Trader vs Investor

Trading
Pardon my ignorance, but I've never fully understood technical trading. To me, they seem to be arbitrary lines on graph that claim to represent resistance and support to price. Some people also believe the way tea leave falls in the glass can have predictive effect to our future.


However, when enough traders subscribe to the same belief on technical trading, it can create a self-sustaining truth. (if enough traders believe that by breaching the "resistance level" - the stock will head to a higher high and similarly, by breaching the "support level", the stock is likely to fall further)

Contrast to investing
All being equal, when the price of stock falls, it should be a better time to buy. After all, the purchase of shares in company represent a fractional ownership of a business.

Common sense will suggest that it's better to buy low sell high.

I believe traders will suggest to sell low buy high - awfully confusing.

So?
The follower of Benjamin Graham often pointed out with much more experience often point out that "in the short term, the market is a voting machine but in the long term it is a weighing machine.

Mr. Market

In the short run, the market is a voting machine. But in the long run, 

it is a weighing machine.

In my short investment life, I've learned not to fight the momentum of the market trader. Ignoring the direction of the momentum is often perilous to my bottom line. When the price of my favourite share is crashing for no apparent (or valid) reason I often have to sit back and reevaluate my fundamental analysis of the company. Emotions (panic!) and greed is dangerous. Accumulation of stock on its downward run is akin to catching a falling knife, it must be done with care.

Theoretically, adding small position once the stock bottom out, taking into consideration the risk/reward analysis of the potential downside/upside of the counter will be profitable. But the problem is, without the benefit of hindsight, it's tough spotting the bottom!

In Malaysia, volatility in the short term is often attributed to "news", "rumours" or "gossip".  I've already paid my school fees for the mistake I made in following the hot tip of the week. It is illegal, and market manipulators are just like the snatch thief on the street and should be punished to the full extent of the law. However, like other enforcement mechanism in Malaysia, our lovely regulators are usually asleep.

More excitement on trading can be found outside our border. Wild swing in prices is less likely be due to manipulation of a small group of individual but more likely due to difference in outlook by different market participant can lead to highly volatile prices. Even the smartest of the wall street titan can be wrong. And when they do get it wrong it can be profitable to be right!

I recently began following the counter of HLF listed on NYSE. The price fell from a 52 weeks high of 73 to the current price of 27. Almost USD20 of the fall was in the past week alone! This was due to the famous short selling of one Bill Ackman, claiming the HLF is a pyramid scheme and it should be worth a big fat 0 as it is as illegal as Madoff's ponzi scheme. I don't think it's worth 0. As such I think there may be situational bet on this stock as part of my "gambling" portfolio. The company has something like USD 1 billion in approved buyback yet to be utilised (Market Cap USD 3 B), generate steady and increasing cashflow and will hold an investor briefing to respond to the allegation. This share will be worth a lot less if Ackman is right, and alot more if Ackman if wrong. The answer is somewhere in the middle I would guess. As you can gather, I am amply excited about the volatility in this counter. I am going long!

Share market is a zero-sum game. For there to be a winner, there must be a loser. It's never fun to be the loser. Invest in what you understand better than the rest of the market, this way, you are more likely to have an advantage in this blood-sport.