The Buddha taught that a man should build up his wealth righteously and gradually like bees build up their hive or ants build up their hill [ see the Sigalovada Sutta ]. This is his teaching on money management. Many gurus have said a lot about investing with good money investments. However, real examples have been rarely provided. In this post, I will take the readers to walk through this process with a real historical case study of investing in a Thai stock FLOYD using a Beehive4 investment plan. The Beehive4 plan consists of the following steps.
- Read stories in the price chart of the asset of interest.
- Identify the price range in which we can buy the asset cheaply.
- Wait until that condition happens in the price chart.
- Set a level of account damage (stop-loss level) that we can afford if the investment turned bad. This should be less than 3% of the account value (present values of cash and equities in the account). Divide this possible damage with the buying price to get the corresponding number of shares we could buy.
- Buy the asset, sell at loss when the stop-loss level is reached or take profit when the gain of 4% is obtained.
- Go on to look at other opportunities.
The picture above shows FLOYD hourly prices. From left to right, we can see that the price was in consolidation phase slightly above the SMA50 white line. During this, some investors voluntarily buy shares from the market makers. In hope that the price will go up due to the news about breaking operating profits FLOYD had performed lately, they set their stop losses ($ symbols) under the price bars (and off-course everyone knew about these stop-loss levels). With enough buyers in hands, the market makers want to buy those shares back at cheaper prices. So they drove the price down rapidly so that the buyers got panic and activated their stop-loss orders (stop hunting). The lowest price the market makers obtained their shares was at 2.16 THB. When stop hunting like this occurs, experienced investors whose eyes had been trained can see those invisible stop-loss and stop-hunting levels automatically. They then will join the market makers to buy shares at these cheap prices and wait for the market makers's price manipulation and later on public panic buying. They then will take profits there at reasonable higher prices. The Beehive4 plan suggests that this higher price to be around 4%. After the trained Beehive4 investors had joined the market makers, a price manipulation was activated by heavy buying orders until the supply dried up and the price started to climb. At this point the public started noticing the new rally. They come to join the market maker's buying and that drove the price even higher very rapidly. The share price peaked out at 2.74 THB in a few hours later. By that time, the market makers had sold their shares to the public for profits of as high as 20% and the Beehive4 investors had sold their shares for 4% profits. You might think selling shares at only 4% profit was stupid as it climbed up to over 20%. I confirm that it was not stupid at all since nobody knew how far would the price go. Statistically, the rally almost always goes beyond 4% so the Beehive4 plan would take only 4% profit no matter how far would the price goes later on.
When no more buyers showed up and the sellers were everywhere, the price surely plunged very quickly by jumping down across the gap from 2.60 THB to 2.46 THB and further. At 2.28 THB, someones bravely bought the shares and set their stop-loss levels just below that price. The market makers hit these brave buyers with another stop hunting down to 2.24 THB, collected their cheap shares and drove the price up again to 2.38 THB allowing another 4% profit opportunity. The cycle went on a couple more times each of which had stop hunting down to the ascending SMA50 white line. The price recovery showed a sign of saturation when it reached the gap near 2.46 THB.
I started spotting this stock when the major stop hunting and big rally to 2.74 THB had already occurred. It's well-known that a gap would mostly be closed. So the probability that the price would go up to at least 2.60 THB to close the gap was high. If the shares were bought at 2.48 THB, we could afford to lose up to 3% of the account size of 134,252 THB which was 0.03*134,252 = 4,028 THB. If we set a stop-loss level at the lowest price during the major stop hunt or 2.16 THB, we could afford to lose 0.32 THB/share. So, we could buy up to 4,028/0.32 = 12,587 shares. This number was rounded to 12,500 shares. We therefore needed cash of 2.48*12,500 = 31,000 THB for this transaction. This investing money was 31,000/134,252 = 23.1% of the account size. If we took profit at 4% or 2.58 THB, that would be 2.58-2.48 = 0.10 THB/share in profit or 0.10*12,500 = 1,250 THB. Note that our target was actually one spread below the gap closing level of 2.60 THB. With all things considered, the buy order of 12,500 shares of FLOYD was transacted on 20180518 10:18 at 2.48 THB. Stop-loss level was set to 2.16 THB and profit taking was set to 2.58 THB.
A few hours after buying 12,500 shares of FLOYD, the price suddenly shot up to 2.54 THB not far from the target price. Just two hours later the price plunged down abruptly and turned into another stop hunting for those buyers who set their stop-loss levels too tightly. This stop hunting did not hurt our investment since it was still far from 2.16 THB. The recent peaks of 2.74 THB and 2.54 THB had then set a supply line for the latest stop hunting to overcome. The first candlestick that completely broke above this supply line occurred on 20180525 09:00. This bar also broke above the SMA50 line before climbing up to hit the profit taking target at 2.58 THB as expected in the last trading hour of Friday 20180525. The return of 4% in seven calendar days was not a tiny one. It was equivalent to a lucrative compound interest of 685.58% per year. So if we consistently invest with a Beehive4 plan and maximum possible damage of 3% of the account size, the wealth would be collected sustainably like the bees building their hive or the ants building their hill. Although, each chunk of material used by the insects is very little, the size of the home keeps growing rapidly.
Investors who want to learn how to read market stories from the charts can consult me (Dr. Nimit Chomnawang) at [ m.me/nimit.chomnawang ].
