Buying the right stock
OUTSIDE THE BOX
afTeR some 30 years of experience and a few million in tuition fees—I learned how to trade the stock market on the Tokyo Stock exchange. Trading Japanese stocks was simple.
There were no trading symbols, only numbers. I had no idea of the company name or its business. Financial statements were written in Japanese, of course. I bought when the price was going higher and sold when the price was going down. Simple.
From talking to investors, I almost get the idea they think making profits that way is sort of “cheating.” The stock market is such a noble historic institution that we should show more respect by understanding the factors that inf luence prices. You may want to get a yellow pad—long bond —to figure out which stock to buy.
We start with macroeconomic
considerations. We should look at global economic growth. The Organisation for Economic Co-operation and Development “cut forecasts again for the global economy in 2019 and 2020, following previous downgrades in November”. It might be good to put down on your yellow pad the growth forecast for all the big economies.
Then you need to figure out how that might impact the Philippine economy. Speaking of the Philippines, you also need to include inflation forecasts, interest-rate forecasts and any other forecasts. You will probably need to do this on a weekly basis so that you can make sure you have continuing input from all the economists and government experts. You also need to find out how all that information and predictions might, in one way or another, affect stock prices.
The next factor in your stock picking is to examine the individual companies. You will want to spend time reading financial reports, corporate disclosures and stock-brokerage research. I always have had a problem with the research reports because I have never understood what a “hold ” recommendation means.
I assume if I already own the stock —either at a profit or loss—I should not do anything. But if I do not own it, should I buy and then hold, or hold off from buying until it becomes a “buy”? The other recommendation that bothers me is “lighten up.” Does it mean sell some if I have a profit or sell some if I have a loss?
As far as the financial statements go and all the ratios to stock price and items on the balance sheet, most issues that go higher do not seem to consistently follow acceptable parameters. I suppose that is why I made money when the Tokyo market was selling a triple-digit Price-EarningsRatio and companies with the most debt also had their stock price go up the most.
The third factor is looking only at the price action and using the 100 plus indicators and trading systems to let the price movement forecast the future. This is easy since most of them are built into the charting programs you can buy or from your online broker. The only hard part is which method to believe when one says “sell” and another says “buy.”
Maybe that is why there is a web site called “JustFlipACoin.com.”
After you have filled your yellow pad, you should be in a great position to decide which stock to buy. However, you may be one of these people. When asked at a stock-market seminar what the number one reason investors buy a particular stock, the answer is always the same: “Hot tip.”
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stockmarket information and technical analysis tools provided by the COL Financial Group Inc.