Earlier, Heartland Boy wrote about the tiring process of finding the real prince from the pool of frogs. Readers may be disheartened to learn that that is only Step 1 in Adam Khoo’s proven investment strategy. The fundamental analysis merely tells you WHAT stocks to buy on SGX. Therefore, the next logical question to ask is WHEN to buy stocks in Singapore. Indeed, to make consistent profits from the Singapore stock market, it is not enough to simply identify a good stock, it is equally important to buy a good stock at the right time. You have to learn the art of timing the stock market for maximum profits. Therefore, after identifying undervalued stocks, Heartland Boy merely puts them into his shopping list and waits for the right time to buy by relying on Adam Khoo’s stock market entry and exit strategy.
Why It Is Important To Know When To Buy Stocks In Singapore
It is often true that one feels that he has purchased a stock with very strong fundamentals but the stock price keeps going down in the short term. This can indeed be frustrating and would dent the confidence of even the most experienced investors. This is because in the immediate term, the market is driven by emotions such as fear and greed. Therefore, it is important to buy only when the emotions are on your side as this would reflect a good market entry signal. This explains the “Momentum” part of Adam Khoo’s Value Momentum investment strategy for Singapore stocks. Therefore, besides Fundamental Analysis (‘FA’), Adam Khoo explains that it is also important to also perform basic Technical Analysis (‘TA’).
What is Technical Analysis?
“It is so cheap now, surely it cannot fall anymore.”
This is a sentence commonly heard and carries even greater significance when attached to super-growth stocks and blue chips. However, this is a very dangerous myth to live with. For instance, in his short investment journey, Heartland Boy has witnessed how investment darlings such as Ezion, Super, Sembcorp, Noble etc have all fallen over the cliff again and again. He counts himself extremely fortunate not to have bought these stocks despite the strong persuasion of his peers and stockbrokers.
That is because it is impossible for anyone, let alone a retail investor, to fight the might of the market. Therefore, it is imperative that TA is done so that the investor reads and understands the emotions of the market with a good degree of confidence.
For instance, when the market is optimistic, buyers are willing to bid higher prices to get their hands on the stock. This is likely to result in an uptrend, which is characterised by a series of stock prices making higher high points and higher low points. Therefore, the probability that the price of your stock increases in an uptrend is considerably high. The converse is true for a stock facing a downtrend.
Using Innovalues as an example, you would want to be holding the stock in March 2016 when it is on an uptrend. Along the same vein, you would not want to hold on to the stock during August 2016 when a clear downtrend has emerged. This was exactly what Heartland Boy did; he sold Innovalues in August at $0.96, pocketing an annualized gain of 38%. Yes, it is true that Heartland Boy missed out on the general offer to delist Innovalues at $1.01 made in October. But do not forget that he need not sit through the trauma of seeing Innovalues plunged back to $0.79 just before the general offer.
Therefore, it is important to be able to identify trends and react whenever trend changes. As such, Heartland Boy is going to reveal 2 simple tips that will help to improve your technical analysis. This essentially forms his stock market entry and exit strategies. Only when stocks in your shopping list meet these 2 criteria do they become stocks to buy now.
1. 50SMA Must Be Above 150SMA
SMA stands for Simple Moving Average. It is formed by computing the average closing price over a specific number of periods. Its only purpose is to smooth the various closing prices to form and define the current trend direction. Therefore, a 50SMA is computed by adding up the closing prices of the last 50 days and dividing the sum by 50. Heartland Boy understands that this definition can be too technical, so he shall illustrate this with a Mathematics question typical in Singapore’s primary schools.
The SMA for Year 1 is 52.5 while the SMA for Year 2 is 55. Readers can treat Year 1 and Year 2 as 2 different time frames that result in 2 different average values. Having explained the concept of SMA, a stock is in an optimistic mood when the 50 SMA is above the 150 SMA. Here is an example of a stock whose 50SMA is above 150SMA.
Note that the 50SMA is the blue line while the 150SMA is the red line. You can also request for these indicators on your brokerage platform. However, do note that charting tools are not available on uber-cheap Standard Chartered Online Equities Account. Therefore, you buy stocks in Singapore when its 50SMA is above the 150SMA.
2.Both 50SMA and 150SMA Are Sloping Upwards
To ensure that you buy shares in Singapore at the right time in order to maximise profits, you must also pay attention to the second tip. The criteria to fulfill here is that the 50SMA and the 150SMA must BOTH be sloping upwards.
Heartland Boy would like to show you an example whereby a stock has fulfilled the FA criteria, but he did not purchase it immediately. That decision saved him a ton of money.
From the picture above, Sarine has plummeted from a high of $3.30 to a low of $2.40. Retail investors may think that it is a good time to enter after such a steep correction. However, based on Adam Khoo’s simple Technical Analysis, you should not buy in July 2015 because:
- 50SMA is not above 150SMA
- 50SMA is sloping upwards but 150SMA is still sloping downwards.
However, Heartland Boy did buy Sarine in April 2016 when both TA criteria were fulfilled. He subsequently sold it for an annualised profit of 11% in September when he noticed that both the fundamentals and technical analysis have deteriorated.
Therefore, the lesson here is that if your undervalued stock is still on a downtrend, you need to be patient and wait for it to reverse into an uptrend. You never know when the bottom is indeed the bottom.
Examples Of Stocks Heartland Boy Purchased Recently
Therefore, if the 2 criteria outlined above are fulfilled, it is the right time to buy the stock. This would be your clearest stock market entry signal. With that, perhaps you can understand why Heartland Boy purchased these stocks recently.
Heartland Boy’s Stock Market Entry And Exit Strategy
Some may argue that this technique “misses” the bottom. For instance, wouldn’t it be better to have bought Sarine at 1.3 compared to Heartland Boy’s entry price of 1.65? However, Heartland Boy is willing to trade off “missing the bottom” for a higher probability that his stock is in an optimistic mood. Do note that this technique does not guarantee that your stock price will increase after you have bought it. It simply gives you a high probability of success. Playing the probability game by timing the market is his way to maximise profits in the stock market. This also implies that you need not be right all the time, you simply need to be right most of the time.