Earning from Stocks

Hi All,

i dedicate this post to stocks and shares. As mentioned, i might be giving tips. But today, its more of letting everyone think about issues about investing as compared to giving tips. Let us start my introducing the two main analysis methods in deciding stocks to buy - Fundamental Analysis & Technical Analysis.

Fundamental Analysis (FA)

Basically, fundamental analysis is used by longer term investors. What they do is to look at the operations of the company. They look at things like the Business Model and Financials. They usually do some forecasts of the financials and start to do their "valuation". The two main type of fundamental analysis methods are Discounted Cash Flow Method (DCF) and Peer Comparisons (Comps Analyasis). For the first, its not a too complicated process but let me just say that it involves concepts like WACC, CAPM, Discounting, FCFF, FCFE, etc. Alternatively, in comps analysis, investors form ratios such as Price-Earnings Ratio (PE), Price-Book Ratio (PB), etc to compare the company with their peers. Basically, say you want to buy a bread, if both pieces of bread is the same, they should cost about the same.

It is important to note that fundamental analysis obeys the underlying meaning of stock investing. That is to buy shares of a company to own it so that you can take a piece of its earnings or revenue. It usually guides long term investors

Technical Analysis (TA)

Basically people use charts and statistics to predict price movements. As an investor, you want to be able to purchase a stock and see it rise before selling it off. In other words, its called buy low and sell high. So when is it a low and when is it a high when you dunno tomorrow's price, people will use TA to "predict" tomorrow's price. There are terms and tools such as RSI, MACD, candlesticks, support / resistance levels that help people make investment decisions. Technical Analysis are usually used by short run investors who time their investments.

I think i remembered in some previous post that i said both are impt to make investing decisions. I still agree at this moment in time. However, today, i realize that Singapore's stock market is filled with many people who trade purely by using TA and worst still purely by listening to what others say. The worst part of this is that these people can freaking EARN MONEY!!!! arghz!

That got me thinking... standard classroom talk will say that these people dunno what they are doing and most likely will be unable to earn long run profits. I sorta agree. But when a market is strongly dominated by these forces, i really wonder whether we should go into this form of investment? haha...

the most impt question i have for everyone is about capital. To make good investments, there is a need to have a relatively large amount of capital. To be frank, using fundamental analysis, there are quite a few companies' stock which are worth buying (e.g. cosmosteel, keppelcorp, sembcorp, KSH, Singtel, CH Offshore, etc). However, they are just too expensive for someone like me who has no capital. This brings me to the question. How can i raise funds to invest? Should i wait till i start work then i set aside my capital little by little?

Alternatively, i can start with contra trading and use concepts of margin trading to start trading with leveraging. However, the risks involved will be higher. In this case, doesn't it seem like the rich can get rich easier while the poor will have problem to even start trading and have to go through high risk investments before making their mark?

Its just some thoughts about being able to gain entry into the market when you start off as a poor man... think about it...