5 Different Methods to Make a Profit in the

Stock Market
Dear Members,

This is another great question posted by a fellow subscriber of ours. Personally, I

believe it is relevant if:

1. You have a full time job.

2. You got to run your businesses.

3. You got a social life.

4. You do not wish to spend your days monitoring

charts in front of a computer screen.

In this newsletter, I would like to share my thoughts about this question. Hopefully, they
will help you to decide on your preferred style of investing and trading in the stock
market. For a start, there are 5 different styles of making a profit in the stock market.
The differences between them lies in the duration of their stock holdings, the time
committed for stock trading activities, and the set of skills and tools required to be
successful.

The 5 styles are as follows:

1. Long-Term Investors

2. Mid-Term Investors
 3. Short-Term Traders

4. Swing Traders

5. Day Traders

#1: Long-Term Investors

In fact, when we own portions of

outstanding businesses with outstanding managements,
our favourite holding period is forever.

Warren Buffett
February 28, 1989

Extracted from Chairman’s Letter of

Berkshire Hathaway Inc. for 1988

This is for the devotees of Warren Buffett, the greatest stock investor in the world.
Personally, I’m a big fan of his approach of investing. It is known as value investing. To
Warren, stock investing is about acquiring shares of great businesses with excellent
managements at reasonably low prices.

Thus, there are 2 main skills that we need to replicate the investment success of
Warren Buffett. They include:\

1. The ability to interpret financial statements

2. Buy shares when they are cheap

Bursaking.com.my is catered to long-term investors as it places great focus on

compiling actual financial and operating data of over 800 stocks mainly listed on Bursa
Malaysia. In addition, our education materials are focused on how you can interpret
financial statements. This is because, ultimately, we want you to get to know the
business first before making an investment.

Case Study #1: Gamuda Bhd

Source: Bursamarketplace.com

Long-term investors would expect 2 types of gains from their investment.

Firstly, it is capital appreciation of its stock value over the long-term as shown above. In
July 2009, you bought shares of Gamuda Bhd at RM 3.03 a share. Then, you do not
even bother to monitor the ups and downs in Gamuda Bhd’s share price. By March
2016, the value has grown to RM 4.92 a share, up by 62.4% in 6½ years. Second,
during the 6½ years, you will receive a total of RM 0.72 a share in dividends for holding
onto shares of Gamuda Bhd.

Hence, the total gains (capital appreciation + total dividends) would be RM 2.61 a share.
This works out to be 86.1% in 6½ years or a compounded annual growth rate (CAGR)
of 10.9% per annum.

Financial Institutions are Long-Term Investors

Often, long-term investors hold onto their stock holdings for a long period of time. It is
usually more than 3 years and above.

Just imagine Petroliam Nasional Bhd (PETRONAS). PETRONAS is the major

shareholder of PETRONAS Gas Bhd, PETRONAS Dagangan Bhd and PETRONAS
Chemical Group Bhd. They are all highly profitable companies. Let me ask you:

‘Would PETRONAS sell off shares of the above companies

if their share prices drop?’

Of course not!

It is the same with the EPF. Would the EPF sell their shares in RHB Capital Bhd if its
share price drop? If you take a look at the top 30 equities holding of the EPF, you will
find that the EPF invest in companies that have tremendous cash flow which allows
them to pay us above 6% in dividend rates consistently for the past 5 years.

The EPF has held these stocks for more than 5 years:

No. Stocks No. Stocks

1 RHB Capital Bhd 11 Kuala Lumpur Kepong Bhd
2 Public Bank Bhd 12 IJM Plantations Bhd
3 Malayan Banking Bhd 13 MBM Resources Bhd

Alliance Financial Malaysia Airport

4 Group Bhd 14 Holdings Bhd

CIMB Group

5 Holdings Bhd 15 PETRONAS Gas Bhd

6 AMMB Holdings Bhd 16 Dialog Group Bhd
 Malaysia Building

7 Society Bhd 17 Telekom Malaysia Bhd

8 Hong Leong Bank Bhd 18 Sime Darby Bhd
9 United Plantations Bhd 19 Axiata Group Bhd
10 Genting Plantations Bhd 20 Digi.com Bhd

Perhaps, you may want to study the investment approach undertaken by the EPF. I
believe it is great education for budding investors. After all, the EPF possesses a solid
track record of generating consistent investment results for many years.

#2: Mid-Term Investors

Similar to long-term investors, mid-term investors are also devotees of Warren Buffett.
They too would invest in stocks based on their financial performances.

The difference, however, lies in share prices. It is best illustrated as follows:

Revisiting Case Study #1: Gamuda Bhd

Source: Bursamarketplace.com
For instance, Warren Buffett does not make investment decisions based on the ups and
downs in the stock market. He is interested in owning shares of great companies. He
will hold onto them as long as they are profitable and generates cash flow. This could
be for more than 10, 20 or even 30 years without selling them.

If you follow this approach with Gamuda Bhd, you may need a lot of patience to ride the
downward trend in share price as highlighted in yellow.

Mid-term investors may apply some basic technical tools to determine his time of
entering and exiting the market.

The focus is not really on ‘so much’ about trading gains. But, it is about:

1. Buying shares of great companies at reasonably

low prices

2. Selling them at reasonably high prices

3. Buy-back them again at lower prices

4. Repeat Step 1 - 3 as long as the company is

fundamentally solid.

Hence, mid-term investors need to be savvy in both fundamental and technical analysis.
It is a hybrid, combining the wisdom of investing in outstanding businesses and the art
of stock trading. For instance,
 Source: Bursamarketplace.com

The SMA-Crossover Method is one of the most popular basic technical tools used by
mid-term investors. The Green Line tracks the short-term price trend of Gamuda Bhd.
The Orange Line tracks the long-term.

Let us assume that you have RM 1,000 to invest in shares of Gamuda Bhd.

Here is how you use it:

1. At B1, the Green Line has crossed above the

Orange Line. You buy 333 shares of Gamuda
Bhd at RM 3.00 a share in June 2010.

2. At S1, the Green Line has crossed below the

Orange Line. You sell Gamuda Bhd at RM 3.80 a
share in May 2011 and thus, receiving RM
1,267.

Holding Period = 11 months

 3. At B2, the Green Line has ‘Once Again’ crossed
above the Orange Line. You buy 367 shares of
Gamuda Bhd at RM 3.45 a share in January
2012. Your investment cost is RM 1,267.

4. At S2, the Green Line has ‘Once Again’ crossed

below the Orange Line. You sell Gamuda Bhd at
RM 4.72 a share in October 2013. You will
receive RM 1,733 in cash.

Holding Period = 20 months (1 year and 8

months)

5. Hence, you will receive 73.3% in capital gains

for a period of 3? years. It is better than 62.4% in
capital gains for a period of 6½ years if you
adopt the approach of long-term investors.

6. Unlike long-term investors, mid-term investors

would hold their investment for at least 3
months to at most 3 years.

7. This is why 2 individuals can achieve different

investment results investing in the same shares
if they have different approaches to how they
invest in shares.

Note:
This serves only as an illustration. The example is on a per share basis. In Malaysia, the
minimum amount of shares to be bought is 1 Lot or 100 shares.

#3: Short-Term Traders

The stock holding period for short-term traders are shorter than 3 months.
If you noticed, I do not use the term ‘short-term investors’. This is because investors are
interested in the ownership of the company. Investors want to participate in the future
profits of the company. Hence, the ability of reading financial statements is crucial for
mid-to-long term investors. Meanwhile, traders are in for trading gains. They are less
concerned about the company’s past, present and future earnings. To them, charts are
more important than financial reports. To be successful, short-term traders must
possess excellent technical analytical skills in order to interpret short-term price
movements in a stock.

What Should I Trade?

I believe the product is not as important as the trader himself. For instance, with
excellent trading skills, a trader may trade a wide range of products such as stocks,
currencies, options, futures and even commodities. They are usually not bounded by a
singular product. After all, traders look at price charts and not the fundamentals of an
investment product.

What Short-Term Traders are Looking for?

Source: Bursamarketplace.com

This is a zoom-in price chart of Gamuda Bhd from June 2011 to April 2012. As
highlighted in yellow, short-term traders would try to identify the ‘bottom’ and ‘peak’ of
Gamuda Bhd’s share price in a relatively short period. This requires sophisticated
trading tools which may include:
 1. Moving Average Convergence Divergence
(MACD)

2. Directional Movement Index (DMI)

3. Relative Strength Index (RSI)

4. Stochastics

5. Bollinger Bands

More Tools, More Profits?

The above mentioned are just a fraction of over 200 technical analysis tools existed in
the world today. It is next to impossible for any traders, even the professionals, to
master all 200+ tools available in the market. Usually, professional traders would master
a combination of a few technical tools and will adapt them according to their style of
trading. No matter what tools are applied, traders work on probabilities of making more
winning trades than losing ones.

Hence, no technical tools available would guarantee a trader’s success in stock trading.

Bursaking.com.my is not designed for short-term trading. If you are into short-term
trading, perhaps, you may check out the services provided by shareinvestor.com or
chartnexus.com to conduct your trading activities.

#4: Swing Traders

Swing traders usually refer to traders whose stock holding period is within a week or a
few weeks. They usually get in and out of the stock market at least 3 days to at most 3
weeks.

Hence, the level of trading activities required is heavier than short-term traders. This is
because swing traders are active traders and not passive investors. Often, they would
require high-speed internet and multiple computer screens to conduct their trading
activities.

This is definitely not for beginners. Personally, I believe it is better to master walking first
before attempting to fly.

Source: Bursamarketplace.com

This is a ‘Super’ zoom-in price chart of Gamuda Bhd of March 2016. As highlighted in
yellow, swing traders would get in at Position 1 and get out at Position 6. Thus, the
holding period of the stock is 6 days. Swing traders take profit from the price difference
in that 6-day period.

#5: Day Traders

By itself, it is a full time job.

It trades a stock within the day. Hence, it is known as intraday trading.

 Source: Bursamarketplace.com

For instance, on March 26, 2016, at 10 a.m., a day trader would buy Gamuda Bhd at
RM 4.92 a share. By 3 p.m., the same trader would sell off Gamuda Bhd at RM 4.93 a
share. He will pocket in the RM 0.01 trading gain in that same day.

Often, day traders would use leverage to trade. Thus, this would amplified the RM 0.01
trading gain to be more meaningful. Hence, it involves high degree of risk especially for
traders who have zero knowledge in technical analysis.

You may have heard that trading is a stressful activity. It is if you are a day trader. This
is because it is time sensitive. Success or failure is determined by when and how fast
you click onto the button.

After a stressful trading day, a day trader would repeat the same routine on March 27,
2016. Thus, you must have passion if you want to be a successful day trader over the
long run.

As much as you can make, it is truly not for everyone.

Conclusion:
Which Style is Most Suitable for Me?

If you have a full time job, you may begin with the Warren Buffett approach of investing.
You can try either long-term investing or mid-term investing.

I believe this is most suitable if you are beginning your journey as a stock investor. It is
a more forgiving way to invest and it can be done on a part-time basis or in your spare
time.

If you are new to stock investing, then, you may want to check out Bursaking.com.my
more often. It is a great resource centre for stock investing education who are into either
long-term investing or mid-term investing.

However, if you are a chart person and is need for speed, then, you may try out active
stock trading. Then, Bursaking.com.my is not for you. I would recommend checking out
shareinvestor.com or chartnexus.com which has sophisticated trading tools to help you
conduct your trade.

Hopefully, the insights presented has helped you understand the stock market world a
little more than before.