First trading day of the year and I’ve already screwed up myself. Today the stock market rallied up 2%. This is the strongest rally I have seen since I started buying stock. I was caught up in the excitement and this led me to make several decisions I should not have made.

1. Stock A had announced a dividend last month and I had bought Stock A to get the dividend. Upon the ex-dividend date, price dropped. This is normal. But the price dropped by more than the dividend and I knew that the price will come back up to a normal level. I had waited 7 days since the ex-dividend date. However, the market rallied and I was seeing a lot of stocks moving up in price. All except Stock A. I wanted to be part of the rally too. Against my better judgment, I sold Stock A at the Year Low price. In doing so, the losses had eaten into the dividend I have.

2. After I sold Stock A, market was already up more than 1%. I did not dare to buy into stocks that have already risen between 5% to 10%. Instead, I looked for stocks that have not budged from yesterday’s closing price. I assumed that when the market rallies like this, then stocks across the board will move up as well. I found one I liked, Stock B, and I bought it straight away. Why did I like Stock B? Because based on fundamentals, this business has good profit margin and the dividend yield is high. However, this stock is not one of those that attract active trading. I watched the counter for 1 hour and the price didn’t budge. Trading volume was thin. I was even more desperate to profit from today’s rally because time was running out. I sold Stock B at a loss.

3. I scanned my watchlist and found a stock that has fallen from the day’s high. This stock, Stock C, had strong buying pressure in the morning trading session and had pushed the price up by 20% and has since fallen back to 10%. I assumed that the sudden interest in Stock C is due to the interest from Fund Managers. These Fund Managers have been missing since the last week of last year and I thought they had come back. More importantly, it seemed to me they were buying up this stock. I bought Stock C immediately. I was right, there was strong buying interest, but the price didn’t budge either because the selling pressure was even higher. The price couldn’t move up and again, I sold all my shares.

4. Until now, I have bought and sold 3 stocks, all at a loss. I was disappointed with myself. I cursed myself and blamed it on my bad luck and impatience. I watched the other stocks that have risen between 5% to 10% continue rising to between 10% to 30%. Maybe I should have bought these stocks in the first place since the momentum appears to be there. I bought Stock D, a oil and gas counter. But I bought it at the day’s high and at almost the end of the trading session.

I hope come Monday, the market will rally like today and I could off load Stock D to recover some of my losses.

The important lessons I have learned.

1. Never assume or think that I am ahead of the market. Nor should I assume or think that I know which stocks will rise and fall.

2. Never put all my money into one or two stocks. If I had extra money, I wouldn’t have needed to sell Stock A in the first place at a loss to participate in the market rally.

3. Buy the stock. Don’t look at the market or the price. Just switch off and wait for the dividend. The more attention I pay to the market, the more inclined I am to trade, and the more likely I will make foolish decisions.

My sister invested a small sum of money into ETF just before the US mortgage crisis breakout. Her investment has fallen 42% since then.

Recently I have started trading stocks. I notice that a lot of stocks are undervalued. I invited my sister several times to buy shares but she has refused. She is not convinced that she will earn money from owning these shares.

This has also reinforced the argument that people invest in stocks based on market sentiments instead of basing on the fundamentals of the companies. During bull runs, people buy shares even when they are overvalued. And when the bears rule, people are reluctant to invest in shares even when the shares are sold at bargain prices.

Another point of view is that many investors are now waiting at the sidelines until the market has bottomed out. Their reasoning is, “Why buy now when I can buy later at a cheaper price?” True, but how many of us can spot the bottom when it comes?

I’ve read several books on value investing. In my mind, I’ve always regarded myself as a value investor. However, my first experience in trading stock proved otherwise.

My first trade has all the hallmarks of a speculative trade. I bought the shares of Zelan on the rumor that MMC will privatize Zelan. I targeted to dispose the shares on the same day with a gain of 1.5 cents a share. However, market momentum soon waned and I wasn’t able to sell the shares as intended.

Luckily the following day, market buoyed on the news of Citibank bailout and the Central Bank lowering the borrowing rate by 25 basis points. I was able to dispose off my shares. Hours later, the market was abuzz with news that MMC will not privatize Zelan.

This experience has taught me how easily it is to fall into the pitfalls of stock investing. I was tempted to speculate because I wanted to join the crowd and the temptation of a quick gain. If the positive news had not come out at the right time, I could have been stuck with an overvalued stock.

“Price is what you pay, Value is what you get.” – Warren Buffett

There are no good stocks, or bad stocks. There are only underpriced or overpriced stocks. Great companies with great businesses may not be great investments if you overpay for the stocks. Similarly, moderate or even mediocre companies or businesses could be worthwhile investments if bought at low enough prices. And that is the gist of this book.

Benjamin Graham (1894 – 1976) was the mentor and teacher of Warren Buffett. He was the founder of the discipline known as “security analysis”.

I bought The Intelligent Investor, after a few authors of value investing books I read made references to Graham and his book. And I am grateful to Graham for the knowledge, effort and time he had devoted into writing this book.

Graham outlined the model portfolio for defensive and aggressive value investors. He had also made references to the many bull and bear runs in the last century, highlighting the many different stocks that were overpriced or underpriced and their subsequent performances.

Graham introduced the of “Margin of Safety” as the central concept of investment. This concept is frequently used by Buffett to his great benefits.

I didn’t feel hyped when reading this book. I felt down-to-earth. Graham didn’t promise the sky or the riches. Rather, he highlighted the many rewards as well as pitfalls of stock investing. If he had written only about the rewards, I could have fallen into a false sense of security and over confidence, which could lead to undesirable consequences.

This book is a must read for all investors.

Today, I opened my very first share trading account. I chose Jupiter Securities because of its low transaction costs. Also, I haven’t heard bad news or complaints about them yet.

The RM10 CDS (Central Depository System) account opening account fee is waived. Saved RM10 there.

I chose to trade with “upfront cash” instead of “margin”. There are 3 reasons for me to choose this option.

1. The transaction fee for “upfront cash” is lower.

2. I am a long-term investor. Not a speculator. The shares I buy, I will keep. Hence, it only makes sense to me to buy shares I could afford to pay for in cash. If I use a “margin” account and buy more shares than I could pay for, then I will not be able to keep those shares. I will be forced to sell the shares even if at a loss.

3. The trading account pays interest on idle cash sitting in this account. And the interest rate is higher than what my savings account interest rate. It makes sense for me to park my cash into my trading account and leave a only minimal sum in my savings account. By keeping my money in my trading account, I will enjoy a higher interest rate while at the same time be ready to take any opportunities that arise in the stock market.