Minimum Optimized Trading Size

I have already briefly covered this in a few older posts like 

Cheapest Brokerage May Cost You More

Minimum Trading Size vs Lowest Brokerage Fee

This is just an official recap.

When you invest in stock market through a broker, the broker will charge you a brokerage fee.  Its normally in percentage form with a minimum fee which ever is higher.  For example, 0.7% and RM 40.  

If you are investing RM 1,000 then 

RM 1,000 x 0.7% = RM 7

Since RM 40 is higher than RM 7 so you will be charged RM 40 for that transaction.

Like wise, if you are investing RM 10,000

RM 10,000 x 0.7% = RM 70

Since RM 70 is higher than RM 40 so you will be charged RM 70 for that transaction.

For the RM 1,000 case above :  Since you are paying RM 40 fee for a RM 1,000 investment, the actual fee you pay is 4%

RM 40 / RM 1,000 = 0.04 x 100 = 4%

In this case, your paid fee is 4% which is much higher than 0.7%.  If you use 0.7% to analyse your investment, you may end up losing while you though you have earn or break even.

For example, your RM1,000 investment has given you a 2% return.  You may thought 2% - 0.7% = 1.3%.  But after selling the investment you may end up losing 2% because 2% - 4% = -2%

Hence, it is important to know what is your Minimum Optimized Trading Size !  Which base purely on the 2 numbers :

Minimum Brokerage Fee and

Brokerage Rate

Minimum Optimized Trading Size = 

Minimum Brokerage Fee / Brokerage Rate

In above example;

RM 40 / 0.007 = RM 5,714.29

If your investment amount is above RM 5,714.29 then your brokerage fee is always 0.7%.  If you keep above this amount, you can easily use 0.7% to calculate your return.  Else you will need to minus your return from RM 40 instead of a percentage.

Lower brokerage fee does NOT necessary mean Lower MOTS.  See this table below.

RM 40 & 0.7% is a typical example if you use an agent ( real human being ) as your broker in zzzz.

RM 12 & 0.42% is a typical online trading account where you perform the transactions online through web.

Typically, lowering brokerage rate without lowering the minimum fee will only make it worse for small investors.

Cheapest Brokerage Fee I found is from Jupiter offering 0.05% and RM 8, you can sign up through me, read that post here.

All these figures are valid for transaction amount lower than RM 100,000.  Rates above RM 100,000 are usually negotiable.

2009 01 19 KLSE:KNM worth RM 0.49

KLSE:KNM worths RM 0.49

if you believe in this fundamental analysis method

Data Used:

1999 EPS 0.9 and 2004 EPS 1.7 for EPS growth rate

2008 EPS 20 for Future EPS estimation

PE 5.5

Assumptions:

Earn compound 15% for the next 10 years

Buy at 50% discount

Current price is already lower than RM 0.49 so you can buy anytime if you plan to keep for 5-10 years to come.  The next few days drop or rise wouldn't make much different.

My roof and floor price for this stock is RM 0.49 on 19 Jan and 0.40, so I may buy either when it breaks RM 0.49 today or when it hit bottom at RM 0.40 for the next few days.

.... more write up about this soon ...

Fundamentals are Noises ?

Very frequently investors who believe in Technical Analysis say that Fundamentals are useless and they treat them as noises !

Actually they are refering to Published News which they think are fundamentals but actually NOT.

Usually this group of people thought a good figure report should bring the price up but realized it did not and caused them to lose money.  Thats why they decided 'fundamentals' are noises.

Put aside speculation and rumors, it is a fact that sometimes Official Published Info does NOT affect the market price the way it should ... and this is why.

The fundamental of a business does not change Instantly.  Before the official report is published, the person who run the business already know the 'health' of his business.  Even people who work in that company would have an idea how the business is doing without any reports.  Suppliers, customers, contractors would also know something too although at different context and extend.  All these form an Expectation !  

Fundamental of price movement is Supply and Demand.  When the Published News exceed the Expectation, Demand will rise.  Like wise when the report did not meet the Expectation, demand falls.

So if you only look at and wait for a report to be published without first understanding what the expectations were, you really need to learn more fundamentals.  Else no matter how good your technical analysis is, it may harm you as much as you think it helps you.

The real Fundamentals are;

1. What is the business doing and why can it be success for another 10 years ?
2. Who is running the business that you have confident in ?
3. How much is this business worth, its real value ?
4. etc.

Fundamentals don't change just because of one announcement but can be observed through a series of events.

An example of fundamental analysis is When to Buy at What Price.

Earn in 1 Tick without That Much Money ?

Recently I shared about the cheapest brokerage fee I find for KLSE market - 0.05%.  But in order to effectively enjoy that low brokerage rate, each of your transaction should be more than $16,000 due to its minimum imposed $8 fee.  Basically 8 divided by 0.0005 is 16,000 !

( you may sign up with this Jupiter account through me too )

What if you don't have $16,000 in every transaction ?  Should you still apply for this account ?

The simple answer is yes because even though you are investing in a much smaller way, you are still saving more because $8 fee is still lower than $12 and $40 aka other brokers' minimum fee ! ( detail post here )

But the whole idea of LOW brokerage fee is to allow investor to earn in one Tick ( one smallest step change in unit price ) !  Can you still earn in one Tick i.e from $1.00 to $1.01 if you have less than $16,000 !?

Before showing all the numbers, lets review what other charges are imposed here when we invest;

Brokerage Fee : $8 or 0.05% whichever is higher

Clearing Fee : 0.04%

Stamp Duty : $1 for every $1,000 or parts of it

Assuming we buy and sell the shares on different days, that means we pay twice for the fee above at different prices, ie. once when the unit price is $1.00 and another when we sell at $1.01 ( one Tick ) !

Below table shows how much you earn or lose when price moves from $1.00 to $1.01 with different amount of investment.

You can see that even with the LOWEST brokerage fee in the market, if you buy a $1.00 share with only $1,000 you still CAN NOT EARN money in one TICK !!  As a matter of fact, you will lose $8.80 !!

You will need at least $2,391 to break even.  Or from above table, you will start earning money, ie $5.60 if you invest with $3,000 !!

So the answer is still YES, if you don't have $16,000 you still can earn money in One Tick if you invest each time with more than $3,000 when the unit price is $1.00  !!

Don't underestimate this $5.60 or 0.19%.  If you are able to do this once a week, continously for a year.  Then your effective rate of return is 0.19% x 52 = 9.88% annual return, compare to 3% FD !!  Ofcourse it is unlikely one can consistently achieve 0.19% every week.  The point here is NOT to get excited about the 9.88% but NOT to underestimate the 0.19%.

You may also observe the rate of return remains the same as 0.62% when your invest amount is $16,000 and above.  That is due to the mini-optimum trading size we talked about earlier also.

The Rich, Poor and The Average

Everybody talks about getting Rich.  Most often people just categorize between the Rich and the Poor.  Sometimes if we hear too much of it, we may forget the majority are actually the Average.

The gap between the Rich and Poor is also getting wider and bigger.  That is because more and more people become the Average everyday.

The Poors think they have no money and therefore do not need Financial Planning.

The Richs think they do not need to worry about Finance right now.

So most of the people who believe in and are actively practising Financial Planning are the Average !

The Averages and the Poors are usually easier to define as they are closely relate to each other.  The Rich however is a bit tough because the 'richness' gap among themselves are huge !

Lets try look at this from the income point of view in this writting.  In zzzz and in MYR$ units, a Rich guy would probably earn more than $20,000 a month, an Average guy earns from $2,000 to $6,000 and a Poor guy earns below taxable income and usually below $800.

And below shows some stereotype figures of total monthly usage from them.

Since there are more people among the Average perform Financial Planning, not many of the Average would drop back to the Poor, a few even make it to the Rich.  And some of the Rich did not manage their wealth properly and often drop to the Average within a short period of time, if not straight to the Poor sometimes.

It is easier for the Rich to drop back to Average than the Average to drop to Poor.

More Poors become Average than Average become Rich.

Eventually the Average gap grows wider and bigger.

People usually move from one range to another by increasing or decreasing Income.  Those are the ones who may be upgraded or downgrade again once their income changes.  But if you change 'group' not by changing your income but by a good finance plan, you will most probably never be downgraded anymore.

No matter which group you are in, as long as you have a solid finance plan, you can achieve finance independant within your own life style.

So achieving Finance Independance is not to become Rich, its simply by identifying your own life style and come up with a solid finance plan to support it Forever.

Technical Analysis - Candle Stick

I brieftly mentioned Technical Analysis vs Fundamentals before, I also mention the #1 danger of using Technical Analysis, now lets look at one of the most common Technical Analysis -> Candle Stick and what you can get out of it ...

First of all, lets take a look at candle stick definition !

if the color of the bar is white, then the top of the bar refers to closing price.

if the color of the bar is black, the top of the bar refers to opening price.

this is because white refers to up trend and black refers to down trend

Sometimes different colors are used to represend the trend too.  For example, red refers to down trend and blue refers to up trend etc.

When a few of these candle sticks align to each other, certain patterns will form.  Some patterns can help you predict what will come next.

However, bear in mind that NOT all prediction are Equal.  Some are more reliable than another.

After studying all the basic candle stick patterns, these are the few ones with High Reliability.

When you see these patterns, it is almost guarantee the trend is going UP next !

      or          

Morning Star above indicate an upcoming UP trend while Even Star predict Down trend.  Other down trend patterns are as follows.

       or        

Once getting used to these patterns, it can help you to identify the right timing to enter or exit an invesment.

One point to emphasize is make sure you are very clear about the X axis.  For example, speculator may want to use 1 or 5 minutes candle sticks to obtain daily income.  On the other hand, a daily candle stick may be used to obtain weekly or monthly income.

Get Cheapest Brokerage Fee here !

Coincident or not, soon after I wrote about brokerage fee and minimum trading size Jupiter sent me an email stating if I can introduce more people to join their lowest brokerage fee stock investment account, they will be paying me RM 30 for every successful applicant who make at least 1 trade within 30 days.

These are some of the rules they share to me:

1.  This offer is valid from 5 Jan to 31 March 2009

2.  You must turn up personally in Jupiter office to sign the application form

3.  All I need is your Name, Email Address and Handphone number

If you need money badly then let me know how much you want to share out of those reward.  But bear in mind that I don't really receive the money.  They will just credit the money into my account in Jupiter, not into my bank. 

Otherwise, I will use these money to fund this blog.