely that you will be among the last to know. Your chances of success are unlikely to be more than 50%. As a long-term investor, you stand a much better chance, as you are not trying to catch the sudden ups and downs of the market. Put another way, if you believe in the future of a company and invested early, it really does not matter if information flow is not efficient, as you will be able to ride the company’s eventual share price rise, whether or not the share price went up before a particular announcement.
Investing successfully requires a combination of experience and foresight. It is very tough to get all these experiences when you are young. I always encourage those who want to be successful in the market to excel in what they are currently doing first, as every occupation teaches you something in the university of life. Thereafter, they should try their hand at running businesses. Only after that should they consider investing as a career, as I don’t think you could learn life’s experiences by clicking your mouse and clacking on your keyboard.
Many stocks in our exchange exhibit the behaviour of rising before the news is out and succumbing to profit taking thereafter. The fact that there are rumours before the actual news suggests that information had been leaking out. In other words, there may be insider activities. However, the way it is reported is as if this is a normal occurrence in our stock market.
In an ideal stock market, of course this should not happen. But in the real world, it does and everyday we see instances of this happening. However, I feel it is not correct for these instances to be reported as buy on rumours, sell on news. It is as good as saying that there were insider activities and this is OK. It should not be OK to have insider activities before the release of news.
In fact, in the ideal world, whenever this happens, the authorities should be on the lookout for insider activities. Because there is this gap between those who know and those who don’t, I believe that the best way to invest in the stock market is to look for fundamentally sound stocks and hold on to them. With this strategy, it really does not matter if there are insider activities before the release of news because one would have bought the counter way before the news leakage.