Stocks VS Poker

Now that I've learn a lot more about stocks, I realize how much similar it is with Poker.



Stock: You can control company risk (by choosing the right ones), but you can't control the market risk (crash).
Poker: You can control the cards you choose to play (premium hands), but there's nothing you can do when you run into a cooler.



Both:  You can't be right all the time. You can, however, maximize your profits when you are right and minimize your losses when you are wrong.



Both: It is all about return on investment in the long run - not one or two sessions.



Stock: You can't control the emotions of the market. Even the best companies stock can plummet.
Poker: You can only make sure you get in with the best hand. The rest is up to the gods.



Stock: You need to know when to buy, and when to cut your losses and run.
Poker: You need to know when to hold'em, and when to fold'em.

Financial Education

Stepping up on my homework lately...

- Completed most of the important courses at Wall Street Survivor [Highly recommend their "Reading financial statement series].
- Spent a lot more time reading financial blogs and forums.
- Setting up a watchlist at Google Finance.
- Read through some company financial statements (never thought I'll do that).

I've also began attending some newbie seminars by CIMB.

For most investors (who made money from the price rising), there are 2 criteria you must ask before buying a stock:

1. Is it a good company?
2. Is it the right time? (aka right price)

The speaker gave his 2 cents worth on evaluating a good company:


1. Positive Net Income for the past 10 years

This is the company "take home" pay - what is left of their revenue after paying the workers, taxes, expenses etc...

Companies can sometimes manipulate this figure by playing around with stuff like depreciation to make it look nice, for a year or two - But for 10 years? Not likely. Any scam would have fallen apart.

This means the company is a money-maker.


2. Consistent dividends in good & bad times

This is important as it show that you are taken care of as a minority shareholder.

If the dividend payout ratio is reduced, what is the reason? Is it justified?


3. Positive operating cash flow (OCF)

This sounds very similar to net income, but it's not the same. A company may make lot of net income, but still run in cash flow problems. It only deals with cold hard cash on your hand right now. [Not receivables, buildings, machines]

If this is negative, check what the company did. Maybe it brought a new building/equipment for future investments.