Friday, 31 May 2013

Quote for the day

"Prepare for opportunities, don't wait for opportunities to take you by surprise." - Daniel Emmanuel

LSL Weekly Market Review 31st May 2013

On Monday Colombo Stock Exchange market capitalization depreciated by 1% due to profit taking embarked by investors after a two-day consecutive growth. ASI dropped by 42.31 index points S&P SL 20 Index lost 24.13 points. Market turnover was LKR 697mn. John Keells Holdings with LKR 92.9mn, Environmental Resources Investments with 75.1mn and Overseas Reality with LKR 63.9mn were the top contributors to the market turnover. Foreign participation was relative low and it calculated for 14.8% of the total market activity. However at the end of the day foreign investors were net buyers with net inflow of LKR 113mn.

On Tuesday market closed again in red as investors booked profits after recent gains. ASI lost 11.84 points a while S&P SL 20 Index lost 14.95 points. Market turnover was LKR 553mn. Environmental Resources Investments with LKR 65.9mn, John Keells Holdings with LKR 61.3mn and Colombo Land & Development with LKR 42.5mn topped the turnover list. Foreign participation was 12.7% and at the end of the day foreign investor was net buyers with a net inflow of LKR 75mn.

Colombo stocks recovered on Wednesday after two days of losses where benchmark indices closed with positive returns. ASI advanced by 21.11 points and S&P SL 20 Index advanced by 17.68 points. Daily market turnover was LKR 906mn. Nation Lanka Finance with LKR 107.3mn, Chevron Lubricants with LKR 73.9mn and John Keells Holdings with LKR 58.7mn topped the turnover list. Foreign participation for the day was 21% of the total market activity and foreign investors were net buyers with a net inflow of LKR 102mn.

Market closed with negative results on Thursday where both indices ended with marginal losses. Benchmark ASI lost 0.69 index points and S&P SL 20 Index lost 4.60 index points. Market turnover reached LKR 2.6bn with the help of transactions taken place for the acquisition of J.L Morison & Sons by Hemas group. Accordingly J.L Morison & Sons voting and non-voting made the highest turnover of LKR 1.6bn and LKR 210mn respectively followed by Chevron Lubricants with a turnover of LKR 142mn. During the day foreign participation was 9% and foreign investors ended as net buyers with a net inflow of LKR 165mn.

Colombo stocks wrapped its operation on Friday on a positive note. ASI advanced by 7.94 index points to close at 6,463.06 while S&P SL 20 Index closed at 3,646.32, up 6.28 index points. Accordingly YTD return on All Share Index stood at 14.5% and YTD return on S&P SL 20 Index was 18.2%. Market turnover was LKR 728mn. Commercial Bank with LKR 121mn, John Keells Holdings with LKR 59mn and CT Land Development with LKR 47mn were the top contributor to the market turnover. Several crossings were recorded by Commercial Bank, Lanka Tiles and Aitken Spence Holdings. Total value of the crossings accounted for 21% of the market turnover. Nation Lanka Finance, Laugfs Gas non-voting and CT Land Development were the mostly traded stocks for the day. Foreign participation was 24% and foreign investors were net buyers with a net inflow of LKR 119mn. Year to date total net foreign inflow was LKR 13.1mn. Cash map for the day closed at 50.5%.

Thursday, 30 May 2013

Quote for the day

"Never get into the market because you are anxious from waiting, and never get out of the market just because you have lost your patience."- WD Gann

AWMR Market Review 30th May 2013

The All Share Price Index lost 0.69 points to close at 6,455.12 (-0.01%) while the S&P SL20 Index lost 4.6 points to close at 3,640.04 (-0.13%).

* Total turnover for the day stood at LKR 2,557.9 mn (USD 20,225.1 k) vs. 12-month average daily turnover of LKR 938.9 
mn (USD7,424.9 k), whilst the volume traded for the day was 48,654 k against the 12-month average daily volume of 41,096 k.

* Top contributory counters towards the turnover for the day were, JL Morrison Sons & Jones (Voting) LKR 1,558.6 
mn (USD 12,323.8 k, +11.9%), JL Morrison Sons & Jones (Non Voting) LKR 210.1 mn (USD 1,660.9 k, +18.3%), Chevron Lubricants Lanka LKR 142.1 mn (USD1,123.6 k, +0.6%), Lanka Tiles LKR 96.0 mn (USD 759.4 k,+5.3%), Nations Lanka Finance LKR 77.8 mn (USD 615.4 k, -7.7%).

* Despite the mammoth turnover recorded during the day, indices witnessed a downward trend, closing in the negative 
territory. JL Morrison Sons & Jones spearheaded day’s turnover backed by several off market deals. JL Morrison voting witnessed 8 crossings where a circa of over 4 mn shares were traded at a price of LKR 366.5 whilst the JL Morrison non voting share saw over 589K shares being traded at LKR 219.7 in two off market deals. Both Voting and Nonvoting shares reached it’s 52 week highest price during the day closing with healthy price gains. 

In addition crossings were witnessed in Lanka Tiles and CT Land Development where 900k shares of Lanka Tile changed hands at 80.0 while 1mn shares of CT Land crossed off at LKR 32.0. Chevron Lubricants Lanka also encountered heavy investor participation to secure the third highest place in the top turnover calibre. In addition heavy retail participation was witnessed in counters such as Nations Lanka Finance, Hemas Holdings, and Laughs gas nonvoting.

* Foreign purchases amounted to LKR 323.8 mn (USD 2,560.7 k), whilst foreign sales amounted to LKR 158.8 mn 
(USD1,255.8 k).This resulted in a net foreign inflow of LKR 165 mn being recorded at the end of the day’s trading.

* Market capitalization stood at LKR 2,478.8 bn. YTD performance is 14.4%.

Source: Asia Wealth Management Research

7 lessons to learn from a market downturn

You can never really understand investing until you weather a market downturn.

The valuable lessons learned can help you through the bad times and can be applied to your portfolio when the economy recovers. Listed below are some common investor experiences during tough economic times and the lessons each investor can come away with after surviving the events.

Lesson 1 Evaluate your egg baskets: 
If you're pulling your hair out because everything you invest in goes down, then the lesson you need is: Always keep a diversified portfolio, regardless of current market conditions.

If everything you own is moving in the same direction, at the same rate, your portfolio is probably not well diversified, and you could stand to reconsider your asset-allocation choices. The specific assets in your portfolio will depend on your objectives and risk-tolerance level, but you should always include multiple types of investments.

Taking a more conservative stance to preserve capital should mean changing the percentages of holdings from aggressive, risky stocks to more conservative holdings, not moving everything to a single investment type. For example, increasing bonds and decreasing stocks in small-companies maintains diversification, whereas liquidating everything and putting it in a cash account does not. Under normal market conditions, a diversified portfolio reduces big swings in performance over time.

Lesson 2: No such thing as a sure thing
If that stock you thought was a sure thing just tanked, then the lesson is: Sometimes the unpredictable happens. It happens to the best analysts, the best fund managers, the best advisers, and, it can happen to you.

The perfect chart interpretation, fundamental analysis, or tarot card reading won't predict every possible incident that can impact your investments.
• Use due diligence to mitigate risk as much as possible.

• Review quarterly and annual reports for clues on risks to the company's business as well as its responses to the risks.

• You can also glean industry weaknesses from current events and industry associations.
More often, an investment is impacted by a combination of events. Don't kick yourself over unpredictable or extraordinary events like supply-chain failures, mergers, lawsuits, product recalls, etc.

Lesson 3: Proper risk management
You thought an investment was risk-free, but it wasn't. The is lesson: Every investment has some type of risk.

You can attempt to measure the risk and try to offset it, but you must acknowledge that risk is inherent in each trade. Evaluate your willingness to take each risk.

Lesson 4: Liquidity matters
If you always stay fully invested, so you miss out on opportunities requiring accessible cash, then the lesson is: Having cash in an ISA (equity ISAs let you hold cash in them and money in cash ISAs can be transferred into shares while keeping hold of it's tax-free status) or spare money in your trading account lets you to take advantage of high-quality investments at fire sale prices. It also decreases overall portfolio risk.

Plan ahead to replenish cash accounts. For example, use the proceeds from a called bond to invest in the money market instead of purchasing a new bond. Sometimes cash can be obtained by reorganising debt or trimming discretionary spending. Set a specific percentage of your overall portfolio to hold in cash.

Lesson 5: Patience
If your account balance is lower than it was last quarter, so you overhaul your investment strategy before taking advantage of your current investments, then the lesson is: Sometimes it takes the market an extended period of time to bounce back.

Your overall portfolio balance on a given date is not as important as the direction it is trending and expected returns for the future. The key is preparedness for the impending market upturn based on an estimated lag time behind market indicators. Evaluate your strategy, but remember that sometimes patience is the solution.

Lesson 6: Be your own adviser
If the market news is getting bleaker every day and you're paralysed with fear, then the lesson is: Market news has to be interpreted relative to your situation.

Sometimes investors overreact, particularly with large or popular stocks, because bad news is repeated continuously by every news source going. Here are some steps you can follow to help you keep your head in the face of bad news:
• Pay attention and understand the news, then analyse the financials yourself.

• Determine if the information represents a significant downward financial trend, a major negative shift in a company's business, or just a temporary blip.

• Listen for cues the company may be downgrading its own expected returns. Find out if the downgrade is for one quarter, one year or if it is so abstract you can't tell.

• Conduct an industry analysis of the company's competitors.
After a thorough evaluation, you can decide if your portfolio needs a change.

Lesson 7: When to sell and when to hold
If the market indicators don't seem to have a silver lining, then the lesson is: Know when to sell existing positions and when to hold on.

Don't be afraid to cut your losses. If the current value of your portfolio is less than you paid and showing signs of dropping further, consider taking some losses now.

Selective selling can produce cash needed to buy investments with better earnings potential. On the other hand, maintain investments with solid financials that are experiencing price corrections based on expected price-earnings ratios. Make decisions on each investment, but don't forget to evaluate your overall asset allocation.

The bottom line
Downward stock market swings are inevitable. The better-prepared you are to deal with them, the better your portfolio will handle them. You may have already learned some of these lessons the hard way, but if not, take the time to learn from others' mistakes before they become yours.

By Stephanie Powers

Wednesday, 29 May 2013

Quote for the day

“Remember the two benefits of failure. First, if you do fail, you learn what doesn't work; and second, the failure gives you the opportunity to try a new approach.” - Roger Von Oech

LSL Market Review 29th May 2013

Colombo stocks recovered today after two days of losses where benchmark indices closed with positive returns. ASI advanced by 21.11 points to close at 6,455.81 and S&P SL 20 Index advanced by 17.68 points to close at 3,644.64. Price appreciations in large cap stocks such as Chevron Lubricants by LKR 6.60, Bukith Darah by LKR 4.20 and National Development Bank by LKR 4.50 contributed positively to the market performances.

Daily market turnover was LKR 906mn. Nation Lanka Finance with LKR 107.3mn, Chevron Lubricants with LKR 73.9mn and John Keells Holdings with LKR 58.7mn topped the turnover list for the day.

Two crossings were recorded by Asiri Hospital Holdings (~1.4mn shares at LKR 15.50 per share) and National Development Bank (~0.2mn shares at LKR 177.00 per share). The aggregate value of the crossings accounted for 6% of the market turnover.

Nation Lanka Finance voting share and the Warrant-21 traded heavily with top trading volumes and ended among the top gainers. Further Land & Property sector stocks such as MTD Walkers, Overseas Reality and Colombo

Land & Development were among the mostly traded stocks during the day.

Cash map closed at 50.8%. Foreign participation for the day was 21% of the total market activity and foreign investors were net buyers with a net inflow of LKR 102mn.

How To Force Yourself To Be A Better Investor

A policy of 'forced displacement' can help you focus your portfolio.
By Kevin Godbold

If, like me, you desire to own a concentrated portfolio of investments, and wish to abstain from introducing new cash into your portfolio, it can make a lot of sense to adopt a policy of forced displacement.

In other words, if you are fully invested with your maximum number of holdings in place, buying a new investment means that you have sell something you currently own!

About two years ago, I decided to work towards concentrating the investments within my portfolio to a maximum of ten holdings.

The decision to concentrate was a product of previous bitter experience. In the past, even though I thoroughly researched each of them before buying, I ended up with far too many shares. It was hard to follow them all in sufficient depth and with sufficient focus, and my performance suffered as a result.

Warren Buffett once frankly stated: "Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing."

He also said, rather more kindly: "Risk can be greatly reduced by concentrating on only a few holdings."

I would add that risk only has a chance of being reduced if fewer holdings leads to greater concentration of thought and focus on your investments.

No new money
As well as concentrating my investments, I decided long ago that no new cash would go into my portfolio (honestly, that was my own decision and not the wife's!).

It seemed to me, that through compounding, it would be possible to grow even modest sums into not so modest sums over the long term. For example, starting with an initial investment of £20,000 and compounding it at 10% for 25 years would give you around £217,000.

Compounding could potentially be achieved by reinvesting dividends and recycling maturing investments into new ones.

The dilemma
All of that works fine until you find yourself fully invested and coveting some sexy new investment that you have thoroughly researched.

Then is the time to be very firm about your investment rules. It would be tempting to sell bits of this and bits of that to fund a new position, but that could mark a return to the bad old days of diluting the portfolio into smaller positions.

You must be ruthless -- if you want to own a slice of the new company, one of the existing holdings has to go.

At that point, you are weighing up the relative merits of one company already in your portfolio, against another that wants to replace it: a potentially more intense exercise than analysing a company's prospects in isolation and then just buying it. It really focuses your mind!

A well-trodden path
Several well-known successful investors have practiced forced displacement in the past.

For example, in Alice Schroeder's biography on Warren Buffett, The Snowball, she quotes him as saying, when talking about his investing in the early 1950s: "I was already running short of money to invest. If I was enthused about a stock I would have to sell something else to buy it."

And, in his book Beating the Street Peter Lynch Says: "Most of my abrupt changes in direction were caused not by any shift in policy but by my having visited some new company that I liked better than the first... In order to raise the cash to buy something, I had to sell something else..."

In my view, in order to be successful, the forced displacement technique must be considered as a kind of 'weapon of last resort' for your portfolio. You do not want to slip into overtrading, with all its associated costs.

If applied properly, it should promote even greater focus and intensity of thought when evaluating an investment opportunity, as to invest also requires you to divest.

Tuesday, 28 May 2013

Quote for the day

"Mistakes are okay; they are our stepping stones of progress. If we are not failing from time to time, we are not trying hard enough and we are not learning. We have to take risks, stumble, fall, and then get up and try again. Appreciate that we are pushing our self, learning, growing and improving. One of the mistakes we fear might just be the link to our greatest achievement yet !!" - Glen Rambharack

LSL Market Review 28 May 2013

Market closed in red for the second consecutive day as investors booked profits after recent gains. ASI lost 11.84 points and closed at 6,434.70 while S&P SL 20 Index lost 14.95 poits and closed at LKR 3,626.96. Price depreciation in index heavy stocks such as Bukith Darah by LKR 13.90, Carsons by LKR 2.50 and Commercial Bank by LKR 1.00 contributed negatively to the market performance.

Market turnover was LKR 553mn. Environmental Resources Investments with LKR 65.9mn, John Keells Holdings with LKR 61.3mn and Colombo Land & Development with LKR 42.5mn topped the turnover list today. No crossings were recorded during the day.

Heavy retail participation was seen in MTD Walkers and it ended as the mostly traded stock (up LKR 4.30, +16%). Further, Central Investment & Finance, Overseas Reality and Morisons non-voting were among the heavily traded stocks.

Cash map improved to 52.3% from the yesterday figure of 33.7%.

Foreign participation was 12.7% and at the end of the day foreign investor was net buyers with a net inflow of LKR 75mn.

Monday, 27 May 2013

Quote for the day

“Discipline is doing what you are supposed to do in the best possible manner at the time you are supposed to do it.” - Mike Krzyzewski

LSL Market Review 27th May 2013

Colombo Stock Exchange market capitalization depreciated by 1% due to profit taking embarked by investors after a two-day consecutive growth. ASI dropped by 42.31 index points (0.65%) to close at 6,446.54 and S&P SL 20 Index lost 24.13 points to close at 3,641.91. Price depreciation in index heavy counters such as Dialog Axiata by LKR 0.40, Nestle by LKR 21.50 and John Keells Holdings by LKR 4.80 contributed negatively to the market performances.

Market turnover was LKR 697mn. John Keells Holdings with LKR 92.9mn, Environmental Resources Investments with 75.1mn and Overseas Reality with LKR 63.9mn were the top contributors to the market turnover.

Investor interest was rally around Laugfs Gas voting and non-voting shares amid the expected dividend which the company may pay out according to the company’s dividend history. Further Overseas Reality, Chevron Lubricants and Ceylinco Seylan Development were among heavily traded stocks during the day.

Foreign participation was relative low and it calculated for 14.8% of the total market activity. However at the end of the day foreign investors were net buyers with net inflow of LKR 113mn. Cash map closed at 34%, the lowest recorded during last five trading days.

Saturday, 25 May 2013

Quote for the day

“Luck is what happens when preparation meets opportunity.” - Seneca

Success Formula: E+R=O

I came across this formula in Jack Canfield’s “The Success Principles“. 
Events + Response = Outcome or in short, E + R = O.
I find it very apt in all situations, even in the field of investment.

E (Events) + R (Response) = O (Outcome)

EEvents are things that happened which you have no control
RResponse is how you react to the events
OOutcome of the events with your reactions

So how can this be applied to your life, especially in the context of money? Here are some of the examples:

On Retirement at Old age:

E – Retirement
R – Save
O – Enough money for retirement

as compared to

E – Retirement
R – No plans, no savings
O – Rely on others for retirement

On Insurance Planning:

E – Death
R – Bought life insurance
O – Beneficiaries have enough money to live after the breadwinner dies

as compared to

E – Death
R – Did not buy any insurance
O – Beneficiaries have to worry and work for money for the rest of their lives

On Financial Crisis:

E – Financial Crisis
R – Practise sound and disciplined investment principles
O – Survive the crash

as compared to

E – Financial Crisis
R – No knowledge on investing
O – Lose most of your capital

On Investing:

E – Value stocks appear after the crash
R – Knows how to select good value stocks
O – Enjoy the profits

as compared to

E – Value stocks appear after the crash
R – Cautious since economy has yet to recover
O – Misses the boat while others’ make profits

From the examples above, you can notice that the events do not change. But the responses will always change the outcomes. Events are situations that you cannot change or direct. They can happen expectedly or randomly. Instead of worrying about the events, you should focus on what is your response. Because it is your response that will create a different outcome. That is the only part of the equation you have control of. Most people give up this control, because it takes much more effort to take actions than hoping the events will turn better.

DO SOMETHING about your situation/event TODAY.


Thursday, 23 May 2013

Quote for the day

“Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals”. However, if you catch on early, before others believe, you might have valuable “surprise-a-mentals.”- Ed Seykota

Retailers continue to drive the small caps...

The week ended with both indices gaining significantly WoW continuing the positive momentum witnessed during the past few weeks. The ASI gained 108.2 points WoW to close at 6,488.9 points (1.7%), whilst the S&P SL 20 Index gained 76.8 points WoW to close at 3,666.0 points (2.1%). Indices gained mainly on the back of the gains made by Ceylon Tobacco (9.2%), John Keells holdings (3.1% WoW), Chevron Lubricants (17.4% WoW), Lion Brewery (15.1% WoW) and Distilleries Company of Sri Lanka (7.8% WoW).

The week saw heavy institutional and foreign interest on large cap counters which was a trend seen from the beginning of 2013. On the other hand retail involvement in equities continued to increase assisting the small cap counters to gain notably during the week. The fact that small cap counters have significantly regained the trading interest is an indication that the risk appetite of the market participants has returned and is gaining in momentum. The continuous drop in government T-bill rates and the expectations of a stronger LKR and hence a subdued level of inflation in the economy would further assist this trend going forward.

Moving onto global markets the Japanese economy grew 3.5% YoY in 1Q2013 exceeding the rate of U.S recovery, which positioned the Japanese Nikkei 225 firmly in green territory alongside U.S equities. Markets in the rest of the world notably in Europe and Asia remained subdued on account of the growth concerns of the two regions. It is observable that price of industrial commodities are moving in opposite direction to that of equity markets in U.S which is an indication that the current exuberance in U.S stocks may well be largely driven by U.S and Japanese stimulus funds reaching equities given that market interest rates in the two regions remain close to zero. Hence, the positive sentiment shown in U.S equity markets may not necessarily be driven by prospects of real economic growth given that U.S industrial production is down 0.5% in April and jobless claims increased according to latest Federal Reserve’s data.

Turning back to the activities at the Colombo bourse the turnover during the week was mainly assisted by Banking and Diversified sector counters which received special preference by foreign market participants. Heavy institutional involvement was also seen in these counters while retailers focused more on small and mid cap stocks with the aim of reaping short term returns. 

The highest contribution to the week’s turnover was made by Commercial Bank accounting to circa 24% of the weekly turnover while heavy weight John Keels Holdings contributed to 12.5%. During the week crossings were also recorded in counters such as Royal Ceramics, Cargill’s Ceylon, Hatton National Bank, Distilleries Company and Sampath Bank. On the back of these developments, the week saw an average turnover of LKR1.2bn and an average volume of 31.1mn.

Furthermore, Amana Takaful, Commercial Bank, Overseas Realty, Seylan Development and Panasian Power topped the list in terms of volume traded during the week.

The week saw foreign purchases amounting to LKR 2,486.8 mn whilst foreign sales amounted to LKR 582.3 mn. Market capitalisation stood at LKR 2,491.7 bn, and the YTD performance is 15%.


Bourse continues to rise in value with majority of the counters reaching their 52 week peak...

The Colombo bourse commenced the week on a positive note gaining considerably, however the momentum gradually slowed down towards mid week owing to profit taking witnessed across the board. Conglomerate giant John Keells Holdings which made hefty gains over the past weeks reached its all time high of LKR299.80 during the week and also witnessed its market cap reach the UDS2bn mark, accounting for c. 10% of the total market capitalization. Majority of the large cap counters including banking and diversified counters encountered crossings during the week supported by institutional and foreign interest, whilst the counters witnessed substantial price gains. Further, retail play too was heavily observed on selected counters.

Meanwhile, Standard Charted Bank expressed its concerns over the policy rate cut indicating that the 50bps cut in key policy rates exceeded their expectation of 25bps and was too aggressive considering the economic challenges and issues faced by the country. It further stated that it has revised the country’s projected GDP growth for 2013E to 6.5% from 6.7% due to the weak export performance in 1Q2013. The bank also raised concerns over the country’s ability to maintain a desirable level of inflation and it expects the inflation to rise during 4Q2013 due to the expected increase in demand from the private sector investment resulting from low interest rates. On this backdrop, we urge the investors to align their portfolios towards a medium to long term time horizon focusing on fundamentally sturdy counters which we believe will be less volatile even if the market is to face a correction due to short term profit taking.
Source: Asia Wealth Research

Wednesday, 22 May 2013

Quote for the day

“The financial markets are naturally set up to take advantage of and prey upon human nature. As a result, markets initiate major intraday and swing moves with as few traders participating as possible. A trader who does not understand how this works is destined to lose money” - John F. Carte

LSL Market Review 22nd May 2013

Colombo Stocks today closed in green where both indexes ended with positive returns. All Share Index closed at 6,461.62, up 19.98 points (0.31%) and S&P SL 20 Index closed at 3,663.98, up 3.04 points (0.08%).

Heavy retail participation was seen in property sector counters such as Ceylinco Seylan Development (up by 7%), Colombo Land & Development (up by 3%) and Overseas Reality (up by 1%). Further investor interest were seen in alcoholic beverage manufactures such as Distilleries (up by LKR 5.90, 3%), Lion Brewery (up by LKR 38.60, 10%) and Ceylon Brewery (up by LKR 38.00, 8%).

Market turnover was LKR 767.7mn. Commercial Bank with LKR 192mn, Cargills Ceylon with LKR 90mn and Sampath Bank with LKR 53mn topped the turnover list today.

Foreign participation was 26% and foreign investors ended as net buyers with a net inflow of LKR 308mn. Cash map closed at 60.3%.

Price appreciation in index heavy stocks such as Nestle by LKR 40.00, Ceylon Tobacco by LKR 10.00 and Chevron Lubricants by LKR 12.80 contributed positively to the index performances.

Applying Sun Tzu's Art of War to Trading

Sun Tzu’s Art of War is a classic piece of work that is widely read and applied to many fields, due to it’s fundamental nature that is highly adaptable to many areas of our lives. 
In this post, I extracted parts of the work and applied to trading and in doing so, hope to introduce the important trading concepts to you. I have also group and categorize them for easy understanding.

To put it in the context of trading, I have rationalised the following terms:
- General = You, the trader
- Battle = Trading the market/making a trade
- Men, Soldiers = Your capital, dollars!


“Now the general who wins a battle makes many calculations in his temple ere the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose.”

Calculations are to be made prior to any trade. What is the risk-reward ratio? What is the stop loss level and the amount that I am willing to lose? What is the size of position to take? How much leverage can I take? If the price moves to $XXX, what action should I take? What is my price objective? What is the proabability of winning? These are just questions that need to be answered and determined BEFORE a trade is made. THE BATTLE/TRADE IS WON BEFORE IT IS FOUGHT/MADE.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat.
If you know neither the enemy nor yourself, you will succumb in every battle.”

This is a phrase commonly quoted. In trading, it is true that you need to know yourself. It includes understanding your psychology and how you behave or react to profits and losses. The enemy in this case is the market. You need to understand the market before you do any form of investing. You need to take time to understand the market, ensuring yourself to have an edge over the rest of the investors. With a good understanding, you can design and use a system to capitalise on market movement. In addition, you will be able to apply the correct tactic to beat the market. If you do not know the market and you do not understand yourself, it is likely you will end up in losses.

“To secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.”

As a trader, you need to protect your trading capital and abide to the rules of your trading system for entries and exits. Once you ensure you have done your part, the amount of profits or losses will be determined by the market. You have no rights to ask for any amount of profit from the market. Even if you followed all your rules strictly, it is possible you can lose but you have to accept it and move on.

“What the ancients called a clever fighter is one who not only wins, but excels in winning with ease. Hence his victories bring him neither reputation for wisdom nor credit for courage. He wins his battles by making no mistakes. Making no mistakes is what establishes the certainty of victory, for it means conquering an enemy that is already defeated. Hence the skillful fighter puts himself into a position which makes defeat impossible, and does not miss the moment for defeating the enemy.”

To trade correctly is to follow a system or a set of rules. The converse is true, making a mistake means the trader did not abide to the system or the rules when making a trade. The trader does not follow the rules because he is affected by his emotions, which are in turn swayed by news, recommendations, and comments of the others. To win in the market, traders must strive not to make mistakes, ie, he must be able to execute his trades without any people affect his decision making. This is especially so when it comes to cutting losses. A trader who fails to cut loss commits a grave mistake. Because this one mistake can wipe out his gains and his capital. It is very important to position yourself in the market without making mistakes.

“Thus it is that in war the victorious strategist only seeks battle after the victory has been won, whereas he who is destined to defeat first fights and afterwards looks for victory.”

A trader enters a trade with certainty that he is favourable to win. He has an edge over the others in terms of probability. He has a favourable risk-reward ratio, such that he risk an amount for at least 2-fold of reward. He knows when to enter and exit. Hence, the victory is calculated before the trade is made. Most untrained investors get into the market without any careful calculation and often end up not knowing how to exit when the market moved.

“In respect of military method, we have, firstly, Measurement; secondly, Estimation of quantity; thirdly, Calculation; fourthly, Balancing of chances; fifthly, Victory.”

When it comes to assessing a trade, you must have a pre-determined set of rules or system to help you evaluate (measure) a potential trade. Secondly, you must know your position sizing to buy the right number of contracts (quantity) based on the size of your capital. Thirdly, you must determine the cut loss and profit taking price and calculate the risk-reward ratio to make sure your reward is at least 2 times your risk. Fourthly, you must know what is the probability of winning using your system in the current market condition. Lastly, make the trade and wait for the market to decide if you are right or wrong.

“Do not repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances.”

Over the long run, market conditions change. The system that works in the past may not be relevant in the new market condition. You must review and fine tune the system when market conditions change. You will know it when you realise you have much more losses than usual even though you abided to the system rules closely.

“A clever general, therefore, avoids an army when its spirit is keen, but attacks it when it is sluggish and inclined to return. This is the art of studying moods.”

The central idea of trading revolves around reading the market’s moods. Price actions, volume and indicators are signs for the trader to discern the market’s moods and the investors’ behaviour. You will trade well when you can interpret the moods.

“It is a military axiom not to advance uphill against the enemy, nor to oppose him when he comes downhill.”

The key to trading is not to fight the trend. When the market is trending up, look for opportunity to long and do not short it. Likewise, if the market is trending down, look for opportunity to short and do not long it.

“The art of war teaches us to rely not on the likelihood of the enemy’s not coming, but on our own readiness to receive him; not on the chance of his not attacking, but rather on the fact that we have made our position unassailable.”

As previously addressed, a trader must do the due dilligence to put himself in a position such that he has a higher probablity of winning in the market. You should never have the mentality of conquering the market. The profits are decided by the market and you can never force it.

“The general who advances without coveting fame and retreats without fearing disgrace, whose only thought is to protect his country and do good service for his sovereign, is the jewel of the kingdom.”

The trader must win in the market not to prove that he is right, but to seek profits. When he is wrong, he must cut his losses without feeling disgrace. Only by having this mentality, he can do well for his trading account.


“We are not fit to lead an army on the march unless we are familiar with the face of the country–its mountains and forests, its pitfalls and precipices, its marshes and swamps.”

Like what Warren Buffett says, “risk is not knowing what you are doing.” If you do not understand the market, you are not fit to invest in it. You will get your capital (army) wiped out.

“He who knows these things, and in fighting puts his knowledge into practice, will win his battles.”

It is not good enough to know theories and concepts behind investing. A trader must be able to apply the knowledge correctly to profit from the markets.

“He who knows them not, nor practices them, will surely be defeated.”

If he does not know, and not apply the correct trading techniques, he will definitely lose in the markets.


“The general, unable to control his irritation, will launch his men to the assault like swarming ants, with the result that one-third of his men are slain, while the town still remains untaken. Such are the disastrous effects of a siege.”

Do not be emotionally affected by the market or your losses. If you are too eager to gain profits or revenging a loss, you lose your sanity and become irrational. The decision-making is likely to be flawed and probably ending up with losses. Re-writing the statement, “The trader, unable to control his irritation, will launch his capital to the assault like swarming ants, with the result that one-third of his capital are slain, while the profit still remains untaken. Such are the disastrous effects of an impulsive trade.”

“There are five dangerous faults which may affect a general:
(1) Recklessness, which leads to destruction;
(2) cowardice, which leads to capture;
(3) a hasty temper, which can be provoked by insults;
(4) a delicacy of honor which is sensitive to shame;
(5) over-solicitude for his men, which exposes him to worry and trouble”

Psychology is key to a trader. If he cannot control his emotions and character, he will lose in the market. If he is reckless, he will make rash trades without calculating his odds of winning. If he is a coward, he can never win big enough to cover his losses. If he has a hasty temper, he will try to take revenge at the market which end up in further losses. If he boasts when he wins, he will be quiet when he loses and he will never learn from his mistakes. If he is over concern about his losses, he will never be able to trade properly ever again.


“Sun Tzu said: The control of a large force is the same principle as the control of a few men: it is merely a question of dividing up their numbers.”

Trading a large capital is the same as trading a small capital. You should not be affected by the absolute figures of losses and profits when trading a large capital. Follow the system and rules normally and divide a large capital accordingly based on proper position sizing methods.


“He will win who knows when to fight and when not to fight.”

Opportunities are not always available in the market. There are times that your trading system will not work and it is important to abstrain from trading the market. If you insist in trading the market under such conditions, you will end up in a string of losses and deplete your capital unnecessarily. When you are experiencing a string of losses, it is an obvious sign to you to stop trading. Reflect if it is the problem with yourself, or is the system not working under that particular market condition. While undergoing your reflection, stop all your trading activities until you figure out the true problem. You will learn more about yourself, your trading system and the market. This experience will help in assessing when to trade and when not to trade in the future. Not to fight is not cowardice, it is the mantra of “live to fight another day”.

“If fighting is sure to result in victory, then you must fight, even though the ruler forbid it; if fighting will not result in victory, then you must not fight even at the ruler’s bidding.”

Learn to trade when it is favorable to do so. But it is even more important to learn not to trade when situtations do not permit.

Tuesday, 21 May 2013

Quote for the day

"The wise investor can profit if he can think independently of the crowd and reach the rich answer when the majority of financial opinion is leaning the other way." -  Philip Fisher

LSL Market Review 21st May 2013

The indices closed in opposites today as most of the blue chips held ground amidst profit taking in several speculative and mid cap stocks. ASI snapped 04 day winning streak and closed 25.03 points (-0.4%) lower at 6,441.64. S&P SL 20 index closed at 3,660.94 with a gain of 11.59 points (0.3%).

Investor interest on premier blue chips such as Commercial Bank (Rs.125.00, +2.4%), John Keells Holdings (Rs.297.00,-0.0%) continued today as well and the stocks reached fresh 52 week highs. Commercial Bank has gained 7.5% during last five trading days while John Keells Holdings has gained 8.8% mainly on foreign buying. The total net foreign inflow to Commercial Bank and John Keells Holding during the five day period amounts to Rs.756mn and Rs.498mn respectively.

Foreigner investors were net buyers for the ninth consecutive day with net inflow Rs.1.1bn. Net inflows were reported in counters such as Commercial Bank (Rs.677mn), Distilleries (Rs.139mn) and John Keells Holdings (Rs.100mn).The total net foreign inflow for the year now amounts to Rs.12.0bn.

The daily turnover was Rs.2.2bn. 48% of the turnover came from off-the-floor deals in counter such as Commercial Bank (4.2mn shares at Rs.125.00), John Keells Holdings (0.9mn shares at c.Rs.298), Distilleries (0.6mn shares at Rs.190.00), Cargills (0.5mn shares at Rs.175.00), Sampath Bank (0.1mn shares at Rs.225.00) and Chevron (0.1mn shares at Rs.285.00).

Furthermore Overseas Realty (Rs.18.70,-1.1%), Nations Trust Bank (Rs.67.80,-0.3%), Distilleries (Rs.190.00,+0.3%), Chevron Lubricants (Rs.285.00,-0.4%) were among the 21 stocks that reached 52 week highs during the day.

On the other hand, drop in prices counters such as Retail favorite Environmental Resources (Rs.16.50,-6.3%), index heavy Nestle (Rs.2,010.00,-4.1%), Asian Hotels & Properties (Rs.71.10,-3.9%) and Sri Lanka Telecom (Rs.43.20,-2.5%) drove the ASI to the negative territory.

Retail activity was seen in counters such as Colombo Fort Land (Rs.39.30,+0.3%), Lanka Cement (Rs.10.20,+9.7%) and Odel (Rs.27.50,+1.9%).

Cash map for today was 45%.

Quote for the day

"Experienced traders control risk, inexperienced trader chase gains"-  Alan Farley

Asian Wealth Research Daily Market Review 20th May 2013

The All Share Price Index gained 86.0 points to close at 6,466.7 (1.3%) while the S&P SL20 Index rose 60.1 points to close at 3,649.4 (1.7%).

Total turnover for the day stood at LKR1,282.7 mn (USD10,160.0 k) vs. 12-months average daily turnover of LKR921.0 mn (USD7,294.7 k), whilst the volume traded for the day was 44,033 k against the 12-month average daily volume of 40,852 k.

Top contributory counters towards the turnover for the day were, Commercial Bank LKR244.6 mn (USD1,937.6 k, 2.4%), John Keells Holdings LKR159.1 mn (USD1,260.2 k, 4.6%), Royal Ceramics Lanka LKR139.0 mn (USD1,101.2 k, -0.8%), Overseas Realty LKR37.8 mn (USD299.6 k, 5.0%) and Sampath Bank LKR28.6 mn (USD226.5 k, -0.9%).

The CSE continued its upward trend unabated with both the ASI and the S&PSL20 index closing up in the green. Commercial Bank was the top contributor towards the day’s turnover on the back of number of large transactions which took place on the counter. 

A total of 4 crossings amounting to approx. 1.3 mn shares of Commercial Bank changed hands at a price of LKR122. In addition, two crossings were witnessed in Royal Ceramics Lanka, where 500 k shares changed hands at a price at LKR109. 

John Keells Holdings continued to witness strong institutional and retail interest and benefitted from a price appreciation of 4.6% by the end of the day’s trading. The counter also reached an all time high of LKR298.50 over the course of the day. 

Further, Overseas Realty, and Sampath Bank were amongst the top turnover contributing counters for the day, with Overseas Realty benefitting from a price appreciation of 5% to end the day at LKR18.80. 

With respect to retail interest for the day, activity was witnessed in counters such as Overseas Realty, Seylan Developments and Colombo Fort Land & Building.

Foreign purchases amounted to LKR350.9 mn (USD2,779.4 k), whilst foreign sales amounted to LKR62.5 mn (USD495.3 k). This resulted in a net foreign inflow of LKR 288.4 mn being recorded at the end of the day’s trading.

Market capitalization stood at LKR 2,483.2 bn. YTD performance is 14.6%.

Sunday, 19 May 2013

Quote for the day

"My success, part of it certainly, is that I have focused in on a few things." - Bill Gates

The James Bond Method To Stock Trading

So you want to be high flyer? Drive fast cars, attract the hot women, and travel the world? What sounds like the James Bond way of living, isn’t actually too far off that of a successfully wild stock trader?

While this approach might not be the most risk-adverse style of trading , we can all learn a thing or two from James Bond when it comes to making big bucks in the stock market.

Don't worry about the consequences
While he may get himself into some crazy situations, James Bond never lets fear get in the way of getting the job done. Bond will walk straight into dark hallways and rooms filled of bad guys, confident that he has the upper hand.

Just like Bond, you too can block out potential consequences of stock trading. Don't let the fear of losing money or a failed trade scare you away. Head into any situation, confident in your trading strategy.

Never get stressed out
For as great as Bond is, no other action hero gets caught into messy situations as much as Bond does. From the initial capture to just seconds before he finds his way out, Bond never loses his cool.

He stays calm under pressure and focuses on what to do next, rather than what might happen.

Just like Bond, you too can learn to keep cool under difficult situations. Understand that you don’t necessarily need to sell at the first sign of red or throw more money at the stock. Simply stay calm, asses the situation, and find your way out.

Don't stick around too long
Just as fast as the actual characters who play Bond shift, Bond himself never stays in one place too long. One second he could be in Russia and the next minute he is in Las Vegas. Even the time he spends with a woman is never too long to get him into any trouble.

Like Bond, you too should never stay around a stock too long. For quick action, jump from stocks to stocks finding the ones with the most momentum and skipping out on the stale ones.

While Bond may be running to stop a nuclear bomb from going off, there is always enough time for a drink or a romantic night with a lady friend.

While stock trading is a serious matter, it doesn't have to all be about facts and figures. Make sure to set time aside and enjoy the fruits of your labor. It keeps the game interesting.

Find the latest and greatest
Bond movies are loved in large part due to the amazing gadgets and gizmos Bond uses. Whether it is a car that can become invisible or a car that can be driven by a phone, Bond always has advanced tools to help him get the job done.

In stock trading, the big bucks are made in speculation. By betting on certain companies, products, or sectors, you give yourself an opportunity to be ahead of the curve and profit once the benefit is realized.

Have a constant
“A martini. Shaken, not stirred”
One of the most popular lines in all of cinema, throughout all the changes the drink of choice for Bond has not altered.

Just like Bond, you too should have a constant. Something you can fall back on. It could be a go-to stock, sector, or type of trading strategy.

The key is to have something to fall back on when times get rough.

Leverage everything
Every action Bond takes requires him to leverage everything. Whether it is to jump out of building with no parachute or jump in tank full of sharks, Bond puts everything on the line for the big prize, the homerun, if you will.

To make money the Bond way, it requires putting up big money and even leveraging more. Bet that everything will come out okay and the final result will be in your favour.

The “Bond Trading Strategy” definitely is not meant for the weak of hearts, but, if executed nicely, could result in some hefty pay days and some more double 0’s in your bank account.

Friday, 17 May 2013

Gains in large cap counters take market to the green

 The week concluded on a positive note with the All Share Price Index gaining WoW owing to gains witnessed across the board. The ASI gained 130.7 points WoW to close at 6,380.7 points (2.1%), whilst the S&P SL 20 Index gained 58.4 points WoW to close at 3,589.3 points (1.7%). Indices gained mainly on the back of the gains made by John Keells holdings (6% WoW), Nestle Lanka (8.1% WoW), Ceylon Tobacco (5.1% WoW), Sri Lanka Telecom (4.4% WoW) and Cargills Ceylon (5.2% WoW).

 Sri Lankan stocks which witnessed a bearish momentum during the beginning of the week saw a revival towards mid week with institutional activity helping the indices to edge up to end the week on a positive note. Heavy retail and institutional activity was witnessed as at the end of the week with strategic transactions dominating turnover levels. Furthermore, the week witnessed the release of 1Q2013 earnings of most of the Banks. Majority of the banks witnessed a decline in their profitability largely owing to the slowdown in loan growth amidst the high market rates and the FOREX losses incurred due to the appreciation of the LKR during the quarter. 

However, despite the unsatisfactory results of the sector, heavy investor play was witnessed in the banking sector during the week presumably because investors expecting an improvement in sector performance going forward with the market interest rates falling down. Re affirming this Banking, Finance and Insurance sector index witnessed a WoW gain of 0.5% while the sector contributed a circa of 33% to the weekly turnover. 

Aitken Spence backed heavy institutional investor play during the week, which assisted the counter to top the list in terms of turnover adding circa 16.5%. John Keells Holdings also emerged among the top turnover list backed primarily by large scale foreign transactions. Counter witnessed a 6.0% WoW gain in its market cap while reaching an all time high of LKR285.00 as at Friday. Due to the high investor play witnessed in the above two counters the diversified index witnessed the highest WoW gain of 3.2% while the sector contributed 35% to the weekly turnover. During the week crossings were also recorded in counters such as Piramal Glass Ceylon, Dialog Axiata, National Development Bank, Commercial Bank and Sampath Bank. On the back of these developments, the week saw an average turnover of LKR1.2bn and an average volume of 42.9mn. 

Furthermore, Piramal Glass Ceylon, Dialog Axiata, PC House , Free Lanka Capital Holdings and Aitken Spence topped the list in terms of volume traded during the week. 

The week saw foreign purchases amounting to LKR3,159.8 mn whilst foreign sales amounted to LKR 1,572.1 mn. Market capitalisation stood at LKR 2,450.2 bn, and the YTD performance is 13.1%.


Borrowing costs trend downwards whilst foreign interest retained... 
After a hesitant start on account of profit taking, the market continued its upward trend adding 2.1% WoW to its index value. This could be a delayed reaction to the Central bank’s decision to ease policy rates and its monetary policy stance. In response to the policy rate revision, Treasury bill rates in the primary and secondary offers dipped whilst the Central bank kept a tight hold on liquidity to prevent excess borrowings which could spur demand-pull inflation, as inflation currently remains at an elevated level. 

Contemporaneously the LKR strengthened against the USD over the week and according to currency dealers, this could be as a result of commercial banks translating dollar holdings to LKR in order to increase the supply of domestic loanable funds. This development along with a drop in Banks’ average weighted prime Lending rate (AWPLR) subsequent to the policy rate revision suggests that demand for loans could be on the rise. This would have implications for the future earnings of banking sector counters, which could witness growth in their loan books (which witnessed a slowdown in 1Q2013) and result in higher earnings. 

This would explain the continued interest witnessed in banking sector counters which witnessed a slowdown in 1Q2013 earnings primarily due to currency conversion effects and a slowdown in loan growth. This could in turn have a positive trickle-down effect on the rest of the sectors of the economy as the lower interest rate environment could galvanize firms to invest in expansionary activities which could result in value creation for equity holders. This could partly explain the continued foreign interest in the domestic equity market which recorded a high net foreign inflow of LKR1.6 bn for the week.
Source: Asia Wealth Management Research

Quote for the day

"A man should never be ashamed to own that he is wrong, which is but saying in other words that he is wiser today than he was yesterday." -  Alexander Pope (1688-1744)

LSL Weekly Report 17 May 2013

Thursday, 16 May 2013

Quote for the day

"Your goal as an investor should simply be to purchase, at a rational price, a part-interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now... If you aren't willing to own a stock for ten years, don't even think about it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also, will the portfolio's market value."-  Warren Buffett

LSL Market Review 16 May 2013

The stock market rose on Thursday, lifted by stronger-than-expected earnings and low interest rates, hit an 18 month high with a 1.1% percent (65.88 points) increase to 6,287.00. S&P index increased by 0.9% (33.03 points) to 3,531.37.

Market turnover reached Rs.1.9bn, out of which 62% was accounted by crossings.

7.2mn shares of Aitken Spence changed hands among foreign investors at Rs.132.60 per share in two crossings. Moreover, 9.8mn shares of Piramal Glass at Rs.6.90, 5mn shares of Dialog Axiata Rs.9.50 and 0.9mn shares of Commercial Bank at Rs.115.50 changed hands in off-the-floor deals.

Top contributors to the turnover were Aitken Spence (Rs.1.0bn), Commercial Bank (Rs.153mn) and Piramal Glass (Rs.76mn). Retail activity was seen in counters such as Janashakthi Insurance, Regnis Lanka and Overseas Realty. Janashakthi Insurance (Rs.14.10,+12.8%) and Overseas Realty (Rs.17.00,+6%) reached 52 week high on better-than-expected earnings. JINS quarter profits increased by almost 7 times compared to the same quarter last year.

Cash map for today was 55%.

Foreigners were net buyers with an inflow of Rs.85mn. Foreign participation accounted for 66% of the turnover. Net inflow was seen counter such as Piramal Glass, Dialog and John Keells while outflows were recorded in Commerical Bank and Environmental Resources.

20 Golden Rules for (Day) Traders

Want to trade successfully? 
Just choose the good positions and avoid the bad ones. Poor trade selection takes a heavy toll as it bleeds your confidence and wallet. You face many crossroads during each market day. Without a system of discipline for your decision-making, impulse and emotion will undermine skills as you chase the wrong stocks at the worst times.

Many short-term players view trading as a form of gambling. 
Without planning or discipline, they throw money at the market. The occasional big score reinforces this easy money attitude but sets them up for ultimate failure. Without defensive rules, insiders easily feed off these losers and send them off to other hobbies.

Technical Analysis teaches traders to execute positions based on numbers, time and volume.
This discipline forces traders to distance themselves from reckless gambling behavior. Through detached execution and solid risk management, short-term trading finally "works".

Markets echo similar patterns over and over again. 
The science of trend allows you to build systematic rules to play these repeating formations and avoid the chase:

1. Forget the news, remember the chart. You're not smart enough to know how news will affect price. The chart already knows the news is coming.

2. Buy the first pullback from a new high. Sell the first pullback from a new low. There's always a crowd that missed the first boat.

3. Buy at support, sell at resistance. Everyone sees the same thing and they're all just waiting to jump in the pool.

4. Short rallies not sell offs. When markets drop, shorts finally turn a profit and get ready to cover.

5. Don't buy up into a major moving average or sell down into one. See #3.

6. Don't chase momentum if you can't find the exit. Assume the market will reverse the minute you get in. If it's a long way to the door, you're in big trouble.

7. Exhaustion gaps get filled. Breakaway and continuation gaps don't. The old traders' wisdom is a lie. Trade in the direction of gap support whenever you can.

8. Trends test the point of last support/resistance. Enter here even if it hurts.

9. Trade with the TICK not against it. Don't be a hero. Go with the money flow.

10. If you have to look, it isn't there. Forget your college degree and trust your instincts.

11. Sell the second high, buy the second low. After sharp pullsbacks, the first test of any high or low always runs into resistance. Look for the break on the third or fourth try.

12. The trend is your friend in the last hour. As volume cranks up at 3:00pm don't expect anyone to change the channel.

13. Avoid the open. They see YOU coming sucker

14. 1-2-3-Drop-Up. Look for downtrends to reverse after a top, two lower highs and a double bottom.

15. Bulls live above the 200 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it.

16. Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again.

17. Big volume kills moves. Climax blow-offs take both buyers and sellers out of the market and lead to sideways action.

18. Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers.

19. Bottoms take longer to form than tops. Greed acts more quickly than fear and causes stocks to drop from their own weight.

20. Beat the crowd in and out the door. You have to take their money before they take yours, period.


Wednesday, 15 May 2013

Quote for the day

"The turn of the cycle has created some tough choices. Warren Buffett has said, ‘You don't know who is swimming naked until the tide goes out.’ "  -  David Einhorn

LSL Market Review 15th May 2013

Market ended with mixed results today. Most of the banking sector counters excluding Hatton National Bank and Seylan Bank witnessed drop in prices such as Commercial Bank by LKR 1.10, Sampath Bank by LKR 2.00, and National Development Bank by LKR 4.10. Investor interest were gathered around Motor sector stocks such as motor sector counters such as Colonial Motors (up by LKR 9.90), United Motors (up by LKR 5.40) and Diesel & Motor Engineering (up by LKR 4.60).

ASI advanced by 14.53 index points to close at 6,221.12 while S&P SL 20 Index dropped by 2.16 points to close at 3,498.34.

Total market turnover was LKR 1.7bn. Top contributors to the turnover were John Keells Holdings by LKR 443.4mn, National Development Bank by LKR 379.4mn and United Motors by LKR 123.8mn. In terms of sectors Bank Finance Insurance, Diversified Holdings and Motors sectors emerged as notable contributors to the daily turnover. Several crossings were made by top three contributors to the turnover aw well by Cargills Ceylon and Sampath Bank. Aggregated value of the crossings accounted for 54% of the market turnover.

Further, apart from the motor sector stocks Regnis Lanka, PC House and Piramal Glass were among the mostly traded stocks during the day. Foreign participation accounted for 39% of the total market activity. At the end of the day foreign investors were net buyers with a net foreign inflow of LKR 859.9mn. Cash map closed at 54.7%.

Tuesday, 14 May 2013

The Magic of Dollar Cost Averaging

Dollar Cost Averaging
It’s always been the same; it never changes. We can remember back in the 1970’s talking to brokers who would buy a stock for a client, and the stock would fall out of bed. If it still made sense to own the stock, the broker would tell the client to average down. So let’s take a hypothetical example. Your broker buys you a thousand shares of AT & T at $ 50 per share. The stock then goes to $ 20 per share. He tells you to buy another thousand shares at $ 20. Your average cost basis is now $ 35 per share. $ 35 is still one hell of a ways from the current price of $20. It looks like this:

Simple Averaging
1000 shares ATT @ $50 per share = $ 50,000
1000 shares ATT @ $20 per share = $ 20,000

Total Cost $ 70,000
Average Cost ($70,000/2000 shares) $ 35 per share

After 30 years we can tell you that this is not the way to average your cost. The mistake that brokers make is that they have you buy the same number of shares at each price level. The magic of dollar costaveraging is that you put in the same number of dollars as your original investment at lower price levels. In the example above instead of buying a thousand shares at $20 per share, you would be buying $ 50,000 worth of ATT at $ 20 per share. $50,000 worth of ATT at $ 20 per share is equal to 2500 shares. Let’s take the example above.

Dollar Cost Averaging
1000 shares ATT @ $50 per share = $ 50,000
2500 shares ATT @ $20 per share = $ 50,000

Total Cost $ 100,000
Average Cost ($100,000/3500 shares) $ 28 per share

Instead of generating a cost basis of $ 35 per share, you now have a cost basis of $ 28 per share. This is a very important concept we are pointing out to you. If you want to see this concept work big time, then let’s look at Lucent Technologies. The stock is down from $ 84 per share. Let’s say you bought 1000 shares at $ 80 per share. Your cost for the 1000 shares would be $80,000 The stock then went to $ 5 per share. Using dollar cost averaging, you would buy $ 80,000 worth of Lucent at $ 5 per share. That’s 16,000 shares folks. Look at the example below to see your new average cost.

Using Simple Averaging
1000 shares Lucent @ $80 per share = $ 80,000
1000 shares Lucent @ $5 per share = $ 5,000

Total Cost $ 85,000
Average Cost ($85,000/2000 shares) $ 42.50 per share

Using Dollar Cost Averaging
1000 shares Lucent @ $80 per share = $ 80,000
16000 shares Lucent @ $5 per share = $ 80,000

Total Cost $ 160,000
Average Cost ($160,000/17,000 shares) $ 9 per share

As you can see, if you used simple averaging which is what 99 percent of the brokers in Americarecommend, then your average cost is $ 42.50 per share. On the other hand if you employ Dollar CostAveraging, you bring your Average cost down to $ 9 per share which is very close to the actual low of $ 5 per share.

There are a couple of things you have to think about before you utilize this concept in your investment thinking. They are:

You better be sure that this stock is coming back, or you will get your clock cleaned.

You have to be absolutely comfortable with your knowledge base concerning the stock in question, or you will be scared out at the bottom. This means you will be selling, instead of buying the stock.

You have to have the cash to play in this arena. This is why you never ever go on MARGIN. Margin kills
As part of point (3) above, always keep some dollars in reserve.

Here’s to your success, now and in the future. And remember to use Dollar Cost Averaging.


Monday, 13 May 2013

Quote for the day

“As long as you enjoy investing, you’ll be willing to do the homework and stay in the game” –  Jim Cramer

LSL Market Review 13th May 2013

Colombo Bourse snapped the impressive seven-day winning streak and closed lower today on profit-taking. ASI closed at 6,239.03 down by 10.97 points (-0.2%) while S&P SL 20 index closed at 3,518.85 down by 12.05 points (-0.3%). The turnover for the day was Rs.535mn.

John Keells Holdings became the top contributor to the turnover (Rs.124mn) followed by Softlogic Holdings (Rs.28mn) and Vallibel One (Rs.21mn). JL Morisons was the star performer today as acquisition rumors pushed the share up by 21% to Rs.295.00. Morisons non-voting share closed at Rs.198.00 with a gain of 40%.

Furthermore, investor interest was seen in counters such as Softlogic Holdings (Rs.12.30,+2.5%), Union Bank (Rs.20.80,+6.7%) and Vallibel One (Rs.20.40,-1.0%).

Cash map for today was 52%.

The net foreign inflow was Rs.153mn. Foreign participation accounted for 19% of the market activity.

Sunday, 12 May 2013

Quote for the day

"The key to trading success is emotional discipline. If intelligence were the key, there would be a lot more people making money trading..."- Victor Sperandeo

Friday, 10 May 2013

Quote for the day

"Bull markets go to people's heads. If you're a duck on a pond, and it's rising due to a downpour, you start going up in the world. But you think it's you, not the pond." - Charlie Munger

Policy rates revised downwards while market soars...

The activities at the bourse sustained the upward momentum from the previous week with both indices gaining considerable value. The ASI gained 236.82 points WoW to close at 6,250 points (3.9%), whilst the S&P SL20 Index gained 124.91 points WoW to close at 3,530.90 points (3.7%). Indices benefited mainly on the back of the gains made by John Keells Holdings (6.2% WoW), Aitken Spence (8.8% WoW), Distilleries Company of Sri Lanka (6.3% WoW), Hemas Holdings (20.7% WoW) and Vallibel One (14.5% WoW).

Heightened activity was witnessed across the board in the Colombo bourse over the week which led to the market appreciating close to 4% WoW which also resulted in a jump in YTD performance from 6.6% to 10.8%. This may have been due to a build up in anticipation of a possible revision of policy rates which was scheduled for the end of the week. 

Investor expectations were confirmed with a significant 50 bps reduction being made to policy rates. Interest continued to be witnessed in Banking & Finance sector counters with firms such as Commercial Bank, Hatton National Bank, National development Bank and Seylan Bank on the expectation that the policy revision will be favourable to earnings. 

Having said that, we would like to draw investor attention to the following developments; The CBSL disclosed that a pickup in Furnace oil prices was witnessed in April whilst the proposed electricity tariff hike was finalised. The combined effect could place supply side pressure on Inflation which could dampen the performance of energy intensive firms in the short to medium term.

The week also marked a change in ownership which took place in Lanka Ceramics where Royal Ceramics acquired a controlling stake in the former. As per a CSE disclosure, approx 22.8mn shares of Lanka Ceramic which represents 76.1% of the issued share quantity was directly purchased by Royal Ceramics. As a result considerable activity was witnessed in the two counters as well as in Vallibel One; the parent company of Royal Ceramics during the first half of the week.

Furthermore, Lanka Ceramic, Touchwood Investments, Vallibel One, PC House and Commercial Bank topped the list in terms of volume traded during the week.

The week saw foreign purchases amounting to LKR 1,880.4 mn whilst foreign sales amounted to LKR 1,216.4 mn. Market capitalisation stood at LKR 2,395.5 bn, and the YTD performance is 10.8%.


Policy Rate cut coupled with continued foreign participation to boost investor confidence...

Market gradually continued to build up on the 6,000 levels, after falling below the 5,000 levels in August last year. All Share Index managed to accumulate a whopping 236.8 points during the week on the back of healthy retail and institutional participation. 

Fundamentally sound stocks were taking the lead, whilst foreign investors continued with their block trades in selected counters resulting in the net foreign inflow for the week to reach a satisfactory LKR664 mn. It could be observed that continuous foreign investor participation had been an inspirational factor for local institutional investors to be active again.

CBSL announced a 50 basis point (bps) policy rate cut on Friday paving its path towards a further monetary expansion since the 25 bps policy rate cut in December 2012. 

Accordingly, after the policy rate reduction, Repurchase rate (REPO) would be at 7.0% while the Reverse Repurchase rate (Reverse Repo) would be at 9.0%. CBSL expects the policy rate reduction to increase private sector credit growth, and improve the economic growth whilst facilitate the government to finance the public investment programme at lower costs. On the back of this development, we expect the equity market to be more attractive relative to other investments modes. Thus, we advice investors to take positions on fundamentally sturdy counters with high growth potential to reap benefits.

Further, country’s Treasury bill rates also witnessed a continuous decline over the past few weeks which could also be attributed to the expectations regarding the reduction in policy rates. During the week the 3 months T-bill rates dipped by 02 bps to stand at 9.18% while six months T bill rates also dropped by 02bps to close at 10.20%.
Source: Asia Wealth Management Research