The Winning Method

M ethod
oney management
indset
How To Really Make Money From The Stock Market
Part 2
The Winning Method
Adam Khoo
Asia’s #1 Success & Wealth Coach
Professional Stocks Investor
Founder of Wealth Academy Financial School
© 2017 Adam Khoo Learning Technologies Group Pte Ltd. All rights reserved.
www.wealthacademyglobal.com
1
About The Author: Adam Khoo

Adam Khoo is the Chairman of the Adam Khoo Learning technologies Group, one of Asia’s largest private training
companies that operate in seven countries. He also has interests in various other businesses that generate a combined
revenue of $30 million annually. He is also a professional stocks investor and investment advisor.
He holds an Honours Degree in Business Administration (Finance) from the National University of Singapore (NUS)
where he was ranked among the top 1% among his cohort. He was awarded both the NUS Eminent Alumni Award
(2011) and NUS Business School Eminent Alumni Award (2008) for being one of Singapore’s most successful and
prominent business leaders. In 2007, he was ranked among the ‘Top 25 Richest Singaporeans Under age 40’ By The
Executive Magazine.
He is the Best-Selling Author of 13 Books Including ‘Secrets of Self-Made Millionaires’, ‘Secrets of Millionaire
Investors’, ‘Profit from the Panic’ and Profit From the Asian Recovery’ and ‘Winning The Game of Stocks’. His
business and personal achievements have been featured on Channel News Asia’s Millionaire Makers, Channel News
Asia’s Morning Show (Profit From the Panic), The Straits Times (“He Made His Million At 26”), The Sunday Times
(“Big Investor, Frugal Spender”) and the Business Times.
In 2004, Adam Khoo created the Wealth Academy program to teach people the investing, business and money man-
agement principles he has used to become a millionaire many times over. Since then, the program has been attended
by over 8,000 professionals, executives and business owners around the
Asian region.
Although busy running his businesses in corporate training, advertising, children’s enrichment and fund manage-
ment, Adam finds the time to pursue his passion in teaching and mentoring people to achieve their fullest potential in
their personal, financial and professional lives.
2
The Winning Method
To consistently profit from the stock market, you need to have a winning METHOD or strategy that will give you an edge
over the market.
If you were to randomly buy stocks just because you got a ‘hot tip’ or a ‘gut feel’, your chances of being
profitable will be 50% at best. This is because a stock can either go up or down. You only have a 50/50 chance of being
right.
Of course, with some luck, you could still make money. However, money that is made from a lucky streak never ever
lasts. Eventually, luck will run out and you will end up losing everything and much more. This is why people who gamble
at casinos or try their luck at the stock market will end up losing everything.
When you have a strategy that gives you an edge over the market, you can confidently be right 70%-80% of the time. No
matter how great your strategy is, you can never be right 100% of the time. This is because there are many factors in the
world of investing that are out of control. (For example, a sudden economic crisis causes stock prices to fall temporarily)
The Three Keys to a Winning Method
A winning method of investing should consist of 3 key components: Knowing a) what to buy, b) when to buy and c)
when to sell. Let us go through all three in detail.
a) What to Buy? Buy Only Stocks of Fundamentally Good Companies
As a winning investor, you need to have a set of rules to guide you on exactly what stocks to buy.
When you buy a share of stock, you are actually buying a share of a public listed company. You become a part owner
(albeit a very small one) of a business.
We only want to invest in shares of very good businesses. Using fundamental analysis, we need to learn how to study the
financial reports of companies to determine which are the most profitable and valuable ones.
3
What Makes A Great Company Stock?
There are many factors that make a company’s stock a good investment. Let me highlight two important ones:
1) Consistently Increasing Sales Revenue and Net Income
2) Positive Long Term Growth Rate
I only invest in companies that have a track record of consistently increasing Sales Revenue and Net income,
together with positive future growth potential. When a company has these fundamental qualities, its share
price will have a greater potential to rise over time.
Take a look at the stock of Nu Skin Enterprises (NUS). NUS clearly generates consistently increasing Sales
Revenue and Net Income year after year. At the same time, it is projected to grow its earnings over the next 2
years.
Nu Skin (NUS) Revenue and Net Income
Source: investing.businessweek.com
Nu Skin’s consistent sales and net income growth results in its share price rising steadily over the last 5 years.
4
Nu Skin Stock Price Chart 2008-2014
Source: www.thinkorswim.com, Prophetcharts
At the same time, I avoid buying stocks of companies with inconsistent or declining Sales Revenue and Net
Income. Take a look at the stock of Barclay’s Bank (BCS). Its Revenue and Net Income has been declining for
the last 4 years. Its earnings are also projected to contract the following year (2013).
Barclay’s Bank (BCS) Revenue and Net Income
Source: investing.businessweek.com
5
Stocks of companies that have weak revenue and net income growth usually have flat of declining stock prices
like what you can see from Barclay’s share price chart.
Barclay’s (BCS) Price Chart 2008-2014
So, which company is the better investment? Obviously, it is the company with the stronger financial
performance.
Of course, there are many more financial data and ratios we can look at to determine that it is a great company.
I also look at stuff like…
• Insider buy and selling (are company directors buying or selling their own shares)
• Return on Equity
• Statement of Cash Flows
• Debt to Equity Ratio, Current ratio
• Gross and Net Profit Margins
• Working Capital Versus Sales Revenue Growth
• Cash Conversion Cycle
6
All this is beyond the scope of this book. It takes a couple of days to learn and master this stuff. This is why I
spend no less than 45 hours training people who are serious at becoming successful investors and traders.
Just to show you how important it is to look at insider buying and selling, take a look at the stock of Capitaland.
Capitaland had been falling from $4 to $2.50 over a period of a year. Then on 22 May 2012, many of its directors
starting accumulating shares at $2.51.
Source: www.shareinvestor.com
7
Source: www.chartnexus.com
Obviously, insiders buying their company’s shares is a great sign of confidence. After checking that Capi-
taland met the rest of my investment criteria, I started buying up too. Within a week, Capitaland’s shares
climbed +56% to $3.90!
Source: www.shareinvestor.com
Sure enough, the share price of ChinaMinzhong eventually declined…
8
b) When to Buy?
It is not good enough to know which companies stocks to buy. You need to also know exactly WHEN
to make your investment. I know many people who invest in great stocks. Unfortunately, they buy it at
the wrong time and see their investments go down in value for a long time before it starts recovering.
Knowing
WHEN to buy is even more important than knowing just WHAT to buy.
When to Buy? Buy When The Price Is Below the Intrinsic Value
So, WHEN is it a good time to invest? Well, you should only buy a stock when its price is below its in-
trinsic value. This means that the stock is selling at a price below what it is actually worth.
I use an intrinsic value calculator to determine the true value of a stock, based on the company’s cash
flow from operations, growth rate, total debt and cash holdings. The intrinsic value of a stock will also
give you an indication of where the share price can potentially reach in the short-term.
For example, I made an investment in Google (GOOG) on Jan 2012, a stock that has delivered consistent
growth in Revenue and Net Income. Although it seemed pricey at $575, it was actually way below its
Intrinsic Value of $1,065. The intrinsic value of GOOG gave me the confidence that I could potentially
double my investment when GOOG reaches its true value.
9
Sure enough, a year later (2013), Google (GOOG) reached $1,100 per share, giving me a nice 91.3% Gain!
Google (GOOG) Chart 2012-2013
Source: www.thinkorswim.com Prophetcharts
10
When to Buy? Buy When The Price Is On An Uptrend
Besides analyzing a stock’s intrinsic value, it is also very important to only buy a stock only when its price is on
an UPTREND. Never buy a stock when the price is on a DOWNTREND, no matter how good the stock is or
how cheap the price may seem.
When a stock’s price is on a downtrend, you never know how low it can go before it starts to recover. A cheap
stock may become even cheaper in the short term.
What Is A Price Trend?
Stock prices move in trends. A trend is like a river current. Once a stock’s price is on a trend, it has a high prob-
ability of continuing to move in the direction of the trend until there is a reversal of trend.
There are three main types of price trends: Uptrend, Downtrend and Sideways Trend.
1) Price Uptrend
An uptrend is characterized by a series of stock prices making higher high points and higher low points. On
an uptrend, stock prices still go up and down. However, every time prices go down, they move up even higher
subsequently.
Stock Price On An Uptrend.
It definitely makes sense to only buy a stock when it is on an uptrend because the probability is that it will
keep going higher. This is why there is an old Wall Street saying, ‘the trend is your friend’.
11
2) Price Downtrend
A downtrend is characterized by a series of stock prices making lower high points and lower low points. On a
downtrend, stock prices still go up and down. However, every time prices go up, they move down even lower
subsequently.
Stock Price On A Downtrend.
When a stock is on a downtrend, it means that investors are getting more and more pessimistic. This causes
downward price momentum that drives the stock lower and lower. This will keep happening until a major news
development changes the direction of the trend.
As a rule, I never, ever buy a stock when it is on a downtrend. On a downtrend, you never know how low a stock
can go. In the short-term, markets are emotionally driven and prices can get driven down to illogical levels.
Even if the stock of a good company seems cheap, it can get much cheaper in the short-term. I prefer to let the
stock bottom and buy it when it has reversed into a new uptrend.
“ The stock has gone so low already, it cannot possibly go any lower” is a phrase that has gotten many ignorant
investors into trouble!
12
3) Sideways trend (Consolidation)
Besides uptrends and downtrends, stock prices also go through periods of consolidation. This means that the
stock price moves sideways between an upper (RESISTANCE) and a lower range (SUPPORT). In the chart
below, LVS’s stock price is consolidating between $37 and $49.
Consolidation patterns can take place for days, weeks or even months. However, the stock will ultimately break
out of this consolidation patterns in either an upward (uptrend) or a downward (downtrend) direction.
As long as a stock is stuck within a consolidation pattern, there is no point in making an investment just yet.
Even if the price rises, it will likely hit the upper price range (known as the resistance line) and reverse back
down to the lower price range (known as a support line).
You have a better chance of making a very profitable investment only when the stock price breaks out of this
range. One of the best times to buy is when the stock price breaks out of a sideways trend and into a new up-
trend. Here are a few examples below…
13
Walt Disney (DIS) Breakout
In the chart above, you can see that there was a strong resistance level at $34. The moment the stock was able
to break above this level, the buying pressure drove the stock into a new uptrend. A great buy entry would have
been at $35.
14
Yahoo (YHOO) Breakout
New Uptrend
Buy when Stock breaks

above the resistance line
RESISTANCE LINE
15
Identifying The Trend and A Change in Trend
One of the secrets of being a successful investor is knowing how to identify the existing trend and when the
trend changes. When a stock’s price is on a downtrend, you would want to wait for it to reverse into an uptrend
before placing your buy order.
Many untrained investors make the mistake of jumping in ‘too early’ when the stock price makes short rallies,
only to find that the stock price plunges even lower subsequently. These short-term rallies are called ‘bear traps’.
American Express (AXP) 2008-2009
Untrained investors buy at these ‘bear

traps’, thinking the trend has reversed
Uptrend
Downtrend
Buy only when the trend

has reversed
Is it possible to know when the stock price is going through a true change in trend instead of a ‘bear trap’? While
there is no guaranteed method that works 100% of the time, there are strategies I use that indicate a very high
probability of a change in trend. In this chapter, I will show you two of the simplest strategies that I use here.
16
Using Moving Average Crossovers to Determine A Change In Trend
One strategy I use to determine a change in trend is the simple moving average (SMA) crossover. A simple
moving average (MA) is formed by computing the average closing price of a stock over a specific number of
periods (e.g. days).
For example, a 50-day Simple Moving Average (50DMA) is computed by adding up the last 50 days of closing
prices and dividing the sum by 50. As its name implies, a moving average is an average that moves. Old data
is dropped as new data comes available. This causes the average to move together with the stock prices.
Moving averages smooth the price data to form a trend following indicator. They do not predict price direc-
tion, but rather define the current trend direction. The chart below shows the 50-Day Simple Moving Average
(DMA) line that is drawn by any charting software.
Caterpillar (CAT) 50-Day Moving Average
Blue Line: 50- Day Simple Mov-

ing Average
17
Observing how two moving averages (a shorter time period & a longer time period) interact can help us de-
termine a change in trend. Let’s now put in a 150-Day Simple Moving Average (DMA) (Green) together with
the 50-Day DMA (Blue).
Caterpillar (CAT) 50 & 150 -Day Moving Average
SELL SIGNAL
(B)
SELL SIGNAL
BUY SIGNAL (A)
Downtrend
Uptrend
Downtrend
Notice that during a downtrend, the Green 150 DMA is always above the Blue 50 DMA and both moving av-
erages are sloping downwards. An uptrend is signaled when the 50 DMA crosses above the 150 DMA and the
moving averages start sloping upwards (Point A).
By following this powerful signal, we would have only bought the stock at $35 (Point A), when it began its new
uptrend. We would have avoided buying the stock when it was still on a downtrend (in 2008).
18
This powerful signal would also tell us when to sell the stock, thereby maximizing our profits. As long as the
50 DMA remains above the 150 DMA and moving averages are still sloping up, we would stay invested in the
stock and ride it all the way up. We would sell only when the uptrend reversed into a downtrend. This signal
came in mid 2011 when the 50 DMA crossed below the 150 DMA and the two moving averages started to slope
down (Point B). We would have sold the stock at $90, making a 157% return on our investment!
Uptrend Signaled By:
50 DMA crosses above the 150 DMA &

Both Moving Averages Sloping Upwards
Downtrend Signaled By:
50 DMA crosses below the 150 DMA &

Both Moving Averages Sloping Downwards
Take note that the 50 & 150 DMA crossover helps you to identify the medium
and long-term trends of a stock. Shorter term moving averages can also be
used to capture the shorter-term trends. This is however beyond the scope
of this book and covered during our live training/coaching Wealth Academy
sessions.
When to Sell? Sell When The Price is On a Downtrend
Knowing when to sell your investment is the most important part of your strategy. Many investors lose money
or fail to maximize their profits despite knowing WHAT to buy and WHEN to BUY. This is because they failed
to know WHEN to SELL.
No matter how great a stock is, it will not go up forever. Nothing great lasts forever. If you fall too much in love
with a stock and fail to sell it when it reverses into a downtrend, all your profits could be wiped out!
As mentioned earlier, I always sell my stocks when they reverse into a downtrend.
19
The 50/150 DMA Crossover Signal Would Have Helped You Avoid the Subprime Crash of 2008!
In October 2007, the US subprime mortgage crisis hit and the S&P 500 Stock Index reversed into a downtrend
and plunged 55% to a low of 650 points. Many ignorant investors who did not know how to read the change in
trend would have suffered a huge blow to their stock holdings.
Using the 50/150 DMA signal, many of my students were savvy enough to sell their stocks in late 2007 (when
the 50 DMA crossed below the 150 DMA) and avoided the downtrend. The 50/150 DMA crossed again in mid
2009, signaling a new uptrend! The ability to read trend changes doesn’t just help you to make money, but it
also helps you to avoid potential losses as well.
Sell Signal
Buy Signal
Buy Signal
20
Summary of the Winning Method
To profit consistently, you have to follow a method (or strategy) that gives you an edge for picking winning
stocks that are beyond random chance. This means following a set of pre-defined buy and sell rules that I have
presented.
Unfortunately, many untrained investors make their buy and sell decisions very randomly. Sometimes, they
buy because of a hot tip from a friend and sometimes they sell because they ‘feel’ that the stock has gone too
high. As a result of not using a consistent method, they fail to get consistent results. Their chance of being right
is at best 50/50. They are merely gambling their money away.
Winning investors never invest randomly. They have the discipline to follow strict buy and sell rules that give
them a high probability of being right. These rules tell them WHAT to buy, WHEN to buy and WHEN to sell.
Let’s do a recap.
a. WHAT to Buy:
Buy only fundamentally strong companies that have consistently increasing Sales revenue and Net Income.
These great companies should also have high future growth potential.
b. WHEN to Buy:
Knowing WHAT to buy is not as important as knowing WHEN to buy it. Untrained investors make the mis-
take of investing in a good company at the wrong time (i.e. during a downtrend). As a result, they see the value
of their stocks going lower and lower and get their money stuck for years before seeing any returns.
This is why we should only buy a stock when it is on an uptrend. On an uptrend, there is a higher probability
that the price will move upwards, generating profits for you. We determine an uptrend by ensuring that the
50DMA has crossed above the 150DMA and the two moving averages are sloping up!
The example below shows the result of buying a great company at the wrong time. Capitaland is a fundamen-
tally strong company. However, if you had bought it on a downtrend at point A ($3.60), you would have seen
your investment fall by 39% to point B ($2.20). Knowing WHEN to buy at point C ($2.96) during an uptrend
would have resulted in a 28.3% gain in a few months.
21
Point A
$3.60
Point C
$2.96
Downtrend
Uptrend
Point b
$2.20
c. WHEN to Sell
The most important part of your investing method should be following the rules of WHEN to sell. This rule
ensures that you minimize your losses when you are wrong and maximize your profits when you are right.
Winning investors strictly follow their sell rules without compromise. They understand that if they do not sell
at the right time, mistakes can turn into huge losses and potential winning investments can turn into losing
ones.
Two investors who buy the same stock at the same time can get very different results depending on WHEN
they sell.
You should hit the sell button when…
1) The stock price falls 5%-8% below your purchase price. This is known as your STOP LOSS PRICE. It is an
important strategy to limit your losses when you are wrong. I always use an automated stop loss order for this.
Remember that no matter how great your strategy is, you can never be right 100% of the time. A stop loss en-
sures that losses are limited in those instances when the stock price does not move up as expected.
2) The stock price reverses into a downtrend- this is to protect the profits we have made.
If you consistently follow the 3W rules: WHEN to buy, WHEN to buy and WHEN to sell, you will be able to
achieve a high probability of success.
PROGRAMMES
For Yourself
XSPY TraderTM (NEW!)
Wealth AcademyTM
Wealth AcademyTM Investor
Order Flow Trader
Patterns of ExcellenceTM
For Children & Youth

LASYTM pre-school workshop
I Am Gifted!TM
Adam Khoo Learning Centre
PSLE Seminar
ADAM KHOO LEARNING TECHNOLOGIES GROUP
www.akltg.com
Singapore
Adam Khoo Learning Technologies Group Pte Ltd
Management Office
115 Eunos Avenue 3 #05-04 Singapore 409839
Phone: (65) 6274 0105
AKLTG Branch Offices

Malaysia
Adam Khoo Learning Technologies Group Sdn Bhd
K-7-9 Block K, No.2 Jalan Solaris, Solaris Mont Kiara
50480 Kuala Lumpur, Malaysia
Phone: (603) 6201 8122
Fax: (603) 6211 4522
Indonesia
Jakarta office
Wisma 46 Kota BNI, 2nd Floor, Suite 2.05, Jl. Jendral Sudirman Kav. 1 Jakarta 10220M
Phone: (62) 21 574 7511
Fax : (62) 21 574 7501
Email : indonesia@akltg.com
Surabaya office
Adam Khoo Centre
Ruko Surya Inti Permata B 52 – 53, Jl. Jemur Andayani 50, Surabaya, Indonesia
Email : indonesia@akltg.com
China
广州宝捷利教育咨询有限公司
广州市白云区白云大道
南金钟大厦410室
邮编: 510000
Philippines
Unit 805, Citystate Building,
Shaw Boulevard, Ortigas Center, Pasig City
Manila, Philippines
Tel: (632) 5873751 Email: infoph@akltg.com
Unit 805, Citystate Building,
Shaw Boulevard, Ortigas Center, Pasig City
Manila, Philippines
Tel: (632) 5873751
Email: infoph@akltg.com

The Winning Method

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

The Winning Method

Transféré par

Droits d'auteur :

Formats disponibles

M ethod

About The Author: Adam Khoo

The Winning Method

The Three Keys to a Winning Method

a) What to Buy? Buy Only Stocks of Fundamentally Good Companies

What Makes A Great Company Stock?

Nu Skin (NUS) Revenue and Net Income

Nu Skin Stock Price Chart 2008-2014

Source: www.thinkorswim.com, Prophetcharts

Barclay’s Bank (BCS) Revenue and Net Income

Barclay’s (BCS) Price Chart 2008-2014

Source: www.thinkorswim.com, Prophetcharts

Sure enough, the share price of ChinaMinzhong eventually declined…

Google (GOOG) Chart 2012-2013

Source: www.thinkorswim.com Prophetcharts

When to Buy? Buy When The Price Is On An Uptrend

What Is A Price Trend?

Stock Price On An Uptrend.

Source: www.thinkorswim.com, Prophetcharts

Stock Price On A Downtrend.

3) Sideways trend (Consolidation)

Source: www.thinkorswim.com, Prophetcharts

Source: www.thinkorswim.com, Prophetcharts

Buy when Stock breaks

Source: www.thinkorswim.com, Prophetcharts

Identifying The Trend and A Change in Trend

American Express (AXP) 2008-2009

Untrained investors buy at these ‘bear

Buy only when the trend

Source: www.thinkorswim.com, Prophetcharts

Using Moving Average Crossovers to Determine A Change In Trend

Caterpillar (CAT) 50-Day Moving Average

Blue Line: 50- Day Simple Mov-

Source: www.thinkorswim.com, Prophetcharts

Caterpillar (CAT) 50 & 150 -Day Moving Average

BUY SIGNAL (A)

Source: www.thinkorswim.com, Prophetcharts

Uptrend Signaled By:

50 DMA crosses above the 150 DMA &

Downtrend Signaled By:

50 DMA crosses below the 150 DMA &

When to Sell? Sell When The Price is On a Downtrend

Source: www.thinkorswim.com, Prophetcharts

Summary of the Winning Method

You should hit the sell button when…

For Children & Youth

AKLTG Branch Offices

Vous aimerez peut-être aussi