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“Do I ‘buy and hold’ or do I cut my losses when stock markets plunge?” “Can I really time the market or is it just wishful thinking?” “Is it worth listening to recommendations by inves

Adam Khoo

Adam Khoo is an entrepreneur, author and peak

performance specialist He is the Executive

Chairman of the Adam Khoo Learning

Technologies Group, one of Asia’s largest private

training companies that operate in seven

countries He has interests in various other

businesses that generate a combined revenue of

$30 million annually He is also a professional

stocks and Forex trader and investment advisor

Adam holds an Honors Degree in Business Administration (Finance) from the National University of Singapore (NUS), where he was ranked among the top 1% of his cohort He was awarded both the NUS Business School Eminent Business Alumni Award (2008) and the NUS Outstanding Young Alumni Award (2011) 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 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 management 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

Though busy running his businesses in corporate training, advertising, children’s enrichment and fund management, 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

Chapter 1 Introduction……… 3

Chapter 2 How to Really Make Money from Stocks……… 6

Chapter 3 Winning Method……… 12

Chapter 4 Winning Money Management……… 33

Chapter 5 Winning Mindset……… 39

Conclusion……… 46

There Has Never Been a Better Time to Create Wealth

Congratulations for downloading this e-book! I believe that you are committed to reading this book because no matter what your financial situation is right now, you have a strong desire to achieve a greater level of financial success and wealth

The great news is that we live in a time when the number of millionaires is growing

at a pace faster than anytime in human history And the greatest growth in wealth is coming from the Asian continent

In 2012, the number of millionaire households in Singapore rose 14 per cent to 188,000, while that in China climbed 16 per cent to 1.43 million, and that in India saw

a 21 per cent increase to 162,000, according to a 2012 report from The Boston Consulting Group

Taking a look at the chart below, you can see that in countries like Singapore (the country where I reside), a stunning 17.1% of the population is made up of millionaires — the highest percentage in the world for any country

Proportion of Millionaire* Households by Market1

Investing in the Stock Market Is the Fastest Way to Create Wealth

How did the majority of millionaires build their fortune? While a few lucky ones inherited their wealth from parents or through marriage, the majority of millionaires are self-made From the Forbes magazine article below, a wealth report on millionaires in Asia revealed that 72% of their fortunes came from personal investments in the stock and bond markets, while 58% came from property investments and 55% came from savings through salaries and bonuses2

If you want to become financially secure and free, it is absolutely essential for you to learn how to invest successfully in the stock market

2 Neerja Jetley, “Singaporeans Are the Fastest in the World to Become Millionaires,” Forbes, July 08, 2013, accessed January 17,

2014 http://www.forbes.com/sites/neerjajetley/2013/07/08/singaporeans-are-the-fastest-in-the-world-to-become-millionaires/

Unfortunately, after spending over 18 years of our life going through the education system, many people never learn the essential money skills of investing They are merely educated to sell their time in a job and to depend on a salary that cannot keep pace with ever-escalating expenses

With this book, I hope to impart to you the essential investing and money management skills that have helped me to achieve the financial abundance and freedom that I now enjoy If you are ready to learn how to really make money from stocks, read on…

“Do I ‘buy and hold’ or do I cut my losses when stock markets plunge?”

“Can I really time the market or is it just wishful thinking?”

“Is it worth listening to recommendations by investment experts?”

“How do I know if a stock has the potential to rise over time?”

“Why does a stock fall in price even when the company does well?”

Nobody can blame investors for being thoroughly confused nowadays at what to do with their investments It seems that every time you read the news, you get contradictory advice and opinions from even the experts

Many ‘how to invest’ books and seminars confuse people even further as they preach very different investment strategies Some educators teach you to buy cheap stocks and hold them for the long term They advocate buying more stocks and averaging down should the price start to fall even more

Other experts expound the ‘buy high and sell even higher’ approach of momentum trend trading They advocate cutting losses once the price falls to a certain level and

to sell for quick profits if the stock price continues to run up

Many people I talk to find that no matter what approach they adopt, they never seem to be able to make consistent profits from their investments They may score a nice profit once in a while, only to find themselves losing it all back to the market eventually Even when they invest their money with professionally-managed funds, they find their investments going nowhere or worse, struggling to break even In their frustration, many of these people resign themselves to earning a measly 1% - 3% interest from bank deposits

Is There a Way to Really Win the Stock Market Game?

The fact is that there are people who make huge amounts of money from the

markets, year after year These are the professional and semi-professional investors/traders who are able to grow their investments anywhere from 15% to 150% annually

While these successful investors do have losing investments (everybody does), the fact is that over time, they consistently make much more than what they lose from the inevitable mistakes they make So, how do they do what they do? What really works in the market and what doesn’t? How much of it is luck? Can these skills be learnt by anyone?

This topic is something I have passionately studied and practiced for over 21 years, ever since I started investing with my mother’s stock brokerage account at the age of

18 years old I am not only proud to say that I have made a nice fortune as a professional investor (and now, a professional one) but I am even more proud to say that I have made every conceivable mistake that can be made in world of investing It

semi-is the msemi-istakes I have made in the past as well as my ability to continually fine-tune

my strategy that has allowed me to discover the profitable investing techniques that I employ today

These Successful Investing Techniques Can Be Learnt by Anyone!

The great thing is that these winning investment methods can be learnt and applied successfully by anyone, regardless of your past experience and background Through

my Wealth Academy investing courses, I have had the privilege of training investment analysts, financial advisors, bankers as well as individuals like engineers, teachers, homemakers and students who started with zero financial knowledge

Here are some of the experiences my students have had after learning these strategies

“I Grew My Investments from $10,000 to $18,000 in 1.5 Years”

“Recouped All My Losses in 2011 and an Additional 35% Return”

“I Achieved 35% - 100% Returns from the Stock Market”

“Recovered Losses of More than $50,000 and Holding on to Good Gains”

Undergraduate Creates Another Source of Income and Featured on The Straits

Times Singapore Newspaper

When I first met many of my students, they had absolutely zero knowledge of how to invest Some of them even tried their “luck” by speculating (treating the stock market like a casino) and lost money as a result

Thankfully, after learning the right strategies, they have made back previous losses and are now creating a sustainable new source of income through their investments

If these ordinary people, with little or no experience can became successful investors,

so can you!

Introducing the 3Ms of Successful Investing

In this book, you are going to learn the three key principles of successful investing:

‘Method’, ‘Money’ and ‘Mindset’

Profitable investing begins with having a winning ‘Method’ that will give you an edge over the market While no method can guarantee a profit 100% of the time, I will show you winning methods that ensure that your investments succeed majority of the time

You are going to learn a set of rules that will tell you exactly WHAT stocks to buy, WHEN to buy and WHEN to sell You will learn that knowing WHEN to buy and sell a stock is even more important that knowing just WHAT to buy Many people end up buying the right stock, but at the wrong time As a result, they see the stock decline further downwards in disbelief You are going to learn how to read the emotions of the market and enter only at the time when the stock is ready to make explosive gains upwards

WINNING METHOD

1 WHAT to buy

2 WHEN to buy

3 WHEN to sell

You are also going to learn the second ‘M’ of successful investing — ‘Money Management’ Many investors with a good investing strategy may still end up losing money because of poor risk and money management principles They may make money on nine great investments only to lose all their profits in one bad one You are going to learn how to minimize your risks and maximize your returns through portfolio management and position sizing techniques You will learn how many shares you can afford to buy of each stock and when to cut your losses when an investment goes bad

Finally, you are going to learn how to master your ‘Mindset’ You are going to learn how to adopt the winning psychology of successful investors and know how to manage negative emotions like fear and greed that get in the way of your success

I am sure you will find this book to be extremely useful in helping you become a successful investor I look forward to sharing with you my ideas in the pages to follow

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 Since a stock either goes 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 Remember that 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 our control (For example, a sudden economic crisis can cause stock prices to fall temporarily.)

The Three Keys to a Winning Method

A winning method of investing should consist of three 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

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 two years

Nu Skin Enterprises (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 five years

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 Barclays (BCS) Its revenue and net income has been declining for the last four years Its earnings are also projected to contract the following year (2013)

Barclays (BCS) Revenue and Net Income

Source: investing.businessweek.com

Stocks of companies that have weak revenue and net income growth usually have flat of declining stock prices like what you can see from Barclays’ share price chart

Barclay’s (BCS) Price Chart 2008-2014

Source: www.thinkorswim.com, ProphetCharts®

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 activity (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

All these are 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 in 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 On 22 May 2012, many of its directors started accumulating shares

22 May Insiders Buy

Aggressively

at $2.50Within a week, CapitaLand’s shares climbed +56% to $3.90!

Source: www.chartnexus.com

Similarly, it is a good idea to avoid buying or even selling shares of companies whose insiders themselves are selling In the insider trading report, insiders of China Minzhong had been selling the shares aggressively from $1.23 to $1.02 from March

to April 2013…

So, it is essential to do enough research on the right company’s stock to buy They have to meet all the critical fundamental criteria!

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

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 intrinsic 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

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®

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 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 probability 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

Source: www.thinkorswim.com, ProphetCharts®

When a stock is on an uptrend, it means that investors are getting more optimistic about it This causes upward price momentum that drives the stock higher and higher This will keep happening until a major news development changes the trend

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”

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

Source: www.chartnexus.com

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 to a new uptrend

Remember, “The stock has gone so low already, it cannot possibly go any lower” is a phrase that has gotten many ignorant investors into trouble!

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, Las Vegas Sands’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

Price In Consolidation

Source: www.thinkorswim.com, ProphetCharts®