lokgp said...
Having had a weekend with bclee to discuss lesson learnt and to share knowledge gain, had made some conflicting opinions and feelings in me.He is very right in saying that Technical analysis is very specific and very accurate in making investment. Giving specific entry points and also specific exit points. Especially cut loss definitely agree with my 'huge' experience in the Futures Market.
At the same time, as I went back and re-study the charts again. I find that it is definitely possible to invest based on charts, chart analysis and also by a good system.Basically, what BC shared with me is a system.A complete system that incorporate the 4 most important principles in investment:
1.)Cut loss
2.)Let your profit run.
3.)Adding only to winners.
4.)Take profit when the trend changes.
I conclude that all technical analysis implemented as a trading plan is a system.A system can always be repeated.It will minimize losses, and maximize gain.Other technical analysis are simple a chart study, or only as a reference. Just like looking at how fast the car is moving to guess that it is about to stop.
My conflicts comes when I restudied the writings of Warren Buffett and Charlie Munger.They are very sound and logical principles as well. They suggest buying wonderful businesses at a discounted price added with a Margin of Safety. And selling them when they reach their fair value. Because you don't get many chance to find such stocks, you should buy a lot of them rather than diversify. It is not common to find such opportunity.It is so logical and common sense that I find it to be the right way to look at stocks - as an ownership of a business.The problem is, value investing says buy stocks when they are cheap. And technical investing says buy stocks when they about to get more expensive.Both works equally well.But they don't match with each other.
I know if I apply both methods, both will work extremely well.It is like buying 2 hammers with different designs in the hardware shop. Both are equally good but the methods of using the hammer is different due to the design.Because of such:I have to choose only one side.It is like saving your mum or your wife from getting drowned by the river.There lies the conflict.
I feel that it is nearly impossible to use both methods at the same time. They conflict at their root principle.Thanks again bclee for sharing his ideas with me.What a huge conflict.
Note*: After re-reading some of Charlie's writings, I concluded that Kenmark is not value investing. It is not the type that they will buy for their personal accounts and Berkshire.
Note**: Technical investing is easy especially with a well designed system. Much easier than value investing. Some might find it boring.You feel like a soldier listening to orders.- Listen and follow the market, and get extremely rich.
Note***: Value investing needs more work and time but it is equally easy. It is so common sense if you concentrate on buying businesses worth RM 1 with 25 sen. It could make you more excited as you become a business owner. You feel like a commander making a strategy and decision.- Go against market and tell market that one day you will realize that this business is worth a lot more. And get extremely rich too!Both methods are great!Much better than throwing darts to pick stocks!
Regards,Lokgp
KWNG shared something similar as this with us on Fri as well :) Nice sharing :)
ReplyDeleteFA... what is the single strongest point of FA? Is it really calculate of margin of safety? that Benjamin Graham...and carefully disguised as the main thing used by Warrant Buffet but is not. Graham in terms of margin of safety, is the king. Buffet dun even come close if only in this theory. However, Buffet overall performance is better, simply because its NOT abt margin of safety.
ReplyDeleteIts something like the movie I watched yesterday --> The Legend Is Born - Ip Man, modified Wing Chun is more flexible, got high kick... First of all focus on hand, ie margin of safety. Then WB came up with high kick, thanks to Charlie Munger. Charlie Munger only use high kick, that's why he not as good as WB, he dun use hand :P
Charlie Munger basically buy in premium, he dun subscribe to margin of safety, he not stingy in other word. He tried to persuade WB many times, to pay extra for good business, finally WB realised then combine, came out with new kungfu and its NOT margin of safety.
Many ppl think FA is abt the numbers, calculate the intrinsic value, cash flow etc, their success is limited, because that is lower form of FA, not FA in ultimate form...
Say...
If wanna combine FA & TA, the most basic...
- FA choose which company is good
- TA choose when the price is good
- then decide it's short term punt or long term wise if its a cheap entry.
FLEXIBILTY is of paramount importance...
Margin of safety is the most important part in value investing. It cannot be stressed enough.
ReplyDeleteMargin of safety describe that you should buy only when it is undervalued.
Say you have valued a business and it is worth RM 1. You don't buy it when it is worth RM 1. You buy it with a margin of safety eg: buying it when it is priced at 0.70 or less.
The business might only be worth 0.80 per share but you miscalculated it as RM 1. Buying with a margin of safety ensure that when you buy, you considered that some of your valuation is wrong, and you don't overpay.
Similar like on a lift it says maximum weight 2000 kg or 20 persons. The weight might be exceeded. You would not use a wire with exactly 2000 kg strength to pull the lift. Therefore a wire with the strength of 3000 kg is used instead. That extra 1000 kg is the margin of safety.
No one is capable of valueing a business precisely. An error of plus/minus 10% is very possible. So, the margin of safety is necessary to protect us from errors.
Discounted cash flow or asset pricing or not, buying with a margin of safety is necessary.
"Benjamin Graham tells us that investment policy can be reduced to three simple words: "Margin of Safety" - the price at which a share investment can be bought with minimal downside risk."
无私的分享，让小鱼儿得利咯！
ReplyDelete哈哈，这lokgp也真行，
连ivy都忍不住出来“较量”了。
当真各有各精彩啊！赞！
小鱼儿在江湖里打滚也有好一段时日了，
或许可以参上一脚，不过....
不要笑掉你们大牙才好！
我把股票基本面比喻为敌人的修养。
基本面强者为正人君子，基本面差者为奸诈小人。
至于技术面呢？
它有如武功招式般，有人耍得出神入化，
有人化整为零，拳拳到肉！
加上投资心态为内功，心态正确，功力深厚。
好的投资者，只与正人君子过招。
配合以深厚功力，进可攻，退可守。
收放自如，发挥招式的威力，攻无不克啊！
较量?? 没有啦，只是有感而发。股市已是最佳地，一个最佳证明自己有多少斤两的地方.何须四处较量。
ReplyDelete小鱼儿比喻得很好，真让我大开眼界， 何来笑掉大牙。
Finally have some time to quote from "The Essential Buffett"
ReplyDeletePg 70.
Munger convinced Buffett that paying three times book value for See's Candy was actually a good deal (see Chapter 2 for the full story). That was the beginning of a plate tectonic shift in Buffett's thinking, and he happily acknowledge that it was Charlie who pushed him in a new direction.
Pg.72
As early as 1965, Buffett was becoming aware that Graham's strategy of buying cheap stock was not ideal. Following his mentor's approach of searching for companies that were selling for less than their net working capital, Buffett bought some genuine losers. He came to realize that several companies that he had bought ar a cheap price (hence, they met Graham's test for purchase) were cheap because their underlying businesses were suffering.
From the time he made his earliest investment mistakes, Buffett began moving away from Graham's strict teachings. "I evolved," he admitted, "but I didn't go from ape to human or human to ape in a nice even manner." He was beginning to appreciate the qualitative aspects of others.
Pg.75
Warren Buffett once said, "I 'm 15 percent Fisher and 85 percent Benjamin Graham." That remark has been widely quoted, but it is very important to remember that it was made in 1969. In the intervening years, Buffett has made a gradual but definite shift toward Fisher's philosophy of buying a select few goood businessess and owning those businesses for several years. My hunch is that if he were to make a smilar statement today, the balance would come pretty close to 50 / 50.