Risks & Rewards of Investing in FRE & FNM

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I bought FRE & FNM at about $0.60 and I have made 150% paper gains for these two stocks to date. Despite getting frequent reminders from my buddy to take profit, I am sticking to my original trading plan.


My trading plan
• Stock price target: $25 (FRE historical high is about $70, FNM is about $80)
• Time frame: 3 to 5 years

Potential Rewards
• 4200% (from $1,000 to $42,000) each stock


Risks
• I can lose EVERYTHING if FRE & FNM bankrupt or delisted from the stock exchange due to company re-structuring to clear all the bad debts & toxic assets! I am prepared to lose a total sum of $2,000 on FRE & FNM when I first buy the stocks.

My Risks Assessment on why I think this is a good bet!
(This is more like a gambling instead of calling it as investment!)

• FRE & FNM will not go bankrupt as US government has spent some much tax payers’ money to bail them out. They should have gone bankrupt long time ago if US government wants to do so.
• Real estate is one of the three main pillars of the economy recovery besides transportation/communication and finance sector. FRE & FNM play very the important roles to ensure real estate and property market in proper recovery path.
• FRE & FNM may not go back to previous high or reach its past performance. There is an extremely high probability the price will go up in the long term and the upside potential is huge!

Thus, in my opinion, FRE & FNM are good investment with calculated risks. The profit potential is extremely handsome even though it does not reach my price target. Of course, the assumption is they will not get de-listed during my investment time frame. Hope Murphy’s law does not applied here!

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StarHub – Big sell down!

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StarHub had big sell down with huge volume for two days and closed at $2.00 as StarHub lost its bid on English Premier League rights for 2010-2013 seasons to SingTel. The stock price broke 200D MA support line and $2.01 level (38.2% Fibonacci Retracement level).

The stock price may move further down as StarHub’s future earnings will be affected. Will continue to monitor this after shock effect of StarHub stock price and have no hurry to enter the trade until StarHub’s management give a new guidance in the coming quarterly earning briefing. StarHub dividend will probably be affected as well.

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Two key challenges in stock investing

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After trading stocks or investing stocks for few months, I conclude that there are two key challenges to overcome to be successful, ie.
1. Need to have patient to WAIT.
I have made mistakes that I have no patient to keep my original plan to stay out of the market until the major correction is over. I was to too eager to enter the trade two weeks ago after I saw the stocks under my watchlist meet my entry targets. Now, my money is stucked in those stocks while the market has started the correction these few days.
2. Control the emotion (basically Greed and Fear).
Sometimes the Greed and Fear overrule my rationale and take over my original trading plan. Some stocks were sold too soon due to fear and lesser profit made; some stocks were bought too early (worried that I may miss the uptrend) and my money got stucked as the stock price moved south or sideway.
I have to overcome these two challenges otherwise I will never be successful in making consistent money in the stock market regardless how good I am picking a good stock, doing a great analysis and developing a superb trading plan.
“Good plan is as good as none if I do not execute the plan with good discipline.”
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