This page consisted of my personal experience in stock investment. Please do not consider it as very correct since I could be wrong or totally wrong, therefore only refer this article as a guide. This guide go choose stock was written with pain, headache, sleepless night and bloodshed from many investor and traders I knew, hopefully there is really something in it that will help you readers.
First thing first, rely on fundamental, not technical. And read all available RAW information to you, not the one cooked by investment consultant or newspaper's experts, who will usually said the price will jump from here to there, or will tumble down.
After holiday, all I got is stock market crash! A very unpleasant crash, although not as deep as 1930s great depression yet, but it is already shocking! Our index, IHSG slump to 1400s, or half the highest point in January 2008! Close to South East Asian's 1998's crisis, but today's crisis hasn't reach its peak. How deep is the peak? Only God knows! You can try to make a prayer asking how long deep is the crisis, however I think there is less than 1% chance that He'll answer you! LOL!
Anyway, following discussion about the stock market with my father, I got enlightened on one sign of potentially unhealthy company: an issuing bond or obligation company! It is possible that the company who issue bond or obligation had shortage in cash. But the sign of an unhealthy company is a company that issues another bond or obligation to pay the first obligation. This is the problem that plagued Lehman Bro's and Great River. I will not buy those bond or the stock from that kind of company, no matter other analyst and independent rating has said.
I'm lucky that I experience this when I'm young (24), which mean I still have plenty of time to do with my live. I can earn money that I had lost or wait until the investment returns. Anyway this kind of stock market did not happens every 10 years or so, it happens every 30 years or so. Therefore not everyone can feel this kind of stock. If you had a kid or teenage who are about to work, make sure that you educate them on this matter! So they won't get trapped in the same trap that trap us.
Always remember: it is not the stock market that make us loose money, but it is our choosing of stock and incorrect timing. I've made the wrong stock choice, which I won't average down those stock. I had rework my fundamental analysis to make it more accurate, and now I'm trying to test my new analysis by buying select stocks or not buying at all. Let's see how this technique performs... All I tell is there is 80% chance that I'll buy select stock.
More information, all the sign of potential future economic problem is actually available to all of us, in daily newspaper and everywhere! Its only we that is too stupid or deafened by sound of 'recehan' (clinging sound of shaken coins) to realised it. Warren Buffet already told us in 2003 about this potential subprime mortgage, just nobody listens. That is, there was saying: 'Having eyes but can't see, having ears but can't hear'... Unfortunately - in this case - it was correct for most of us, me and the readers...
Research more on its fundamentals, but do not rely only on its audited financial report
The world stock market is crashed again! This is the chance to get some discounted stock for your investment. I don't know what will happens after this crash, since there is a chance that the stock market will tumble even deeper, or it might be rebound to a peak. Choose your own stock carefully by analysing its fundamental. Another tips for analysing a company's fundamental: make sure the company's auditor is a well trusted auditor.
A big telecommunication company in Indonesia, Telkom (TLKM) was rejected when they wanted to list in Wall street. That's because they've used local auditors. Invest your money in a company which has been audited by a good trusted auditor.
An audited financial report is not enough! There was a case of companies who cheated to pay tax and had recently discovered. It was our beloved BUMI. That stock considering the price from 2002 until its peak in mid 2008, has increased twohuderedspled (not doubled or tripled but 200x). This is too good to be true even for a perfectly managed company. Lately the government discovered that they've cheated the tax.
As expected the stock price suddenly dropped! More embarrassing, I've suspected that something has gone wrong since my last averaging down, however I saw no reason to drop it of my portfolio. Then starting August 2008 I decided not to get more BUMI stock, in fact I even stop the people I knew from buying BUMI stock. Its actually greed that made me kept the stock.
Research about the business nature, not only its fundamentals
The fall of CPO (Crude Palm Oil), few month ago on 6th of July, I attend a class in renewable energy. The class covers making bio-Ethanol from sugar cane, castor oil to make bio-diesel and other sources of renewable energy. One thing that I've learnt from the class is:
The total costs of making and distilling bio-ethanol exceeds the cost of premium RON 95 unleaded fuel.
The distillation of bio-ethanol requires heat, which comes from fire, or other means of energy. If the amount of energy required to distil bio-ethanol is larger than the energy it produces, i.e. to create the 1 litre of bio-ethanol requires more energy that available from 1 litre of bio-ethanol, then any attempt to use bio-ethanol as fuel is futile. I've never measured how much energy is required to distil 1 litre of bio-ethanol, but it should be more than: 2,000,000 joule/litre, however the ethanol produces 23.500.000 joule/litre. Therefore there is a good chance that bio-ethanol could be used as fuel.
The bio-ethanol might be reducing the amount of green house gasses exhausted from the vehicle exhaust pipe, however on the fermentation and distillation of bio-ethanol emits a number of CO2 and other green house gasses. I've never measured exactly how much carbon and other green house gasses were emitted from the process, but surely it creates quite dark smoke.
What does it relates to CPO?
The CPO used for fuel needs to met certain standards. One thing for sure it needs to be clean and pure since a single palm starch clogs your car's injector nozzle and causes hundreds of dollars fixing cost.
I should have know there is probability of using CPO will be more expensive than the non CPO fuel.
I should have know there is probability that preparing CPO to be used as energy source could consume more energy than energy produced.
I should have know there is probability of the process in preparing CPO to be used as energy source could produce more green house glass that it will save. Changing forest into a plantation will reduce the capacity of decomposing green house gasses. The question is, can 1 HA CPO plantation and its products save more green house gasses than 1 HA forest?
Therefore I should have researched that before making decision to buy stock of CPO related business. Now its somewhat too late. The Europe stops all imports of CPO since their calculation shows that using CPO is not worth the risk (e.g. deforestation). And I have quite a number of LSIP stock, one of a major CPO plantation in Indonesia. All I could do now is waiting until new technology comes up that will make the CPO worth considering again and hoping the CPO business's stock will come up.
In addition, the fall of CPO becomes worse by the current global crisis.
The lesson here is: always research on a business before investing (not trading!) your money in. If you don't understand the business, then do not invest there!
Research on industry's business doers!
I had an uncle who runs construction business. Early in 2008, he warned me not to get any construction stock! That's because construction business is getting worse everyday! Especially when doing tendered projects, the competition is extremely tight and the profit margins is zero to very low!
My uncle is a very experienced constructor, he had built super malls, sky scrappers, factories, retail outlets and retail housing. All of those projects costs multi million dollar, and the profit is nothing! He said its tiring to do such a big project with so little or nothing profit or sometimes even subsidising! Now he specialises in luxury house, which the margin is good. The riches who built luxury house for them self only wanted the best quality, therefore they chooses the builder without . If you are about to build luxury house, please feel free to contact me. I'll introduce him to you, and he might be able to offer you a special discount!
In the beginning of 2008, the property price is booming and they build things everywhere. I should have listened to him - a real business doer - and not getting any construction company's stock although at that time the stock I had, ADHI (construction company that builds mega projects such as super mall, sky scrappers and toll roads) price is increasing! I should have sold it back then, since today the price dropped to almost 1/3rd when I bought that.
Now my message if you wanted to get a stock, first find a business doer of that industry who are willing share what happens in the business.