Wow, the stock market has indeed turned out to be a proverbial “V”-shaped recovery, from a peak of 3875 points on Oct 11 2007 (known to be the year of Euphoria) the STI (Strait Times Index) took a dive to a low of 1,456 points just last year march 2009. Since then, prices have rebounded strongly, picking up steam in the last few weeks. Yesterday the STI ended at 3,007 points.
Some of the best performing stocks relative to trough of Mar 9 2009 are Z-OBEE, HTL international, Hong Leong Asia, Sinomem Tech and Broadway Industrial, all these stocks shot up to about 1000% since their lowest point in 2009.
And best performing stocks relative to the peak of 2007 are Etika, PH Petrogas, Think Environment and GMG Global with about 150% increase.
Companies such as Wilmar International which is a company that deals with palm oil, in 2007 the stock price was $4.02, in 2009 it was $2.86 and now the share price is at $6.99.
Another stock called Noble Group that deals with trading commodities (like soybeans, wheat eg) in 2007 its share price was $1.98 ouch so expensive! In 2009 it dropped to $1.02 and now its share price is $3.21! A whopping 300% increase if bought at the right time.
Ask yourselves; wouldn’t it be nice to be someone who held all these stocks or rather bought all these stocks during these times?
It is also true that during the crisis many people lost money in the stock market and these were some of the ways they lost it..
1) The prophetic way: They sold their stocks during the strong market correction and many more sold during the market bottom, interesting these people were the ones shouting to buy during very happy times and were confidently predicting the market to hit 4500, but started screaming sell during market bottoms, which was indeed the best time to buy.
2) The blur way: Not knowing exactly what they bought, these are people who either bought at a very high price during the 2007 Euphoria, or assumed they bought very low, since that particular share price had fallen a lot based on price perception (e.g. Cosco dropped in stages from $8.20 to $5.15 to $3.10 to $1.20) and are still a making a loss. These are a person who probably are now staying quiet or swears never to buy a stock again.
3) The Rumor way: Listening to friends, brokers and analysis who recommends certain stocks but end up holding stocks that were once darlings of the market and now becoming or became bankrupt champions (Think Ferro China, China paint /Dye and Oriental Education group )
Of course the key is “buying at the right time” then you would have made a lot from the market, but is it possible to do so? Is it possible for mere students like us to profit from the market?
The answer to that is a definite yes!
As young adults our age give us the advantage, we need to understand how some people are able to prosper while other get burn and destroyed and thrown into the rubbish shoot by the stock market. =)
One of the surest ways to prosper in the stock market is to be an investor. Not a prophetic, rumor blur or any kind of investor, be a VALUE investor!
By practicing some of the principals of value investing which is actually quite simple , one can actually know roughly when to buy and roughly when to sell.
In fact all the value investors I know have made not just lots of money, but truck loads of it.
Apply one of the principals of value investing:
We now look at more affordable stocks such as Osim which plunged from 58.6cents on Oct 11 2007 to a sickening 5 cents in March 9 2009, now because Osim is one of the companies I labeled under “luxury dependent” stock I didn’t have much interest in it. But then again had I known that Osim dropped to such a price I would have bought it! What depicts my buying is simple; using the “NAV Safety rule” Osim’s NAV as at March 2009 was roughly about 0.10-0.12 cents, which means to say if the entire company had collapsed and liquidation was in progress, then in theory I would get back at least $0.10 cents per share and by buying at a price of 0.05cents that will give me a 50% discount to the NAV per share what an OPPORTUNITY! In the 13 months since then, Osim stock is now currently trading at 0.97cents, that’s about 1840% increase in less than a year. A mere $5000 which most Uni students have or could reasonably have amassed would turn out to be $97,000 today excluding trading fees.
Another principals: Calculating your IV
How about the previous stocks that was mentioned above? Looking at Wilmar International, if the share price where to drop anywhere belong $3.15 it is a value buy! A discount! How did I get $3.15 as a guideline? Is it by calculating an intrinsic value based on past earnings of over 10 years. There are online intrinsic value calculators in the web; all you need to do is key in the past net profits of the company and POP! You got your magic number.
What to invest now?
With the market at its current state, frankly speaking I do not see value in it. My Forex trader friend Matthew asked a very good question, as value investors what do you do during such times of positive upheaval of the market index? Where do you put your money if you cannot find value buys?
That got me thinking and these are some of the solutions I think value investors ought to do especially now:
1) Do nothing. Yes, I’ve said it. I rather put my money in the bank then buy stocks that have shot up to heaven (think tower of Babel).
2) Put your money in safe instruments, usually in times of great euphoria the governments will usually raise their interest rates to prevent inflation. Great alternative instruments will be to put your money in bond funds, government long term bonds, blue chip- corporate bonds and or apply for a capital guaranteed fund.
3) Do your research! Research on more stocks you think could be of value, and then build a list of stocks that you would buy if there was a crash. Perhaps it is also better for people new to value investing to read up more on it and it’s principal
4) Do Merger Arbitraging ~No information yet on this topic sorry.
There are many lessons and principals you can learn from value investing, all you need to do is to take time and keep an open mind, as you go deeper into the subject , you will sort of realize that V.Investing is not about how much money you can amasses, but its real joy comes from the process. =D
