Professional Documents
Culture Documents
Kathlyn Toh
Beyond
Insights
Sdn.
Bhd.
The
truth
is
that
you
can
make
money
with
just
50%
success
rate,
and
you
can
also
lose
money
with
a
so
called
90%
success
rate
strategy!
Never
risk
more
than
2%
of
your
capital
in
any
single
trade.
When
I
first
started
out
trading
more
than
10
years
ago
my
results
was
inconsistent,
I
could
gain
a
lot
and
then
lose
it
all
back
within
a
few
trades,
until
I
learnt
of
this
Golden
Rule
in
investing,
and
this
is
one
rule
that
I
cannot
stress
enough
in
my
teachings.
Many
people,
when
told
of
this
rule,
would
say
my
capital
is
not
that
big,
2%
will
not
allow
me
to
trade
any
stocks!.
While
that
may
be
true
back
in
the
80s,
the
development
of
financial
market
and
technology
have
changed
that.
Today
this
rule
can
be
achieved
by
either
having
an
automated
stop
loss,
or
a
more
advanced
trader
may
use
hedging
strategies.
The
availability
of
leverage
instruments
such
as
Options,
CFD
&
Futures
allow
us
to
trade
with
very
much
less
capital.
Making
money
consistently
is
all
about
risk
management
being
your
first
priority,
profits
secondary.
If
a
trader
thinks
about
how
not
to
lose
money
first,
he
will
then
focus
on
managing
risk
of
his
trades.
Reason
#3
Trading
without
a
Plan
Trading
without
a
plan
is
planning
to
fail
at
trading.
Question
is
how
should
one
plan
for
their
trading?
Dynamics
of
a
Trading
Plan:
4. A
Trading
Plan
must
consist
of
a
series
of
actions
that
be
repeated
on
a
regular
basis.
In
my
own
trading
plan,
I
have
a
4
step
method
which
I
repeatedly
use
,
I
call
them
the
S-T-
P-M
formula:
S
=
Selecting
the
right
stocks
T
=
Time
for
the
entry
and
exit
P
=
Protect
my
investment
M
=
Multiply
my
returns.
Therefore
for
each
and
every
trade
I
make,
I
follow
these
4
simple
steps.
4. Lastly,
a
Trading
Plan
must
include
a
good
journaling
of
all
your
trades.
A
good
journal
will
help
you
in:
Reviewing
your
actions
regularly
to
make
sure
you
have
followed
your
strategy,
not
your
emotions.
Making
sure
that
you
learn,
especially
from
your
losses.
I
see
every
loss
as
a
tuition
fee
I
pay
to
the
market.
Let
us
look
at
one
of
the
most
important
criteria
in
any
stock
selection.
Whenever
we
buy
a
companys
stock,
we
would
want
to
make
sure
the
company
can
grow
its
business
but
how
much
growth
are
we
looking
for?
Let
us
put
the
numbers
into
perspective
if
we
put
our
money
in
fixed
deposit
with
a
bank,
we
will
be
getting
2-3%
returns
a
year.
Since
returns
from
the
stock
market
are
not
guaranteed
surely
we
have
to
expect
much
more
than
2-3%,
isnt
it?
Now
it
is
a
generally
accepted
rule
of
thumb
that
a
company
has
to
generate
at
least
15%
returns
per
annum
to
be
considered
a
viable
business,
otherwise
it
will
not
be
worth
the
effort
and
resources.
So
I
personally
choose
companies
that
are
making
at
least
30%
per
annum,
i.e.
for
every
$1
invested
in
the
company
-
the
company
should
be
generating
at
least
$0.30
net
profit.
Technically
this
criterion
is
called
Return
on
Equity
(ROE),
it
is
also
one
of
the
key
criteria
that
Warren
Buffett
applies
when
selecting
his
evergreen
portfolio.
The
reason
why
this
works
is
very
simple
if
a
company
is
generating
30%
profit
or
more
for
every
$1
invested,
and
if
all
the
profit
is
retained
in
the
company
then
the
companys
value
will
double
to
around
$2
in
3
years
time.
Of
course,
nothing
is
ever
guaranteed
in
the
market;
but
this
means
is
that
this
type
of
companies
will
have
a
higher
probability
of
doubling
its
stock
price
in
3
years.
Whenever
the
market
is
affected
by
major
crisis,
these
are
the
stocks
that
will
bounce
back
the
fastest,
the
most
resilient!
Let
me
give
you
an
example
of
a
stock
that
I
have
I
my
portfolio
YUM!
Brands
(NYSE:YUM).
Just
a
note
here
that
I
totally
agree
with
Warren
Buffett
invest
in
companies
with
simple
and
resilient
business
model,
and
YUM!
Brands
is
the
holding
company
of
well
recognized
consumer
brands
like
KFC
and
Pizza
Hut
with
a
huge
global
presence
and
a
business
model
that
we
all
can
connect
with
and
understand.
Way
back
in
Sep
2008
the
ROE
of
this
company
was
127.4%.
The
current
ROE
(as
of
June
2012)
is
73.5%,
so
this
is
a
company
that
has
been
generating
good
returns
consistently
year
after
year.
Now
let
us
look
at
what
the
stock
price
did
in
the
past
3
years:
YUM
was
trading
at
$33.40
on
11th
September
2009,
and
$66.56
on
14th
September
2012.
That
is
an
increase
of
95.5%
in
a
period
of
3
years;
will
you
be
a
happy
investor
of
this
company?
I
am.
Beyond
Insights
Sdn.
Bhd.
I
personally
use
criteria
like
ROE
to
evaluate
companies,
and
these
days
stock
screening
software
makes
our
job
much
easier,
so
all
I
had
to
do
is
to
enter
my
required
parameters
into
the
software
and
I
instantly
get
a
list
of
stocks
that
satisfies
my
requirements
for
a
good
stock,
and
then
I
will
just
pick
the
top
few.
From
my
experience,
companies
that
are
well
managed
will
maintain
its
solid
fundamentals
for
at
least
a
few
years.
Hence,
my
bucket
of
good
stocks
doesnt
change
very
often,
which
makes
my
life
a
whole
lot
easier
as
an
investor
and
trader.
To
conclude
on
this
part,
I
would
urge
everyone
to
learn
this
essential
skill
of
stock
selection
by
understanding
how
to
interpret
the
key
fundamental
data
of
a
companies
business.
Start
by
reading
a
book
or
find
experts
that
are
accessible
to
you
to
learn
from.
Secondly,
I
would
also
encourage
investors
and
traders
to
also
expand
beyond
their
local
horizon.
There
is
an
abundance
of
companies
with
strong
financial
performance
in
the
international
market
especially
the
United
States.
Today
most
of
our
local
brokerages
are
already
providing
facilities
to
trade
stocks
in
international
market
so
make
good
use
of
them
to
expand
your
profit
opportunity
and
increase
your
probability
of
success.
Come
late
March
2011,
if
you
know
your
basics
of
technical
analysis,
you
would
have
seen
a
clear
sell
signal
because
of
the
double
top
chart
pattern,
and
you
will
be
able
to
sell
it
off
at
$36
at
least.
Hence
you
would
have
earned
20%
return
in
6
months.
If
you
check
the
charts
you
would
have
seen
that
the
stock
stayed
sideways
for
another
3
months
after
that
before
it
climbed
above
$36,
so
in
this
3
months
would
you
have
preferred
to
enjoy
the
profit
and
invest
your
capital
in
other
stocks
with
more
upside
potential
in
those
timeframe?
So
that
is
my
message
to
you
-
if
you
understand
the
fundamentals
of
reading
chart
patterns
you
will
be
able
to
utilize
your
capital
more
efficiently
and
make
your
returns
faster,
by
merely
spending
a
few
minutes
a
week
to
monitor
your
portfolio
of
stocks
if
you
are
an
investor
or
few
minutes
a
day
if
you
are
a
trader.
Lets
see
what
a
trader
who
is
watching
the
market
more
frequently
could
do.
By
reading
the
chart
pattern
you
could
have
identified
several
sell
and
buy
signals
in
between
the
6
months,
and
make
$13
profit
per
share
in
total.
So
with
a
bit
more
effort,
your
return
on
investment
would
have
been
43%
in
6
months.
So
the
difference
between
making
20%
returns
in
6
months
versus
43%
returns
in
6
months
is
spending
a
few
minutes
a
day
to
monitor
your
portfolio.
Whether
it
is
worth
spending
the
extra
time
for
the
additional
returns,
its
entirely
up
to
your
financial
goals
and
discretion.
The
good
news
is
you
can
also
preset
these
buy
entry
point,
stop
loss
and
profit
taking
points
in
the
broker
system.
Now
lets
stretch
the
time-line
longer
and
look
at
the
stock
price
today
(at
the
time
of
this
writing),
at
$51.71.
If
you
are
a
long
term
investor
holding
the
stocks
since
November
2010
without
paying
much
attention
to
it,
your
returns
would
have
been
70%
in
2
years.
How
much
more
would
you
have
made
if
you
spend
more
time
watching
your
portfolio?
Perhaps
I
will
leave
this
as
a
case
study
for
you
to
look
at.
While
it
is
too
much
to
cover
in
this
short
article,
rest
assured
that
Technical
Analysis
is
a
subject
you
can
learn
in
a
short
time
to
put
into
good
use.
I
personally
use
the
basic
chart
patterns
and
less
than
a
handful
of
indicators
when
I
trade
and
thats
how
we
teach
people
who
came
for
our
investing
and
trading
courses
as
well.
Beyond
Insights
Sdn.
Bhd.
I
would
like
to
stress
again
that
selecting
fundamentally
strong
and
growing
stocks
is
essential
to
increase
your
success
rate.
One
should
not
depend
on
technical
analysis
skills
as
a
mean
of
speculation
unless
you
really
know
what
you
are
doing.
Having
said
that
learning
and
applying
this
skill
can
definitely
accelerate
your
success
in
investment
and
trading;
so
if
you
havent
done
so,
I
strongly
encourage
you
to
learn
from
online
material
and
find
out
more
about
courses
that
cover
this
subject.
Capital
Preservation
I
never
risk
more
than
2%
of
my
capital
on
a
single
trade.
In
other
words
if
I
am
on
the
losing
end
of
a
trade,
Ill
make
sure
my
loss
is
limited
to
2%
of
the
value
of
my
portfolio.
Lets
illustrate
how
it
is
done,
so
that
you
are
clear
on
how
to
implement
this
rule.
Lets
say
you
have
a
total
of
RM100,000
in
your
investment
portfolio.
You
have
decided
to
buy
a
company
stock
called
XYZ.
What
the
professionals
will
do
at
this
point
is
to
decide
price
to
sell
and
to
take
profit
and
also
the
price
to
sell
and
cut
loss
if
the
stock
goes
down.
We
do
this
by
determining
the
key
Support
line
for
the
stock.
We
will
cut
loss
if
the
price
goes
down
below
this
Support
level
plus
some
buffer.
So
assuming
the
determined
Cut
Loss
point
is
RM9.00,
then
the
amount
of
risk
we
are
willing
to
take
is
RM10.00
RM9.00
=
RM1.00.
Given
2%
of
RM100,000
is
RM2,000;
then
the
number
of
units
we
can
buy
here
is
RM2,000
RM1.00
=
2,000.
Beyond
Insights
Sdn.
Bhd.
Ive
seen
many
investors
determine
the
number
of
units
to
buy
with
their
intuition!
Imagine
if
you
have
a
proven
working
strategy,
with
a
70%
winning
probability
which
means
you
should
be
winning
7
out
of
10
times
on
average.
And
you
decided
to
risk
25%
of
your
capital
each
time
when
you
trade.
What
will
happen
if
you
have
3
consecutive
losing
trades?
You
would
have
lost
75%
of
your
capital!
What
if
you
have
4
losing
trades
consecutively?
Your
capital
would
have
been
wiped
out
just
like
that!
So
what
if
you
have
a
strategy
with
a
50%
winning
probability
which
means
you
are
right
only
half
the
time.
Can
you
still
make
money?
The
answer
is
YES!
If
you
follow
the
capital
preservation
rule
we
have
discussed
earlier,
AND
you
only
choose
to
invest
or
trade
when
the
reward
over
risk
ratio
is
AT
LEAST
2
to
1.
Which
means
for
every
RM1.00
you
risk
in
a
stock,
you
should
have
enough
data
to
support
the
expectation
that
the
stock
will
go
up
to
RM2.00
to
make
it
a
good
deal.
Figure
1
is
an
illustration
of
a
2:1
Reward/Risk
ratio
strategy/system
with
50%
winning
probability
making
RM500
at
the
end
of
the
10th
trade.
Of
Figure
1
a
series
of
10
trades,
assuming
a
course,
if
the
strategy/system
has
a
higher
winning
maximum
loss
of
RM100
each
trade.
probability
(more
than
50%),
then
the
ultimate
gain
will
be
even
higher!
As
you
can
see
from
the
example
assuming
you
start
with
a
capital
of
RM5000
and
enforce
the
2%
per
trade
rule,
you
will
still
end
up
with
a
10%
profit
with
10
trades
(RM500
over
RM5000)
even
if
you
are
only
half
right!
To
summarize
what
we
have
gone
through
so
far
following
strict
risk
management
rule
and
choosing
only
trades
with
good
reward
over
risk
ratio
is
the
key
to
protect
your
investment.
This
4th
step
is
about
LEVERAGE,
i.e.
how
you
can
accelerate
your
return
from
stock
market
investment,
and
how
to
make
your
money
work
harder
for
you.
The
two
leverage
instruments
I
will
talk
about
next
are
CFD
and
Options.
From
the
survey
conducted
during
Invest
Fair
Malaysia
in
2012,
we
realized
that
the
percentage
of
investors
in
Malaysia
who
know
what
CFD
is
only
7%
and
even
less
know
about
Option
(only
3%).
This
is
naturally
so
because
CFD
and
Option
are
not
yet
developed
in
the
Malaysian
stock
market,
or
rather
our
market
volume
has
not
been
able
to
support
the
development
of
these
instruments.
But
for
those
who
got
to
know
these
instruments
and
how
to
use
them
correctly
it
helps
them
to
venture
into
international
stock
market
where
much
more
profit
opportunities
are
available,
at
a
much
faster
pace.
What
is
CFD?
CFD
stands
for
Contract
for
Difference,
it
literally
mean
a
contract
between
2
parties
to
trade
the
price
difference
of
a
stock,
at
a
fraction
(usually
10%)
of
the
stock
price.
For
example
person
A
thinks
that
Apple
stock
price
will
go
up
to
USD
550
within
a
month
time
and
person
B,
with
a
different
point
of
view,
thinks
that
Apple
stock
price
will
go
down
to
USD
500
within
a
month
time.
Through
a
broker
this
two
person
can
then
enter
a
contract.
Lets
say
the
current
price
of
Apple
stock
is
currently
USD
525
person
A
will
need
to
come
up
with
10%
of
the
stock
price,
which
is
USD
52.5
per
unit
of
stock.
So
lets
say
in
a
months
time
the
stock
price
actually
went
up
to
USD
550,
then
person
A
can
now
close
the
trade
earning
a
profit
of
USD
25
per
unit.
His
return
on
investment
will
be
USD
25
USD
52.5
that
is
about
48%
in
a
month!
You
can
see
the
effect
of
leverage
here
because
if
person
A
were
to
buy
the
stock
itself
at
USD
525
per
unit,
then
his
return
will
be
a
mere
4.8%
a
month
(which
is
still
not
bad
actually).
Beyond
Insights
Sdn.
Bhd.
Conclusion
Whether
you
are
a
short
term
trader,
mid
term
trader
or
a
long
term
buy
and
hold
investor,
CFD
gives
you
the
leverage
to
achieve
your
profit
target
faster
and
the
a
ability
to
diversify
with
your
capital
while
protecting
your
investment
much
more
effectively.
It
is
definitely
worth
learning
if
long
term
success
and
consistent
income
stream
from
the
stock
market
is
your
goal.
There
is
much
more
I
can
share
about
how
I
have
used
them
to
generate
average
of
300%
returns
in
the
past
2
years
and
I
conduct
free
seminars
from
time
to
time,
check
out
our
website
www.beyondinsights.net
for
the
next
session.
In
the
next
and
final
update
to
this
article,
we
shall
share
and
even
more
powerful
instruments
called
Options
to
achieve
the
P
(Protect)
and
M
(Multiply)
steps.
By
knowing
both
CFD
and
Options,
you
can
have
the
power
of
Hedge
Fund
Managers
to
accelerate
your
returns
and
protect
your
portfolio
with
many
more
ways
than
direct
stock
investment.
Well
email
it
to
you
once
it
is
out,
so
keep
an
eye
on
your
mailbox!