Stock Market Archives - Page 13 of 29

3 Levels of Stock Market Crisis (Wolf, Mini / BIG Bears)

Posted on March 10, 2020 Written by Dr Tee (Ein55)

Every 10 wolves (eg. 10% minor stock correction, could be yearly) may lead to 3 mini bears (eg. 20% major stock correction, could be every 1-3 years), eventually only 1 becomes the BIG bear (eg. over 50% stock market crash, could be every 10+ years) or commonly known as Global Financial Crisis.

For stock investing or trading, one has to know own personality which includes preferred timeframe of investing and holding power, aiming for 3 levels of stock market crisis which could be represented by these 3 animals:

1) Wolf (Short Term Trading)

Short term investor (usually is also a trader) may need to take action every few weeks or few months, responding to daily positive/negative news which may cause the stock price to up/down by about 10%. A common tool is Technical Analysis, analyzing price trend and also support/resistance of stocks (eg. exit when S&P 500 is below 3000 points).

Trend-following strategy is flexible (similar to a wolf who is very alert to surrounding), suitable for traders, although many times, could end up as false alarms to longer investors who hear “wolf is coming” (eg. market recovers again after price correction).

2) Mini Bear (Mid Term Trading)

Mid term investor or trader could have higher tolerance level, able to hold longer (eg. more than 1 year) for up and down of about 20% in stocks. A Mini bear may come when there is a regional crisis (eg. Euro Debt crisis, US losing AAA credit rating, etc) or unexpected events (eg. Coronavirus, Oil Crisis, etc). It is a mid-scale crisis which could cause significant harm, but could be intermediate opportunity to buy low when crisis is over a few months later.

A mini bear is welcomed by both investors and traders as it won’t end the bull run but creating more opportunities along the long journey of bull market (eg. current bull run is already 11 years long from 2009 to 2020).

3) BIG Bear (Long Term Investing)

The scary BIG bear is a threat for global investors and traders who know how to buy stocks but do not know how to exit because the drawdown could be more than 50%. For junk stocks with weaker business fundamentals, some may be swallowed by the BIG bear, ending in bankruptcy, an investor could lose 100% investment permanently in this coldest winter which could last more than 1-2 years (Great Depression in 1929 could take more than 5 years).

At the same time, the BIG bear or global financial crisis provides an excellent opportunity to redistribute the wealth globally, from those who are ignorant to those who are prepared, smart investors who have found a portfolio of global giant stocks with strong business fundamental, using the BIG bear to scare away other competitors to get a huge discounted price to own them for another 10+ years of new market cycle (which the investor later could decide whether to hold for long term or sell at next market high).

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No one would know exactly when the BIG bear may come. We don’t have to scare ourselves every year whenever there is a wolf calling (action for short term trader) or even hearing the steps of mini bear (alert for mid term trader).

For longer term investor, one could apply probability investing with optimism to know when to stay alert, the time when global stock market at Level 4 (especially US stock market, Level 3) exceeds 75% optimism (eg. over the past 2 years). The investors who prefer not to exit first (to ride the price momentum in last rally of bull run), then need to protect oneself with shorter term trend-following strategy during the uncertain stock market at high optimism.

In summary, despite we may know not precisely when the global financial crisis may come, we could evaluate the probability based on signals received along the way, eg. stock market optimism (Levels 1-4 Analysis), business fundamental and country economy (Fundamental Analysis), Price trends (Technical Analysis), Market High or Low (Optimism Analysis) and more importantly, knowing if one’s personality (Personal Analysis).

Learn the unique LOFTP Strategies from Dr Tee free 4hr course to prepare for 3 levels of crisis (Wolf, Mini Bear or BIG Bear). Register Here: www.ein5.com

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Filed Under: Market Cycle Investing, Market Optimism, Stock Market Tagged: global financial crisis, stock market crisis

Crashes in Global Stock Market and Oil Market

Posted on March 10, 2020 Written by Dr Tee (Ein55)

Global stock markets crashed yesterday, dropping as much as 7% (with protection of circuit breaker) for US stock market, 6% for Singapore stock market. There could be more downside if fearful emotion continues.

Oil crisis comes faster than Coronavirus spreading, Brent crude oil price dropped to about US$30/barrel overnight. Saudi could cut oil price because the production cost per barrel is the lowest. Price war is lose-lose for for both OPEC and non-OPEC, see who could last longer. Eventually, this could trigger Level 3 country financial crisis as national income would be reduced significantly.

Crude oil is a giant commodity by default, it could not drop to $0 (unless end of the world when energy is not required anymore, then investment or money is also no longer important) as a stock but it could stay at low optimism level for a long period of time, especially under manipulation of certain forces (eg. OPEC). This drama is not new, episode #1 was about 5 years ago, aiming to wipe out shale oil producers in US with higher production cost. Eventually, the shale oil producers still survive but becomes more efficient in operation, harder this time in Episode #2 of global oil price war.

It could be no-brainer investing when Brent crude oil dropped to or below US$30/barrel, one could position in crude oil through USO (oil ETF) as Saudi and Russia could not sustain in long term at this low price (perhaps only Saudi could still make a profit due to low production cost). However, such a contrarian investor (similar to Warren Buffett style) needs to have strong holding power, at least can hold longer than oil produce countries before they burned out first.

Similarly there are many blue chip stocks, buy low could get lower in bearish short term market, not suitable for speculator. Global stock market is not yet very bearish yet, so far is only a major correction. Again, shorter term trend-following strategy is safer during this uncertain market, either for exit (could have exited last week if following signal, eg. S&P 500 below 3000 points) or entry again.

Everything has 2 sides, when oil price is crashed, consumers such as car drivers are happier with lower petrol cost. However, one has to look at a bigger picture, lower inflation or cheaper price is not always a good news because when global economy is weak, one could even lose the job because company may be eventually losing money as well.

Learn further from Dr Tee to leverage on current Oil Crisis and potential global financial crisis with stock market crash. Register for Dr Tee Free 4hr Course to position with crash in global stock market: www.ein55.com

Filed Under: Commodity Market, Macroeconomy, Market Cycle Investing, Stock Market Tagged: crude oil, global financial crisis, stock market crash

Triple Short Term Crisis of Oil & Gas Stocks （屋漏偏逢连夜雨）

Posted on March 9, 2020 Written by Dr Tee (Ein55)

Global Oil & Gas sector has been under crisis mode over the past 6 years, Brent crude oil fell from US$115 (year 2014) to $27 (year 2016) per barrel, about 25% of peak price, a very low optimism for the past 2-3 decades, ending the mega bull run for commodity market (including crude oil, gold, agricultural products, etc).

Over the past 4 years, crude oil together with commodity market in general has been struggling with recovery in prices, achieving an intermediate high of US$86 (year 2018), falling down again to $50, then gradual growth, stable between $60-$70 in last 2 years with joint effort by OPEC and non-OPEC (eg. Russia) oil producer countries to control the oil supply, in an attempt to stabilize the market prices.

Unfortunately, Crude Oil is currently facing triple short term crisis over the past 2 months:

1) Coronavirus

There is less global demand for crude oil. There is less manufacturing in countries such as China which is a major energy consumption country. Some global airlines also cut down flights by more than 30%.

Less demand = Lower price for crude oil.

2) Fall in global stock market

Fear driven stock market fall (especially in US) has affected the confidence of global investors who also invest or trade crude oil, anticipating lower demand for crude oil.

Bearish emotion = Lower price for crude oil

3) Political Conflicts (OPEC vs non-OPEC)

After expiry (end of Mar 2020) of agreement on production cut, it is possible for supply for both OPEC and non-OPEC to increase significantly. Of course, it is possible for interested parties to extend the collaboration but their influence would be weaker each time. The global market share of crude oil could be taken by countries who may not follow the agreement (eg. Iran which needs cash or US with shale oil as new major exporter with lower cost per barrel).

Higher Supply = Lower price for crude oil

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As a result of triple short term crisis, Brent Crude Oil drops to US$45/barrel currently. $40-$45 is an important support zone (low prices during 2009 global financial crisis), if breaking below $40 while there is no quick solution in a few months with reversal for 3 short term crisis above, it may challenge the last long term support, $27/barrel recorded in early 2016 during the earlier Oil & Gas Crisis.

If so, global Oil & Gas stocks would be under price pressure, falling back to low optimism again. Upstream Oil & Gas sector (eg. exploration of oil) would suffer the most from falling in oil price, following by integrated oil & gas companies. Mid-stream (eg. storage and delivery of oil & gas) and Down-stream sectors (eg. refinery, processing of petro-chemical) would have less impact on its business. Careful selection of Oil & Gas stocks are critical, especially if the current Level 2 (Oil & Gas sector) crisis may be combined with bigger scale of Level 4 black swan (Global Financial Crisis.

Oil & Gas stocks are generally cyclic in nature due to fluctuation of oil price, therefore better to position with Buy Low Sell High strategy, more suitable for trading.

“Crisis is Opportunity” is true only if one knows What to Buy (giant stocks), When to Buy (timing, too early may catch the falling knife) and When to Sell in future (taking profits or potential cut loss if trading in an uncertain global stock market at high optimism).

Learn from Dr Tee Free 4hr investment course to position in global giant stocks with discounted prices, mastering the investment clock for entry / exit. Register Here: www.ein55.com

Filed Under: Commodity Market, Macroeconomy, Stock Market Tagged: crisis stock, crude oil, oil & gas stocks

How to Start Stock Investment with Low Capital ($1000)

Posted on March 8, 2020 Written by Dr Tee (Ein55)

Not everyone born in a rich family, therefore starting line is different for investment. For any form of common investment (stock, property, bond, commodity, forex or even bitcoin, etc), here are 3 main considerations for an investor:

1) Capital Available

2) Reward (winning probability)

3) Risk (safety)

For reward & risk, it is strategy and type of investment dependent, interested Ein55 readers may review the past articles. For capital available, it is always a constraint. For an investor with low capital of $1000, 100% return is only another $1000 as it is capital dependent (without leveraging). For an investor with higher capital of $100,000, just 1% return could get the same $1000 return.

For property investor with $1 Million, 100% return over 10 years would be another $1 Million, not to mention property investor could leverage on loan (as if CFD for stock trading), only need $100k to $200k (depending on local law) to start investment of $1 Million.

Similarly for more speculative Bitcoin trading, it seems easy to big money with small capital but eventually one could lose most of the small capital due to volatile prices exceeding the risk tolerance limit.

So, is there a relatively safer way for small capital investor (eg. $1000 cash) who is a beginner to start the investment journey? Here are 3 main steps:

1) Learn the investment skills

Regardless one is a smart investor with over $1 Million fund or a beginner investor with small capital of $1000, both needs to learn investment, developing a personalized investing strategy aligned with own personality over time.

Here is a good platform for exchange of investment knowledge (please make your own decision), learning this life skill gradually. Dr Tee also conducts monthly free investment course (stock, property, commodity, bond, forex) for general public, sign up here: www.ein55.com

2) Practice with Virtual Trading

Similar as race competition (actual investment), one has to practice in advance, eg. through virtual trading of stocks, i.e. record what stocks to buy, when to buy/sell in a journal, including profit or loss during a period of time. This is more suitable for short term traders as time of practice is usually a few months, hard for one to “practice” investing with 10 years before taking real action with real money.

Learn to take actions in stock or other investment: Buy, Hold, Sell, Wait, Shorting. Refine the strategy to increase the winning probability and also reward/risk ratio.

3) Real Action with Small Capital ($1000)

It is never too late or too small capital to start investment. $1000 could be a reasonable starting fund, one could investment in REIT with property portfolio with over $1 Billion through stock investment. Real action is important as it could train the mastery of own emotions, eg greed and fear, which is hard to achieve with virtual trading (zero risk and zero reward, therefore no greed nor fear).

Due to limited capital size, an investor may only able to invest in 1-2 stocks unless it is a penny stock (some could be giant penny stocks), knowledge of Fundamental Analysis will be critical to focus only strong fundamental stocks. Since there is only 1-2 “bullet” to shoot, timing of action has to be precise, skill in Technical Analysis would be helpful to take action following the price trend.

Alternatively, low capital investor may also consider a giant stock fund (only need minimum $1000 capital) which invest in hundreds or thousands of stocks through 1 investment. Investing in stock index (eg. S&P500 – SPY ETF, which follows US stock and economy performance) is another option but need to pay attention to high optimism level, potential risk of global financial crisis could cut even index or funds by half, $1000 could be left with $500, although it would recover again a few years later, one could be disappointed.

$1000 capital could be relatively little money to many people but could be significant life saving for needy group. So, it is important to put aside some emergency fund (eg. 3-6 months salary as saving), only invest in money which can afford to hold, as if fixed deposit in stock market, instead of in a bank. If one is greedy, borrow money or leveraging beyond the limit to trade, when there is unexpected risk, weak holding power would force the trader to buy high sell low, or buy low sell lower.

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Why Warren Buffett does not need to time the market (he could buy with bearish price trend) is mainly because he has tremendous holding power, investing in mainly giant stocks, diversifying over a portfolio of different sectors (although mostly US stocks), riding the uptrend US economy over the decades, waiting for each market crisis to buy more stocks with discounted price.

It is fine to start stock investment with small capital of $1000 but one has to treat it seriously. After mastering management of $1000 capital, one will be more confident to increase investment at later stage of life, including property or bonds, etc.

Filed Under: Stock Market Tagged: low capital, stock investment

Stop Financial Virus with Probability Investing System

Posted on March 8, 2020 Written by Dr Tee (Ein55)

Extreme isolation measures over the past 6 weeks in China Hubei has proven that spreading of Coronavirus could be terminated or reduced (if 0 data reported so far a few cities is still considered unbelievable by some people) after a period of time when breaking the people into “units” of family, the risk, if any, will be within this family. This concept is similar to “curfew” to limit the actions of people (eg. staying home at night) to minimize the possible instability.

This strict method (including locked down of city and staying at home with permit required to go out) could work in China or probably a few other countries with strong power of government authority and more obedient or understanding (politically correct term) people. In Europe (especially) and US with more “democracy”, these extreme measures may not work as people may not follow. Just read that some Italian people use the opportunity of no school (should stay at home) to gather in crowded cafe.

Democracy usually comes with a price. When rules (eg. Coronavirus prevention) are not followed by some people, the entire system could fail, all people would suffer together.

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Similarly for stock investment and trading, risk management is critical. Similar “isolation” measure could be done for stocks through position sizing (trading) or diversification (for investing) to limit the maximum loss when unexpected risk is encountered. This will help to prevent the financial “virus” (eg. market fear) to spread easily and “infect” all the stocks.

If a trader or investor could follow the rules strictly, eg. SET = Stop Loss, Entry & Target Prices, the potential loss could be limited within individual risk tolerance level, preventing from evolving into bigger loss of entire capital when holding to loss position (loss aversion personality).

Stock market and Coronavirus have many similarities, both are unpredictable but when certain rules are applied, higher probability outcome will likely to happen, even no one would know the future. For example, recommended practices such as washing hands more often, avoiding crowded places, etc, could help to reduce the chances of infection.

This is similar to filter out stocks with potential red flags (eg. high debt, unclear business outlook, etc), financial risk of stock could be reduced significantly. At the same time, if one could look for giant stocks with strong business fundamental and uptrend share prices with technical analysis, the probability of success in stocks would be even higher.

Apply “Probability System” in both Coronavirus control and Stock Market investing without emotions (greed and fear). Learn the LOFTP (Level / Optimism / Fundamental / Technical / Personal Analysis) strategies from Dr Tee free 4hr course to enhance the probability of success in stock investment: www.ein55.com

Filed Under: Macroeconomy, Stock Market Tagged: Probability Investing, stock market

Warren Buffett Investment Styles Evolution

Posted on March 7, 2020 Written by Dr Tee (Ein55)

Warren Buffett has gradually adjusted his investment styles over the past few decades. In the early years, he applied more on value investing to buy stocks at discount. Then he gathered more stocks with steady business but slower growth (eg. Wal-mart, Coca-Cola, etc).

However, Berkshire is a listed investment company, Warren Buffett has to “evolve” to increase the growth rate of investment. Therefore, it is not a surprise when we see Warren Buffett started to invest in technology company (eg. IBM and Apple) for higher potential return. Despite he is not a technology person (he usually said don’t invest in something you don’t know), he could still make a decision through the financial reports of there technology companies.

Similarly, Warren Buffett has significant investment in airlines stocks as the cyclic stocks could give higher capital gains through longer term cyclic trading or mid-term investing for a few years. Warren Buffett enjoyed tremendous gain in the past in “trading” PetroChina, Buy Low Sell High in 4 years.

So, just be yourself, no need to copy other people’s best method, eg Warren Buffett styles. Before any investment, reviewing own past history of investment performance (reasons for successes or failures), leveraging on other people’s proven strategies, integrate and reshape into own unique stock investment and trading strategies, John or Mary’s Styles.

The only thing not changed is change itself. It is fine for retail investors and traders to adjust own styles over the years when one has identify the “sweet spot” which one is comfortable, eg. “buying a portfolio giant stocks at discounted price during crisis to collect dividends and waiting appreciation of share price over the decades with quarterly monitoring of business performance.”

Leverage on Dr Tee free 4hr stock investment course to shorten the learning curve in investing journey: www.ein55.com

Filed Under: Personal Analysis, Stock Market Tagged: investment styles, stock market, warren buffett

Bond Market vs Stock Market vs Cash

Posted on March 7, 2020 Written by Dr Tee (Ein55)

Bond, especially country level, usually is considered safe haven, therefore bond prices have been climbing up over past 4 decades (since the major correction in 1980s), resulting in extremely low bond yield, eg. only 0.74% for 10 years US treasury yield (dip due to 0.5% interest rate cut recently) while Singapore Saving Bonds is 2.12% for 10 years, how to fight against inflation which is average 2-3% yearly?

When global investors are afraid of stock market (not so bullish), then there is demand for bond, then it may not easily crash even prices are very high with little yield. However, when bond yield is so low (near to 0%) and there is increasing inflation, then money may escape from bond market to consider other higher risk and higher potential return market (eg. stock or property).

In general, corporate bond (especially with giant stock and strong business fundamental) is a better choice than country bond (yield is too low, safety could not justify the investment for long term) but focusing on short term bond (less than 12 months) to minimize the risk of possible bond market meltdown in future.

For bond, focus is more on safety (against risk of default) vs return (bond coupon rate). For stock, focus is on capital gains through business growth with consideration of share price which affects the investment yield. A smart investor would integrate stock and bond analysis through the common business. Focus mainly on giant bonds with giant stocks.

Cash is King when an investor has the capital to invest at the right time. However, when waiting period is too long, cash could only get little return (eg. bank interest of 1-2%). So, a balance is needed for percentage of cash (opportunity fund), stocks (especially holding for longer term investing to collect dividend with capital gains) and bond (for stability, either in stronger corporate or countries).

There are many ways of investment to growth the wealth. Learn from Dr Tee free 4hr course to position in 5 major investment markets: stocks, bonds, properties, commodities, forex. Register Here: www.ein55.com

Filed Under: Bond Market, Stock Market Tagged: bond market, cash, investing strategies, stock market

Airlines Stock Crisis: Delta Airlines vs Singapore Airlines

Posted on March 7, 2020 Written by Dr Tee (Ein55)

Both Delta Airlines (NYSE: DAL) and Singapore Airlines (SGX: C6L) are well known international airlines. However, choice of stock for investing is different from choosing airline as a passenger. We need to consider from investing perspective, both business performance and share prices.

Delta Airlines is a giant airline stock with strong business fundamental. No wonder Warren Buffett starts to collect more of this stock despite the price falls like a knife which he is not afraid to catch it as he believes the bleeding period is within his tolerance level to exchange for 1/3 discount (26% optimism, near to low optimism <25% but in downtrend direction, Ein55 members may monitor when it may recover again while optimism is still low).

Our dear Singapore Airlines is not a giant stock, fundamental is below average, optimism (28%) is approaching low (towards 25%) but long term potential is relatively weaker, more suitable for short term trading (when timing is right), not for investing.

Some smart investors select stocks as if choosing life partner, holding for long term to maximize the value of partnership, therefore won’t miss when the rare opportunity has come. However, no one would know the “perfect” moment (eg. the lowest price). For Warren Buffett, he just needs to buy with discount within his acceptable limit, buy low enough, no need to speculate the lowest price and he could hold till recovery in both business and share prices.

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Filed Under: Fundamental Analysis, Market Outlook, Stock Market Tagged: airline stocks, airlines, coronavirus, crisis stock, delta airlines, sia, singapore airlines, temasek, US Stocks

Winter Time of Global Airline Stocks

Posted on March 6, 2020 Written by Dr Tee (Ein55)

First major airline in trouble after only 2 months of Coronavirus crisis. Flybe is the largest regional airline in Europe, cannot even sustain a few months of winter time, may not able to “fly” again due to lack of funding.

At the same time, Warren Buffett is indeed different from others, holding to 4 major airline shares: Delta Airlines (NYSE: DAL), American Airlines (NASDAQ: AAL), Southwest Airlines (NYSE: LUV) and United Airlines (Nasdaq: UAL). In general, airlines sector stocks (NYSEAcra: JETS ETF) have dropped about 1/3 share price over the past 1 month from its peak. There is more downside with bearish short term stock market, both at Level 3 (US stock market under correction, even recent 0.5% interest rate cut by the Fed won’t help to recover the confidence) and Level 2 (less travelling, “doom” for airline, burning money each month).

“Be greedy when others are fearful” is correct in principle but may not be suitable for everyone as it requires more investing skills than expected. Warren Buffett could be greedy now (eg. buying more Delta Airline stock) during crisis because he has a deep pocket with strong holding power with diversification over many industries. However, it may not be wise for others to follow Warren Buffett exactly as each person has unique personality, financial condition and investing strategy. Warren Buffett’s Berkshire (NYSE: BRK) loses 50% share price during 2008-2009 subprime crisis but he could still sleep soundly each night. Others may suffer depression with 50% loss in capital.

For retail investors and investors with small capital, weak holding power and low risk tolerance level, it is relatively safer to follow trend for entry or exit. Airline stocks are usually cyclic in nature, main strategy would be buy low sell high. Currently it is only a Level 2 crisis (airline sector earning drops significantly), but if Coronavirus drags longer than 6-12 months, it could become regional crisis (some countries economy will be affected) or even evolving into the next global financial crisis.

If we don’t know Coronavirus well (how it started and when it may end), shorter term investing or holding cash as opportunity fund would be relatively safer. In the meantime, smarts investors have to start to search for global giant stocks with strong business fundamental which can last through the potential financial crisis.

Learn from Dr Tee free 4hr course on Crisis Investing Strategies (What to Buy, When to Buy/Sell), either for Coronavirus Crisis (affecting consumers related sectors such as airlines, retailers, tourism, F&B, transportation, etc) or global financial crisis (affecting all sectors and all countries in the world). Register Here: www.ein55.com

Filed Under: Macroeconomy, Market Cycle Investing, Stock Market Tagged: airline crisis, airline stocks, airlines, American Airlines, coronavirus, crisis stock, delta airlines, JETS ETF, Southwest Airlines, United Airlines, US Stocks

3 Main Undervalue Stock Investing Strategies (Benjamin Graham & Warren Buffett)

Posted on March 5, 2020 Written by Dr Tee (Ein55)

Value is what you get and price is what you pay. Indeed, undervalue stock investing strategy is as simple as shoppers buy familiar brands of products during sales (eg Great Singapore Sales in Jun-Aug, 11 Nov internet retailer sales, etc).

However, an investor may feel frightened when “discount” in stocks are incresing, eg. buying a stock with 50% price correction but it continues to fall, sometimes may not recover at all (bankrupt of company during crisis) or long period of low prices.

At the same time, a shopper seldom feel frightened when merchant B gives more discount than merchant A as a discount is already enjoyed, shopper knows that it is impossible to buy at the most discount.

This implies that there is a gap between stock investor and shopper, particularly related to mindset of value vs price. Let’s learn 3 main strategies in undervalue stock investing:

1) PB (Asset Method)

Price to Book (PB) ratio is share prices / Net asset value, a common way for smart investor to buy undervalue stocks with PB<1 or share price below net asset value for discount. This method requires high quality asset such as property or cash, not goodwill or licenses, etc.

The constraint of this method is an investor has limited selection of stocks (eg property or bank related stocks) and require patience to hold through the recovery phase.

Giant stock such as Hongkong Land (SGX: H78) is very undervalue with PB about 0.3 or 70% discount (price below valuation of net asset value). However, when investing during downtrend in share prices, there is more “discount” given, not limited to Hongkong Land, also commonly observed in many undervalue property stocks in Singapore and regional stock markets (eg Hong Kong, Malaysia, etc).

This method is more suitable for longer term investor (over 5-10 years) who ignore daily share prices. Benjamin Graham, father of value investing invented this method but it may not be suitable for everyone, especially short term Traders.

2) PE (Earning Method)

Price Earning (PE) ratio, share price over earning, is another common way for valuation, buying stocks with low PE.

The constraint of this method is limited to company with consistent growth. So, whenever there is a correction in share price during “crisis”, it would create a low PE opportunity.

However, this method may not be suitable for everyone as it requires good understanding of growth stocks with strong economic moat. Past historical low PE may not be a suitable reference (unlike PB<1 is a clearer criteria). Besides, each sector has its own average PE, eg higher for technology and healthcare sectors, lower for property sector. Therefore, it requires relative comparison of PE within similar sector among the peers.

Growth investing and value investing is just a fine line in between. Warren Buffett used to follow undervalue investing of his teacher, Benjamin Graham (asset method) in early years but found the choices of stocks are limited when share prices are much higher. His partner, Charlie Munger, encourages him to move towards growth investing, consider to buy an excellent business at fair price. This is aligned with teaching by second teacher of Warren Buffett, Philip Fisher, who view value as future growth, not limited to current asset.

Stock such as Apple Inc (Nasdaq: AAPL) has PE of about 22, considered “undervalue” within technology or internet sector. The stock may not be cheap in asset valuation, but it is undervalue based on future growth prospect.

3) Optimism (Ein55 Method)

Optimism is 1 of 55 Ein55 investing styles developed by Dr Tee. Optimism method is a unique way to integrate PE and PB methods, allow applications in all types of stocks, not limited to asset based or growth based. Optimism is ranging from 0-100%, a stock is undervalue when < 50% optimism, very undervalue when < 25% optimism, over price when > 75% optimism, fair value when near to 50% optimism.

For example, Hongkong Land is at 2% Optimism (very undervalue) while Apple is at 34% optimism (fair price). Optimism provide a quick and reliable way to integrate value and price together for investors to make decision. 50% optimism is an easy way of valuation for any stock.

However, Buy Low may get lower before one could Sell High. Therefore, it is crucial to integrate at least 5 Ein55 styles together with LOFTP Analysis:

L = Level Analysis (L1-L4)

O = Optimism Analysis (0-100%)

F = Fundamental Analysis (strong / weak)

T = Technical Analysis (Uptrend / Sideways / Downtrend)

P = Personal Analysis ( personality – short term trading or long term investing)

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Warren Buffett is a famous counter-trend investor (although sometimes he also follow “business trend” to buy stock such as Apple), the more share price drops, the more he would buy stocks with cash. His pocket is deep (Berkshire is an insurance giant stock, the premium collected from insurance provide enormous cash reserve for Berkshire through Warren Buffett to invest for higher return during crisis). If one has limited capital with low risk appetite, trend-following could be a better choice, wait for confirmation before trading or investing.

Haw Par (SGX: H02) is a giant stock (which also invest in other giant stocks of Mr Wee), hidden jewel of Mr Wee Cho Yaw, UOB Chairman. We have covered this stock in details several years ago in Ein55 charity course (Discounted NAV stock) and also in Ein55 mentor course on Fundamental Analysis (either course #1 or #2), share price was less than $9 (undervalue) then, with over 50% capital gains in a few years later.

I have studied the cross-holding structure of Mr Wee network of stocks and Jardine Group in Ein55 coaching several years ago and also briefly in this article:

Jardine Group and UOB Group with Cross-Holding Stock Network

Cross-holding structure can strengthen the control but if not a simple majority control (over 50%), it could break down one by one as well when 1 of the stock is controlled by competitor. So, we could see Mr Wee Cho Yaw has been increasing ownership in his network of shares over the past few years to strengthen the control, not just leveraging on cross-holding structure.

It is never too late to master the right ways of stock investing and trading, aligned with own personality. Take action now to learn 10 stock strategies in Dr Tee 4hr stock investment course (free but requires commitment to learn).

Filed Under: Fundamental Analysis, Stock Market, Value Investing Tagged: benjamin graham, investing strategies, undervalue stock, warren buffett

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