Random Thoughts for Investing You can make money without gambling

Research and Valuation Current stock price reflects market expectation of future cash flows. Return reflect risk, surprise and inefficiency of the market. – GDP will drop, will stock price drop? – Good earning really good? – Is Valentine’s day good day for the stock of flower.com? The market is very efficient. – There is always good news, but rarely good news to trade The market is NOT efficient all the time and NOT for all the stocks. Focus is the way to beat other individual investors, professionals and the market. – Play within your circle of competence, but extend that circle gradually. Diversification is important, but – Naïve diversification is NOT good

Trading Know what your don’t know and bet on what you know – Short term trend is unpredictable – Trade on earning release won’t be profitable on average Buy the stock as if you were buying the whole company and hold it forever. Value the company as a whole, not by share. Sell when the stock is overvalued. – Your decision has nothing to do with the price you purchase, your loss or gain and your return goal for the stock. – Nothing to do with the trend of the market, up or down.

Trading It is not timing, but time you spend on fundamental research. – Spending most of your time watching daily stock fluctuation, reading news and following rumors are signs of future failure. Don’t gamble. If you do, at least you know you are. – Action based on less than 70% of certainty is gamble. Buy low and sell high – Don’t take this by its face value. It might bankrupt you. (Bear, Lehman, BBI..) – Buy great company at low price; buy America at discount – It is NOT easy. You need judgment and courage to battle against the crowd and the trend.

Good CompanyBad Company CheapBest BuySpeculating ExpensiveAvoidLoser

Learning Learn, think, practice and discuss. – The text book is fundamentally correct, but could be practically useless if you take it as a course. – Learn something new every week, and PLAY with it.