Highlights

Choivo Capital

Author: Choivo Capital   |   Latest post: Sun, 13 Jan 2019, 02:51 AM

 

(CHOIVO CAPITAL) Busting the myth of the stock market operator.

Author:   |    Publish date:


One of the funnier things I come across in the KLSE market, which one very rarely sees in other markets such as the S&P etc, is the sheer amount of people who seem to believe in the existence of the “Stock Market Operator”. Or if they do exist, the retailers here definitely over-estimate the effects of their actions.

The concept of the stock operator in the modern days does not make much sense to me. I understand this was rampant in the 1920’s before the commissioning of the Securities Commission and bucket shops were common.

In terms of the bursa, something like the bubble of 1995 to 2000, it may very well be true, but in this day and age. It simply does not make sense.

Now to be fair, it can still happen, the market in malaysia is actually really small. Companies we consider large here is barely even 1% of market cap of the top companies in the S&P or Nasdaq. And here, EPF etc do hold alot of power compared to the overseas markets, where the sheer size, ensure that no one has that much financial clout, other than the index funds these days.

Of course, they still happen now and then, the most recent was in 2013-2014, where Blumont Group Ltd (Blumont), Asiasons Capital Limited (Asiasons) (now known as Attilan Group Ltd) and LionGold Corp Ltd in the SGX, were manipulated by individuals to a high price for some funds to show positive IRR, among other reasons. Feel free to google and read up.

Before it crashed and wiped SGD 9 billion in market capitalisation instantly. The stocks lost more than 95% of their value and are still penny stocks, and true ones too with zero fundamentals.

Now, let’s look at some of the contradictory and downright illogical statements.


The Weird Premises

1) “The operator is selling down the price in order to buy more”

So, im guessing that the operator really likes the company and want to buy more of these shares.

And so, the logical thing from him to do is to sell the shares he currently own in order to depress the price, and then buy them afterwards?

Of course, for some reason, unlike when he sold shares and caused the price to drop. His buying this time will not result in the increase of price? Is he buying less then?

Wait, does he like the company or not now?

If he bought th same amount, there will be zero net effect, except he is now quite a bit poorer after paying very hefty transactions fees. I think the broker for this guy must be very pretty. 

2) “The operator is pushing up the price in order to sell”

This one is even weirder. This person, dislikes the company and want to sell the stock.

And so what he will do is buy more at increasingly higher prices, in order to sell the stock? And again, his subsequent selling of the now increased amount of stock will not result in even lower prices? Is he selling less?

Does he actually dislike the company now? Sure looks like he wants it!

Assuming he actually does want to sell the stock, in this case he not only pays transaction fees, but also distribute some of his wealth to the holders of these shares he does not want.


And sometimes, when one of these stock market operator believers see your logic, they come out with this even more ludicrous statement.

3) “The operator main goal is to keep the stock within a certain price”

Why!?

Because he wants to sell the stock in a future? Does he have a locking mechanism in this stock? In this case, is he going to buy more of the stock he wants to sell !?

Or because he wants to buy the stock in the future. Maybe he’s going to get a big inflow of money soon. So is he going to sell the stocks he currently have to keep the price down in order to buy the stock in the future?

Again his future sale or buying wont affect the price regardless?

One wonders how he can even be in this position of being rich enough to affect the market if he made so many odd and plain wrong decisions. I would love to have been his broker though.



Real Life examples.

The most recent example I can think of, was the one in Ekovest.

People said and I quote

“Botak/the company will want to push up the price of Ekovest to RM1.50 so that can swap directly with IWCITY shares”

I have no doubt that Lim Kang Hoo and Ekovest would love the price of their stock to be RM1.5, but why on earth would they push it up on their own, if they are even capable of doing so!?

Ekovest is a RM2.2 bil company. During the drop to RM0.9, they bought almost 11 million stocks and it barely affected the fall.

If they wanted to push it up, assuming no change in sentiment, they will need at least RM500million to RM1 billion. And it is no guarantee.

And to top it off, 95% of their net worth is likely to be tied up in the stocks already, where will they find the money? Borrow from bank?

And they are going to do all this, when the company can just pay the RM600 million for those shares?

Which leads us to the second example, Airasia. In this case, the owners actually did borrow from bank to buy the stock at a very big discount (didn’t seem like it then though).

And we can see it these days, dividend pay-outs to support the stock price, and I suspect interest payment on the margin line. It would be a disaster in the price if he even sold 1 share. 

And very consistent cheerleading by Tony Fernandes. God knows he better support the price.



The players that are often thought of as stock operators.

Now, as human beings, it is not uncommon for us to think as if there is someone out there trying to get to us or support us. Heck, the majority of people believe in god (someone unknown who wants to help us) and the devil (Someone unknown who wants to get to us).

I'm not going to debate religion here, but this is not the kind of mindset one should have in investing. (If you feel different of this statement, let me know in the comments below, im curious)

And here are the groups that people often think of or mistake as the operators. 


1) Investment banks that issue warrants

This may be somewhat true, however, do note that often banks do not just issue a warrant like that. They usually already hold the stock, and use the warrant sales as a hedge to limit losses, which also limits the upside.

If they sell the stock they hold in order to push down the price so that the warrants they sold will be out of the money, this could work. But it would also mean they would suffer losses on the stocks they sold. And there is no guarantee that the sale will generate the needed outcome.

It can only be done, if the company on which the warrants is issued is small, thinly traded, and on the last day or 2 before expiry. And companies that fit these criteria’s are often not popular enough to have warrants sold for it.

And you also need to do a expected value calculation, to determine at what point, does it not make sense for you to sell the stock and miss out on the gains, in order to save some money on the warrants.

Often, the answer is, not worth the trouble or zero net effect.

2) Investment groups / syndicates and Bonescythe

The second groups, are the Bonescythes of the KLSE or stock syndicates. As usual, they often choose small cap and thinly traded companies, buy beforehand, and then try to sell it to their followers, who will then buy and try to sell it to the public.

The entire I3 is full of them. That weird merlin guy or whoever. Or that spartan something.  I honestly cant bother finding out who they are, unless one of the founders of this group, for one reason or another, likes me alot and wants to tell me what to buy before everyone else!

Alright, lets be serious.

If you rely on these groups, or am the owner, I doubt you have anywhere near RM100mil in terms of bullets, even if you include your followers.

This is the amount i think you need to really make an impact or be able to consider yourself a stock operator, so that you can now go and pay money to broker or distrubute your wealth to KLSE investors.

Why? As groups get bigger, an increasing amount of people will not get to partake and sell in that initial spike and will only lose money, causing the promoter’s or syndicates reputation to be destroyed. Soon, they can write all they want and nothing will happen.

We can see this for bonescythe now. A year back, when he write, he knows he can expect 5-10% tomorrow. Now, he write till cow come home, the price still wont move.

It becomes very hard to scale or do effectively. 


Conclusion:
At the end of the day, stocks go up or down mainly due to 2 reasons only. Fundamental and sentiment (valuation expansion or contraction).

There is no point thinking about the operator etc, if one even exists. You just severely complicate things for yourself, because now, you need to think about price movement as well, due to the random actions of some unknown person.

Talk about a waste of brain space.

Focus on what you can control. For me, it’s my ability to determine the range of intrinsic value and the constant struggle (it’s actually really fun) to improve this ability.

Cheers.

 

====================================================================

Facebook: Choivo Capital
Website: www.choivocapital.com
Email: choivocapital@gmail.com

Share this

  2 people like this.
 
Koon Bee Agreed with you especially about bone bone. Bone in dilemma now
21/01/2018 02:22
spermwhale You think the ibs issue so many call and puts just to lose money?
21/01/2018 07:35
Flintstones Lmao. Bonescythe burnt.
21/01/2018 07:59
OrlandoOIL Tat weird merlin guy didn't answered my question on hw sumatac wil solve its debt problems thn next thing d price flew by 50% knn

If no got operators hw sumatac flew like tat ? Can explain?
21/01/2018 08:18
cheoky wow you are like 60 years old uncle plying in the market for donkey years.
21/01/2018 08:27
Patron Only fools believe in conspiracy. I know an old fart from Singapore always label me as “syndicate” who tries to push down his recommendations which makes no sense to me.
21/01/2018 10:01
BLee "1) Investment banks that issue warrants

This may be somewhat true, however, do note that often banks do not just issue a warrant like that. They usually already hold the stock, and use the warrant sales as a hedge to limit losses, which also limits the upside."
The term sheet clearly spelt out the condition of hedging, IBs will control the selling and buying as market maker, all professionally done controlling CW prices..
21/01/2018 11:32
More2It interesting that u seem to have left out the stock broking firms inhouse investment teams that trade for their own a/c or for clients, banks investment funds,as well as private funds that are legitimate.
These have million to buy n sell, do they trade/invest the same way as you n i ?
21/01/2018 11:56
More2It actually, hundreds of millions, mayb even billion,
21/01/2018 12:09
Choivo Capital @More2It Why would they trade differently? And how differently would they trade? At the end of the day, they want returns.

I do concede that they may try to trade the trend etc, but not as this so called operator.


@BLee Yeap. However, i doubt they will be so foolish as to issue warrants with the assumption that they can control prices. Hengyuan now is worth RM4.4bil. And its not the only warrant in town. Unless the IB is Berkshire Hathaway and for some reason want to donate alot of money to public.

Its not possible.
21/01/2018 13:50
donfollowblindly Why Hengyuan different?

Posted by spermwhale > Jan 21, 2018 07:35 AM | Report Abuse
You think the ibs issue so many call and puts just to lose money?
21/01/2018 13:53
More2It on Choivo @More2It Why would they trade differently? And how differently would they trade? At the end of the day, they want returns.

honestly, i cannot answer this question, because i am not one of them, neither do i know anyone who is.

enjoyed your article, though, thks
21/01/2018 14:04
Choivo Capital The vast majority of them make money, or help them hedge for their own holdings.

spermwhale You think the ibs issue so many call and puts just to lose money?
21/01/2018 07:35
21/01/2018 14:21
Choivo Capital Sentiment. Oil prices go up, SUMATEC is an oil driller. People start to buy, then people see other people buy, they also go and buy. Then everyone see everyone buy, we get greedy, go and chase it high.

Then the people who hold the share originally sell at first, but suddenly, they see it keep going up, they greedy, dont want to sell any more. Or even go buy back more at a higher price!

The only question is if the gains that be kept. Which now comes down to fundamentals.


OrlandoOIL Tat weird merlin guy didn't answered my question on hw sumatac wil solve its debt problems thn next thing d price flew by 50% knn

If no got operators hw sumatac flew like tat ? Can explain?
21/01/2018 08:18
21/01/2018 14:23
BLee @Jon Choivo, IBs do sell new CW at base RM0.15 to RM0.20 (clean profit), CW very marketable on bull market. Once issuing quota exhausted, IBs will hedge (buy or sell) by expert so that to maximise profit. More IBs issuing same counter with different expiring date will complicate matters. Therefore, CWs are very speculative and manipulated..just my shallow understanding of CW.
21/01/2018 14:29


FEATURED EVENT
 

312  373  527  641 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 SAPNRG 0.3050.00 
 ARMADA 0.235-0.01 
 TATGIAP 0.095-0.005 
 PWORTH 0.045-0.005 
 SEACERA 0.33-0.02 
 HSI-H4Y 0.295+0.055 
 HSI-C3W 0.295-0.01 
 SAPNRG-WA 0.100.00 
 SUMATEC 0.010.00 
 HIBISCS 1.07+0.01 

SPONSORED POSTS

1. Investment Bloggers Day 2019 MQ Trader Announcement!
Partners & Brokers