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Author: Koon Yew Yin   |   Latest post: Sat, 19 Jun 2021, 10:12 AM

 

Why & How to use Margin Finance to increase PROFIT - Koon Yew Yin

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My purpose of writing this piece is to teach you how to make more money or how to improve your profit from the stock market by using margin finance. As I often said, I walk the talk. My wife and I have a total borrowing facility of more than Rm 100 million from 6 local financial institutions.

If a businessman or investor trades within his capital, he is considered inefficient. Almost all successful businessmen and investors borrow money to do more business or to buy more shares. You must remember, it is the business of the financial institutions or banks to lend out money and they are not there to cheat you. We must not be afraid to borrow to do more business or buy more shares to sell to make more profit.  

The current lending rate is base lending rate of 6.6% minus 2% equal to 4.6% per annum. There is no rollover fee for the first year. After the first year, the rollover fee is 0.5% for 3 months, if you have not traded within the 3 months. If you have not traded for 12 months, the total interest rate will be 6.6%. You can check this out from CIMB or other banks.

Let me tell you how I use my margin finance. For a start I must be able to select shares that have profit growth prospect of more than the interest I have to pay. If you do not know how to select good shares, then you must not borrow to buy more shares.

I normally have shares from a few companies. Often their prices fluctuate up and down and I take advantage of this phenomenon to sell some so that I have funds to buy those really undervalued shares which I already owned or one I newly discovered. As a result, I do not need to pay roll over fee. In any case, I do not use up to the limit of my borrowings to avoid margin call.   

As you know, a big seller was aggressively selling Jaya Tiasa in the last few days before year end and we borrowed almost to our limit to buy it. I asked a few professional fund managers and they all could not think of any good reason why  anyone would want to sell so aggressively just to push down the price purposely. Probably he thought he could buy cheaper later on. Even if anyone wants to sell, he should sell slowly to get a better price.

An old fund manager told me that the big seller could be a foreign fund manager who wanted to close his account urgently in Malaysia.

It is very easy to find companies that can increase their profit annually by more than your borrowing rate. Almost all the well established companies in the finance, real estate and plantation can make more than 6% per year. It is very safe to buy them especially when their share prices are down.  

After you have identified them, you have to wait patiently to buy. There are always some sellers. In the same way, there are always some buyers to buy your shares. So, you do not need to buy or sell in a hurry.     

I am obliged to tell you that Jaya Tiasa is our largest holding in our investment portfolio and I am not asking you to buy it.

Best wishes for 2014

Koon Yew Yin
4th Jan 2014
 

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  9 people like this.
 
cykoay Mr Koon, you must have good credit rating only bank willing to borrow
04/01/2014 8:28 PM
爱丽丝 梦幻世界 If bank can give u loan up to 300k, u r normal. If up to one million, mean u are very good. My opinion if bank can give u 10 million loan, u atleast hv 12 million in aset or cash or earning power. Once few bank can offer loan up to 100 millions, think u already a person no need loan.
04/01/2014 8:57 PM
Edward Lee Dear Mr Koon, may I know whether you are using Public Bank margin facility?
04/01/2014 9:46 PM
frankloh Mr:Koon what type of plan is available in CIMB Bank?
04/01/2014 9:56 PM
carson mr koon, almost all stocks that you recomended made gains after only a short period,latest being jtiasa, wish you had a blog or a wet site to display all your recommendation , this helps all newbies
04/01/2014 10:15 PM
sklyte Mr Koon, what happen when the banks recall the loan and ask you to pay within a day or else they sell your shares? That's what Goldman Sach did in the Blumont, Liongold and Asiasons saga in Sgx?
05/01/2014 12:23 AM
kuihmoi At your age how much more money you want to make ?
05/01/2014 2:01 AM
Koon Yew Yin kuihmoi's question means that at my age 81 years, I should not be greedy for more money. My reasons for making more money are:

1. When I die I will give all my money to charity. I have already given more than 200 scholarships to help poor students to complete their tertiary education. Recipients of my scholarships are not required to pay me back the money they received from me but they have to promise that they will help other poor people when they are financially solvent. In this way I will be creating more and more charity workers.

About 5 years ago, I offered Rm 30 million to UTAR to build student hotels but the MCA leaders rejected my donation offer because they own all the land outside the university campus and they did not want my proposed hotels to compete with their lucrative property business. Now you can say that the MCA leaders are greedy for more money, they believe they can take their money along when they die.

If you google my name, if you want to know more details about this scandalous case. If you know of poor students who need help, tell them to apply according to my scholarship advertisement in Lim Kit Siang's blog or in Malaysia-Finance Blogspot.

2. Another reason is that I find searching for undervalued stocks to make money is more thrilling than sex at my age. It is like betting a winner in horse racing. As I have an exemplary track record, I believe people can learn from my experience. Moreover, all these metal work is very good for my health. Otherwise, I will be bored to death.

3. I like to teach people how to fish instead of giving you some fish. That is why I have been publishing a few articles on this website. When I receive a bad comment, I ask myself why should I bother to help people to make more money.

For many years I also have been writing frequently about the wrong doings of the BN Government. I notice that almost all the commentaries of my articles on social & political issues are very encouraging. My great disappointment in my life is that PR lost Perak by a very narrow margin.

For your information, I lost a good friend and business partner, Lim Yong Keat who was one of the founders of IJM Corporation. His funeral will be on 7th morning. This reminds us that no one can take his money away when he dies. Koon Yew Yin
05/01/2014 4:29 AM
kuihmoi Sorry Mr Koon don't get offended I am just curious . I am very inspired by your philanthropist contribution and i am learning to do it on a small scale .
05/01/2014 7:26 AM
Saturn Nicely written and inspiring......
05/01/2014 8:05 AM
cytew Mr Koon, sorry to hear that our old friend Mr Lim Yong Keat has just passed away,and I use to deal with Mr Lim while he was in Jurutama and IJM corporation in early 1980s.
05/01/2014 8:36 AM
mk88 wow, nice to know that super investor and businessman Mr Koon is in this forum
05/01/2014 8:59 AM
asamlaksa Splendidly written and Trully inspiring.
05/01/2014 9:38 AM
Ayoyo Mr koon, I've always admired your charitable culture. it's an inspiration to all. On the subject of margin financing, I've always wondered about the specialists remarking that to use one's own capital is not an efficient utilization of capital. But say for instance, I'm prepared to and have the financial means to invest 300k in the markets, do I still allocate part of that into leverage or should I just stay on my own?
I'm aware of the yadda yadda regarding superior returns with leverage but if I have the means, should I just invest with my own money and not share my rewards with the bank?
My profile is I'm a swing and momentum trader and trades for a living. My holdings could be anywhere between 2 days to usually no longer than 3 months for trading stock. I'll hold it as long as it's acting correctly. My trade velocity is high in that due to frequencies of trade, my monthly turnover is easily 0.7 to 1.5 times of invested capital.

I've considered leverage but can't find myself a solid reason yet
05/01/2014 10:40 AM
aunloke If you don't have the caliber like Mr. Koon, please limit your margin finance.
05/01/2014 10:41 AM
sklyte Right Auntloke. For newbies please read Kcchongnz write up on pitfall of margin financing. When market move against your position it can be very painful! Or you can get wipe off! People of Mr Koon calibre and financial standing got no problem because they know what to do. Likewise if market goes your way, you laugh all the way to the bank!
05/01/2014 12:38 PM
KL.J Everyone shd try tis extreme leveraging...... at least once in ur lifetime..... for extreme rush....

1. Set aside say RM 100,000 hard cash... n ready urself for its total loss....

2. Search for a counter whc is a sure thing.... or at least u r cock sure is a sure thing...... n buy to d tune of RM 500,000..... without d intention of picking up....

3. Pray hard......


It may looks dangerous... but may b not....... since how likely is it tat u wil b surpried n screwed by a crash (by definition a drop of 20%) in d mkt/ur counter within d very short n managable period of T+3.... tat wil totally wipe ur RM 100,000.... as a black swan is a black swan simply bcos it happens so so rarely...

n hey for safety measure... u actually hv in place a cut loss point.. tat is d RM 100,000 refer 1 above



u want leverage... tis is leverage.... even whn u can't get a loan....


but WARNING.. tis is more akin to betting n is potentially suicidal... n if u found urself making a loss... jz blame urself for being cock sure of d counter u chose in d first place...
05/01/2014 12:40 PM
messi using margin financing facility has it's pros and cons. if market is uptrend, then you have opprotunity to make more. but if the market is downtrend, you may end up losing much much more.

in the case of 1997/1998 crash, many margin players were wiped off their capital & investment.

newbies...be careful if you are trading with margin financing
05/01/2014 1:23 PM
aunloke Try learning from DOW which crashed more than 50% twice recently ( year 2000 and 2008 ) when its margin debt was at its all time high, incidentally the margin debt of DOW now is higher than year 2008 so be careful when DOW crashes Bursa will be hit as well, it's better to limit down your margin finance.
05/01/2014 1:52 PM
Ayoyo I believe margin financing will appeal to someone who knows what they are doing. Someone who's aware of risk, have traded or invested profitably and consistently and wants more leverage on their trading or investing edge.

I believe for these people, they know how to allocate capital to account for eventualities

But bottom line for me, if you can trade on your own money, that's always the best.

Taking on additional leverage will subject even the best traders to the vagaries of emotions when their line becomes too large to the point where his decision is affected and no longer objective. Trade or invest on what's comfortable to you and not borrow with your baby's the milk money too
05/01/2014 2:49 PM
1901 Search an article called "Buffett’s Alpha -
Andrea Frazzini, David Kabiller, and Lasse Heje Pedersen"
Get the article gist - WB use leverage about 1.6-to-1 on average! You must know your game!
05/01/2014 3:42 PM
cnyang while I think one should leverage ,my feeling is a bit unfair for Mr Koon to encourage investors to trade on margin .. Listen , market is all time high now. How much higher can it go? I know Mr Koon means well but the reality of life to.... very very very risky to trade on margin at this stage if you are a newbies...... Yes..... You must know your game ...Leveraging is good but not for the newbies... For those already made their money earlier.. yes....
05/01/2014 11:16 PM
Up_down I think what really Mr. Koon meant could be you would not have problem to invest in Jtiasa from your borrowing now. The business is very good in future. It is the right time to buy at such low price.
05/01/2014 11:28 PM
tjhldg every trader should have a margin account , but dont let the Lsr% over 40 . leveraging is key to success for every trader .
05/01/2014 11:34 PM
Ricky Kiat Mr koon, how about Rsawit if compare with jtiasa?
06/01/2014 1:06 AM
Koon Yew Yin Rejoinder to Critiques:
I notice that when I write about the wrong doings of the BN government, I receive lots of supporters and practically no critiques. But when I write about making money, I receive relatively more critiques and I am obliged to answer.

Beware the KLCI is at record high: Although every investor should be aware of this danger, it does not mean that there are no more opportunities to make money or there are no more really undervalued shares to buy or to hold. Can you see the market is going to crash in the next few months?
Rollover fee wearer: After the publication of my article, I received offers from reputable financial institutions that they are prepared to weave rollover fees. That means that the interest rate is only 4.6% p a. and if you cannot find shares that can produce more than 4.6% profit growth rate, you should not invest in the stock market. The safest is to put your money in fix deposit.

How to use margin safely: As you know all bank shares have a long term annual growth rate of more than 4.6%, close your eyes, buy any bank share, especially when its price makes a correction.
As the CPO price has been depressed for about 2 years, almost all plantation shares are on cheap sale. My best bet is Jaya Tiasa at this price level.
06/01/2014 5:23 AM
AiryA Post removed. Why?
06/01/2014 9:31 AM
bsngpg When two fingers point out, three point back.
06/01/2014 10:47 AM
bsngpg 大师说:“如果你心里有屎,看什么都是屎”。
06/01/2014 10:50 AM
Ayoyo Mr Koon, except for a few mindless troublemakers, I don't think you should take people's conservatism to heart. Many of us have been thru Asian financial crisis, where it was fashionable to borrow in USD. When the local currency collapse, interest rates were jacked as high as 14,5% and many mortgage borrowers suffered, loans defaulted and homes auctioned off. Thereafter, we were taught to be prudent and aim to be debt-free. People have short memories bcos its now fashionable to use other people's money to make more money. People laugh at you for buying assets to lease out when it's more fashionable to flip for a profit. Household debt is now at highest and as S&P has warned, when the bubble burst, the double whammy of falling asset prices and high loans ratio is a huge risk to the banking system. The point I'm trying to make is that unlike super investors like yourself, ordinary Joe like us are less savvy when it comes to leverage. Bcos of their small capital base, they want to get rich quick in that for every $1, I want to make $10 in the shortest time. But they will soon realize that it doesn't work that way in real life.

And then there is the 'cannot lose' conviction because its a sure win. Adolf Merckle, the billionaire German industrialist, who lost a few hundred million euros shorting Volkswagen bcos he believed that VW was way overvalued at the onset of the European crisis in 2008 and that it will fall when Porsche stops the buying of VW shares which he believe they will. together with other hedge funds, they shorted VW on leverage and then Porsche announced that they have effectively cornered VW stock and wants to have their borrowed shares back and put a sky high price for their stock. VW shares jumped 5 fold in 2 days and at its peak, its market cap was more valuable than Exxon Mobil. Porsche made a killing while Adolff killed himself by jumping in front of the moving train.

And then we have Jim Rogers, the legendary ex partner of George Soros, who was a strong gold bull. At USD 1900/oz, he advocated buy. At USD 1500, he says it was a bargain and that if people cannot take 30% swings! they should not be in any investments. Gold is now around USD1200 and has corrected more than 30%, Jim is rather quiet these days . He may be quietly buying, yes but ordinary Joe like us will be wiped out with such a fall and probably must faster if leverage was used.

Mr Koon, my intention is not to mock your analysis. I don't qualify. You have a proven track record and your intentions meant well. Maybe you may wish to put yourself in the shoes of the less savvy average Joe, capital management tactics may be more prudent than leverage with the aim of a single kill.

In order to win at the markets, one must learn not to lose his pants first.
06/01/2014 11:09 AM
Ricky Kiat after check with jtiasa quarterly n annually report ,i agree with your point of view. i buy jtiasa just now n ready hold for 3 year.
06/01/2014 2:39 PM
Ricky Kiat oil palm stock also my favorite stock ,i already bought MKH & TDM & TSH, for long term ,it is good defensive n dividen stock. The value of those stock grow up as value of land grow up.
06/01/2014 2:53 PM
Koon Yew Yin AiryA's comment shows that he has no manners and he is very crude. No well educated man would make such a rude comment. I do not expect all the readers agree with me. If AiryA does not agree with me, he should state his reasons to support his views.

Until he writes out his reasons for all to see, I think he cannot even write a few sentences in good English. I hope his friends can help him.
08/01/2014 10:55 PM


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