Although he has not qualified to be the next Genius kaChing investor yet, he is certainly nearing qualification with a kaChing IQ of 124.  Most importantly, it’s his passion to learn and the unrivaled drive to get involved that will get him there.  As a seasoned kaChing player, he shares with us today his background and tips on how to become the next Genius investor.

“Can you give us more on your background Chris?  What do you do full-time?  How did you get into investing?”

My academic background is in Economics and Science at the University of Toronto. I also have a background in computer software programming and design. My day job is in IT business consulting and project management, so my work involves being a translator between end-users on the business side and the technology staff who implement the solutions. I also have a license to sell real estate with a particular focus on residential condominiums.

I was first introduced to investing when I was in high school, but spent more time on investing and learning about the market after university. At the time, it was a personal hobby.

The stock market is very frenetic and deceitful. Yet it is a place where one can keep learning new things. Yet, I find that amidst all the chaos in the stock market, an investor may be rewarded through patience and hard work, with of course a bit of luck. The former two are precursors to possessing trading “alpha,” the value that differentiates traders who match stock market performance and those who exceed it.  What I find most fascinating from market participants is that investors are always looking the holy grail of investing. That is, that things are different this time and that it is possible to make money without enduring any risk. But as Mark Twain said, “History doesn’t repeat itself, but it rhymes.”

“You’re one of the most involved investors in the kaChing community.  How did you run into kaChing and what is it about kaChing you like versus other investment communities out there?”

Instead of falling into the allure playing zombie applications, I wanted to pursue my interests in investing on Facebook. I found kaChing (it was known as “FSX Player” or “Hedge Stop” at the time) from Facebook while searching for financial applications. I added both a mouse trap game application that made “real” money by selling “virtual” cheese to users, and kaChing.

I was involved with any other variant investment communities well before “social networking” became mainstream, back in 2000. WSJ and other newspapers interviewed me about kaChing and actually asked me the same question. My response was that I had my experiences with Marketocracy and iExchange (iExchange is long defunct and a victim of the dotcom crash and I don’t use Marketocracy).

I am sure the other investment communities have their strengths and weaknesses, but I prefer to stick with one investment community. The advantage of having done so is it that I forged connections (both collegial and ones that are antithetical) with kaChing’s virtual community. What is most interesting is that investing is a common language regardless of nationality, race, or locale. As a result, I built virtual friendships with members from such countries as Britain, Singapore, China, and of course the United States.

“So what is your trading strategy?  What type of tools and resources do you use to make your investment decisions?”

My investment strategy starts first and foremost with this idea: don’t lose money. This is easier said than done. After that, I read the business news to look for new investing ideas. When I identify a potential investment, I learn about its business, its product and about its executive management. If the company’s business is too complex, I pass on it.

Next, I identify all possible risks for the investment opportunity:

-          Company risk (i.e .competition, health of balance sheet)

-          Market risk (i.e. a high p/e stock price influenced by a frothy market is inherently riskier)

-          Uncertainty (i.e. what are some general extraneous circumstances that cannot be identified but need to be considered?)

Since risk in and of itself cannot be predicted, I quantify this risk using a range of values, and then determine a margin of safety needed to make the investment worthwhile.

I calculate the intrinsic value of a company using a variety of methods, then compare this to the stock market value of the company. If the difference between the two values is significant enough against the margin of safety, I will make an investment in the company.

Investing is as much an art as it is a science. The art involves making decisions on what tools to use to calculate a company’s future earnings power. The science is the math involved in making these calculations. When the two come together, a stock price is determined as well as downside stock price target.

Currently, my virtual portfolio (http://www.kaching.com/kaching#portfolio/5916/holdings) is hedging for downside risk. This is accomplished by holding 2/3 in cash, diversifying, holding short positions, and averaging into positions as sentiment changes. That is why my trading performance since March is essentially a flat line.

Finviz.com, yahoo finance and google finance to be very good resources for quickly checking out potential investments. I also follow a few reputable blogs to get another perspective on the interpretation of markets.

My trades are not made on the basis of blogs. The reason is that I prefer to formulate my own trading ideas. If and when trading mistakes occur, I prefer to own up to them instead of looking for other reasons why the investment did not make money. Finally I assess the balance sheet of the company from the quarterly and annual filings.

In the last year and a half, I’ve been more “academic” to gain a more philosophical approach for investing in the stock market.

I read books from Taleb (“The Black Swan” and “Fooled by Randomness”) and Malcolm Gladwell (“Outliers” and “Blink”). I also read books from Michael Lewis. Most importantly, I spent more time learning Benjamin Graham’s “The Intelligent Investor” and “Security Analysis.”

What I found most frightening was that Graham’s identification and discussion of bubbles in “Security Analysis” was just as applicable when it was first published in 1934 as it was to the dotcom bust of 2000 and the housing bubble.

“You’re not a Genius kaChing investor yet, but you’re also very close.  As a veteran player in the kaChing community, can you share your learning on how to become the next Genius investor effectively? It’s clearly more than just return”

For beginners who have never invested, join my “Beginner’s Guide to KaChing Trading” group. It has over 1000 members now. Join “Intelligent Investing” too.

I noticed that many beginners come in for stock tips or have no idea how to trade. I was there once, so I can relate to this.

I would advise these members to first read the FAQ and the glossary. Unfortunately, the content is somewhat “intermediate” level in nature, so users should also supplement their experience on kaChing with investpedia.com.

For experienced investors, I encourage these members to interact with other good traders and investors on the site. You are bound to find like-minded investors. Focus on risk-adjusted return, not just return. A genius investor is not defined by its connotation, but on an “alpha.” Alpha by definition is a measure of skill as opposed to luck. It is quantified as the risk-adjusted return one makes based on an accurate non-consensus viewpoint of the market that is also correct. I learnt about this very concept from kaChing’s very founders.

“Chris, we know you have other work outside of investing during your day, but you devote a lot of your time researching and trading.  What drives you the most when it comes to investment?  Do you recommend it to everyone?”

I am liberated when I do not depend on the analysis, thoughts, and opinions made by others.  I enjoy pouring deep into financial statements, reading the small print (of footnotes) and looking into things where others are not. It is a great feeling to formulate ideas in the form of research and being right.

I took a lot of heat over on seeking alpha for my short-idea in First Solar. (http://seekingalpha.com/author/chris-lau). Still, some of the critiques were useful and I applied them to other research write-ups.  On a positive note, I received positive feedback on my long idea on Ford.

“If Wall Street disappeared tomorrow, what would you be pursuing?”

If Wall Street disappeared, I spend more time travelling and seeing the world. I would spend more time practicing the violin so I could perform. My aim would be to work my way up, be discovered, and be popular enough to perform in Carnegie Hall, New York.

Thanks Chris for your thoughts, and best of luck on your journey to becoming the next Genius kaChing investor.