Saturday, November 12, 2011

Do You Invest Based on Your Intuition?

"Do you invest based on your intuition, the fundamental or the technical analysis? This is a question posed by a 18 year old girl who attended my investment workshop last month in KL. I thought for a moment and answered: "Both technical and fundamental." Shortly after, I continued, "sometimes intuition!" I know when I said "intuition" it may discredit myself but I have to give an honest answer, because that's the way I trade - a combination of everything, technical, fundamental, psychology, market sentiment, feng shui and intuition!

Some people will relate "intuition" with feng shui or astrology as they belong to the non-scientific world which is difficult to explain. There is really no right or wrong answer when it comes to investing or trading, because investing is an art!

In the history of investing, there was one a famous investment guru who traded using geometry, astronomy and astrology. He is the legendary William D. Gann who invented the famous Gann Theory - a time cycle based technical analysis.

Gann was born in 1878 and died in 1955, he had witnessed the great depression, the World War 1 and World War 2, the ups and the downs in the stock market for 50 years! He could make prediction of the stock or commodity with the exact price on the exact date! In today's word, he was like a fortune teller, but loaded with strong financial knowledge. For example, in 1909 Gann made the prediction that the price of wheat would go to $1.20 by 12 noon on September 30th. On that day, at the opening, the wheat was selling below $1.08 and it looked as though his prediction wold not be fulfilled. In the end, the wheat did closed exactly at $1.20 at the end of the day!

He also successfully predicted the massive stock crash in 1929. In November 1928 in his annual stock forecast report , he wrote:

"This year (1929) occurs in a cycle, which shows the ending of the bull market and the beginning of a prolonged bear campaign. The present bull market campaign has lasted longer than any previous campaign in the history of this country. The fact that it has run longer and prices have advanced to such abnormal heights means that when the decline sets in, it must be in proportion to the advance. The year 1929 will witness some sharp, severe panicky declines in many high priced stocks....
.... First decline culminates around September 30th; then a rally making top on October 2nd, followed by a decline to October 24th; then a final top around November 2nd to 4th, followed by a big decline, reaching bottom around December 18th to 20th; then a rally to the end of the year." (Does this sounds like a fortune teller?) The stock crash started on October 29th 1929.

Despite having the ability to forecast, Gann emphasized on investment knowledge. He believed knowledge is power! He said: "The difference between success and failure in trading in commodities is the difference between one man knowing and following fixed rules and the other man guessing. The man who guesses usually losses. Therefore, if you want to make a success and make profits, your objective must be to know more; study all the time; never think that you know it all."
I agree with him totally! Although he was gifted in a way, he stayed humble and used his solid financial knowledge to confirm his prediction. We shouldn't rely too much on feng shui or astrology either in investing or in our daily lives. We must stay objective, equiped ourselves with the right knowledge, and most importantly, stay humble and always have the quest to learn more. With these positive attitude, success is on the way!

More on Gann

Happy investing,
Pauline Yong

Monday, November 7, 2011

Technical Analysis - Time Cycles

Many of us have been focusing too much on the technical indicators and moving averages, and neglected one important aspect of the technical analysis - the time cycles.

Time cycle is the study of the TIMING of the market boom and bust, which tells us the timing of the event happen as history keeps repeating itself. According to one of the pioneers of cyclic analysis, Edward R. Dewey, "something out there in the universe must be causing these cycles (bulls and bears) ... there seemed to be a sort of pulse to the universe that accounted for the pervasive presence of these cycles throughout so many areas of human existence."

For example, take a look at our Malaysia GDP growth chart

From the chart, we can see that in the history of our Malaysian economy, the recessions were recorded in 1973, 1985, 1998, 2009, which is 12 years apart with the exception of 1998. In feng shui perspective, they all fall in the year of OX (1973, 1985, 2009) and Tiger (1998)!

I also discovered another horoscope that is prone for stock crash - the year of Snake. For one the Great Depression started in 1929, the year of Snake, subsequently we also have smaller crashes in 1965, 1977, 2001 and possible 2013? Is it coincidence or there is really something out there in the universe making this happen?

There was a Russian economist, Nikolai Kondratieff discovered this during the 1920's and published a book called "The Major Economic Cycles" in 1925. In his book, he noted the repeating behaviour of the economic cycle which is deemed capitalistic in the communist world, as a result, he was sentenced to death and died in a Siberian labour camp in 1938. Despite the tragedy, his work was recognised by people and his theory is known as the Long Wave Cycle or the K-Wave theory.

In the K-wave theory, there is a cycle of around 60 years divided into 4 seasons: Spring, Summer, Autumn, and Winter with each lasts about 15 years. For example the big cycles are as follows: (source from Wikepedia),

1. The first industrial revolution started in 1787 - 1842 (55yrs)
2. Rail Road and Steam Engine era 1842-1897 (55 yrs)
3. Age of steel and electricity 1897 - 1939 (42 yrs)
4. War and Post-war boom 1939 - 1982 (43 yrs)
5. Information Technology era 1982 - ?

As we can see if we add another 40yrs to 1982, it become 2022, which is 11 yrs from now. According to many analysts, they believe we're now going through the Winter wave of the K-wave cycle. How far is this theory hold true, I leave it to you to interprete. There are 2 more articles relating to this K-wave:

LinkArticle 1
Article 2

Happy investing,

Pauline Yong