The art of stock trading

By Kendrick Chua 14 July, 2017

When it comes to the subject on investing, there are few assets that are more popular than stocks. And why wouldn’t it be this popular? Stocks, or sometimes called equities, allow ordinary folks to own shares of growing companies with a fraction of the capital. It's what makes it that attractive. And time and again, the stock market has churned out multi-millionaires (or even billionaires) one after another. Not only that, with hundreds and even thousands (if we’re counting listed stocks all over the world), there is practically unlimited stocks to trade and make money from.

On the flip side, with so many companies—numbering 271 in our local exchange. How does one choose which to stock or stocks to buy? Fortunately, Kevin Khoe generously shares his wealth of experience spanning more than 20 years. He currently serves as consultant for Philstocks Financial, one of the first brokerages to introduce online trading; and an administrator of Traders Apprentice Pilipinas.  

With 271 stocks listed on the Philippine Stock Exchange, how does one look for a winning stock?

The most important thing is the people behind the stock. You can never compromise integrity and track record. Next, look at the business and see the overall market potential where they operate. Look for companies that can scale up their business from x to 10x. Finally, Look at their earnings. As always, there is a right time to buy a stock. Normally, this is when earnings are about to take off.  

Which of these companies, either in the past or present, satisfied your criteria: good track record, went from x to 10x, and earnings taking off?

Jollibee (JFC) and SM Prime (SMPH). Jollibee went from 100 stores to 4,000 stores. SM Prime went from two Super Malls to 30.  

So it doesn’t matter whether they are blue chips or non-blue chips?

Doesn’t matter. Everything boils down to what I mentioned previously.

Should a newbie employ fundamental or technical analysis in selecting a stock. Or both?

Use both. Timing is as important as what to buy.

How does one sync the two disciplines together?

Technicals tell you when to buy; fundamentals tell you what to buy.

Since risk management is important in trading stocks. When should I cut loss?

Always cut loss at eight percent. No questions ask.

Why at eight percent? Why not at 10 or 15 percent?

If you cut loss at eight percent, you only need 8.8 percent gain to get back your loss.  If you lose 50 percent you need to gain 100 percent to get it back.

Some people find it difficult to let go…I mean, cut losses. So it's not surprising seeing traders down 50 percent or more. How do you advise them on this?

Just do it. Sell now and argue later. You need to protect your capital. 

On the other side, when should I take profits?

Profit is a bit tricky. Normally, I just let my profit run. 

Run until when?

There is no limit in terms of profits. Jollibee rose 3,400 percent since it went public in 1993. If you sold at 50 percent gain, you missed out the 3,350 percent upside.  

I often hear that buy when the market is down so that the average cost is lower. Is that wise?

Never ever, ever average down. Never throw good money for bad. Does not matter what you think about the stock. Price action is the most important thing. It is better to average up.   

Average up? That sounds unconventional. Care to explain this further?

If you have a winning position, you add to it. Averaging down is the opposite. You add to your losers. 

I noticed a stock that has been flying high. My dilemma is whether I invest now so I could ride it; or wait until it goes down?

You wait for an entry which may mean buying at a higher price or buying at pullback. There are rules to this. 

What are these rules?

Even a good stock will have its bad days. Thus, if the 8% sell rule is trigger, just sell and wait for a potential reentry. Selling a stock does not mean you are totally out of it. You are simply managing your risk.

How can we improve our trading skills?

Trade actual money. Do a post mortem for every trade you make. Also keep a trading diary. 

What do you mean by post mortem?

It means you review every trade you make. This is to double check if the premise for buying or selling still holds true. 

Lastly, what other learning material do you recommend I should study?

How to make money in stocks by William O'neil.


Rate this item
(1 Vote)
Last modified on Wednesday, 19 July 2017 17:53

Related items

  • Three savings hacks I learned from my Chinoy Mother

    Chairman Mao Zedong once said, “Women hold half the sky.”

    Well, with mothers? I guess they hold much more than half of it. Of all the women I learned from throughout my life, nothing could trump the lessons my mother had imparted me.

    Especially money lessons. 

    She had humble beginnings. Of her 11 siblings, she was the only one who decided not to pursue a college degree. Instead, she started working as a Chinese pre-school teacher immediately after graduating from high school. Yes, she did not even step foot in college.

    Long before financial gurus started preaching about the value of financial planning, mama has already been practicing it, albeit informally. Frugal spending and constant saving were her guidelines throughout the decades, but she balanced it well by providing us everything we needed.

    Things were not rosy when she started out. They had a failed business. But she and my father managed to hang on and painstakingly built a strong financial foundation.

    With her hard-earned money, she invested wisely. Her investments were simple and boring, but they did their job. As a result, her wealth grew and grew. Mama managed to accumulate enough to sustain the lifestyle she enjoys now. As her favorite (and only) son, mama taught me the value of savings even at an early age. This was the cornerstone of her financial success. Below are the three savings hacks that I learned from her.

    1. Save as much as you possibly can

    Sound financial practice requires us to save 10-20 percent of our income. Mama would have none of that. When she asked me how much I was saving, she was aghast. I was just following what I learned from all my seminars. Apparently, mama finds my savings rate way too low for her. During her prime, she was saving between 50 to 70 percent of her income. She managed to achieve this by keeping her expenses low by living frugally.

    Frankly, we have too many distractions today. We are constantly bombarded with tons of marketing promotions that want our money. It may have been much easier during her time. But the thing is, while I may not save as much as her, the point is to save as much as I could. Two things could happen if I do that: Either I have more than the initial amount I set out for; or I will hit my target amount earlier. Both are a win-win situation for me.  

    1. Never underestimate the power of a piggy bank.

    Up until this point, mama still utilizes a piggy bank to save her lose change. Piggy bank is underrated, as how she would advise me. Most people consider it boring. But for mama, it is effective and efficient. When she got her hands on a giant zhaocaimao, she even tripled her savings. The larger the coin bank, the more exciting it is to save. The goal is to fill the whole thing up until the end of the year. Mama often says, “Make it fat and full so that you too will be fat and full at the end of the year.” Last year, she accumulated more than P20,000 just from loose change alone. This year, for the sake of adding a little more pocket money to our upcoming trip, she managed to saved up to P9,000 at the end of March.

    1. Automate your savings

    You’d think that a Baby Boomer would be old-fashion and traditional, right? Not my mom. Apparently, another saving hack that she did was to set-up an auto-debit facility that links her checking account to an investment fund. Every so often, her checking account will be deducted with a predetermined amount that automatically goes to her mutual funds account. The nice thing about this is that she is able to do cost-averaging thereby taking advantage of the dips and volatility in the market. As a result, her funds consistently grew over time.

    This is highly recommended for those who can’t seem to consistently save, or lacks the willpower to actively save on their own. The saying, “out of sight, out of mind” is apt in this situation. You don’t get to spend the money you don’t have.

    Overall, my mother never considered herself an entrepreneur. But she thinks and acts like one.

    Does she consider herself rich? Not really.

    However, she had this much because she saved every peso she possibly could. She reached financial freedom through a long and boring way; and never neglecting mother duties.

Leave a comment

Make sure you enter all the required information, indicated by an asterisk (*). HTML code is not allowed.

Connect With Us

Get in Touch