Background

GENETEC price crashed 74%, since RM3.845 high nearly 3 years ago (Nov 2021).  Blood on the streets.  Recent "falling knife" suggests may be close to capitulation, or longer.  Time to get interested.

But what caused the crash?  It's listed in Technology sector, but what does it do?  Why crashed 74%?

Profile (excerpts from last Annual Report)

Fundamentals considerations

So, why crashed 74%?  The Edge explained the recent price drop here.  i3 chats also pointed the following:  My summary:

1. Recent broad decline in Technology sector.
   
2. New order delays, from "one automative manufacturers" (Tesla?)
3. Uncertainties in US presidential election (impact on EV).
4. Moderating growth outlook in global EV market.
5. Co-founder Aaron Chen Khai Voon trimmed his stakes in the company by 2.25% to 7.39% between May-July
6. EPF substantial shareholder selling.
7. And more recently, QR announced EPS 1.32 sen, 42% YOY drop.

As a rational investor, the 2 key questions are:

1. Have we captured all the reasons for the crash, and
2. How much of these are permanent and how much are temporary?

My quick thoughts.

1. US tech sector has tripled since Covid low, some decline is expected, but I think majority chance its bull run is not yet over (although Buffett did sell his AAPL holdings, so maybe we could be near).
   
2. BESS (Battery Energy Storage System) is not a temporary fad.  Delays is not the same as permanent decline in demand. But improvements will happen, and unclear if GENETEC can stay competitive.
3. US election uncertainty is temporary, not permanent.  Market fears Trump winning, but I feel global demand will still be there regardless i.e. more temporary than permanent, even if Trump wins.
4. And looking at the other factors, you have to make your own opinions on this.  Overall, my gut says this is temporary.

Long term Chart Considerations

1. The 74% Crash, and Falling Knife is easily seen.
   
2. Wave counts = currently in highly complex Wave 4 (suggesting temporary instead of permanent problem).  If company's business model remains intact, odds are we'll see a nice Wave 5 coming after Wave 4 is resolved.  The risks though is whether this is resolved before next global stock market crash. Nothing is certain, my gut feels majority odds this is temporary.
3. Never catch a falling knife because downward momentum strong, bottom highly unpredictable - it could be close, it could still fall more, nobody knows.
4. My best wild guess (maybe 30% chance i.e. majority chance will be wrong) is around 90 sen zone.  But it could go as low as 70 sen, based on APP (100% alternate price projection).
5. The exact bottom is less important than the assessment, whether Wave 5 that might go up to as high as RM6.50 will come true or not. That's the million $ question.  Is this wave count correct?  Or is this company a "one trick" wonder where the trick is fully played i.e. no Wave 5 coming and it stays flat and low permanently?  

1. In early Jan, the company successfully raised RM178 million from private investors selling the stock at RM2.61.  
2. Today's RM1 is more than 60% discount.  
3. The good thing is  RM178 million raised is now cash in the company increasing its NAV.  Company has spent RM147 million in capital spend, another RM30 million to go before completion.  
4. Net Cash is RM149 million is healthy since reducing by RM30m still gives RM119m.
5. As a result, company started to declare 2 sen dividend.  Annual cost > RM15m which looks responsible.  Still lower DY than FD, but goal here is not dividend, but price gains.
6. Biggest shareholder ownership is mid single digit %, vast majority apparently owned by institutionals, so, less likely to be syndicated (but never know).  Yet, why are institutions dumping?  

1. Mindset = Long term price gain strategy.  Willing to hold for up to 2-3 years.
2. Entry = as low as possible.
3. Exit = depends on market.  Not interested in day trading nor swing trading, but position trading that captures sizeable % gains.
4. Position size = small.  1% capital max.   Maybe up to 2% if super compelling.
5. Last week, initial first entry at RM1.02. at less than 0.4% capital.  
6. Waiting to see price action for 2nd and 3rd entry to get to 1% capital.
7. After entry, won't monitor the price / gains daily nor weekly.  Wave 4 is complex, we don't know how long it's going to take to resolve.  Wave 5, to get the big gains, if it comes, will not take weeks but much longer.  Hence, nothing more to do once we have finished our accumulation quota.

• Institutions and EPF dump and leave.  Then, stock stays low for a long time.  
• Hence, risk mitigation = trade small enough so that it doesn't drag and doesn't stop your portfolio from continuing to make new all time highs.  The rule is 1% capital for constant bet size.

• GENETEC has crashed 74% and there's clearly blood on the streets.
• However, the recovery power of this stock is less clear than PBBANK or S&P500.
• I think majority odds we will eventually see recovery, but noone really knows.  Co-founder selling, EPF selling doesn't inspire confidence.  The risk is institutions followed suit, then, this stock dies a slow death for a long time.
• However, after the dust settles, if subsequent actions are promising, then, we might see Wave 5 coming in, with some fantastic returns over years.  The reward to risk looks extremely good.
• Hence the logical action is to bet small.  Keep the bet size constant to not more than 1% capital.  We don't need to win all such bets taken.  Just one win is enough to cover other losses and meet/beat our investment objective.
• 1% also doesn't drag and doesn't stop our portfolio from making new highs.  
• Be patient to see this through, even if it takes up to 2-3 years.
• So, I took a first small position at RM1.02 at 0.4% capital last week.  Looking to spend another 2 buys of 0.3% capital but have to see the price first.
• In a falling knife, nothing much to do except monitor and watch and see ...