Thursday, June 16, 2016

US stock market note 1

Some observations of United States stock market in the last month.

1.  Its enough to transact once a month. Transaction fee is so high that it doesn't make sense to do transaction more than once per week. The fluctuation between the period are just investing emotions and speculations. One month is already the shortest duration to draw conclusion and make prediction in the next month.   (just an empirical rule, can be falsify, especially due to technological reason, such as AI trader.)

1. You must make a transection once a month. It is not recommended just leave them their.  You should either sale those bad and bid in those good, and update your information library. Otherwise you will loose touch to the market. This is the basic of basic, just in case you are very r

2. Most traders also make transaction once a week for the same reason. It doesn't matter if you will hence miss the critical time point, since you shall profit from your long term prediction of the company, not from other trader's decision. (The huge fall or rise should have a very sane base, such as company actions or fiscal report, which should have been learned by you earlier if you are not lazy and stupid. The unpredictable rise and fall, are therefore, unpredictable to rational traders. Unpredictable unpredictables are what a good trader should avoid. What traders do is to predict unpredictables.) This kind of rise and fall are too short to capture, and again, too high the transaction fee to make it profitable.

3. Market rise slow like climbing mountains, and plunge fast like jumping from cliffs. It stems from human psychology. It is the nature of human beings to evade risks. Exploiting this is the only reason we are more probable to earn money than other 'instinct traders' who doesn't aware how emotion affects human decisions.  Practically speaking, we buy when people sell, we sale when people buy. How do you know when to buy if the stock price is falling. How do you know it is the time the stock will stop falling, and is about to rise ? 1. deceleration of the falling speed. 2. When the fear comes from the bottom of your heart, buy it. Your nature-born emotion is the best anti-indicator in stock market. It is the primary pitfall that most trader fall into.

4. Evaluate the objectives not by P/E (it is a fossil), but DIVIDEND AND EPS, the most direct number telling you how much you should expect to gain after a year. ROE decides the price of the stock. Second the growth of revenue by year. This also decides the price, but only partially. Third, the demand of the target market of the company. This decides the long term growth of the company. For example, Internet infrastructures such as cables and servers are in high demands, whilst energy production and downstream refinement, distribute and retail markets are shrinking. But there are nuances which require extensive study of the markets. 

5. Don't buy what experts or newspaper recommend you (those are almost always bullshit). Don't take action simply because of some information. Action follows your judgement. Always form judgement, and that's why you will have a better chance to profit if you start to write a blog about your judgements. You can later revisit your judgement and adjust is according to reality. 

However, do use public information to confirm/refute your portfolio selections by using their logic to challenging your logics. Besides, you can make a compare group to evaluate whether your portfolio performance is better than so called 'experts'.

6.  S&P500 is a very good benchmark to test your readiness. If your portfolio cannot outperform PURE500, you should just buy PURE500. Otherwise you are just wasting your money. 

7. Never buy any kind of trust, because those traders earn managing fees regardless their performance. They never take your money as seriously as you do. Second, You will feel disgruntled wether you earn money or lose money anyways, and you will always think you are better than them (which could be very likely true.) They Can make one VERY bad decision and ruined the whole years hard work and make you think are they idiots or not ? (rhetorical question here.)

8. Here are some observation of the market demands : First, uprising consumer market in China is huge and underdeveloped. China is a close market that protects local companies. Therefore, Chinese companies targeting consumers are likely to boom multiple times. Yirendai,  a online micro loan company in China. Its price has soared like rocket after POA. Second, the infrastructure of Internet are thriving due to the strong demand. Global Energy demand is shrinking, and has a VERY BAD prospect in the long run. US Domestic Energy companies are also suffering. (Warning, no liability of any consequence of any investments incurred.) This observation is subjective, which personal bias and preference, which breath in some fresh air to this hideous but inescapable chore.

9.  However, don't put all your eggs in one basket. Even some industries are not that hyped, it doesn't mean they are not a good objective for conservative, stable, and liquid source of revenue. You just don't want to loose all your money in a financial tsunami. Balance your portfolio by all means.


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