Most retailers confuse the concept between price risk and information risk
Information risk means how much we know about an asset, example a publicly listed company
If we know a lot about a company, we say that the information risk is low
When retailers try to ‘research’ for more information about a company, the thinking here is to mitigate information risk
However, the one factor that makes you money is price risk.
The higher the price, the higher the price risk
The golden rule to make money is Buy Low Sell High. Always. The second golden rule for the pro is Buy High Sell Higher. I do not know any other rule to make money than this.
Price risk and information risk are inversely related, the more information is available in the market (and hence lower information risk), the higher the price will be (more premium attached to it and hence higher price risk)
KNM has shot up fast and furious from the base at RM0.20
At current level, it still has the opportunity to go up to about RM0.425 level (the final level before it slams down OR forms a base for the next move up), but one needs to be very nimble to trade this and get out FAST
Notably insider has been selling this recently (profit taking)
The first step to successful chart reading involves identifying (and drawing) [perfectly] horizontal lines on the chart called support or resistance.
It goes like this:
Imagine a stock price dropping from a high
Once it is ‘low’ enough, it starts to move sideway
A stock price dropping means sellers are overwhelming buyers. There are more sellers than buyers (and hence the price drops)
Once it reaches an attractive base, buyers start to emerge.
At this point in time, buyers absorb any remaining units sold by sellers
Hence price will stabilize as early bargain hunters absorb any remaining units
Price starts to move higher after some time (due to fewer units in the market) and this will attract even more buyers
This gets into a loop – stronger price attracts more buyers until it reaches the top.
Return to #1 and the process repeats
A breached support line will turn into a resistance line and vice versa. (if buyer emerges to buy at RM2, and forms a support line, and only later to be overwhelmed by sellers flooding the market , price will drop from this point. Subsequently, this breached RM2 line is where a lot of weak hands who had previously bought at RM2 now turned to become sellers (and hence it becomes a resistance line)
This is partly psychological – weak hands who say bought at RM2 will hold on to their dear life when stock slides down to say RM1. Once it gets back to RM2, they will quickly sell the stock (risk aversion) to break even from the stock and breathe a sigh of relief.
I have drawn 5 horizontal line below on a real chart below. Think of them as either support or resistance. Observe how once the support line is breached, it becomes a resistance line.
Public Bank is approaching RM20, a long time support line since 2014
This represents a good buying opportunity for people looking at long term
Even at current price, it has the potential to bounce back to RM22 (lower of the downward channel). At a minimum, it should rally back to RM21 area (mid of downward channel)
For blue chip counters, the best strategy is always to buy at weakness (while biting the bullet)
So the other day someone asked me a question – why are they pissed off when their expectation is not met
This kind of situation occurs daily – I have seen a fair share of these situations.
So I explained that there are a couple of pointers we have to always keep in mind:
End goal – what are we trying to achieve here. This is very important. If your goal is just to get satisfaction from blasting the other person, humiliating the other person without getting anywhere, this response is ok
But it turns out that this young corporate superstar needs to get some work done through her peer.
So I ask her to focus only on the end goal and to coordinate all her other actions, thoughts and behaviours to achieve this goal
If the need to explain 20 times is necessary to achieve this piece of work which is important to you, wouldn’t you just do it without hesitation?
Sadly, most people drift aimlessly in this world. This happens because the end goal isn’t clear. Conflict happens because of this. Paradoxically, it is so much easier to live without clear goals than otherwise.
If your action doesn’t support your end goal, then you are only jeopardising yourselves.
The picture in the other person’s head – to complete this discussion, always remember to start any discussion from the mental picture in the other person’s head, not yours.
Phrases like “why is this person so lazy, dumb”, “why is this person not respecting me” etc point to the mental picture in your head, not the other person’s.
In summary you need to think hard of the end goal you want to achieve. Then start from the mental picture of the other person and then deploy any means to inch that picture towards your end goal.
I think many people get confused over this topic so let me pen this down:
Any plan with the word insurance inscribed to it like investment linked insurance or insurance savings plan means just that – it is an insurance plan, i.e. a protection plan that covers you for any untoward incidents.
When you buy an insurance plan, e.g. a medic card insurance, it will cover you from the moment youpurchased it
It will not insure you when you are 80 years old.
Put differently, if you buy insurance in 2019 and nothing happens to you in 2019, that portion of premium you paid for 2019is lost forever (the insurance company will take this as their profit)
If you have been buying insurance for 20 years and nothing happens to you in these 20 years from the moment you first purchased, then the insurance company profits from the premiums you paid.
Standalone medical card insurance vs investment linked medical insurance
Standalone medical insurance means the insurance company is collecting premium for the year/month insured. Nothing more and nothing less
Say for instance for now, an RM300 Room and board + RM300K annual limit for hospitalization, the insurance premium that one has to pay is as follows:
A 36 years old will have to pay RM107/month vs a 66 years old who will need to pay RM493/month for the same coverage as #3 above
If both made the payment for 2019 and nothing happened to them, then the insurance company will profit ALL from the premiums paid
Investment linked insurance simply means that instead of RM107/month or RM493/month, one pays more so that the excess (not the full insurance premium paid) will be invested (usually back into KLCI or fixed deposit – to return about 3-5% per annum, if you are lucky. It can go negative return as well.)
As you are paying through out the years, the insurance premium will be increased. This is due to cost claim ratio, inflation, medical cost etc
Insurance savings plan has the same concept as above and is usually linked to a term insurance. What this means is also the same – one portion will be paid for insurance and the balance will be reinvested, and hence the name insurance savings plan
For example if you pay RM100 into this plan, RM40 will be paid for insurance and RM60 will be reinvested. That RM40, since it is for insurance will be lost forever if nothing happens to you in the year the premium is paid. (in reality the amount for reinvestment will be lower after deducting agent fee etc)
Conclusion
Do not buy insurance products for savings or investments – go for unit trusts, fixed deposit etc for investment
Insurance, when you buy it, covers now. If you buy now, the premium you pay will not cover (it wont be sufficient to cover) when you are 30 years from now
You only insure now, NOT the future
What IF something bad happens to me – this is also another fallacy which we need to tackle in a separate post
