I completed reading one of Adam Khoo’s best sellers, “Winning the game of stocks” more than 1 month ago and decide to do a book review.
To be honest, I am not a fan of Adam Khoo, neither am I a "booer" of him. I had attended one of his talks (free) organised by my company several years back. I was a tuition teacher for ten years and some of my students also attended his programs. Overall, I admire Adam Khoo because he is extremely intelligent, objective and pragmatic. His book is easy to read and very practical and applicable to real life. I also read his other book "Winning the Game of Life" in 2013.
Is Adam Khoo my cup of tea? Probably not, because I prefer those writer and speaker with more personal touch. Maybe I am over-sensitive and wrong about him not having the personal touch.
Anyway, below is what I summarize.
- In general, stock market always rise over time due to inflation and population growth
- Cannot predict market
- Consider Fundamental Analysis plus general market bad/good news
Psychology of a market cycle
- People buy and sell base on mood, fear and panic
- Begin of new uptrend, most people sells. Max opportunity
- Market reach top. Everyone talking about how easy to earn money. Max optimism. This point is max risk
- Start new downtrend. Stay away from market
- Market hits bottom. General public gets extremely negative about stock market. depressed and angry and vow never invest again. Max opportunity
- Buy – 50 dma cross 150 dma upwards (both line going up)
- Sell – 50 dma cross 150 dma downwards (both lines going down)
- Safest point to buy is when there is a breakout. Avoid buying immediately above first resistance breakout. May be a false breakout.
- Sideways - Market not sure, may take long time before break out to up/down. Therefore no point in buying, unless short term trading.
Rules for Individual
- Become expert, never rely on expert
- Buy and sell on predetermined rules not rumours
- Admit mistakes and take responsibility.
- Do not be stubborn and hold on to investment believing you are right!
- No sure win investments
- Identify great business with competitive edge.
- Learn to read income statement, balance sheet and cash flow statement.
- Rules - risk or stop loss 1.5-3% of portfolio
- Do not invest in too many stocks if you have no time to monitor
- Never invest or have substantial shareholding of stocks in the same sector
- Always keep at least 10% portfolio in cash
- Portfolio must be aligned with lifestyle and risk appetite
What You Need to Know
Knowing when to sell even more important than when to buy
- Company not profitable and lose competitive edge
- Technological reasons
- Cut loses n stop orders (6-8% below Purchase price)
- if price fall 5% below recent high, sell
- Have discipline to sell great co and buy back at a better time
Different category stocks
Quite similar to Peter Lynch.
- Dividend cash cow >=5%
- Large cap predictable - coke, macdonalds, Starhub, Colgate, Nike, Johnson
- Large cap growth – Tech stocks, Alibaba, Baidu, Apple, Microsoft
- Deep cyclicals - Capital intensive and highly cyclical. Make huge profits during economic booms and huge losses during recessions. Never hold deep cyclical for long term
- Turnarounds - Citibank huge losses during GFC, BP deep horizon incident. Co must large cap (>10b) Only invest when stock bottom and on uptrend
- Small fast growers - small cap (<1b) - Osim, Raffles med, Good pack, Breadtalk
Competitive advantage of technological company can change
E.g. Nokia. More difficult for Coca Cola or Heinz ketchup to lose their competitive advantage.
You can be better than professional Manager
Unlike retail investor, large mutual funds cannot sell their stocks when market downtrend and liquidates everything in cash. They have certain restrictions to stay invested and only keep say 10-20% in cash. They also hold large portion of share (millions). If they sell, it will cause stock price fall even further. However retail investor like us can happily buy and sell without moving stock price at all.
DCA - dollar cost average
Use this when index is downtrend (2008 to 2009) or when sideways (2007-2011). DCA prevent us from buying stocks at all time high price.
- Financial success does not happen by chance but by choice
- Use both fundamental (logical approach) and technical analysis (emotional approach)
- Probability not certainty - never a certainty
- The secret is to make lot more money when you are right and to lose only a bit when you are wrong.
- Investment is for long term. Think long term.
- Stick to your rules and do not lose motivation when you are wrong
- One most important key to success in investing is in the Mind – managing emotions.
- Greed, fear and recency bias (overconfident)
- Pride is equivalent to downfall. Remember to admit wrong and cut losses
Final Note from me. I am not advocating all the points in the book, but in general I think it applies well to stock investing. I actually skipped the part on trading, CFD etc since I know "zero" on that topic.