Additional Praise for Taming the Money Sharks “For those investors who want to pro t from the investment markets like professionals, this book is the key to success in eight simple steps. You will  nd Professor Cheng’s investment language in sync with our daily lives—complex theories are replaced with real-life examples and interactive illustrations pinpoint the fundamental knowledge we all need to know to accumulate and protect our wealth.” —Patrick K.S. Wong, Former General Manager, Jardine Fleming Taiwan Investment Management Ltd; Investment Director, Jardine Fleming Unit Trusts Ltd Hong Kong; President, Polaris Investment Trust, Taiwan “Mr. Cheng has written a highly readable guide for individual stock market investors who wish to develop an organized approach to creating and managing their portfolios. He uses real-life exam- ples to e ectively illustrat e investing pitfalls and principles, while presenting tools and techniques that are valuable to the discipline needed for success in this activity. Rooted in common sense and conservative principles, his investing frame- work will best serve individuals who are willing to make a serious commitment of time and energy toresearch, trade execution, and ongoing portfolio management activities.” —Richard Mellon, Retired Financial Manager Taming the Money Sharks Taming the Money Sharks 8 Super-Easy Stock Investment Maxims Philip Shu-Ying Cheng Copyright © 2013 by John Wiley & Sons Singapore Pte. Ltd. Published by John Wiley & Sons Singapore Pte. Ltd. 1 Fusionopolis Walk, #07–01, Solaris South Tower, Singapore 138628 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the Publisher, John Wiley & Sons Singapore Pte. Ltd., 1 Fusionopolis Walk, #07–01, Solaris South Tower, Singapore 138628, tel: 65–6643–8000, fax: 65–6643–8008, e-mail: enquiry@wiley.com. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best e orts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and speci cally disclaim any implied warranties of merchantability or  tness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any damages arising herefrom. Other Wiley Editorial O ces John Wiley & Sons, 111 River Street, Hoboken, NJ 07030, USA John Wiley & Sons, The Atrium, Southern Gate, Chichester, West Sussex, P019 8SQ, United Kingdom John Wiley & Sons (Canada) Ltd., 5353 Dundas Street West, Suite 400, Toronto, Ontario, M9B 6HB, Canada John Wiley & Sons Australia Ltd., 42 McDougall Street, Milton, Queensland 4064, Australia Wiley-VCH, Boschstrasse 12, D-69469 Weinheim, Germany ISBN 978–1–118–55042–7 (Paperback) ISBN 978–1–118–55045–8 (ePDF) ISBN 978–1–118–55044–1 (Mobi) ISBN 978–1–118–55043–4 (ePub) Typeset in 11/13 pt. BemboStd by MPS Limited, Chennai, India. Printed in Singapore by COS Printer Pte. Ltd. 10 9 8 7 6 5 4 3 2 1 This book is dedicated to all the individual investors who have lost money in the stock market. Many of them shared their experiences with me and enabled me to de ne the focus of this book. I urge my readers to maintain the proper frame of mind and to form good investing habits in order to survive and prosper despite the presence of the money sharks. ix Contents Acknowledgments xiii Preface xv Author’s Disclaimer xix Chapter 1 Stop the Bleeding Should You Continue to Invest by Striking While the Iron Is Hot? 1 A. Chasing a Hot Stock 3 B. Chasing a Hot Trend 8 C. Maxim No. 1: Don’t Rush into Buying, and Avoid Further Bleeding 11 Taming the Money Shark. Edited by Philip Shu-Ying Cheng Copyright © 2013 by John Wiley & Sons Singapore Pte. Ltd. ISBN: 978-1-118-78479-2 x     Chapter 2 Select an Industry to Increase Probability of Pro table Investments Apply Expertise from Work or Personal Interest 19 A. Basic Knowledge 20 B. Choosing an Industry to Invest In 25 C. Industry Characteristics 41 D. Maxim No. 2: Pro t from One Chosen Industry or a Selected Few Industries 44 Chapter 3 Wise Use of Information Resources Should You Follow Hot Tips? 49 A. Listen to a Friend or Relative 50 B. Listen to a Stock Guru 54 C. Listen to a Stock Analyst 56 D. Listen to an Investment Advisor 59 E. Listen to a Large Investor (Possible Shark) 61 F. Maxim No. 3: Reference External Inputs but Stay Focused 65 Chapter 4 Decide on Company Values and Buy–Sell Prices Should You Trust a Company with Your Money? 73 A. Relevant Company Historical Facts 74 B. Most Basic Financials 84 xi C. Five Key Indicators 86 D. Don’t Be Blind to a Company’s Personality 98 E. Deciding on Buy–Sell Prices 100 F. Maxim No. 4: Trust but Verify 103 Chapter 5 Simple and E ective Portfolio Strategies Do You Want a Windfall Pro t or a Systematic Win? 111 A. Portfolio Planning Guidelines 112 B. Core versus Satellite Portfolio 115 C. Portfolio Risk Management 122 D. Maxim No. 5: Manage and Accept Portfolio Risks 132 Chapter 6 Capitalize on Policy Directions Are Policies Your Friends? 145 A. Are Policies Fair? 146 B. Policy Directions 147 C. Maxim No. 6: Pro t from Policies and Trends 153 Chapter 7 Loving an Investment or Loving to Make Money Falling in Love 157 A. Is “Love” Forever? 158 B. All-or-Nothing Thinking 160 xii            C. Love a Person? Invest for Love? 162 D. Maxim No. 7: Emotions and Investment Don’t Mix 166 Chapter 8 Fully Enjoy Your Pro ts from Stocks Rich and Healthy or Rich with Pain 171 A. Manage Your Investment Lifestyle and Health Simultaneously 172 B. Swap Poor Health for Big Money 173 C. Investment Emotions That Are Detrimental to Our Health 175 D. Investment Flowchart 179 E. Maxim No. 8: Maintain Health and Wealth 180 Appendix A: Basic Technical Analysis 183 Appendix B: Deciding on Buy Prices 189 Appendix C: Deciding on Sell Prices 195 Appendix D: Strategy for Investing in High-Dividend (HD) Stocks 201 About the Author 207 Index 209 [...]... Ltd ISBN: 97 8- 1 -1 1 8- 7 84 7 9-2 Chapter 1 Stop the Bleeding Should You Continue to Invest by Striking While the Iron Is Hot? 1 Taming the Money Shark Edited by Philip Shu-Ying Cheng Copyright © 2013 by John Wiley & Sons Singapore Pte Ltd ISBN: 97 8- 1 -1 1 8- 7 84 7 9-2 Don’t chase after any hot asset; first learn why it is hot Why do we chase after a hot asset? Please note that a hot asset (or a hot stock) can... just a few of these principles judiciously and have already enjoyed systematic profits from their investments Stock Investment Flowchart as Discussed in This Book Begin stock investments Trade stocks Stop the “bleeding”! (Ch.1) Trade stocks Follow stock tips? (Ch.3) Not aware of government policies? Trade stocks (Ch.6) Fall in love with stock (Ch.7) Trade stocks Industry selection (Ch.2) Stock selection... entertainment, etc.) xv Taming the Money Shark Edited by Philip Shu-Ying Cheng Copyright © 2013 by John Wiley & Sons Singapore Pte Ltd ISBN: 97 8- 1 -1 1 8- 7 84 7 9-2 xvi tam i n g t h e m o n e y s har k s 2 Experience (our professions are not directly investment related) 3 Focus (we are generally bombarded by misinformation) During my 40 years of investing, I have played with many types of money sharks Based... (Ch.4) Trade stocks Portfolios strategy (Ch.5) Enjoy good health + your money (Ch .8) xviii tam i n g t h e m o n e y s har k s After reading this book, you will be able to “swim in your own investment water” while co-existing with the money sharks.” The sharks referred to in this book are of two types: A The first type consists of the huge operators They execute huge buy–sell orders in the stock market... Better yet, do you want to get rich by taming the money sharks? Congratulations! In this book you will find eight super-easy stock investment maxims that will enable you either to stay away from the sharks or to protect yourself from them You can even become rich systematically by drastically simplifying your investments Most of us want to get rich, but do not have the following: 1 Time (we are already... judgment of the “appropriate value” of the current prices of your targeted stock For a company stock, I further recommend that you look at the most basic financials of the company (see Chapter 4 for a more detailed discussion) The following questions should be asked: 1 Have the company’s sales continued to go up? Are they sustainable and for how long? Are they for any one-time event only? 2 Has the profit... lose money, we are not to be blamed; we are simply “unlucky” as a group That is such a human impulse, yet the fact is that investors still can lose a lot of money, unwisely at that, if they do not truly understand the reasons behind the price increase From an industry standpoint, recall the tech boom years of 2000 and 2001 In addition to the 4 TAMING THE MONEY SHARKS basic industry innovation, the flow... from all over the world kept pumping up the unrealistic stock prices of the tech companies, way beyond their respective intrinsic values Recall also that before the tech bubble burst, many opportunistic companies changed their existing names to an Internet or high-tech name, such as “ABC High Tech Company,” or “XYZ Internet Company.” Then these companies would announce to the media how their great innovations... Development Editor (for her creative editing); Senior Production Editor Stefan Skeen (for his innovative copyediting); Jules Yap, xiii Taming the Money Shark Edited by Philip Shu-Ying Cheng Copyright © 2013 by John Wiley & Sons Singapore Pte Ltd ISBN: 97 8- 1 -1 1 8- 7 84 7 9-2 xiv tam i n g t h e m o n e y s har k s Editorial Executive at Wiley (for her patient efforts and organization); Stuart Leckie (for... along with the lessons I have learned from my own friends and coworkers, I have distilled some down-to-earth steps for you to consider and follow You may already have read good books on investing, but in this book I have set forth eight super easy-to-follow maxims of investment to optimize your results I also realize that readers will have neither the time nor the patience to deal with demanding investment . activities.” —Richard Mellon, Retired Financial Manager Taming the Money Sharks Taming the Money Sharks 8 Super-Easy Stock Investment Maxims Philip Shu-Ying Cheng Copyright © 2013 by John Wiley &. Avoid Further Bleeding 11 Taming the Money Shark. Edited by Philip Shu-Ying Cheng Copyright © 2013 by John Wiley & Sons Singapore Pte. Ltd. ISBN: 97 8- 1 -1 1 8- 7 84 7 9-2 x     Chapter. Striking While the Iron Is Hot? Taming the Money Shark. Edited by Philip Shu-Ying Cheng Copyright © 2013 by John Wiley & Sons Singapore Pte. Ltd. ISBN: 97 8- 1 -1 1 8- 7 84 7 9-2 2 Don ’t chase after any