There are a number of different plays out there that
traders use to profit from the market and here are some strategies that I use
myself.
Dividend Play
This
strategy involves buying a stock ahead of a dividend news or rumor. Base on
historical performance of a company, one can determine if they will again give
dividends and proceed to buy in advance prior to the dividend announcement. As
the news of the dividend announcement is printed by the media, the stock rises
and you are in a good position to profit. You can either receive the dividend
or sell before the dividend date. As an example say ABS is giving an annual
dividend every April, thus a trader would go in ahead of this month in order to
profit and sell when prices surge up as the late comers want to get this stock for dividend returns.
There is
however still a risk to this strategy. In an event that the company is not able
to give its expected dividend or maybe business was not as good as last year,
expect the stock to drop a lot due to the same traders using the dividend
strategy or holders that are disappointed on not receiving any dividend from
the stock.
What
happens to a stock after giving the dividend you ask? well say the stock will
give 1 peso dividend then expect the price to drop by 1 peso also. The stock
would then continue to fall until it finds support or go up because sentiment
of the stock is still positive.
Sector Play
Stocks
are group into different sectors like finance for banks or conglomerates for
big companies, healthcare for hospitals, oil and gas and so on and so forth.
Sector play is picking and recording the certain sector in the market that is
very active and "hot". You then pick all the stocks that have already
rallied and try to trade the one who is yet to wake up or is what is commonly
called a laggard. Say for example finance has been rallying lately and big
banks like BDO and BPI are already in high prices. You examine all the
remaining banks that might be a laggard, say you find MBT is surprisingly still
cheap. You buy it and hold it until it rises and then sell it for a profit.
The
downside to this strategy is that the sector that is "hot" might
suddenly become "cold" or interest in it is diminish and a new sector
becomes the hot one. It's not that common but everything can happen in the
market. Another downside is that maybe the laggard stock you pick have an
underlying problem which is why it's not yet able to rally along with its
sector so better do your due diligence before jumping in.
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| A screenshot of the Different Sectors can be found at the PSE website |
Celebrity/ Guru Play
Yep
that's right you heard it right. In every season in the market would not be
complete without a guru or celebrity that would recommend a stock or cause some
buying rumors. By means of celebrity I am talking not about TV actors and
actresses but rather influential people in the market like say Warren Buffet
types. They would recommend buying or even selling a certain kind of stock and there would be rumors here
and there flying everywhere. How to play this is very risky but it could also
garner the most profits and losses. My suggestion is always to buy on rumors
and sell on news BUT always determine your risk reward so that whatever happens
with the guru picks, your capital is not 100% at risk if ever the guru is wrong
or when the trade doesn't work out.
Mergers and Acquisitions play
Say
company A is interested in buying Company B for a set price, normally rumors
would be flying out and a lot of speculators would be buying company B in the
hopes of profiting from it. This is similar to guru play, determine your risk
and reward if you want to go in but always keep in mind that there might be a
possibility that Company A might change their minds and thus stocks of company
B would expectedly drop like a rock as soon as the news is printed. If company
A goes on with their plans to acquire company B then expect to profit a lot
from the trade.
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| Recent news that LaFarge and Holcim merged |
Parent Company Play
I call
this Parent Company play but it's basically one big company owns another smaller
company and is both listed in the Market. Take for example SM which is the parent company owns a smaller company SMPH and is also listed is what I am trying to say. How this works is if SMPH, the smaller company makes a good profit then the mother company SM would most likely have good results or vice versa. As soon as
earnings announcement for either one of the company is release, you try to buy
the one that has not yet announce its earnings and you profit as soon as the
earnings is announce and more likely it would be positive results. Bear in mind
that the mother company must be in the same sector or same business as with the
smaller one.
Of
course the downside to this is that although they are under the same company,
the smaller or bigger company might not
mimic the performance of the one that had good result due to unexpected events
that we have not taken into consideration. There are also times that even
if both companies report good results,
the market might still not take notice of it, although it doesn't happen often
I have seen it happen before.
Well that's about it
for now, if you have other plays that you can share just comment below. Happy
Trading everyone!
