How I trade and invest in stocks and bonds by Richard D Wychoff - reading digest

Some experiences in mining stock

While investing in mining companies, Richard D. Wychoff employed professional mining engineer to give an expert opinion. In modern days, to invest in retailer such as Padini Berhad, perhaps it is good idea to talk to retail expert especially those in the clothing retail.

Another things that he did differently is to find out who are the interest behind he business, quoting his words "whose dollars are along side mine?". Based on this information, he went out to find out if the party has any pass successful record? Is the operation properly financed? What is the outlook for the metal ore? He asked all these question because he wants to go in early to "skim the cream".

He went on and gave an example of one of his trade with Magma Copper.He observed that the market action, seeing that the stock started at 12, go to 18 and settled at 15. At this price, he bought 200 stock and waited.  He bought at another 22, only to watch the stock traded all the way to 29 dollars. He went out to find out what happened. He found out that the ore would be worth 200 dollars, and this would produce 55,000 dollars of profit in about 3 weeks. He did not realized the profit, instead he stucked to his research. He reasoned that the mining operation was manned by capable management and there is many insider accumulation resulting in very little public free float.

This campaign reminds me of one of the green energy counter I am accumulating.

Investment strategy

I started taking investment seriously since 2009.

Before that, as with most people, I suffered capital loss during the 2008 economic crisis. Most of my investments then are in unit trust, and even though it is often touted as the safer way of retaining the capital, most of my funds suffer great losses. That was a year of great disappointment, and I contemplated not investing anymore. There were many naysayers about investment and in a economic crisis, fixed deposit seems to be the only "investment" that could be unscathed. At least from invested capital point of view.

However, lucky for me in 2008, I have some additional spare cash, and was able to pick up some shares on the cheap. I remembered picking up Jobstreet at RM 0.80, Genting at RM 3.8 and uchitech at RM0.80. Eventually all shares can be sold for a healthy profit, and I got my first taste of one-bagger experience.

But 2008 is a one off event, and opportunity such as those is not easy to come by. Therefore, I was keen to find another way to invest. Armed with several 10k of cash, I gradually adopted the dividend reinvestment strategy. The idea was capital gain is rather illusive, while dividend can be certain. Small investment from the like of myself will not move the market, and only when bigger institution investors started accumulating shares, will see some big up swing in a company share price. But there are always some company that will pay regular dividends. This is especially apparent in Malaysia, as there are many institution whose members live on the dividend from the public listed firm in Bursa Malaysia. With the regular nature of this cash flow, I decided to invest slowly but steadily by building a dividend portfolio. I will get 6% from the investment, and eventually it should be enough to pay me a monthly return. For example, if I wanted a RM5000/month, at a 6% yield, I will need to invest RM 1 million in the market.

This was the beginning of my dividend portfolio, back in 2009.

How I trade and invest in stocks and bonds by Richard D Wychoff - a reading digest

Been reading Richard D Wychoff's book. I find it rather fascinating. This book was in the 1920s, but most of it remain relevant today. Richard D. Wychoff is a sophisticated investor of his time, and most of his thoughts are documented in the book.

On unearthing profit opportunities.

He refer to each of investment exercise as campaign. In his words, "to make readers think and plan and carry out their campaign in the investment field just as they do in their own business."

In his opinion on which kind of stock is best, he gave a few examples of his time. one is Sears, Roebuck & co, which pays stocks dividends every few years. These companies  use the share capital for profitable expansion and distribute stock dividends every years. This way investor got to double their holding without any further investment of cash by him. This method reminds me of the dividend reinvestment plan available in Malaysia. One company that practices this rather successfully is Maybank Berhad. Investor in these companies will watch their dividend bringing more units to them as the dividend is reinvested into more units.

Another type of investment method is to invest in good firm that falls in bad time. In modern days, it is known as a situational play. Business being a dynamic endeavour will involve risk and at times, there will be situations that might threaten its business. This situation will the market value of these companies to fall, and shrewd investor could take advantage if they think it will pass. Some companies that are falling in bad time include the many property counters due to the rising interest rate and the ending of the easy money policy in the US. But will demand for property continue to dwindle in Malaysia or it will surely come back? And there will surely be some companies that will fall in bad times, but how to differentiate the wheat from the chaff.

The book also explains why high price stock is better than the lower price variant. Among others, the high price stock pays dividend, have hidden equities which may not benefit the stockholder right away, but which are working for them anyway. In order to profit from such investment, he advised investors to follow the corporate development and its industries.