How I invest in the stock market?

For my article this month, I shall write about something which I have never revealed in detail before.

I shall be talking about how I invest in the Singapore stock market.

Do I invest in other stuff?

Do I invest in other stock markets or investment vehicles? The answer is yes.

Have I always invested like this?

Have I always invested in the Singapore stock market using the strategy that I am going to share with you? No.

Will I continue to or will I always be using this strategy in the future? I don’t know, because change happens all the time – especially when we are trying to analyse so complex an issue as investing.

A REITs investing strategy?

So here goes – I try to focus on Real Estate Investment Trusts (REITs).

Because this sector has not done relatively well in the last year or so, the yield is about 5 per cent on the average, and as much as around 8 per cent.

During the stock market trading hours (I always try to trade at around the same time every day) – If the market (STI) is down – I do not consider buying.

If the market is up, I normally will only consider buying, if today is the third consecutive day that the market is up, i.e. the previous 2 days should be up, including the current day, which is still within the trading hours for the day.

I look at the moving average of the 3-month chart to ensure that the trend is up.

If we are in a strong bullish market – I may look at the 1-month chart instead.

I then look at the top 20 REITs by volume, and select the second highest one.

Then, look at the 3-month or 1-month chart as the case may be (as explained above) – and see if the trend is up, and also that today is the third consecutive day up.

If it’s all “YES”, buy – to minimise trading costs I normally buy about $9,000.

Track the price every day. If it is going up – note the price at the time of the day that you are checking.

If it keeps going up – just follow it until the price is more than 4 per cent below the last “high” price that you have been tracking – Sell.

If the price increase to say just 3 per cent and then drops by 50 per cent or more (in this example – 1.5 per cent) – Sell.

Depending on your trading amount and costs, your break-even price is normally around selling at 0.7 per cent more than the price you bought.

If you are wrong after buying, and the price keeps dropping – when do you “cut loss”?

More than 4 per cent below the price you bought.

Under this strategy, let’s say you are wrong about 40 per cent of the time.

What you are banging on is that – say 10 per cent of your trades hit a large profit – 20, 50, 100 per cent, etc.

Do not get “cold feet” and sell just because your stock has gone up a lot already.

And, all this while, as you are executing this strategy – your average yield (now) is about 5 per cent.

So, it’s akin to a “yield” focus strategy and trading for capital gains as well.

Caveat: Seek professional advice before you invest!

Leong Sze Hian