Friday, December 18, 2009

A friend and his guru friends

I heard this story from a friend of a friend. He was walking along Raffles city, on the way to run some errand when his broker texted him, saying that NOL is a good buy because of some news or some reports. Whether it's actual news or just rumors is not important, it's sufficient to know that there are some catalyst to trigger the price and he promptly told his broker to buy 10 lots of it.

After he crossed a road, he met his friend, who is known to be a guru at technical analysis (TA). This TA guru told him that NOL broke out of range, and the macd lines are going to cross over. Yesterday's candlestick shows a bullish engulfing pattern, with the volume being at least 20% higher than the average volume for the past few weeks. This, the guru told him, is a good sign to buy more. Our hero in this story, let's call him Joe, called up his broker again to buy up another 10 lots on hearing this very positive review of NOL's charts. He is going to make some money!

As Joe walked along the sidewalk, he met another friend of his, who is well known to be a successful investor. Joe proudly mentioned that he is now a part owner of NOL, having bought a few lots of NOL today. Joe recommended that his friend should buy up NOL too because the price will run up soon. This investing guru friend shook his head and said that he would never buy NOL. NOL had a rather bad quarter, with poor balance sheet and cash flow problems. The PE ratio is 50% higher than the average PE and no way is he going to invest money into a company like this. This guru mentioned a whole lot of other alphabets and greeks that Joe do not understand at all, but he believed that his successful investing friend is correct in his view point. After saying goodbye, Joe was so ominous of NOL that he called his broker to sell all 20 lots of it.




Joe, still sore over his losses, was contemplating giving up the market entirely. This is when he caught a glimpse of another of his friend (it's raining friends today, it seems). This friend is an expert in unit trusts and he made quite a killing investing in funds he bought over at fund supermart. Joe's friend, ever a believer in the random nature of market, believes that the best way is to buy a diversified portfolio of low cost funds and keep it for the long term. Joe, convinced that this should be the way to go, called his broker and bought a few funds that his friend recommended, one of which is the STI ETF (exchange traded funds).

I don't think Joe realised that the STI etf that he just bought also contained NOL as part of the component stocks.

Is there a little Joe inside us? There are plenty of experts and talking heads out there dishing out free advice that works very well for them and possibly for you. You should reflect and think for yourself. Nobody knows you better than yourself.

(A parallel post of mine - The father, the son and the donkey)

15 comments :

Createwealth8888 said...

Your friends sound so similar in buying NOL?

dream said...

That's our friend, cookie, right?

la papillion said...

Bro8888,

Haha, it's a story. No real resemblance in life. I'm just using a story to convey my point :)

la papillion said...

Dream,

Hey bro. No lah, not talking about him. Just using story telling to convey my point :)

Createwealth8888 said...

Those who has listened to Goldman and sold Genting now banking their heads against the wall

slowlybutsurely said...

The biggest enemy actually is ourself. It's so obvious but most of the time we never see it.

FF said...

I bought NOL and sold suntec.

Now suntec run while NOL tank. Heart also pain

la papillion said...

Bro8888 - haha, most likely they are buying up when they call for a selloff :)

Slowlybutsurely, just to tease you a little - why is it so obvious if most of the time we never see it? :)

FF, market has this strange camera spying on our every moves. If you sell, it moves up a lot more. If you buy, it moves down a lot more too. Haha :)

PanzerGrenadier said...

Hi LP

Nowadays I buy/sell and congratulate/blame no-one but myself for making/losing money.

I count myself lucky that most of my trades have been profitable and I managed to hit my performance benchmark this year for return on liquid investments of 8%.This comprises realised gains/losses, dividends, interest and some blogging income.

Of course, this is for year 2009. No-one knows how 2010 would be. I'm likely to go underweight as I may need to raise some cash for planned lifestyle enhancements.

Be well and prosper.

la papillion said...

Hi PG,

Well done! I'm happy that you achieved your aims :)

Musicwhiz said...

Why listen to others who do not have your welfare at heart? It's hard enough listening to yourself. Haha.

Lau said...

Giving advice to others is easy. Carrying out good advice for yourself is hard.

My take is, none of Joe's friend/broker bought NOL themselves. ;)

Brokers get commission only when you trade, so everything is a good "buy". Friends sometimes just want to show off their "knowledge".

Bottom line is no one cares more about your money than yourself.

Merry Xmas to LP & fellow readers!

PanzerGrenadier said...

Merry Christmas LP!

Be well and prosper.

la papillion said...

Mw and Lau,

Haha, the problem is when you know nothing much, everyone seems to be like an expert :)

To all,

Happy Christmas :)

Anonymous said...

NOL >2 now =p