Choivo Capital
(CHOIVO CAPITAL) Trade Wars, Bear Markets and Getting Trapped.
Choivo Capital
Publish date: Thu, 25 Oct 2018, 11:13 AM
Well, what a couple weeks it has been. Whatever paper gains from the previous bounce, have been paid back in full and more.
From peak to trough, the Bursa Malaysia MIDS index (Companies with Market Capitalization of RM2bil to RM200m) have fallen by 30%. I believe this is much more representative of the retailer experience.
The entire Malaysian market, as per the Bursa Malaysia EMAS index, have fallen by 14.4%
Well, let’s reflect.
There is a few reasons why this is happening for example,
-
Rising interest rates in the US due to deleveraging by federal reserve causing an outflow from foreign markets into the US.
-
Equities in general being somewhat inflated since the start of the year, with record gains in 2017. These days every market is correlated in terms of short term performance. If China sneezes, everyone catches a cold.
-
In Malaysia, some small measure can also be attributed to the breath holding waiting for the new budget, and our new and more austere government.
- But most of all, it is due to the current trade tensions between US and China.
Trade War Between the US and China
For the last few decades, the US have historically run a trade deficit. And this has the effect of spreading prosperity of the world at the expense of the US, and no other country have seen a bigger effect of this than China.
In exchange for running this deficit, countries worldwide, via the Mashall’s Plan (US version of One Road One Belt back in the day) and the agreement from the Arab’s to use USD when trading oil, have started treating the USD as the reserve currency of the world. Even today, most trade and debt is denominated in the USD.
This enabled the US to withstand shocks that would kill most countries. And build up debt that would have bankrupted almost any country by now.
Having said that, historically, China have always played dirty. For at least 2 decades, they have been hacking US companies and government organizations in an organized manner in order to steal Intellectual Property.
Keith Alexander, a former NSA director has called it the greatest transfer of wealth in history.
Instead of having to pay the hundreds of billions or trillions of dollars for R&D as well as the decades needed for tehnology to develope, this theft of IP has allowed Chinese industries to become instantly competitive and steal businesses from US. And now, many of these businesses have even been bought over by Chinese companies.
To top it off, while the US does not charge much tariff to China (and much of the rest of the world). But, China on the other hand charges a lot of tariff on US goods such as milk etc, in the name of protecting their own industry.
For the most part, most US presidents, for lack of a more concise way of explaining, have no balls. They just allowed China to go this way without calling them out.
Enter Donald Trump. The first US president with balls. He called out china and imposed some long overdue tariffs and taken steps to equalize this relationship. Correctly identifying, that China has a lot more to lose than the US.
So how will this end?
Right now, people seem to think this will last forever. But remember, this is a money problem. Unlike Israel and Palestine, this is not a race, emotional or religious problem, which forever cannot be solved, because no one is willing to compromise, otherwise they go to hell.
If they were fighting over Taiwan of something, I will be worried. That one, there is no way handle correctly, as it’s an emotional problem.
But this, it is just a money problem, can discuss. My guess, China will need to stop acting like a samseng little brother, and they will need to find a face-saving way for Xi JinPing to do this.
Historically, if you look at global money arguments, Weimar Germany in 1925, Greece etc. Within 2 years or less, problem settled. This is a much smaller problem.
My guess, give it a couple months to a year max, and everybody happy again. Except, I’m perfectly fine for it to run 2-3 years or even 10 years. I can just keep buying, trap me in wonderful companies selling for 4PE please!
Bear Markets and Getting Trapped
One of the things I love about bear markets, other than the constant discounts, is that bear markets forces one to be very honest with yourself.
People who bought stocks at high prices, after suffering massive losses. Is forced to finally admit, that they knew pretty much nothing about what they bought.
Some, take it as a signal to start studying a lot more, like a friend of mine, who decided to turn over his portfolio to me, while he goes and spend 3 months reading and studying.
Others, start to think of stocks, not as somewhere to make money, but where you can only lose money. They stop caring about whether any money will be made, rather whether of their capital can be saved.
They decided to get out at any price.
It is in markets like this, you have no choice but to determine if you’re a trader of investor.
My 500% trader friend, is up 20% this year. He keeps very tight cut loss, and as it’s a bear market, he only trades technical rebounds etc when he is sure about it. And when asked if he’s going to start investing, he answers, “I need to be willing to lose the big money buying stocks cheap, if I want to be able to make and keep the easy money in bull”.
Me on the other hand, on a fund unit basis, am down 18% this year. Still way ahead of the MIDS index, so I’m satisfied. Most of my investment this year is also at much lower fund unit prices, so my actual loss is much lower.
The one thing about investing versus trading. Is that if one is an investor, one must be willing to get trapped. Because there is no cut loss. In fact, as prices fall, you need to buy more. Investing is inherently “Trappy”.
While in trading or speculating, because one is gambling and don’t know the real value of what one holds, or knows its real value is far below the quoted prices. A cut loss is essential.
The problem is when traders or speculators think they are investors, and what is a trade, turns into a mediocre investment.
And as prices fall and the investment becomes more and more attractive on a risk reward basis.
His trader mind is unable to process it, as ultimately, he can only see the number on the screen. Before he capitulates at sells at the bottom. The worst possible time.
Oh well, if one does not go bankrupt or die, life and the markets will teach you all that you need to know.
Conclusion
To my fellow investors, good luck, I hope the traps we are in are warm and cozy! Remember the immortal words of Howard Marks:
To succeed in investing, you need 3 things
- The ability to estimate the intrinsic value of an investment
- The ability to hold and buy more as prices fall
- You have to be right.
There is a Latin saying I really like “Gradatim Ferocitas”. Step by step ferociously. To move quickly and purposefully, without compromising on your due diligence, and not skipping a single step.
Research deeply. Check and double check twice. Buy and do something else.
If you’re wondering if prices are going to fall further. Ask this. 5 years from now, are you going to wish you were more aggressive or more conservative?
Are you a seer who can (or thinks they can?) predict where prices will go? I don’t think so, since you’re not a trader.
If you're scared (i feel nervous too), buy slowly.
And for those like me who have lined up financing. Remember, safety and survival is paramount. Go slow and check even more!
====================================================================
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Discussions
4 people like this. Showing 50 of 71 comments
Should add.....Addiction to US$ is the new opium.......China need to quickly get out of the US$ addiction......I believe one day China will be able to say to Americans....sorry, you need yuan to buy stuffs from China.
2018-10-25 14:31
choivo, as long as u are judging by what I write....I got no problem.....
I am good enough to know myself.....
2018-10-25 14:36
I am not here to convince chiovo or bear....I am here to entertain myself....and of course, I am confident of myself....
2018-10-25 14:38
do whatever u want chivo....u want a good image a value investor image.....go ahead.....
I just want to know how long u can last........lol....
2018-10-25 14:41
In trade wars , everyone loses. As one economist in US admitted, China is not so dependent of US as the US would like her to be.
2018-10-25 15:15
rationalising and confirmation bias.......
everyone is entitled to their rationalising and confirmation bias.......
but who can do critical thinking?
2018-10-25 15:21
Bear Market > Oct 25, 2018 03:20 PM | Report Abuse
Answer : So nobody loses then! You said in trade war, everybody lose but then you contridict by saying china not so dependent on US! So you are saying this trade war is meaningless! Well, this is a great divorce between US and China! US will get their cheap fix from elsewhere! China don't have to import 100 billion from US! It's final! But Aseans are winners! So no, there are winners as well!
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history of the world full of American mistakes....Trump is the latest but not the only one.
as for Asean ...if world trade shrinks, it cannot be good.....stock markets......stock markets are monkey see monkey do....stock markets are not Gods....stock markets goes by perceptions.
2018-10-25 15:28
Nobel laureate,Joseph E. Stiglitz said:
"First, macroeconomics always prevails: if the United States’ domestic investment continues to exceed its savings, it will have to import capital and have a large trade deficit. Worse, because of the tax cuts enacted at the end of last year, the US fiscal deficit is reaching new records – recently projected to exceed $1 trillion by 2020 – which means that the trade deficit almost surely will increase, whatever the outcome of the trade war. The only way that won’t happen is if Trump leads the US into a recession, with incomes declining so much that investment and imports plummet."
If the US is sucked into a recession, will Asean win ?
2018-10-25 15:54
Posted by qqq3 > Oct 25, 2018 02:41 PM | Report Abuse
do whatever u want chivo....u want a good image a value investor image.....go ahead.....
I just want to know how long u can last........lol....
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i dont think u need to worry about him. If he can uphold his principle he will do well. its very hard to see him lose judging by his stock pick
2018-10-25 16:04
Jon this year hv to break yr piggy bank to pay yr guaranteed profit of 4.5% to yr parent n uncle auntie ah?
2018-10-25 16:07
Good toughts everyone. Let me share my 1 sen view.
USA have no good manufacturing base for more than 20 years already. Their manufactured goods is generally below par compared to most european , Japanese n koreas items. China have been exporting lot of goods to USA thats true BUT most of the goods have very low value added to it. If China reduced export to USA the impact will be felt across the world incl USA as probably 90% of the export value is imported.
USA is essentially a war mongering nation and a death Merchant. Their arm industry is second to none and every President will creat a war to revitalist USA arm industry coffers. Look into the recorded history... any excuse to start a war is their motto.
IP wars ok.Do you know how outdated is the IP laws? 17 years IP protections n renewed based on certain updates etc. Nowdays unlike 50 years ago thing change in a year or two why 17 years? Things like ABS why give patent? most driver last time modulate the brake to achieve ABS effect ..common sense mah and the list goes on.
Don't forget history. USA with the European war mongers plundered China about 100 years ago. Is that fair?
2018-10-25 16:44
I don't even know who is this child choivo...why should I bother or worry for him? I couldn't be bothered......
2018-10-25 17:03
China is in full agreement with icwin....China is united....no way China will kow tow....just no way.
China can tighten its belts, no big deal.....who will survive? can the fat cowboys survive?
2018-10-25 17:12
USA is good at twisting and turning like a snake so I think they will survive but in about 25 years we will see a new world order. WE deals with chinese companies for more than 10 years and their knowhow change is incredible. For US companies they are more reliable compare with the chinese but inflexible and extremely expensive. The USA is prop up by the artificially high value of its currency
2018-10-25 17:35
Should add.....Addiction to US$ is the new opium.......China need to quickly get out of the US$ addiction......I believe one day China will be able to say to Americans....sorry, you need yuan to buy stuffs from China.
my million $ question...so when will that day arrive? maybe soon after Make in China 2025 is achieved.....
2018-10-25 17:48
3 year lock unker! With bullet structure.
Roughly 2 more years to go. Its like margin finance, but cheaper and more secure!
My parents are in their own account, where i manage for zero fees, all gain and loss they keep. The money is too big for me to guarantee. Im very careful with theirs, and its somewhat more diversified with low concentration caps.
I dont take money from extended family.
Guranteed is only friends.
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CharlesT Jon this year hv to break yr piggy bank to pay yr guaranteed profit of 4.5% to yr parent n uncle auntie ah?
25/10/2018 16:07
2018-10-25 17:59
3 years lock? Meaning to say 4.5%×3 years= 13.5% by end of 3 years?
If yr funds made short of 13.5% by then u hv to break yr piggy bank n pay to yr friend investor?
2018-10-25 18:03
Yes i agreed to buy at a predetermined price per unit.
The structure is highest FD rate in msia (4.5% in this case). Capital guaranteed. Any gain above 4.5%, 60% is mine, 40% is yours.
Well, they dont have somewhere much better to put. Im offering higher than FD (a little) and they think im worth putting money on.
One guy rolled his forward (even though i offered to buy him out), as he was the first, and only a year in that case.
He also tripled his investment, even as prices fell.
Yeah, they are great people. Hard to find such friends.
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CharlesT 3 years lock? Meaning to say 4.5%×3 years= 13.5% by end of 3 years?
If yr funds made short of 13.5% by then u hv to break yr piggy bank n pay to yr friend investor?
25/10/2018 18:03
CharlesT U hv good friends....
25/10/2018 18:04
2018-10-25 18:36
there is no co-relationship between writing and performance......
or even between writing and actual decisions and choices.....lol...
2018-10-25 18:38
qqq3
Those wth a good investing philosophy and strategy should do well in their investing .. in general.
Better to acquire these investing knowledge early.
Sometimes, these knowledge may not ensure you high returns in your investing but at the least, you can be assured of not losing too much in not knowing what you are doing.
After all, the risk of investing is yourself and Warren Buffett rightly pointed out - risk is not knowing what you are doing.
2018-10-25 18:44
3iii...yes wallen the bufalo is rich....mistaken to think wallen wannabes will be as rich.....
2018-10-25 19:33
3iii
a lot of success failure is due to birth...where and when born, to whom born......the era of investing......
large success is luck....moderate success is hard work, skill and talent....I already got the skill and talent, now just a bit of hard work.......lol.....
2018-10-25 19:36
come to think of it....if every analysts, every fund manager believes value investing according to the Bufalo is the way to go.....how can that lead to success?
2018-10-25 20:34
the habit and the character to make money....that belongs to KYY....not to Kc Chong from NZ......
stock market very simple one.....giant returns come from focus, very focused, put all the eggs in one basket......
another problem...what colored egg? the battle is between safety and hoped for returns......what characteristics u want?
2018-10-25 22:10
Jon if i were yr friend i see the greatest risk as you n not the stock mkt
2018-10-25 22:14
I think Choivo is in the midst of an experiment. At the end, if he wins, he will feel well prepared to handle billions next time.
2018-10-25 22:19
It's nice to be mentioned in the same breath with Rodgers, Lynch or Buffett.
2018-10-25 22:31
the blog started really nicely but ended up with the writer promoting himself as a fund manager...apalah...working for which fund house ?
2018-10-26 10:53
Myself.
Fund is closed for guaranteed. As i only gurantee up to 50% of my equity.
Ill only manage new ones if its unguranteed in the fund, or in your own account. In this case. FOC. All gain and all loss you keep.
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Posted by Pewuf > Oct 26, 2018 10:53 AM | Report Abuse
the blog started really nicely but ended up with the writer promoting himself as a fund manager...apalah...working for which fund house ?
2018-10-26 10:55
Correct. The greatest risk is i run away with the money. Which is why they are close friends and they know my family.
The second greatest, is i am unable to pay back. Which is why i limited to 50% of my equity. And why it has long tenures. Usually 3-5 month before, i will check with them if they intend to withdraw or rollover, so i can better plan the cashflow.
On the low expectations, i dont make promises i cannot fulfil, even if it gets me more money. Money is just numbers on a screen for me anyway.
Some are not investors, who would have put in FD anyway. But they trust me, and think i may make them more money. So they put it with me.
Some are value investors like me, and having studied properly, they decided they don't want put in the effort required to be good enough.
So they put with me.
All consider the probability of satisfactory outperformance to be adequate.
It would be a disservice to consider it as low expectations.
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Posted by CharlesT > Oct 25, 2018 10:21 PM | Report Abuse
He has good friends n his friends has low expectation of 4.5% per annum
Posted by CharlesT > Oct 25, 2018 10:14 PM | Report Abuse
Jon if i were yr friend i see the greatest risk as you n not the stock mkt
2018-10-26 11:41
Posted by 3iii > Oct 26, 2018 08:06 AM | Report Abuse
For example, an 80 year old man still has almost all his wealth in the stock market even today.
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a bell curve effect.....bell curve effect not good enough for me...I am a fighter and I love the challenge.
2018-10-26 12:16
Haha this joker is just a tin kosong in investment beside he got a really good writing skill. In the end he just want to promoted himself and waited for water fish give him all their life saving. Hahaha
2018-10-26 12:24
Posted by 3iii > Oct 26, 2018 08:06 AM | Report Abuse
For example, an 80 year old man still has almost all his wealth in the stock market even today.
====================
a bell curve effect.....bell curve effect not good enough for me...I am a fighter and I love the challenge.
shares climb a mountain slowly and falls in an instant.....testing all the buy and holds to the limit......
in the west,. people already given up on stock picking and everybody rather give money to mutual funds with huge diversification..... I think this is suitable for 95% of the people.
I consider myself the 5% elites.
2018-10-26 12:39
Learner king,
Really rare for inherently stupid people like you to still be in the market. Most retailers are stupid, but you're in a class all of your own.
I think its because you know you're stupid, so you hang on to your betters, like myself, instead of thinking for yourself. Not a bad way i guess.
In the end, the most important thing in the market, is to know your limits and how stupid you are.
When you want to be learner god? Then you can be promoted to just being stupid!
I'm really looking forward to that day!
Your failure to see the structuring of the incentives and what they drive is just astounding hahaha.
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Posted by Learner King > Oct 26, 2018 12:24 PM | Report Abuse
Haha this joker is just a tin kosong in investment beside he got a really good writing skill. In the end he just want to promoted himself and waited for water fish give him all their life saving. Hahaha
2018-10-26 12:43
young people like this choivo is idealistic, one dimensional, lack experience......I will leave him alone to find his own life.......
nothing to do with me.
2018-10-26 13:44
Haha just say whatever u want stupid jon.... i making few millions profit this year and i have sold out waiting for market to crashes. So i got time to play u this con man. Kakaka
2018-10-26 15:26
You convert to rupiah is it? hahahahaha
Aiya, i don't like bullying children. Even if they're lying.
I think you need to take medicine. Now you're not just stupid, but siao like khatu d!
Dun later think 10million rupiah is 10million usd and put deposit for felali ooo.
Sure burn deposit d!
Let me know if you need borrow money for medicine. I very kind one.
===
Learner King Haha just say whatever u want stupid jon.... i making few millions profit this year and i have sold out waiting for market to crashes. So i got time to play u this con man. Kakaka
26/10/2018 15:26
2018-10-26 16:19
Choices and decisions in stock market are not related to what people say and write......
in stock market, choices and decisions people make are related to habits and character.
habits and character are more reliable indicators of what people do in stock market.
stock market, full of talk east go west, talk 3 talk 4., full of BS and full of beating round the bush.....and depends on the agenda of the writer.
remember....Jho Low can make himself sound like an investment guru.....Jho Low can even fill his talks with Confucian ethics, Christian sayings, Koran verses.....and of course Warren Buffett sayings........Jho Low can also quote here quote there....part of his arsenal.
2018-10-26 17:19
I appreciate reading these informative writing...
but allow me to add few things if I may...
The ability to estimate the intrinsic value of an investment <--- I work this number every year myself, so I know them, that is why I never trust them...
The ability to hold and buy more as prices fall <--- I dont intend to do this. you wont even know what happen in next 5 days, so forget about next 5 yrs...do you know how company make up their great grand 5 yrs plan? ha!
You have to be right. <--- no one know except the bloody management deciding the numbers... not even me can tell you... one thing sure.... everything is alright!... but sadly from the management point of view...
not here to oppose value investing, but to tell you what happen behind the screen...the choice is yours...
check Buffet 'investment'... which 'famous' return from a company which he hasnt sent his own team 'managing' the company 'himself'?
I know this i3 is probably set up by Value investment follower and supported mostly by value investor...
but to fellow retail investor, please do your homework, and if you think the current investment method is not working out... learn to adapt and change to prosper...gdluck
2018-12-03 09:43
Haha rajachulan,
Thanks for taking the time. We'll find out in time i guess,
2018-12-03 09:52
Yeah Jon, sincerely, I do admire your honesty in highlighting those 3 really important points in summary section... which I believe most of the retail investor has little ability to meet them all...
and that the reason why many people out there are still very dependent on others research paper, views, news, article and worst, tips in investment...
I do really appreciate and enjoy reading informative article like yours and icon8888 and someone, sorry I cant remember the name, who wrote few article on layhong few months ago (almost tempted to put money on it, but trend forbid)...
but still, I hope retail investor can find their own way to decide where to put their own money...
2018-12-03 10:09
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
Jon Choivo
I don't judge by portfolio. But by thinking and thought process.
Yours is very lacking and weak.
I KYY also fire not a problem.
While a friend with less than 20k portfolio, when he talk, ill listen and discuss with him.
Your brain really is muddled honestly. You need to go do something else.
======
Posted by qqq3 > Oct 25, 2018 02:24 PM | Report Abuse
choivo, so u think I write rubbish because I say my portfolio is small?
well, I rather prefer everyone here think I am a small guy.....less pressure on me.....
I am not looking for business after all....
2018-10-25 14:26