The Problem with Warrants in LWAP

Very often many Buffett wannable like to quote Buffett rule no 1 never lose money as a way to find faults on those short or middle term investors as they only believe you need to hold shares for life in order to gain the full potential.

You can check with TheContrarian how he make 4X on Insas by following the rule buy when everyone is selling and sell when everyone is buying.

In bursa even you did not invest in warrant but if you hold Serba and many others that got delisted it is still 100% loss. So the first rule everyone must learn is to cut lose when you have make a mistake for buying that share at the first place.

2024-07-21 18:48

By the way Pmetal or MSC you need to monitor the Aluminium and Tin price movement to know what will be they profit look like and hence their price movement

2024-07-21 18:52

It is always good to take some money off the table.

2024-07-21 19:11

BLee

“Sslee > By the way Pmetal or MSC you need to monitor the Aluminium and Tin price movement to know what will be they profit look like and hence their price movement”

Yes, monitor prices is very important and for plantation, “天時,地利,人和” (weather, location and people) and most businesses are also very important.
In the case of Pmetal, the arrangement of the factory located near Bakun Dam getting consistent Electric Power Supply with good rates assisted in the good growth.

2024-07-21 19:19

https://tradingeconomics.com/commodity/aluminum
Aluminum futures plummeted to $2,380 per tonne in July, the lowest in over three months, and tracking the aggressive selloff for other base metals as their poor demand outlook was magnified by ample supply from China. Rainfall in the Chinese production hub of Yunnan improved the availability of hydropower and allowed smelters to bring back idled capacity. The developments erased earlier concerns that dryer weather would prevent producers from normal operation, lifting primary aluminum output in China by 6.2% annually in June to 3.76 million tonnes, the highest since November 2014. In the meantime, a batch of economic data suggested that domestic demand for factory goods in China remained at muted levels. The domestically focused NBS manufacturing PMI pointed to back-to-back contractions in June, and a 109% surge in exports of alumina during the period showed that manufacturers were forced to turn to export markets for sales.

What will happen to Pmetal price if aluminum drop to below USD 2,000 or to USD 1,500?

2024-07-21 19:20

"So the first rule everyone must learn is to cut lose when you have make a mistake for buying that share at the first place."

Hi @sslee. That is good advice and critical, to always keep your losses small as a trader.

However, it's important to note the distinction between owning high quality businesses vs trading. Both have their places and skill levels required.

For most retailers, the challenge is acquiring trading skills and stay disciplined and have the resilience to keep trading when faced with unexpectedly large losses - e.g. with trading, once we cut loss - and let's say we have a streak of losses 10 loss in a row (which can happen if you are long, have several open positions, and market enters into a correctional phase) and each loss risks 3% capital. So, now the retailer is down 30% capital and because it is a cut loss, he has suffered a permanent loss. Now, you sit in cash with 70% capital, that is well and good but to climb back from 70% to 100% original capital, you now NEED to ACTIVELY find winning trades and for most retailers, that is not an easy thing to do.

Whereas, if the retailer owned MAYBANK, PBBANK, TENAGA and 7 other sound, fundamental stocks, you can really just do nothing when market crashes and by continuing to do nothing, eventually the market values of these sound businesses bounces back and make new highs. For many retailers, this is a more doable thing to do. So, as investors, these are just temporary losses. The thing about temporary losses is that odds are good, the majority of their accounts, given enough time, will keep making new highs.

Whereas the first trader, if he gives up after suffering 30% permanent loss, may in many practical circumstances, gives up. you can't fault that first trader for giving up because it is not easy for ordinary retailer to continue losing monies.

2024-07-21 23:29

Jack Khan

What 3% of 10 trade means 30% lost! lol! If you using all capital RM100k to buy 10 different share each share lost 3% mean you lost 3% of RM100k.

2024-07-22 06:39

Not all traders are high risk, high reward gambler.

Market/stock will undergo a particular cycle depend on internal and external factor. You just need to study these factors and make use of these factors to make a profitable trade.

Example:
Pmetal, aluminum price trend.
Serba internal fraud cut lose.
Glove sudden overcapacity from China and covid at tail end cut win/lose

Beside cut lose must also learn when to take profit.

2024-07-22 07:19

Thank-you Jack Khan for misreading.
I said let say you lost 10 trades in a row.
Each loss equal 3% capital.
Hence 10 trades x 3% capital loss per trade = 30% loss in capital.

To be clear, let's use your example - you have RM100k account.
Each trade loses 3% capital. This means each trade loses 3k.
After 10 of such losses, you lose 10 trade x 3k = 30k.
30k = 30% of capital.

Trust this clarifies.

2024-07-23 01:51

Thank-you Sslee for commenting.
I honestly can't make the connection of your comments thought to the title of the article "Problems of Warrants with LWAP". You seem to want to teach something else - feel free to blog what you like to teach.

2024-07-23 01:54

Good morning,
I just like to share my thought, not only warrants got expiry date but so are many stocks that get themselve delisted and also every living thing got their expiry date.

So how and what you want to do with your life time before expire date?

2024-07-23 07:19

Balian de Ibelin

b4 buying any type/sort of warrants, write a last Will and Testament first.
otherwise your purchased warrants will follow you into afterlife.

2024-07-23 10:58

In our local stock market, to maximize your gains is all about selection and timing of your purchases and sales ..... selecting stocks or warrants with huge upside potential and buying at or near the bottom, selling at or near the peak.

2024-07-23 13:54

Hi Sslee,

"I just like to share my thought, not only warrants got expiry date but so are many stocks that get themselve delisted and also every living thing got their expiry date."

Thanks for repeating the first sentence in my Conclusion.
"All of us have limited lifespan. Eventually, as Keynes put it, we all die."

2024-07-24 02:22

Hi TheContrarian,

It's fundamental that to win, the sell price must be higher than the buy price, and timing is an essential component for realized price gains.

But when you compare the stock price action against the warrant price action, the 2 is not the same.

I trust you will have already discovered the differences in the price action between warrant and stocks.
And I trust you will have already realized that the vast majority of warrant traders lose monies.

Most inexperienced warrant traders who made money does not have 100 warrant trades over a period of several years. In my past life, I have done these.

The thing about warrants is not 1 trade or 5 trades or 10 trades. To trade for a lifetime or say 20 years requires a minimum of several hundred trades. And wealth accumulation is about compounding. My point is you cannot compound with warrants. Because if you do, just one significant loss wipes out nearly everything.

If you can't compound, you can't accumulate wealth long term. Warrants have no place in LWAP.

2024-07-24 02:32

Good morning my good friend Balian de Ibelin,
Thank you for reminding me to write a will to gift million of delisted Xingquan shares in my CDS account.

2024-07-24 07:27

A joke about Man's Lifespan.
Luckily I am at the age where I start to spend my children' future money.

God created the donkey and said: "you will work tireless from sun up to sun down, carrying heavy bags on your back, you'll eat grass, you will not have intelligence and you will live 50 years. You will be an DONKEY!" The donkey answered:"I'll be a donkey, but living 50 years is too much, give me only 20 years." And God gave him 20 years.

God created the dog and said: "You will look after the men house, you will be his best friend, you will eat whatever they give you and you will live 25 years. You will be a DOG!" The dog answered: "God, living 25 years is too much, give only 10. " God gave him 10 years.

God created the monkey and said: "You will jump from brach to branch, you will do silly things, you will be amusing and you will live 20 years." The monkey answered: "God, living 20 years is too much, give me only 10 years." And God agreed.

Finally, God created man, and told him: "You will be Man, the only rational being on this earth, you will use your intelligence to control other animals, you will dominate the world and you will live for 20 years. "The man answered: "God, I'll be man, but living 20 years is not enough, why don't you give me the 30 years that the donkey refused, the 20 years that the dog did not want and the 10 years that the monkey refused. " That was what God did.

Since then, Man live 20 years like a man, then he enters adulthood and spends 30 years like a donkey, working and carrying the load on his back, then when his children leave home, spends 15 years like a dog, looking after the house and eating whatever is given to him, then he gets into retirement, and spends 10 years like a monkey, jumping from house to house or from children to children, doing silly things to amuse the grandchildren. !!

2024-07-24 07:36

Dear MrSslee, will we live long to see Insas hit 60 ringgit? Haha.

2024-07-24 12:44

Jack Khan

In summary, we all should avoid all structure warrants from banks!!!!
Just buy mother share!
To make money, either you have the patience or you are lucky! Those who is lucky must know when their luck has ended

2024-07-24 17:14

Bursa should not allow IBs to issue call or put structure warrants for a simple reason these warrants did not contribue to economic growth and it is a form of gambling and IBs is in conflict of interest.

Warrants should only be issued by listed companies during cash call RI with sweetener free warrant.

2024-07-24 17:46

By the way I subscribed fully with addition 10% for Insas RI of Insas-PB with free Insas-WC.

I make a handsome gain from my free Insas-WC

2024-07-24 17:50

@sslee, haha. Thanks for the joke, made me laugh.

However, I suspect today's first 20 years for teenagers today is not living like a man by like prince and princess, spending parent's monies like ATM. Whereas the parents worked hard like a donkey for 30 years. The parents may not look forward to the next 15 years as a dog!

2024-07-27 16:07

Hi all,
To be clear, I'm not saying all warrants are always bad. My primary focus is the Long Term / Lifetime Wealth Accumulation.

To accumulate wealth over decades, it is highly desirable to exploit the power of compounding over long periods of time.

The problem with derivatives/warrants is that they won't let you compound. Because if you keep compounding your warrants gains, eventually, it will go to zero. One day, you'll have a warrant that does wierd things and every past gains, no matter how large you have won in the past, will go to zero if you compound.

And if you can't compound, there's really no future in LWAP. All you can do is get a temporary small win. It may look large in the initial compounding period, but once your account gets sizeable, it'll make that past "big win" look so small, that one day, you'll look back and reflect - why did I even bother trading warrants?

Compounding in high quality Buffett like stocks and a diversified assets is the only way to go for long term wealth accumulation.

2024-07-27 16:12

What MrSslee is saying is there's no distinction between shares and warrants. Gains in warrants help in the long term accumulation of wealth in the same way as shares. Decision and judgement to buy and sell depends on the situation at each particular time. Timing is most crucial in investing the stock market and not just what is been invested in.

2024-07-28 00:56

I start investing a bit late as I concentrate in building a professional career when I am younger.

It is still better late then never and an eye opening experience for me as investing is almost like how to navigate a minefield safely hence my first lesson learn is to cut lose when you have make a mistake for buying that share at the first place.

And my second lesson market/stock will undergo a particular cycle depend on internal and external factor. You just need to study these factors and make use of these factors to make a profitable trade.

I wish I start investing as early as 3iii where you can still buy many quality stocks at it early stage and hold for life to enjoy the power of compounding over long periods of time.

No regret for me as I need to start somewhere to learn and accumulate wealth for lifetime.

Wish all a successful investing journey.

2024-07-28 07:05

By the way Pantech look like a good slow growing company which give dividend 1.5 sen every quarter.

Will add more if revenue can grow at faster rate.

2024-07-28 07:35

BLee

“DividendGuy67 > Hi all,
To be clear, I'm not saying all warrants are always bad. My primary focus is the Long Term / Lifetime Wealth Accumulation…”

“Sslee > 1 hour ago | Report Abuse
I start investing a bit late…”

Good Sunday Morning and Good Sharing on a very interesting topic. I started investing very early with my first pay cheque partly invested in Unit Trust. I am still holding the same Unit Trust after close to forty years. Is that Long Term / Lifetime Wealth Accumulation? Back then, I didn't understand much about Unit Trust, just knowing it is Professionally Investment in a basket of ‘Good Shares’ by an established Investment House. I didn't gain much after all this year; maybe slightly better than FD rate. The next Investment is starting a Share Trading Account with a very good remisier. His recommendation is quite accurate; now I understand more to ‘herd mentality’ as he told me so..
Next is Property Investment; bought my first terrace house for less than 100k. During the turn of millennium; bought my first two Condominiums for around 150k each with my ‘escaped’ investment during those ‘bubbles’. My experience on the ‘bubbles’; one darling stock then, bought at RM4 and contra (T7 then) sold at RM8, became a penny stock now. So much for Long Term / Lifetime Wealth Accumulation?? One fine day, I will touch on the ‘chun chun’ call as logic always logic, the ‘bubbles’ will burst without good TA and FA..
I took a very long hiatus from Share Investment due to workload traveling to Europe, the Middle East and many Site Visits throughout our own country. One Forumer is correct, Sarawak is one Good place to retire; the only problem is my roots are too entrenched to migrate there.
I only re-start my Investment Journey during C19 work from home period.
My experience with Warrant is a nightmare; touch once is enough. I just got myself to blame as I don't have enough knowledge and experience then. I just got to educate myself by surfing and looking through all the Term Sheet and Prospectus. I always sell my Warrants entitlement even at half-sen. A lot of this half-sen invested in ICPS. Insas-OR is an exception; I managed to sell close to 60sen and reinvested in mother shares. I hope my 吹水 (Blow saliva) is not that boring, for now Happy Trading the week ahead and TradeAtYourOwnRisk.

2024-07-28 10:03

1. If you are a skilled warrant trader, the contribution from warrant gains can only be linear, not compound. Else, you lose monies.

2. There are very few (say 1%) successful warrant traders, but they often (say 90%) hit a ceiling in terms of win size like say RM1k, RM2k or RM10k (rare to have someone consistently winning RM10k in say 20 warrant trades in a year).

3. Whereas if you are a stock investor with say RM2 million portfolio and makes 9% per annum, you double every 8 years i.e. each year, you make RM2 million / 8 = RM250k pa., or roughly RM21k per month. I don't think TheContrarian has warrant profits this big every single month over the past 8 years and I doubt this is his goal too.

4. 8 years from now, when your stock portfolio becomes RM4 million, imagine you will double again in 8 years with 9% p.a. returns. By then, that's equivalent to RM42k per month, every single month over 8 years. Can warrant trading match this every single month over 8 years?

5. 8 years hence, the RM4 million grows to RM8 million. Now, it's RM84k of gains every month, without fail, over 8 years. By now, I doubt there is any trader in Bursa with warrant gains like this size. When you get to this size you don't bother with warrant trades anymore.

6. This is the BIG difference between stocks vs warrants. It's not the same contribution. And it's not the same risk / loss profile too.

2024-07-29 03:52

This is why I don't bother with warrant trades. It's like 7 foot hurdle to win every single time.

2024-07-29 03:54

To some it is 7 foot hurdle to other it is low-hanging fruit so to each his own.

2024-07-29 09:21

It's more than the trader. It's the market also. Warrant markets are more restricted than stocks.

Winning warrant traders will find that it's not hard to win a few hundred say RM500 profit.
What is harder is winning RM5000 from the same market.
Even hard is winning RM50,000 from the same market.

The thing is the warrants issued - the market - is typically limited. The higher the % of profits required, the more likely it's a battle between you and the Market Maker and odds are you'll lose.

The problem with winning warrant traders is that they extrapolate the scalability, when it simply can't due to the limited market size. You will have no problem winning 7 digit from MAYBANK market but there is simply no profit of such size to make from MAYBANK warrants as it is simply not deep enough nor large enough.

Hence, it's a 7 foot hurdle even for the best warrant trader to win 100k or 1 million.

2024-07-29 22:18

Thanks to my almost 30% gain on my Engtex-WB, I have crossed accumulative realized gains of RM200,000.

2024-08-02 23:07

Jack Khan

Good if your know your when your luck end!
Posted by TheContrarian > 11 hours ago | Report Abuse

Thanks to my almost 30% gain on my Engtex-WB, I have crossed accumulative realized gains of RM200,000.

2024-08-03 10:31

As long as you know when to take profit and when to cut lose then you make your own luck.

2024-08-03 10:36