Have you ever heard your friend or relative says, " This ABC stock (bought at RM1) will reach RM2 in 1-2 years time." Then have you ever wonder how they know that this ABC stock will go up in the future? Or they just pluck the figures from the tree?
Someone (lets call this someone Forecaster) told me last year that stock A, listed on Bursa Malaysia, will go up to RM2-3 in 2 years time, when it was selling at RM0.88. I asked "How do you know that?" Then Forecaster explained to me, "Based on technical analysis, I believe A will go up to RM2-3 in 2 years time." In my mind, I was thinking, "Wahh, looking at a chart can tell you about the future of the stock price, unbelievable! If that's the case, I better stop working and look at charts all day long to become rich faster."
Forecaster further explained to me that one reader in a blog also has the same thinking and is very confident with his forecast (this reader sounds like fortune teller)! After doing some fundamental analysis on stock A, I told Forecaster "This stock has poor fundamental - high debt ratio, making losses, inconsistent profits, poor management etc.. I think you shouldnt buy at first (thinking if directly asking him to sell will result to dissent)." But he argued and fought back, pouring more of his energy in protecting his selection of stock. Well, human behavior is like that, I didnt blame him. Maybe my way of explaining/advising was incorrect. Nobody like to be criticized or condemned, remember this.
It has been more than six months since Forecaster bought stock A. Today, it hovers around RM0.20 (-77%). The stock needs to increase more than 4 times its current level JUST to break even! And more than 10 times to reach RM2! Of course you can say short term performance is not important and you still have about 1.5 years to prove that you are right. But to HOPE for a company with POOR fundamental to increase 10 times in value is like a wishful thinking to win the Sport Toto 6/52 jackpot.
To choose the right stock to buy, technical analysis is not the way. Heed Warren Buffett advice, "I realised that technical analysis didnt work when I turned the chart upside down and didnt get a different answer." The next time before you decide to buy a stock, make sure you do your homework. Analyse the figures and facts of the company. You are not right because some important individuals agree with you. You are right because of your FACTS and REASONS.