The Alchemy of Investment: Winning Strategies of Professional Investment

By Warren H. Lau

Why value investors and fundamental investors seldom time the market? It is because they often exclude a very important element that contributed to stock price movement: The News.

The low profile mysterious yet legendary investor Warren H. Lau has finally released his stock investing books series: Winning Strategies of Professional Investment. Warren H. Lau has spent more than ten years in the investment career, and succeeded through combined application of fundamental, technical and news analysis.

The Winning Strategies of Professional Investment is a series of investment education books for people who are not experienced to the stock market, and wish to build fast investment knowledge, and make money quickly. This series saves you time by offering the right paths.

"The Alchemy of Investment" is the Second Book in this series. While "Invest and Earn Quick" discusses the technical and logical side of stock price behaviors, "The Alchemy of Investment" focuses more on the emotional side of the stock market. Our studies show that stock price fluctuation is a combined results of different elements including economic figures and forecasts, earning figures and forecasts, news sentiments, greed, fear and hope of the market participants.

News based trading is a trading strategy where investors take advantage of the temporary mispricing of stocks due to the sentiments induced (or not yet induced) by the press.

What You Will Learn from This Book:
- What News Should Professional Investors Pay Attention To.
- How The Central Bank Policies and Bank Loan Policies Affect Stock Markets; and
- How to Identify the Stages of Bull-Bear Cycles through Analyzing the News Reports.

• Language: English
• Publisher: INPress International
• Release date: Jan 30, 2023
• ISBN: 9798215038635

Warren H. Lau

Warren H. Lau is currently C.E.O. of a tech firm, and has many years of experience in overseeing web-based development projects. The main duty of his job is to design and oversee the development of usable websites, mobile sites and mobile apps that are user friendly and immune to cyberattacks; at the same time, lead the marketing team to achieve business success. Before Warren H. Lau begins his career in the technology industry, he spent more than ten years in the investment career, and succeeded through a combined application of fundamental, technical and news analysis. He summarized all his knowledge and experience and published his investment book series: "Winning Strategies of Professional Investment".

Book preview

The Alchemy of Investment

Bull - Bear Cycles, Market Sentiments, and News Based Trading

Warren H. Lau

INPress International

Copyright © Jan 2023 Utopia Online Limited

All rights reserved

No part of this book may be reproduced, or stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without express written permission of the publisher.

Cover design by: Utopia Creative Studio

Printed in the United States of America

To My Family

Contents

Title Page

Copyright

Dedication

Foreword from Mr. King Cho

Preface

Prologue

Chapter I – What News Should We Look For?

How Central Bank Policies Affect Financial Markets

Pay Attention To: Government Bond Interests

Bank Loan Policies and the Stock Market

How Mortgage Interests Rates & Policies Affect Financial Markets

Stock Trading Stamp Duties

How The Stock Market Reacts to Employment and Unemployment Figures

News on Brent Oil, Petroleum Stockpile, EIA and OPEC

Some Insights on Earnings Forecasts, Quarter or Monthly Sales Figures, Interim and Annual Reports

When Investing in China, Definitely Government Policies. Its Everything!

Chapter II – Bull Market is Born from Pessimism....?

What are Bull Markets, To Be Accurate?

Bull Markets Grown on Skepticism, Mature on Optimism, and Die on Euphoria

Bear Markets are Born on Euphoria, Grow on Grinding Economies, Mature on Recession and Die on Panic

What are Bear Markets, To Be Accurate?

Buy When There is Blood in the Streets, Even the Blood is Your Own. Trust Me, There will Always be B

Sell Everything You've Got, When Everyone Else is Rushing In

A Brief Study of Panic Selling

Chapter III - Look for the Hints in The News

Absorb the Headlines. Feel the General Market Sentiment.

Bankruptcies, Bankruptcies, and Bankruptcies. The Taste of Blood! Yummy

News Sentiments At The Beginning of Bull Market 

The News Outlook During Recessions

Buy What the Media Doesn’t Want You to Buy; Sell What the Media Doesn’t Want You to Sell

The News Outlook and Market Euphoria

How Do Financial Markets Perceive Bailouts?

The News and Bull-Bear Turning Points

What is Sure is, The Market Always Over-React

Chapter IV – The Credit Cycle VS. Bull-Bear Cycles

Function of Central Banks

The Federal Reserve and USA Banking Industry  

The People’s Bank of China and China’s Banking Industry

Why The Central Banks’ Policies Determine the Bull-Bear Cycles

The Governing Dynamics of Stock Market

How Bull Markets evaluate to bear markets

About The Author

Praise For Author

Foreword from Mr. King Cho

Mr. King CHo

It gives me great pleasure to write this foreword for Warren H. Lau's investment works. I have known Warren from his childhood when I used to go to his mother's home to learn English. We have not seen each other for years. When I met Warren's mother again, i learned that he has become an author of many works. The clever little kid I used to know has now grown into a very mature and knowledgeable man with expertise in many fields of studies, especially stock investments. From his works, I found out that he could make very widespread, sophisticated and in depth analyses in stock investments, including new fields of studies in Quantum strategies applied to stock investments. These brilliant analyses are very useful for practical trading and have been proven to be extremely successful in application to real life situations. As a very experienced businessman with a wide network in many fields, I have most certainly learned a lot from him. I am sure to make use of his strategies in my stock investments.

From Mr. King Cho

Chairman of Vision (HK) International Investment Group Limited

Executive Committee Member of Guangzhou Federation of Industry and Commerce (General Chamber of Commerce)

Vice Chairman of Guangzhou Foreign Investment Enterprises Chamber of Commerce

Chairman of Presidium of Guangdong-Hong Kong-Macau-Bay Area Econoimic and Trade Association

Governor and Co-founder of In-heritage Philharmonic Orchestra

Preface

There was once a time when I was working as C.E.O. of a dot-com company. During that time my mailbox was always bombed with invitation emails sent from press release distributors.

The reason I mention press release distribution service here, is that the press might be a tool often used by market makers, investors or financial market players who are large enough to temporarily distort the market sentiments on their own will. I am not saying this is illegal. In fact, such way of press distribution is totally legal. The content of the press release would be totally authentic and legitimate; however, news content issuers have control over when or what to disclose at any given moment. With precise timing by the press release issuers, or the subtle but legal words used, including (but not limited to): estimates, forecast, future projection, or anticipation… … such news would have great effect on the market consensus and market sentiments, which, in short run, is one of the main determining factors of share prices fluctuations.

Prologue

Modern Press Release Business and the Stock Market

With the help of this IR tool, users can examine the direct connection between disclosures, corporate transactions, announcements, and subsequent stock activity of publicly traded U.S. companies. S. companies listed on the NYSE, Nasdaq, or over-the-counter. Options and stock prices reflect the ex-ante and ex-post price effects of quarterly earnings announcements.

Using quantitative style measures created through a fundamental computerized content analysis of a corpus of publications, quantitative analysis investigates the relationship between the stock market's response to earnings press releases. Capital market data is used in quantitative analysis to evaluate investors' influence on tonality and other stylistic elements. The regulatory context, structural characteristics, and the overlap of the informational and promotional functions of publication by using individual publications as examples are the main areas of focus in the rhetorical analysis of the earnings press release genre.

Included in this is a broad range of communication tools that are tailored to corporate news, press releases, and disclosure requirements of Investor Relations (IR). Data points that relate to the output of messages are combined in a new tool called Market Impact Report. The company's IR and PR teams have access to the complete report format. Show. A press release is an announcement made by a company to the public about something noteworthy or of significant importance. Companies use news services to announce things like new products, quarterly results, impending mergers, and other important information and then publish press releases to make them available to a large audience. These kinds of press releases are crucial because they inform shareholders and investors about events that you've highlighted in previous releases, like product launches or anticipated client agreements.

If a company chooses to disclose material information through a method other than a press release or Form 8-K, the MarketWatch division assesses the timing of subsequent disclosures by the company. Before the press release is released, a company must make a public announcement if the requirement to submit periodic reports outlined in Rule 5250 is not being met. Before issuing a press release disclosing changes to the terms and conditions of the unit, such as modifications to the original emission rebate or other significant tax attributes of the component, or changes to the ratio of components to units, the company must make the announcement and, as required by SEC rules, file a Form 8-K.

NYSE companies are required to disclose information that has an impact on the market for their securities under Section 2020.5 of the Listing Manual. According to this clause, a publicly traded company must notify the New York Stock Exchange by announcing important news to the market, as long as the NYSE has enough time to review the information and, if necessary, give the exchange permission to halt trading in listed companies' securities. If a company releases material news before or during trading hours, NYSCO may impose a regulatory trading stop on publicly traded corporate securities under the current version of Section 2020.6.

Section 2020.6 of the listing manual, which addresses the NYSE procedures for disclosing material information to the public when a listed company becomes publicly available, was amended by a notice the New York Stock Exchange filed with the SEC on August 27th, 2015. The business will be identified as being a component of a Nasdaq-listed business. . Because of this, some businesses are debating whether the appropriate channel should be employed to inform investors of their positive, negative, or neutral sentiment. In general, the form 8-K or SEC disclosure vehicle is used to give the public the information they need to make knowledgeable investment decisions about a public company.

Always keep in mind that major insurance providers like UnitedHealthcare and Blue Cross Blue Shield do not allow companies to use their names in press releases unless they are well-known or on a small scale. PR and news organizations need written authorization from management in some circumstances, such as network marketing firms and significant corporate announcements involving mergers and acquisitions, before using the stock symbol in a press release and approving distribution.

When new financial information hits the market and a company is revalued as a result, stocks often move toward profit sharing. A press release can boost SEO if it is distributed from a news source with a stock ticker, and it can help a listed company like SBUX as well as your own.

Our findings imply a correlation between greater market and share price movements and greater interest in corporate news. In other words, our analysis shows that, regardless of the movement's direction, interest in corporate news positively correlates with changes in the price of corporate shares. In other words, the daily return of shares does not correlate with the number of mentions of the company name made each day.

The Modern Press Release Distribution Service

A strong sales technology like Pressat is a dependable sales service that provides you with media coverage and raises the visibility of your business. For small and medium-sized businesses (SMEs) and business owners who need to promote their brand, the platform is recognized as a good option. Because they want to make sure they are sharing newsworthy stories that are pertinent to NewsWire, many businesses want to connect with Pressat.

You can use the service to distribute your release to the appropriate journalists without having to carry out the manual labor yourself. PR professionals pay to have press releases distributed to thousands of media outlets using platforms and services like BusinessWire, NewsWire, and PRWeb. By dispersing your publication worldwide, distribution has the potential to connect your publication with prestigious news networks, radio and television stations, search engines, industry trade publications, and blogs.

Because they trade with one another, some businesses must complete wire releases, but understanding how to send out a press release about the wire is essential to saving a certain amount of business time and money.

Strong press distribution services are provided by NewsWire and Business Wire, which also feature premium channels, cutting-edge targeting, and reporting. Small and medium-sized businesses, which strive for superior press coverage, can afford their prices. Dittoe Public Relations advises clients to research a service and weigh its advantages and disadvantages using a news service.

The top press release distribution services let small businesses reach a large audience of bloggers, journalists, influencers, and traditional and digital news media with their compelling press releases. The best PR sales services can write press releases for small businesses, startups, medium-sized businesses, and large corporations who need to spread corporate news and increase awareness. Businesses and organizations that want to publish their news online can use press release distribution channels like Business Wire, NewsWire, and PRWeb for significant announcements.

Within four business hours of receiving your content, PR Fire syndicates your publication with news organizations and journalists in the US, the UK, and the industry category of your choice. To make sure that your story reaches the news desks of traditional and new media platforms, you can also distribute your publication via significant wired services in the UK and Ireland. Their publication might also be posted on websites and social media platforms.

You can upload your publication, set a release date, add media, choose a category, and choose your distribution channel in just a few easy steps. More than 3,500 frequently visited news websites, online services, and news aggregators should receive your publication.

Numerous startups, companies, digital marketing firms, and PR firms use the news platform and service known as Link. You can share your stories here with your target audience and keep up with news stories that concern you.

As small businesses, they are searching for a sales service that will enable them to monitor the effectiveness of press releases and gain insights that will enable them to defend and enhance the efficiency of their investments. Business Wire users will find News Wire sales services to be simple to use, giving them the opportunity to publish their press releases to a sizable and targeted audience while also receiving in-depth press coverage. Business Wire is the service for you if you want limitless targeting and multimedia distribution options, and you don't mind spending some money to create and distribute a suitable press release.

The ability to target press releases at specific locations within an industry is a feature that many of the best distribution services for press releases offer. This feature is excellent for businesses looking to reach their target audience more widely. The primary objective of the majority of businesses is to publish materials and communicate with the more than 250 media outlets that make up the aforementioned industry. Releases can be dispersed strategically by a qualified team across sectors and geographical areas.

Journalists, international news websites, websites, bloggers, social networks, media influencers, wireless services, and other professionals are just a few of the distribution services that eRelease provides. When looking for multimedia integration capabilities and access to industry-standard mobile optimization and reporting tools, businesses should consider the best press mailing list because it is rated as being cost-effective and easy to use.

Businesses like PR Newswire and Business Wire started to create better methods of distributing news reports to the news media and other media in the 1950s and 1960s. For businesses, political campaigns, and other organizations, the traditional distribution model was to share information with the media, hire advertising agencies to write and distribute it, and then post the information on a news wire.

When compared to other marketing and technology sectors that prospered during the digital revolution, news and wire services saw booms and busts as their business models were drastically altered by shifts in media organizations, editorial trends, and the role of the press release industry. Although there has been some excellent analysis of PR sales platforms in the past, intelligence services and other PR-focused SaaS businesses have undergone a lot of consolidation and reorganization recently.

There are many different channels for distribution, but most of them are rather simple in comparison to other, more involved services like Business Wire. A sales service may or may not be an efficient use of your marketing budget, depending on your business, release theme, and PR objectives.

The News, The Press, Decides the Market Sentiments

The US Securities and Exchange Commission's Office of Investor Education and Advocacy (OIEA) is alerting investors to con artists' attempts to manipulate stock prices by disseminating false and misleading information about stocks via social media.

Additionally, the SEC issued a warning to investors, pointing out that websites that sell fantasy stocks and other products may be in violation of federal securities laws meant to protect investors from the abuse of the swap market. The purpose of this investor bulletin is to educate readers about societal norms, financial products, and their risks. The Securities and Exchange Commission's Office of Investor Education and Advocacy (OIEA) and the Financial Industry Regulatory Authority (FINRA) jointly published it.

The Investor Bulletin offers guidance on how to take into account the use of tools to analyze and gather information from social media before making investment decisions and attempting to forecast changes in the direction and price of stocks. A novel and significant dataset that combines data from news articles, search engine results, social media, and information consumption can be used to examine the effects of sentiment and attention variables on stock market volatility.

Market sentiment is measured using statistical and technical indicators. These indicators include shifts in stock prices, both positive and negative, as well as fresh highs and lows for comparison. We show that investor sentiment is quantifiable and that waves of investor sentiment can have observable, significant, and recurrent effects on both particular companies and the overall stock market. Market sentiment refers to how a trader feels about a particular stock and the market's trajectory. Investor perception of a specific security or the entire financial market is referred to as market sentiment. It goes by the name of focusing investor attention on anticipated price developments in a market and the general health of investors. If investors believe the stock market will rise, this is referred to as having bullish . Market sentiment.

For traders who prefer to trade counter-trend, market sentiment is essential. Investors may find undervalued or overvalued stockS & Profit from them depending on the market.

Investors select the top stocks for trading based on a variety of market sentiment indicators and measures. Because it influences the technical indicators they use to track and profit from short-term price changes caused by investors' attitudes to a security, market sentiment is crucial for day traders and technical analysts. "

Using news analysis, such as mood analysis and text stories about businesses and industries, investors have known for the past ten years how to assess market sentiment. According to Kenneth Statman, studies of investor sentiment are essential because they help investors identify and profit from stock market inefficiencies, giving them the opportunity to increase returns.

Investors who want to add specific stocks to their portfolio should have a basic understanding of how to research a stock and track its price. Financial service providers have their own social networks that allow users to share and discuss trading and investment ideas with other investors as well as access to share-specific social media sentiment data. These social sentiment investment tools made available by financial service providers assert to provide investors with a forecast of future market and economic performance, as well as potential trading and investment strategies and, in some cases, positive or negative stock valuations.

In a sort of aftermarket that exists in the stock market, shareholders of a company can sell their shares to investors who want to buy them back. Investors typically base their decision on a company's value to determine the price at which they are willing to buy or sell it. Some studies claim that because stock prices are so high that they attract investor attention, there is no correlation between them and sentiment information that can be used to forecast share prices. Empirical results show that investor sentiment predicts actual equity market volatility.

The relationship between investor sentiment and realized market volatility in complex systems has been studied in some studies in the literature, but no time-varying model has been used to investigate this relationship. The dynamics of this relationship based on thermally optimal paths are examined in the last section of this study using price data from the Shanghai and Shenzhen stock exchanges. Using seasonally matched stock offerings and SEO samples from the Chinese stock market between 2006 and 2019, we gauge investor sentiment at the individual share level and investigate its impact on share prices.

When there is an economic shock or significant social event that makes investors stop, take a step back, and consider what is going on in the wider world, stock markets typically correct themselves. When investors are in a bullish market sentiment, 70% of the stock prices in the High-Low Index trade below their peaks. In both the high and low indices, 30% of stock prices were trading at lows as investors sensed a bearish market sentiment.

The value of shares in companies like Apple, on the other hand, has increased dramatically over time, returning to investors hundreds of times their initial investment. Investors should hold their stock market investments for at least three to five years, according to experts. Long-term investors can benefit from a nice tax break by investing in shares.

According to Baker and Wurgler (2004) and Vieira (2011), a share's average book-to-market ratio of dividends paid and unpaid is a reliable predictor of investor sentiment. Because the rail industry was still relatively young and investors saw long-term potential, the market's sentiment toward rail companies was positive in the 1920s.

We Show You What is Not Taught at Schools

Chapter I – What News Should We Look For?

News determines the market sentiment, and sentiment is the determining factor of short term movement of share prices. In this chapter, we will discuss what news should professional investors keep an eye on.

Experts advise investors to keep investments for at least three to five years when investing in the stock market. If you have financial goals and have a longer timeframe, you are likely to make more money by investing in higher-risk asset classes like stocks and bonds instead of limiting your assets to lower-risk ones (such as cash and equivalents). By including asset classes in which investment returns are in the portfolio under different market conditions, investors can help to protect themselves from significant losses.    

We can not tell you how to manage your investment portfolio in volatile markets, but the SEC Office of Investor Education and Advocacy has issued this investor alert to give you the tools to make informed decisions. To this end, investors should seek independent legal and financial advice before making investment decisions, including advice on tax consequences. There is no guarantee that an investment strategy will work in all market conditions, so an investor should assess his or her ability to invest long term, especially during periods of market downturn.    

If you avoid the common pitfalls that new investors encounter when they first start out, investing in the stock market can be profitable. This implies that you should stay abreast of the top stock market news regardless of your investment strategy or your economic concerns. Even though passive investors might not be paying as much attention to economic news, it is still a good idea to invest money and monitor the current markets.

Keep in mind that, at their core, investors are people who have different pain points, intangibles, and criteria that they use to decide which investments to make. Investors will be interested in your business if you can demonstrate that you have the necessary parts in place because they will realize a return on their investment. Even if your company hasn't yet launched, you still need to demonstrate your goals, your plan for achieving them, and the