Here was my answer: 

In my initial years as an investor, I did. I used the Simple Moving Average (SMA), a technical tool that shows generic movements or patterns of stock prices, be it moving on an uptrend, sideways or a downtrend. At that time, I would consider myself a value investor who uses the SMA to time the market a bit better. Thus, here was what I did in the past when investing: 


1. Find stocks with strong fundamentals (business model, finances … etc). 

2. Calculate valuation ratios (P/E Ratio, P/B Ratio, and Dividend Yields). 

3. Use the SMA to ascertain if the stock price is really at its ‘bottom’. 


Come to think of it. 

I too was concerned about a fall in stock price after buying it and I was trying to validate my investments with the assistance of the SMA. 

Those were my rookie days. 


Here is my answer today: 

I have repented and ditched the SMA. 

Is it because the SMA is not a good technical tool? Nope. 

I ditch the use of SMA or any other technical tools (EMA, MACD, Stochastics … ) as over time, I realised that I don’t have any intention or interest to do trading. 

I felt it is better for me to make a distinction between investing and trading. 

Their differences are like night and day. So, I think it is hard to master both well. 

Since my initial years, I have reaffirmed my own purposes for investing in stocks and to me, my purpose for investing into a stock is to own a business that: 


1. Offers products and services that add value to the community. 

2. Has the ability to compound wealth via expansion and innovation. 

3. Pays out regular and increasing dividend income over time. 


I view stocks as stores of wealth and investing in overseas listed stocks (such as: SG, HK, and US) would allow me to keep a portion of personal wealth in foreign currencies. Hence, with my purposes refined, here is what I do now to invest: 


1. Find stocks with strong fundamentals (business model, finances … etc). 

2. Calculate valuation ratios (P/E Ratio, P/B Ratio, and Dividend Yields). 


No more technical tools. 

But why? Aren’t you concerned that stock prices may fall after buying them? 

Well, not anymore. The reasons are: 


1. I learnt that it is an impossibility to predict stock prices. 

2. Stock prices can go anywhere after buying them, be it up, down, or sideways. 

3. I intend to accumulate more shares if the stock price falls after I buy. 


This means, I buy a stock with the following mindsets: 


1. I like the stock and would like to keep it. 

2. I know what I will do with it if the stock price goes up, down, or sideways. 


Hence, I find that technical tools are of no help to me in investing. 

Look at it this way. Let me offer you three examples below: 


Scenario 1: 

Let’s say, you like to invest in a stock. It is a good stock and its P/E Ratio is low. If you use technical tools, they indicate strong signals to sell. Thus, the question is this: ‘Is it better to buy or sell the stock?’ 

What will be your answer? 

Which will have greater influence on your decision to buy or sell the stock? Is it: 


a. The stock’s fundamental qualities?

b. The stock’s valuation ratios (P/E Ratio, P/B Ratio and Dividend Yields)? 

c. The stock’s technical indicators? 


Will you buy or will you choose to adopt the ‘wait and see’ approach? 

For me, I have an easier time deciding on it as my decision to invest in a stock is not clouded by technical tools and other people’s opinion or views on a stock. 


Scenario 2: 

Again, you like to invest in a stock. This time, the stock’s P/E Ratio is high. But, if you look at its technicals, they show a strong buy signal. So, the question is this: ‘Will you buy the stock?’ 

What then will be your answer? 

Perhaps, you may ask, ‘Well Ian, what about yourself? Will you buy it?’ 

Here is my answer. If it is me, I would be aware of the stock’s high P/E Ratio, but I will not be aware of its technical insights. 

So, I would still prefer a stock that has a lower P/E Ratio. 


Scenario 3: 

Now, let’s say, I have invested in a stock when it was undervalued. 

Over time, it had appreciated and thus, its P/E Ratio becomes much higher. But, if you look at its technicals, they indicate a strong sell signal. So, the question is, ‘Will I sell my stock because of its strong sell signal?’ 

What about yourself? Will you sell? 

Typically, for me, I won’t sell as my intention is to keep them for life. Hence, you will not find me trying to sell it off as soon as my stocks hit certain target prices. Like I said, I’m not a trader. I collect and accumulate stocks. 


Conclusion: 

I don’t think using technical tools is helpful for investors to invest better. 

This is because technical tools are built for stock traders to trade better and it is better for all to make a distinction between the two. So, this also explains why I don’t teach technical tools in DividendVault.com or use them to invest in stocks to build my own stock portfolio. 

To conclude, I’ll leave you with the following: 


1. Define your purpose for investing in the stock market. 

2. Reflect on the 3 scenarios above. 

3. Determine your ‘logical and emotional’ answers to the scenarios. 


Ian Tai
Ian Tai

Financial Content Machine. Dividend Investor. Produced 500+ Financial Articles featured in KCLau.com in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore. Regular Host and Presenter of a Weekly Financial Webinar with KCLau.com. Co-Founded DividendVault.com, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.

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