Tuesday, 6 January 2015

Book Review: Winning the game of stocks – Adam Khoo

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. 

source: http://winningthegameofstocks.com

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. 

Stock Market
  • 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

Technical Analysis
  • 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
  • ETF
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. 

Summary 

  • 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. 


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22 comments:

  1. Likewise for me. I was reading an old book from him..and I was cursing and swearing while reading the book.

    "This kind of things also can publish!"

    "What the...!"

    "Say until like this, win oredi loh!"

    Then I realised it's not the book that is lousy, it's just that the book is not for me. There are people who would find the book useful, it's just that I picked an unsuitable book for my level.

    And I agree there's no personal touch. It reads more like a summary of all the different books that I read rather than something that he himself uses. I don't remember much of what I've read.

    ReplyDelete
    Replies

    1. Hi LP,

      You can print rubbish, as long as there are buyers! For his book, I prefer now to pay $1.55 per book reservation from national lib. :-)

      Agree with your statement below

      "Then I realised it's not the book that is lousy, it's just that the book is not for me."

      Ah... I know why you forget what you read. Maybe I think it's more like info consolidated from many others. No personal style to touch your heart and let your feelings sink deeper with the book. Just like reading newspapers! LOL

      Delete
  2. Hi Rolf,

    Thanks for the book review. When a motivational coach goes into teaching you money management and investing (like Tony Robbins), it makes me wonder whether they are going beyond their realm of expertise.

    I rolled my eyes on reading the advice quoted cos they sound so duh. Perhaps it's just me. I'd listen to Jesse Livermore, Warren Buffet, and any of the super investors anytime. But pom pom gurus are too much for me.

    ReplyDelete
    Replies
    1. Hi SRSI,

      The things I find most strange abt motivational speech is they ask u to shout n punch ur hand into the air. Then u need to ask n tell people beside u all the crap things. Maybe situation will b diff with a group of babes beside.

      I got de motivated eventually. Haha.

      If one day Warren Buffett wanna be ask you to punch ur hand into the air n shout "I can do it!, I ll beat the market!"

      What will u do? Will u still listen to him? LOL

      Delete
  3. Looked like a complete waste of time, but our local financial blogosphere is among the most investment savvy of the general population of Singaporean, and for that reason it might be a good introduction. Except, nobody is ever gonna get rich on that rubbish. Thanks for reviewing, I was always curious to read his materials but never felt it was worth my time, and you have saved me a bunch of hours with your post.

    ReplyDelete
    Replies
    1. Hi ladykiller,

      I won't be so quick to dismiss him though. His books on investments are quite bs, bordering on advice such as "bring an umbrella when it rains" (but when is it gng to rain??). But his books on starting busines is quite a different story.

      Read his business books, and none of his investment books. I learnt quite a lot from his writings and you can see that his passion lies more on the business side rather than his self declared value-investment philosophy on investments.

      Delete
    2. Hi ladykiller,

      Thanks for commenting. I have to exclude myself from ur general statement about financial blogosphere. Haha

      As I mentioned, I am no fan of AK. Actually I worry that I may offend readers when I say Robert Kioyasaki and Ronald Trump too. Not fan does not mean I ignore them.

      It may sounds strange to u. Reason y I read their books "to go against myself to be able to learn even the most minor things from people you do not really like!" In this way, I learn to focus on people's strength rather than people's weakness which is paramount in people management!

      By the way, one reason for this blog is to save time for my readers by summarizing important information. Hope you will visit again. Tks.

      Delete
    3. Hi LP,

      More business oriented = more money orientated! LOL

      Delete
  4. I attended his workshop before. Complimentary from CitiBank. Good speaker and motivator. Works well for him but not necessary work well for small retail investors after paying $X,XXX course fee.

    ReplyDelete
    Replies
    1. Hi CW,
      So it works v well for u bcos u r not small retail investor.

      :-)

      Delete
  5. Hi Rolf, nice review of Adam Khoo's book. Years ago, I thought he is a value-focused investor. I remember he had a blog writing about finance and investments. I have since stopped reading it (can't remember whats the site now) as I notice he mainly uses more technical analysis and macro view for investments. Not that it don't work for all but its not suitable for my temperament.

    Keep up the good work!

    ReplyDelete
    Replies
    1. Hi Secretinvestors,

      Tks. He is not value investor, not my cup of tea, but has to admit I am impressed by his ability to make it from scratch. I tend to agree that his book do suit entry level. It's easy to read and absorb. Like I attended his few hours seminar before and I think the contents are quite general. However some of my colleagues even Caucasian are impressed. Different taste buds!

      I will keep up my work (no guarantee good!) :-)

      Delete
    2. Hi Rolf,

      Yes he has the business instinct and capability to influence many people. Overall, I think his impact to students, business people and investors is still net positive. He has many seminars.. Is it about investments or personal growth?

      Delete
    3. Hi Secretinvestors,

      I truthfully agree with what you says. Although we can dislike a person or his way of gaining wealth, we cannot discount their overall net impact to the society.

      The first time I attended his seminar is actually in our company annual strategy meeting (company pay). He was invited as a guest to talk about company & personal growth. Not my cup of tea, but overall net positive impact I think.

      Delete
    4. I've been to one of his personal growth seminars too. I must say its quite good and motivating. Haven't been to any of his finance or wealth seminar. Was wondering what they really teach and accomplish there in just a few days.

      Delete
    5. If I am not wrong, he is the most successful S'porean in his field. There must be a good valid reason why he is leading the pack. The question is whether the reason is for you? :-)

      Delete
  6. I read one of his earlier books before (co-written with Conrad Alvin Lim) and recall the parts on technical trading to be very basic. Indeed I agree he is better at giving advice on how to run a business than trading.

    ReplyDelete
    Replies
    1. Hi Retail Trader,

      Yes, he is a good business man. But if he is a good educator or investor, we are probably not too sure. For what works for one may not work for another.

      Hmm... Research about this Conrad guy. Seems to have an interesting background.
      Failure and bounce back.. Quite commendable! Have a unique hairstyle also. Haha

      Delete
  7. Hi Rolf Suey,

    I chanced upon your review about that big colourful book. Any chance you followed what he shared in the book regarding the fundamentals about investing which had really made people gain their portfolio size in 20 to 40% per annum??

    Just curious. I may want to try it it really does work.

    Jfree

    ReplyDelete
    Replies
    1. Hi Jfree,

      Haha, hm...do not think he mention specifically. More like a combination of factors. For Adam Khoo, he will definitely suggest you buy his book and attend his lessons.

      20 to 40% per annum.....hehe....sounds "EASY"?

      Delete
  8. Well post and i read this book and its give us good idea how to play game with helping chits and how to complete stages with basic skill thanks for sharing literature review service .

    ReplyDelete
  9. Adam Khoo is a Simple, Decisive, Pragmatic and Single-Minded person, that is why he succeed the way he did, Single-Minded Headstrong people either are born to or grow to become a Leader, that is a simple quality that not many people in our modern society with complex and psychological-disorder - minded possess, or dare to have. It still amaze me the way complexity stop us from rising to our full potential
    I quote from Zod, Superman's uncle and enemy: "Do you think our Supernatural Power make us great, no we are decisive, single-minded headstrong, we are born to be leaders"

    ReplyDelete