AAIC - Short Term Trade

AAIC has broken through the resistance of 15.50. I expect a minimum return of  5% and a maximum of 10% ( nett of Brokerage) in the Short Term. Stop is 5.82% from 15.50. The details are as follows:

Enter @ 15.50
5% Exit @ 16.40
10% Exit @ 17.20
5.82% Stop @ 14.60.

Union Bank Plc - Short Term Trade

Union Bank Plc, is the lowest trading Stock amongst Banks. But it is still in the growth phase after the take over by their present Owners.
However it is offering a promising short term trade.
It is not very often that you notice many indicators giving buy signals at the same time, but it is the case with UBC at the present moment on the 5day Chart. PSAR has given the 1st buy dot, then the MACD is about to cut the signal line to the top, the 9SMA also sits as the support at 16.60, and the RSI is trending up and now at 27.38 points.

Therefore I expect a return of 5 to 10% for the counter in the Short Term. The set up is as follows:

Enter @ 16.60
5% Exit @ 17.60
10% Exit @ 18.40
5% Stop Loss @ 15.60
Swing Low stop @ 14.20.

Why is the Stock Market coming down -Short Note

As per the Definition of a BEAR MARKET, the ASI at present is hovering around the 20% fall from the peaks of last year. Hence the ASI entered the Bear Market only from the 3rd of March 2016.

At any rate the Market is faltering for many a month now. Therefore it will be useful to jot down the many reasons as to why this Market is faltering.

Fear Psychosis built for other peoples Sins

Fear is the No. 1 issue for any market to fall. I can remember with my little bit of Auctioning TEA,Rubber and Copra in the Sri Lankan Auctions that Fear of not knowing what will happen hits the prices. But even in those Auctions the smart Executives of the Biggest Export Companies keep on buying and stocking up their warehouses. When it comes to the Stock Markets all around the world, FEAR is crippling investors and traders alike.

RULE TO PROFIT FROM FEAR IS WHEN EVERY BODY INSIDE AND OUTSIDE OF THE STOCK MARKET, TALK NEGATIVE ABOUT THE MARKET. THAT IS THE BEST TIME TO BUY.
Isn't this happening now?

Doubt 

Doubt is the next big thing.  This is the best buddy of FEAR. Once you have feared, you keep doubting of this would happen and that would happen. When every one you know do this, your fear increases.

The biggest factors that challenges the fear and doubt at present is not only LOCAL, but it is GLOBAL too. Terror, Lower Growth Economies, Lower Commodity Prices, Political instability, Weak Politicians lacking professionalism, Senior Employees of some of the important places carrying out negative agendas for unexplainable reasons.
Another crazy phenomena I noticed is INACTION and NO ACTION. I mean having a lack of action and not taking action is something that is so frequently visible nowadays.

But the important thing is this. In the Stock Market we Buy and Sell Shares of Real Companies, where real people work every day, selling real products and services, making real money. Some real Companies make losses and some make real profits. Many Real Companies give real dividends.

We are in a Real Stock Market and those who understand the reality is winning, and they will always win, because they see the reality..

How does Retailers build wealth - THE SRI LANKAN WAY

Every body knows that the Banks are not giving a return to beat the inflation, and help you build your wealth with your precious money. Many are wanting to become a QUICK RICH. But the truth is that many won't. Also many can't stoop to the levels they go to do so. If you are in the majority of people who do not want to become RICH the way they do, the good news is that you too can become RICH. In my earlier posts I gave you 2 Retail Investors who invested in the Market their way. They were not just investing, they invested in Millions of Rupees. Their Portfolios have grown to become more than Rs. 50 million, and in good times the values were in excess of Rs. 100 million. Now their dividend income alone is in the Millions.
There are a few rules I've noticed in them that made them beat the market and even beat the super rich in the Stock Market Game, and above all they still invest when most have run many a miles away from the Stock Market. Today many are looking sarcastically on these blokes, when they say that their JOB is Stock Market Investment. Yes they have chosen the Stock Market Investment as their PROFESSION.

What are these Rules?

Rule 1 - The decision to make Stock Market Investment their Profession.
This is the 1st Rule they have. This decision is so strong, that what ever happens, they stay by it. They don't chuck up and move out to another like many people who do 9 to 5 Jobs.


Rule 2 - Securing a Fixed Income Channel. 
Many of them lock atleast 80% of their cash in a Fixed Deposit. This gives them the income for their daily commitments. In addition to this some of them are working as well. Hence they have 1 or more secure lines of income flowing. The balance 20% they invest.

Rule 3 - How they invest the 20%
This is the most important part in their investment strategy. They never invest large chunks in one go. Their maximum amount of shares range from 100 to 1000 shares at a time. Their goal is to average at the lowest, and preserve their cash as much as possible.This they do even when the stock is of good quality.

Rule 4 - What to buy
They always buy value. Value may cover many aspects, such as NAV, PE, Dividends, Industry etc.
To put it simply, They have a reason, not just a reason, a valid reason to buy and sell.

Rule 5 - When to Buy, and When to Sell
It is a very very simple strategy. When the Market is coming down, they put GTC BUY orders way below the present price. When the Market is going up they put GTC SELL orders way above the present price. Isn't that simple?

Rule 6 - They keep a record of what they Transact
They know that this is a professional job. They are very serious about it. They take pride of it. As such they keep a record of what they Buy and Sell, so much so that even if they have bought shares of 50 or 100 companies they know the prices by heart.

Rule 7 - Passion vs Emotions
This is another strong quality of these Investors. These guys are not emotional about what they do, instead they have a very strong passion for what they are doing. If you do not know the difference between the 2, then it is very difficult to become a professional RETAIL INVESTOR.

Rule 8 - Generally speaking they do not consider the amount they can invest as important, but how much they invest is more important. As such even if they have 1 million rupees, they would invest into 100 shares of a company that is trading at 10 rupees. Thereafter they will keep on accumulating.

Rule 9 - They trade like a wholesale trader
A wholesale trader buy and sells the same commodity he trades in. But he wont sell the whole stock at once. He keeps a buffer stock while he trades. This allows him to keep a lower average while he does his business. If he is a wholesale trader in rice, he buys a bulk volume and sell in small quantities. This makes him to turn the stock of rice over, whilst he keeps buying in bulk. The trick is to sell as much when the demand is high, and buy as much when the supply is high. This is one of the main strategies of the Professional Retail Investors.

Rule 10 - Keep it Smple
Reading the above 9 rules will show you that, the rules of these Investors are really simple.

Professional Retail Investors has shown that the Stock Market can be used as a business with their real time experiences, which convinced me to post this article here. 

Strategies of RETAIL INVESTORS - Part 2.

For some reason the investors whom I have seen succeeding and sticking for the long term had been people of over 60. Not that they finished all their commitments and responsibilities, to come into the stock market. But they used the investments to make a living. I mean they really made money investing in the stock market to meet their needs. My next story is also about one such person, and it is true.

This Gentleman was young and married in his 20's. As he was a well educated professional, obtaining a lucrative break overseas was not a big issue. He worked in these countries for a while, and started saving a decent amount. During this period 2 new entrants joined the family. Eldest was a boy and the youngest was a daughter. However He had to learn one of the most shocking news in his life one day. He found his wife to be unfaithful. Although it was tough, he divorced his wife, and succeeded in taking the custody of the 2 children. Thereafter he chucked his highly paid job to make way for him to be with his children. He had to take care of them, educate them, and above all he had to now think of earning an income to feed the 3 of them. He put a sizable portion of his savings in to a fixed deposit, and secured a safe monthly income for them. The next he looked in to the stock market. A small % of the rest of the savings he invested in forex. These were the 3 lines of investments he decided to make. This was the basis or the foundation of his plan for the next 30 odd years. He too did not invest on a house of his own, as he had to put all his wealth entirely on serving and looking after the kids. Both of them were given the best of education in some of the well known schools in Colombo. He has now educated the children and both are in their 30's and doing really well in life. The daughter went on to build a house for which he too contributed. But still he is investing, which is what kept him going for such a long time.

His strategy in the market I can summarize as follows;

- Due to his responsibilities he was compelled to come to the market after 10.30 a.m. This gave him  an advantage as by then the trend is established.
- He hunts for stocks where the prices are below the nett asset value. He knew them by heart.
- Also he wants counters with smaller share capitals, but doing well in profits, and becoming big.        which makes the companies to capitalize their reserves, and split, so that he increases the number of shares he is holding.
- He also wants high dividend paying companies.

His order entry and exit is as follows:
- Always put GTC buy orders on down markets way below the prices they are trading at.
- Always put GTC sell orders on up markets way above the prices they are trading at.
- He would never ever put buy or sell orders for more than 500 shares. Even if they are trading below 5 rupees.
- The trick was to accumulate many when the prices are falling. Then to sell at the maximum when the prices were increasing.
- If he gets stocks at lower prices and move up immediately in a few days, he would sell.
- Also if he sees the prices turning down after going up extra-ordinarily high he would amend the orders, and sell fast.
- As he does this for a living, he knew he had to be diligent in the way he was handling.
- He will never sell a stock for peanuts, always wanted the maximum possible price.
- He was disciplined, brave and patient. That's why he would buy even when bombs were exploding, and the war was at it's best for more than 20 years of his investment career.

He did not have it written anywhere, but he had it written all over him. This has made this guy successful , and for me he is one of the unsung heroes in the Colombo Stock Market.

It is not easy to make money in the stock market, but not hard.

Buy Sierra Cables at 2.80 - For Short Term Traders and Long Term Investors

On the 15th of December 2015 I gave a trade Idea on Sierra Cables. This was stopped at 3.70 which was the stop for that setup. Present closing price is 2.90 for the counter, and the present swing low is 2.60. This counter had been trading between 2.70 and 2.80 for the last 5 days, with a high of 2.90. I give a trade buy call @ 2.80 for the short term, with a stop @ 2.60 and based on their fundamental valuations a buy @ 2.80 for 12 months as well. Aggressive trader will have a profit of 5 % nett at an exit price of 3.00, and a buy for a period of 3 months a return of 12% at an exit price of 3.20. For the 12 months period I expect the counter to give a return of 40% at a target price of 4.00.

Strategies of RETAIL INVESTORS - Part 1

This Investor had been investing from the late 60's, many years before the Stock Market that we know now came into being (Colombo Stock Exchange was started in 1985, but the Stock Market existed from 1800's). He was an Accountant. He Started investing into Hayleys Plc from the day 1. He never believed that the Bank will give him the best rate, so investing in Stocks was what he did to beat the interest rates. Another perception he had was that spending your hard earned money in buying a land and building a house is a waist. The reason he said was that if he had to build a house then he will have to put most of his cash into the building, which will not allow him to sell as fast as Stocks. So he always lived on Rent. While he was an investor looking for holding his investments  for a long period, he relied on the dividends and bonus issues to make short term returns. The money he got from his Job as an Accountant, the proceeds he realized from dividends and the sale of extra bonus shares, was what he would reinvest at the price he feels cheap. How he would interpret the Price as cheap was a personal secret, based on his knowledge and experience. He had 3 Sons, and all were educated  abroad as Engineers and a Doctor. All this he did was due to the wealth he created from the Stocks he held onto.The secret for his success was that he had his personal plan and he always stuck to it, never feared and never wavered. This guy was brilliant, he was always free to teach the young and simple enough to help all other investors.
It is through him that I learnt that you must Think Long term and  Make short term returns. Rest in peace Mr. P.A.J.

ASI - resistance at 6065 points, support at 5857 points.

The fall from the precipice for the ASI took a breather, as it stopped at 5857 points, and hit up to close the week at 6020 points on  Friday the 11th March 2016. All's well if we see the index holding high from that swing low of 5857 points. But if we see it breaking down from that the pain will be felt decisively from there on. 5500 to 5000 points will be the next down side support areas. But the fundamentals for so many counters have made them so attractive at present, also the negative sentiments stemming from the drastic measures taken by the GOSL makes investors to be cautious as well. In this back drop trading must be very tight, and must invest with a lot of discipline. Investors must look at the counters where the prices are way below NAV, whilst traders must strictly follow stop loss levels.  Must remember -  traders will have very good opportunities if they have tight exit and stop levels.

However at this point we have to focus on the resistance point of 6065 points to understand the way the market is going to behave.

Investors vs Traders - My duty is to keep you in the loop

There are more than 1000 clients who have been using their CDS accounts between 2008 todate, through me as the Investment Advisor. But one thing I've noticed is that many are wanting to use their accounts and spend time in the Stock market is when the markets are way too high. But another fact I've learnt being a Stock Broker is that this is not new to Sri Lanka, instead it is a global phenomena.

Out of my many clients only a few are investing on a regular basis. What I have noticed in them is that they do it because they have a plan, a vision, a target, or a realization that investing in the Stock Market makes them in charge of their money, without giving it to the Bank or a financial institution to make more money for them and less to you.

Another feature of these few clients is that they know whether they are Investors or Traders. As such they invest or trade based on figuring out who they are. Success for them did not come in a platter, but the important thing is was the REASON behind their involvement in the Stock Market is strong, and consistent. This is the same for anyone doing anything in life. Therefore these few clients adapt and pursue unwaveringly.

But most of the clients  on the other hand do not have a plan, or they start with a plan and give up in challenging times. Some say they will never sight the market, only to see them coming back when things are highly dangerous. Many of them are cautioned at the time but do not heed to advise and burn. Some are always want tips or news to trade, else they do not want to come in. Most of these rumours or news driven clients are the ones who get caught to those who initiate those rumours or news. When they realize that they were caught, they do not want to sell and take the loss, thinking that what they believed will happen some day. Some of them become so carried away, that they even buy on credit or margin and still hold even when their entire investment is gone. This happens every day, when we are in a continuous uptrend for many months or years.  All this is not because they do not know, but they did not come with a plan. If they had plan, then they never would have lost their investment instead they could have come out of it and recover.  

My experience tells me that knowledge and experience in the stock market is like life. You always learn and you always experience until your last day. Even in life you need to stick to a plan, if not that person will not succeed and be satisfied.

The lesson in this whole thing is that you need to ask one question. That is "WHAT IS MY PLAN in the Stock Market ???". Sadly many of the clients do not ask themselves of that. If so there must be many of my clients investing or trading regularly just like the few clients who do.

Making money in the stock market is not easy, but not hard. 

United Motors Plc - Lowest PE and PBV and a high DY %

The massacre in the market thanks to the many actions taken by the GOSL, including the Monday's action by the Honourable Prime Minister to introduce the Capital Gains Tax, made the stocks super attractive.

There are many counters with lower PBV's and PE's with higher Div Yields.

One of the stocks that stand out of the lot is United Motors Plc. The PE is 3.95 times, the PBV is at .75 times and the dividend yield is at 8.76 %. All this was due to the price falling to 79.00. Even today you can buy at 79.00.

An averaging method  like what I've mentioned earlier or any other method, will certainly help at these levels.

Capital Gains Tax - CGT

Finally the CGT was brought to the parliament by non other than the Prime Minister of Sri Lanka. This is not gazetted yet, so officially it is still not law, but may be law after the 22nd of March 2016.

This is not good for the investor sentiment as we know. As such billions of rupees are getting wiped out from the market.

But one thing that's clear is that the tax department will not get a single cent as CGT when the prices are down. They will benefit only when the prices are high. But just because the prices are high doesn't mean that you should sell. Tax department is going to charge you only if you sell and realize a profit, if not they can't come begging for you to pay CGT. Also if you sell and buy another stock with that money you do not need to pay the CGT. You can argue about this with me, but that is a fact. If you realize a profit and show only you will have to pay.

Therefore if you are an investor who are already having a tax file, then the opportunities you will have to make money out of this is high. But if you are a person who doesn't have a tax file, and do not intend for some reason not to show your income to the tax department then you got to be careful.

Another reality is this, the CGT earlier was in existence till '87 or '92, so the tax consultants who were experienced at that time were over 40 years old. But they may be now over 69 years old. How many of those officers are still in the business we do not know. Therefore infrastructure, and the mechanism for the implementation of this is to be seen. Also many of the investors in their 30's and 40's do not have any knowledge, or the knowledge is limited. They will have to increase their knowledge. Also the experience is important, having the knowledge is not experience, so if you have the knowledge with no experience too is not the right approach.

As I came into stocks in the early 90's, I have a little bit of memory of this, and some experience thanks to my superiors, but that is all. Imagine the advisers who are younger. Therefore this is a big new experience to all of us.

I do not know the knowledge and the experience the Politicians are having too. If they have a higher knowledge of this than us, I hope they will have a mechanism of sharing that knowledge with the others.

Finally Mr. Mahinda Rajapaksha, and the people who voted for him to win the War had a Great Military with knowledge and experience to finish the War. I hope Mr. Mithripala Sirisena and the people who voted for him to come to power will have Great Economists with knowledge and experience to develop a great Economy.

Trading is not for the faint of heart - based on the Performance list

Remaining cool when things are not working your way, tolerating risks and having the guts to keep working to make negative returns to the positive are some of the traits and strengths you need when you are trading in the Stock Market. You need to have a plan and stick to it whether you profit OR not, is an Art that is very difficult to master. That is why I wanted to keep a track on what I post in this blog. I know it is easy to tell to buy a stock but to stick by that recommendation when things are going against you is something that I would have loved to ignore. BUT I WON'T, I WILL KEEP UPDATING ALL MY RECOMMENDATIONS EVEN IF THEY WERE SOLD AT A LOSS.

The most difficult act to master in trading is the Stop Loss. The fear of loosing money when you stop the trade is the biggest reason to avoid the stop loss. But as you can see in the list of stocks I have been recommending, I have indicated the stocks that I have stopped.

The above chart shows you the list of stocks I have been posting, and the status of them. There had been 14 short term trades that I've given, and out of which 8 were stopped, 3 were closed at the target price, 2 are still holding, and 1 was a Day trade.

If you calculate the trades that were concluded with gains and losses the following will be the outcome:

Total number of profit trades = 3 closed at the target price and 1 day trade = 4 trades.
Total cost for the purchases with the brokerage cost = 203.15
Total cost of the sales including brokerage = 211.75
 Total Profit = 8.60

Total number of trades stopped at a loss = 8
Cost for the purchase including the brokerage = 285.42
Cost of sales including the brokerage = 266.60
Total Loss = 18.83

Total cost of both purchases = 203.15 + 285.42 = 488.57
Total Cost of Both Sales = 211.75 + 266.60 = 478.35
Total Loss = 488.57 - 478.35 = 10.22
Loss as a % of the purchase cost - 10.22/488.57*100 = (2.09%).

Planning the trade and trading the plan is very important if your culture is to trade in the Stock Market. Else stay out of trading, and look for something else to put your money into. Perhaps buying and selling toffees.