Profitability of Technical Analysis

Here is  book which made up Fred Tam's Master Thesis.

In his thesis, Fred tested 13 technical systems to 38 index-linked counters to find out whether the the technical systems were able to return "abnormal returns". In layman's term , can any of the 13 system return better than just simply buying and holding. If so, then it may be worthwhile to apply the trading systems tested to better grow your investing portfolio.

It proves that in the period tested, certain systems do give abnormal returns.

(1) Channel Breakouts gives the best abnormal returns ( 20-20, 20-10, 20-5)
(2) The RSi, Momentum and DMI do not give superior returns.

The results are back tested only , and hence, it is not forward tested.

As usual, past performance cannot guarantee future results and hence all results must be read with this limitation in mind.

My take is .... no matter what system you use, so long as it is consistently profitable over a substantial period of time ( at least 1,000 market days) then the system is robust and good.

 There are many local thesis  and good write-upson technical analysis on the local stock and futures market :

(1) http://psasir.upm.edu.my/291/1/549566_FEP_2004_10.pdf
(2) http://lcchong.files.wordpress.com/2011/06/my-trading-ideas-for-the-forex-and-fkli-spot-market-06072011.pdf
(3) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1706683
(4) http://umexpert.um.edu.my/papar_cv.php?id=AAAMJCAALAAC1MdAAk

A book a Fortnight.... Da Vinci Code

Looks like I have to change my byline to READ A BOOK A FORTNIGHT...

Well some technical books are difficult to finish and digest in 1 week... It normally takes 2 weeks or more.

Novels are easier...

Maybe I should do a novel, then a technical book in rotation...

Today is a Highly Technical Book by Fred Tam

It is about Fibonacci numbers, the origins and the applications to trading.

Good for good night reading but in trading, there is a risk of overtrying to fit the prices into waves and Fibonacci retracement.

I do not use Fibonacci per se ... but the ratios are there for a guide. Any retracement mot exceeding 80% is valid by my books... be it 50%, 61.8%, or even just 38.2%. No need to lose too much sleepover it.

Some swear by it... as long as you make money consistently from it, well and good. Everybody will make money their own way!

Here is an extract from DESIDERATA  ( Desired Things, 1927 prose poem by American writer Max Ehrmann) http://www.businessballs.com/desideratapoem.htm:

".... Be yourself...

...You are a  child of the universe, no less than the trees and the stars.
    You have a right to be here

   And whether or not it is clear to you ,
   No doubt the universe is unfolding as it should .

.... Be cheerful
     STRIVE TO BE HAPPY "

Be happy, ok?

The Warren Buffett Portfolio

" I look for business in which I think I can predict what they are going to look like in ten to fifteen years' time. Take Wrigley's chewing gum. I don't think the Internet is going to change how people chew gum "   - Warren Buffett
 

Oh No ... another Warren Buffett book but not written by him?


Well , I got this hard covered book at a discount sale so, I bought it cheap.

Did I get value? Well, here is the gist...

(1) Warren Buffett likes his companies old.

(2) All his companies has earnings growth in the region of 10%.

(3) He treats his companies like "equity bond". Since the companies are old , established names and has a "durable competitive edge" ( ie likely to stay in business for anther 10 years at least and beyond), the company behaves like a bond ( in that it has "predictable earnings" in the past , present and likely in the foreseeable future). And because of the earnings growth, the earnings will be translated into value in future.

(4) He likes to buy his companies at a discount. If the earnings are stable and growing, it is safe that the company's earnigss is likely to stay stable and growing in the future. But the price of the company stocks fluctuate, and hence the PE ( price earnings ) will fluctuate with the current economic situation. If the earnings are seen to be stable, an fall in price will enhance the yields.  Say, if a company earns USD5 per year and grows at 10%, it is likely that the company will earn USD5.50 next year. Say this year, the price of the stock is USD75, then the pE is 15x. If the price of the stock is USD50 next year, then the PE has fallen to 10x. If the range of the PE is between 10x to 20X, then PE 10x is at the lower range and therefore a bargain. Assuming all the company fundamentals remain the same, buying at USD50 for an expected earnings of USd5.50 in the coming year is a bargain . In year 2 , the earnings is expected to be 10% more than USD5.50  at USd6.05. At the cost of USD50, the the return in the first year is 6.05/50=12% return in the 1st year!

Sounds good?

The trick is to find companies that grow 10%, and to buy and hold the comp[any forever.
And ... can the company you identify keep the durable competitive advantage forever?

A few calculators recommended ( found in pg34-36):

(1) To calculate the Internal Rate of Return ie how much the company has grown over an x amount of years :
http://www.moneychimp.com/calculator/discount_rate_calculator.htm

(2) To calculate future value of dividends after an x amount of years, growing at y rate of growth.
http://www.investopedia.com/calculator/fvcal.aspx

(3) After finding out the internal rate of return, and the future value of current dividend in 10 years, we can plug the lowest PE ratios for the company for the last 10 years ( to be conservative).

(4) Then we work backwards again to get the IRR from now to 10 years time.. Finally, we can find out if our investment at current price can meet the 10% return so sought after by Buffett.

SunZi Art of War in Business

If you want a fast overview of Sunzi's Art of War, read it comics-style!

Read about :

1. Initial Assessment
2. Waging War
3. Attack by Stratagem
4. Disposition of Military Forces
5. Use of Military Momentum
6. Strengths and Weaknesses
7. Maneovering
8. The Nine Variations
9. Mobilisation
10. The Terrain'
11. Nine Types of Strategic Ground
12. Attack with Fire
13. Use of Spies

My most memorable strategy?

Attack by Stratagem
1. Best Method : to foil the enemy with Strategies
2. Good Method : to defeat the enemy by adopting better diplomatic policy
3. Bad Method : to defeat the enemy by fighting
4. The Worst Method : to attack the enemy castle ( by seige and hold)

In the world of trading and investing, a parallel can be drawn

4. Worst Method : buy and hold stocks that do not pay dividend and prices keep  going down ( like a siege of a castle : one digs in but the ration and morale drains out. Castle still in enemy hands )
3. Bad method : buy and hold stock that do not move or pay dividend ( you employ money to fight an immovable price )
2. Good method : buy and hold stocks that gives dividend and rises slowly ( do thorough analysis, buy discount to fair value, receives dividend at above inflation rate, while price rises slowly )
1. Best method : buy and sell stock without having to hold, and get both dividend and capital gains ( insider info , buy and hold without having to pay any holding costs )

Dare to Dream

If you dare to dream, one day your dream will come true!

It took Datuk Danny Ooi 22 years to achieve his dream.... how long will your dream take?

Nakedeyeview

This is the Tim Ferris of Malaysia..

If you what to know more about oil palm plantation, water woes in Malaysia, con-women in the highways, adventures and traveling, the author has something for you in all its glorious details!

Great reading for knowledge! And great pictures too!

Food, Food Glorious Food! Foodie's Guide to Ipoh's Eateries!

Finally, someone compiled a book on the glorious food in Ipoh and gives you the GPS coordinates and maps to go with it.

Many times whenever I am in Ipoh, I really have to  rely on my nose ( literally) and gut feeling when I pop into an eatery. And since we are tourists, the local hawkers know we will be "ready to be slaughtered". With this guide , at least we know what prices to expect... surely , the hawkers cannot charge premium pricing when they are listed as "hawker fare" , right? And if your budget is not in the "premium" category, save all parties the embarrassment shock and  when the food bill finally comes!

101% recommended for FOODIES!