Singapore Entrepreneur - What's My Strategy?

My simple strategy has so far been giving me good returns since the stock market crashed in Oct 2008.

Before the crisis, I had been practising value investment, the sort of strategy that Warren Buffett, the greatest investor, has been practising in his life time. I used to look for undervalued counters by doing financial analyses of the companies. Usually they were small caps. During the 4 years of rally from 2004 through 2007, the values of the counters I bought trebled or quadrupled which brought me a lot of paper gain. However, being a "value" investor, I decided to hold them for a long term. But the stock market crashed dragged all my counters beyond the cliff and their values plummeted like free fall. To add salt to the injury, many of the counters I held were S-shares which have been in the bad light from a series of accounting scandals.

The bad experience triggered me to tweak the strategy of my investment. Instead of brooding over the huge loss of investment from an unprecedented turn of the market, I thought to myself: If the market crash can cause many riches to rags, it is also an opportunity to turn rags to riches.

When the market bottomed out in Oct 2008, it provided a golden opportunity for me to do some financial analysis of various counters. I turned to blue chips and large cap stocks during then, since I got burnt by penny stocks previously. Many of them were offered at unbelievable bargain prices, some under their net asset prices. I started grabbing some counters. This time, I only focused on a couple of blue chip stocks. But because nobody had any idea where the bottom was, I was also afraid. Hence, I held lightly to the stocks. Each time the counters rose slightly, I sold them off for a small profit. The market turmoil created wild see-saw movement which allowed me to buy low and sell at profit each time for several months.

This strategy should only be applied if you have hard cash to standby in case you get stuck should the market turn really sour for a second time. My "long term" strategy is still in place because at each price I buy, I know it is still under-value compared with during good times. And I have to believe that market will eventually recover one day. On the other hand, since the market has been very sentimental, any gains will easily erode on any negative news in a market doldrums. So, I combine with some technical analysis of the counters and sell them off when there is some profit.

Each investor has his own style of investment. By my descriptions, I do not recommend any contra trading and my advice is to trade within your means. Institutional investors, hedge funds and other mutual funds dictate 90% of the share market and small retail investors like us cannot possibly outwit these people as they employ tons of brilliant brains to analyse stocks. So whatever strategy you adopt, do your sums carefully.