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>>Back to the articleJuly 13, 2008Buy low, sell high: It's not that simpleThe general rule of thumb in stock investing may seem straightforward, but it is not as easy as it sounds.Lorna Tan asks experts for their investing strategies and tipsEvery stock market investor knows the old adage: Buy low, sell high. It sounds easy but in reality, mostwill agree that it is not always possible to catch stocks at their lows and their highs.Even seasoned investors are caught in a bind when markets head south and there is negative news allaround.Since the start of this year, the Straits Times Index has slipped about 15.5 per cent.One burning question that pops up often: When does one buy and when should one exit the market?With the current volatile market exhibiting unclear signs on where it is heading, experts like Ms CarmenLee, head of research at OCBC Investment Research, advocate investing in blue-chip stocks.On the other hand, Mr Winston Chong, a director of financial advisory company Life Planning Associates,prefers undervalued stocks as they tend to be under-researched and overlooked by analysts and thusresult in great bargains.Selling at the right time is also crucial. Mr Dennis Ng, an avid stock investor and founder of mortgageconsultancy portal www.HousingLoanSG.com, is sitting on a 300 per cent gain over four years after he sold80 per cent of his stocks last year. Now flush with cash, he is stock fishing.Here are some investing strategies recommended by experts:

Buying strategiesTarget and hold blue chips

For investors without the luxury of time to constantly monitor the market, it is best to stick to investing incore blue chips with good fundamentals, profitable track records and strong management.Said Ms Lee: 'In these uncertain market conditions, we advocate a stock pick strategy of investing inquality stocks, which may still be subject to the present weak market conditions, but are better positionedto post good long-term growth.'So if you are already invested, re-examine your holdings. If your investments are quality stocks, hold onto them and look to buy more if prices ease further. This is because such stocks are traditionally the firstto move up in any uptrend.In addition, most blue chips in Singapore offer fairly decent dividend yields which will also support interestin these stocks at lower levels.

Bank on promising business models

Mr Ben Fok, chief executive officer of Grandtag Financial Consultancy, will buy a share if he likes thebusiness model of the company.

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'I will hold on to a share as long as I still believe the business model will still work in the future,' he said.That is why he is still invested in water-treatment company Hyflux. 'Water treatment is a specialised areaand there is a high entry barrier to the industry,' he explained.He had first bought Hyflux shares in 2004.However, if you had bought technology stocks during the tech bubble in 2001 and are still hoping for arecovery, Mr Fok cautioned that it is unlikely to happen. This is because the upsurge then was built onpromised earnings potential that did not materialise.

Aim for 'turnaround' companies

Ignored by most investors, investing in companies that are turning around is one of Mr Ng's favouritestrategies.The trick is to look for companies which have a history of incurring losses for a couple of years.By studying the developments of such companies in detail, you may find some that are about to 'turn thecorner' and become profitable again.This was what led to his purchase of MediaRing two years ago at 17 cents per share and China Aviation Oil(CAO) at $1.50 a share a few months ago.An additional factor to consider before buying into turnaround companies is to ensure that they are notburied in debt.'For MediaRing and CAO, I bought them after previous debts were settled through debt-restructuringdeals,' he said.Mr Ng sold his MediaRing shares and some CAO shares at 30 cents and $2.50 respectively last year.

Look out for bad news

Another buy strategy is to rely on bad news.For example, some share prices decline because of poor earnings for a particular quarter. Mr Fok said thatif this is likely to be a temporary phase the company is going through and that its earnings may go back tobeing robust in the next few quarters, it may be worth it investing in the company.An exception to this is when the company is in dire financial straits which may lead to insolvency.Tip: Study the bad news first.

Spot undervalued stocks using PE ratio

You can use the price-earnings (PE) ratio as a tool to find undervalued stocks.For instance, spot a stock which is selling at low PE ratios and heading for robust earnings growth. Thisway, your downside risk is likely to be smaller and your upside potential promising.PE ratio is the ratio of the current stock price to its earnings over the last 12 months.For example, a company trading at $21 a share and with earnings over the last 12 months of $1.20 ashare would have a PE ratio of 17.5. The PE is also known as the earnings multiple or price multiple, as itshows how much investors are willing to pay per dollar of earnings.

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