Posted by kcchongnz > 2016-08-23 18:56 | Report Abuse

Excellent article.

Posted by abangadik > 2016-08-23 19:15 | Report Abuse

in the stock market, people don't wear a nametag which indicate if they are investor or speculator. :D I can't agree more on what you had mention above.

Posted by probability > 2016-08-23 19:36 | Report Abuse

yup...very good article...

perhaps we can simplify and likened it to the scenario of driving a car with multiple lanes....and its almost fully filled (jammed) with different cars...and there are no dedicated fast lane or slow lane...

(Strategy 1) sticking to your lane and choosing a lane randomly (diversification) may only make you reach at an average speed of all these cars...i.e return at cost of equity...talking about large distant of travels during raya break jam to hometown!

(Strategy 2) if you keep changing lanes depending on which is more free-flowing you may make it faster than others...or you may get into an accident.

Strategy No 2 is high risk high reward (above cost of equity) with lots of effort...with the competitive advantage depending on "how good you are" at predicting correctly which lane is more free flowing than others...based on "your skills of judging from the front mirror"..i.e the quarterly results...

A good car (strong balance sheet with a cheap price vs value) may help...but to beat others...nothing beats the front mirror - the latest quarterly results coupled with the skills studying the latest financial statement and its narrations carefully.


(Strategy 3) The ultimate strategy is of course having the business knowledge and competitive advantage..and its future earnings predictability..

I think the current financial ratios has less significance (almost nil) in deciding the future of the price movement...as there are many financial analyst around to price the stocks correctly. Well, you even get the stock price moving to its correct price before the results are out - example PetronM.

If you cannot implement Strategy 3, then you are left with Stategy 2 only - i,e the latest quarterly results if you plan to have returns higher than cost of equity....with less diversification.....

If you think you not skilled enough using strategy 2 & 3....then you may need to diversify a lot and use the financial ratios to protect the downside perhaps and be satisfied with returns matching Cost of equity.

Posted by buddyinvest > 2016-08-23 20:33 | Report Abuse

Sos, yet another good piece you posted. Appreciate your efforts