UNDERSTAND THE METHOD OF INVESTING IN STOCKS TO TAKE ADVANTAGE OF OPPORTUNITIES

Each investor will choose a method of investing in stocks for themselves depending on their preferences and strengths. These methods are often researched and developed through many years of experience of experts in the field of stocks. In this article, HAV will summarize the important stock investment methods that every investor needs to understand. From there, you can choose for yourself the most suitable method to apply in your investment journey.

1. Swing trading stock investment method

Swing trading involves buying stocks at their lowest price in a price cycle and selling them when they have risen enough to make a profit. This method is usually done over a short period of time, which can range from a few days to a few weeks, depending on the duration of the price increase cycle, called a “wave”.

An important and core element in the swing trading method is the ability to identify the top and bottom of a stock. Investors often use technical analysis to identify the bottom of a stock. Based on that, they suggest appropriate stop loss levels, usually from 7-10%, and appropriate take profit levels based on the current "wave".

Example: B identified the upcoming "wave" of recovery in the real estate industry, B "caught the bottom" of stock D at 35,000 VND/share. B set a stop loss of 33,500 VND/share and a take profit of 42,000 VND/share. B successfully closed the stock at 42,000 VND/share after 3 consecutive ceiling sessions. The profit was up to 20% after only 3 sessions.

Advantage:

1. Fast capital turnover helps investors flexibly buy and sell stocks: The swing trading method allows investors to make quick buying and selling transactions, helping them take advantage of short-term trading opportunities in the stock market and increase their chances of making a profit.
2. Short time to easily invest in industry waves: With short trading time, investors can quickly evaluate and participate in developing industry waves, taking advantage of short-term growth opportunities in the market.

Disadvantages:

1. Market News Risk: Swing traders face the risk of negative macro or corporate news breaking out, which can cause sudden and unforeseen volatility in the stock market.
2. Misidentifying trend waves can easily lead to losses: If investors do not correctly assess the trend of short-term waves, they may face the risk of losses and cannot take advantage of trading opportunities.
3. Impact on investor psychology: Swing trading often requires focus and determination, and rapid fluctuations can affect investor psychology, leading to emotional “weariness” and the formation of a long-term gambling mentality.

2. Long-term stock investment method

Long-term stock investing is a strategy of buying stocks or mutual funds and holding them for a long period of time. Long-term investment periods typically last a year or more and can be as long as several decades. During this time, investors typically wait until stocks are discounted to attractive prices and then make additional purchases.

For example: A identifies H as the leading stock in the steel industry with very good financial indicators. A decides to invest in H stock for the long term and divides the amount of 100 million VND into 5 purchases. The first time, A buys 1,000 shares at a price of 20,000 VND/share. A will use the remaining amount to buy more shares when the market fluctuates; A will wait 5-8 years to enjoy the results.

Fundamental analysis is essential to success in long-term stock investing. This includes studying the macro, market, industry, revenue, earnings, and many other factors of the company. The goal is to find stocks with growth potential and hold them without worrying too much about short-term fluctuations in the stock price. There are also some technical analysis methods that help determine attractive prices for long-term investment.

One important aspect that long-term investors must overcome is the ability to wait. Being patient and waiting for profits is often a big challenge, especially for new investors who often want quick profits. However, persistence is the key to becoming a successful long-term stock investor.

Advantage:

1. Suitable for investors who prefer stability and want to benefit from dividends: Long-term investment strategy helps investors take advantage of the benefits of owning stocks for a long time, receiving regular dividends from the business without having to regularly monitor and buy and sell.
2. Avoid short-term fluctuations that affect psychology: By holding stocks for a long time, investors can avoid the stress and pressure from short-term fluctuations in the stock market, helping to maintain a stable and confident mentality during the investment process.
3. Saves Time and Effort: Compared to short-term investment methods, long-term investment requires less intervention and supervision, helping investors save time and effort for other activities.

Disadvantages:

1. Risk of choosing the wrong stock: If the stock is not selected appropriately or does not have enough growth potential, the investor may have to hold the stock for a long time without getting the expected profit.
2. Risk of long-term loss due to stock price decline: In case the stock price declines during the holding period, the investor may face losses or reduced profits, especially if fundamental analysis is not performed or there is no clear stop loss strategy.

3. Value investing method

Value investing is a method of investing that relies on determining the true value of a company. Although it is considered the most effective method, it is also one of the most difficult to implement. Warren Buffett, one of the top investors in the market, is a typical example of using value investing. He has successfully found the true value of many companies, bought the stocks at a lower price, and made huge profits from them.

For example: You C determines the real value of stock M to be 80,000 VND/share, while the market price is only 60,000 VND/share. The safety margin is set at 25%. C decides to buy the stock with a profit-taking level of 100,000 VND/share, bringing in a profit of up to 67%.

Valuing the intrinsic value of a stock is the most important step in this method. Investors value the assets of the company, including tangible assets such as factories, offices, land, and intangible assets such as brands, reputation, and patents, and then synthesize the valuation into a specific number. They then divide the total number of outstanding shares of the company to get the intrinsic value of the stock. Investors should usually buy stocks with a margin of safety - that is, the safety ratio percentage of the market price compared to the intrinsic value, usually above 25% to guard against negative market fluctuations.

For example: For company H, after determining the total tangible and intangible assets, the total value is 8,000 billion VND, divided by 250 million outstanding shares, the real value of each H share is 32,000 VND/share. Compared to the market price of 18,000 VND/share, the current safety margin is nearly 44% for investors.

Advantage:

1. Bringing great profits to investors when choosing the right stocks with low value: Value investing method can generate significant profits when investors are able to accurately price and choose stocks with real value greater than market price.
2. No need for much trading effort: Investors often just need to wait until the stock price increases to its real value, then buy and hold them without having to make many buying and selling transactions, saving effort and time.

Disadvantages:

1. Risk of loss due to mispricing: If investors incorrectly assess the true value of a business, they may face the risk of loss if the stock price does not increase to the price they predicted.
2. Too low a margin of safety can result in small profits or losses: If an investor sets the margin of safety too low, this can result in them making only small profits or even losses, when the stock price does not increase enough to reach the true value they have set.

4. CANSLIM stock investment method

The CANSLIM stock investing method is a strategy researched and developed by William O'Neil. It is designed to be applied to a bull market, to identify stocks with high growth potential. Here are the seven criteria used in this strategy:

• C (Current Earnings – Current quarter earnings growth): Interested in EPS, profit growth, income from core business activities and comparison with the same period last year.
• A (Annual Earnings – Annual profit growth): 3 consecutive years of profitable business, ROE for the last 4 quarters is at least 17%, after-tax profit reaches the highest level in the last 3 years.
• N (New Product – New product and new management): A new product or new management can drive growth for the business.
• S (Supply and Demand): Stocks with less circulating volume will be an advantage, because limited supply will push the stock price higher.
• L (Leader and Laggard): Stocks with high growth and profit margins will often lead the industry in the future.
• I (Institutional Sponsorship): Stocks purchased by large organizations are often good stocks that have been researched by many experts.
• M (Market Direction): Determining the market's uptrend or downtrend is an important factor for the success of the CANSLIM method, because this method can only be applied when the market is in an uptrend.

Advantage:

1. The CANSLIM method provides specific criteria that investors can easily apply: The criteria in CANSLIM are clearly and specifically defined, helping investors to evaluate a stock in a logical and systematic way.
2. Bringing great returns to investors in the long term: If investors can find stocks that fully meet the CANSLIM criteria, they can gain great returns in the long term from the growth of these businesses.

Disadvantages:

1. Difficulty in finding stocks that meet all the criteria: Sometimes, finding a stock that meets all the criteria in CANSLIM is not always easy and may require careful research and evaluation.
2. Some qualitative criteria such as N (New Product) are difficult to determine the effectiveness: Evaluating qualitative criteria such as new product availability can be difficult due to the complexity and subjectivity of valuation.
3. Determining M (Market Trend) is also not really easy: If the investor misjudges the market trend, the CANSLIM method may not be applicable or effective.

Example: Identify DGW stock that meets all 7 CANSLIM criteria.

• C: with stable profit growth – average 20-30%/year.
• A: high net profit ratio equal to MWG, PNJ (3-5%).
• N: have new products for sale to increase revenue and profit.
• S: low number of outstanding shares compared to stocks with the same position in the industry such as MWG, PNJ,..
• L: has a leading position in industry growth compared to businesses with stock codes MWG, FRT, PNJ,...
• I: invested by large organizations and domestic and foreign funds.
• M: The market is going up with a long-term uptrend.

5. Investing in stocks according to technical analysis

The method of investing in stocks based on technical analysis is a method in which investors rely on the study and analysis of candlestick charts and past trading volumes to predict future price trends. This method mainly focuses on analyzing investor psychology based on price charts without depending on news or internal fundamental factors of the business. Investing based on technical analysis is used by many investors because it is an effective method and not too difficult to get used to.

This method helps investors better understand market behavior through price charts and trading volume. By identifying patterns and signals on the charts, investors can make buying and selling decisions based on predictions about future price behavior.

The effectiveness of investing in stocks using technical analysis is often proven through the practical experience and trading history of investors. At the same time, the use of technical analysis does not require in-depth knowledge of the fundamental factors of the business, making it easier for new investors to approach and apply this method.

Advantage:

1. Helps investors determine stock buying and selling prices based on price charts, without having to perform complex fundamental analysis: Technical analysis allows investors to rely on price charts to make stock buying and selling decisions easily and quickly, without having to dig deep into the fundamentals of the business.
2. Technical analysis has price indicators that are easy to apply to trading: There are many price indicators in technical analysis such as moving averages, MACD, RSI, etc., which help investors easily apply them to trading without too much difficulty.
3. Suitable for short-term trading: Technical analysis often focuses on short-term price trends, so it is suitable for investors who want to trade in short periods of time.

Disadvantages:

1. To optimize the method, investment experience and regular technical analysis are required: To understand and apply technical analysis effectively, investors need to have investment knowledge and experience, as well as practice technical analysis regularly.
2. Because it does not analyze corporate information or macro information, if there is negative news, technical analysis will be less effective: Technical analysis does not consider the fundamental factors of the business or macro information, so if there is negative news, it can affect the effectiveness of this method.

6. Stock growth investment method

Growth investing in stocks is a method in which investors look for small or newly listed businesses with high growth potential based on profit margins, costs, management, etc., and then buy stocks.

Unlike value investing and long-term investing which is buying stocks at low prices, this stock investment method can buy stocks at high prices but needs to determine whether the potential of the business is still large or not, thereby limiting the buying of stocks at too high a price when determining that the potential for price increase is too little.

Example: ABC shares are newly listed at 10,000 VND/share. You N identify that the business has a large profit margin, a product with potential to capture the market, and not too high costs; N buys shares and hopes that the price corresponding to the business's potential is 25,000 VND/share.

Advantage:

1. Profit Opportunities: This method allows investors to capture profit opportunities in the market by focusing on high potential growth stocks. Investing in growing businesses can generate significant super profits over the long term.
2. Easy to evaluate quantitative criteria: Some criteria such as profit margin, costs compared to competitors of the same size and industry can be evaluated easily. This helps investors have a clear view of the financial performance of the business.

Disadvantages:

1. Time-consuming evaluation: To evaluate stocks using the 4M method, investors need to spend a lot of time and effort to understand the business, competitive advantages, management and other factors. This requires patience and long-term efforts from the investor.
2. Difficulty in evaluating newly listed stocks or small companies: Newly listed or small companies may not provide enough financial information to evaluate using the 4M method. This increases the difficulty in making investment decisions.
3. Evaluating Leadership and Business Strategy: Evaluating a company’s leadership and business strategy can be difficult and depends on qualitative factors that are difficult to measure. Investors need knowledge and experience to make these assessments accurately.

7. 4M stock investment method

The 4M stock investment method was developed by famous investor Phil Town, based on four main criteria for selecting stocks: Mean (Understanding the business), Moat (Competitive advantage), Management (Management) and Margin of Safety (Margin of Safety). The 4M method helps investors have an overview and consider carefully before deciding to invest in a specific business.

• Mean (Understand the business): Investors need to buy stocks of businesses whose operations and industry fluctuations they understand well. This helps them have a comprehensive view of the potential and risks of that business.
• Moat (Competitive Advantage): Investors need to understand the competitive advantage of the business, such as a strong brand, low costs or good product/service quality. These factors help the business maintain and expand market share in a competitive market.
• Management: Although difficult to assess, a company’s management plays a critical role in executing its business strategy and shaping its future. Investors should carefully research its management and strategies.
• Margin of Safety: This is the margin of safety when buying stocks, usually 20-30%. Investors will buy stocks when the market price is lower than its real value, creating a reserve profit in case of negative fluctuations in the market.

Advantage:

• There are 4 concise criteria that investors can easily remember and apply, helping them save time and energy in the process of researching stocks.
• Although it only includes 4 criteria, they are enough for investors to evaluate and grasp the potential of stocks, helping them make effective investment decisions.

Disadvantages:

• The brevity of the criteria can also be a disadvantage as it does not provide enough information for investors to have a comprehensive view of the business. This can lead to important elements in the business's financial statements being overlooked.
• Some criteria such as industry knowledge can be difficult for investors if they are not active in that field or do not have full knowledge of that industry.
• Leadership and business strategy factors are often qualitative and cannot be accurately assessed from an investor's perspective, which can cause uncertainty when making investment decisions.

For example: DGC (Duc Giang Chemicals) is assessed by you M as meeting your 4M criteria.

• Mean: M has clearly understood that the core business is chemicals.
• Moat: the company has the advantage of good business results. As a leading company in chemicals,
• Management: the management and business strategy have been thoroughly researched by M on the Internet and some information in the company's reports,
• Margin of Safety: the current price of DGC is 100,000 VND/share and M determines the real value to be 140,000 VND/share with a margin of safety of (1- (100,000/140,000)) = 28,57% – a good margin of safety for the above stock.

8. How to invest in stocks according to cash flow

Cash flow, in the context of stock investment, refers to the amount of money that funds, traders or professional investors are holding and using to buy stocks in a certain period of time. Cash flow stock investment is a method in which investors choose to buy stocks based on observing and monitoring the largest buying and selling momentum in the market.

Advantage:

1. Investors do not need to spend too much time and energy researching specific stocks and still be able to make buying and selling decisions.
2. Buying stocks with large institutional money flows benefits from having analysts conduct thorough research on the stock and provide reliable information.
3. Finding stocks that are being bought heavily can be easier, helping investors identify potential investment opportunities.

Disadvantages:

1. This investment method can be too passive, making it difficult to determine appropriate stop-loss and take-profit points.
2. When a fund net sells a large amount of stocks, it can lead to illiquidity and cause a certain loss for investors, especially in the case of a few trading sessions.

For example: Mr. H decided to buy STB shares based on observing the continuous net buying volume in the last 3 sessions by self-employed organizations and foreign investors, with a rate 50-70% higher than the previous sessions.

Conclude

Article on HVA Hope to bring readers many methods of stock trading. Some methods you may already know but do not understand clearly, please find out clearly. Hope readers apply and succeed in stock investment. Please regularly update knowledge on HVA ok

Source: Onstocks