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The peril of leverage in the stock market kcchongnz
The peril of leverage in the stock market
Dear Mr Lee,
I have made a review of your equity investment with ASB Bank as requested. This is what I honestly think.
As on 7th October 2014, the market value of your portfolio is worth about $10m. With the amount of $6.3m you owed the investment bank, it means about two thirds of it belongs to the bank. Your leverage ratio is at 2 times of debt against one time of equity. That is a pretty high leverage.
Below is the scenarios with different outcomes of the market on your portfolio.
|
Interest |
5.00% |
|||||
|
Scenario |
1 |
2 |
3 |
4 |
5 |
6 |
|
Equity |
3700000 |
3700000 |
3700000 |
3700000 |
3700000 |
3700000 |
|
Debt |
6300000 |
6300000 |
6300000 |
6300000 |
6300000 |
6300000 |
|
Total investment |
10000000 |
10000000 |
10000000 |
10000000 |
10000000 |
10000000 |
|
Total return, % |
30% |
15% |
3.2% |
-10% |
-20% |
-34% |
|
Profit |
3000000 |
1500000 |
320000 |
-1000000 |
-2000000 |
-3370000 |
|
Interest at 5% |
315000 |
315000 |
315000 |
315000 |
315000 |
315000 |
|
Net profit |
2685000 |
1185000 |
5000 |
-1315000 |
-2315000 |
-3685000 |
|
% profit |
73% |
32% |
0% |
-36% |
-63% |
-100% |
It will be great if the market goes up in price in the next one year and your portfolio increases in value by say 30%. With the leverage, you earn a much higher return on your capital of 73% (Scenario 1), after paying your interest charge of 5%. Even if your portfolio increases by just 15% (Scenario 2), you would have earned an amplified return on your investment of 32%. That is fantastic way of using OPM to make money.
No doubt about it, borrowing money to enhance the profits has tremendous appeal. The borrowing cost of 5%, 1.5% below the BLR, is so cheap and appealing in comparison to your potential (?) gain. But that is only provided if everything is going correctly. What if things aren’t that rosy?
I only invest my money which I can afford to put there for years. So if my return is 3.2% a year, I am still ok as that is what the bank will pay me if I put that as fixed deposit. But you won’t earn a sen with that kind of market return. Worse still, if the return of total investment is minus 10%, your loss will be amplified to minus 35%, three and a half times more (scenario 4) compared to if you just invest using your own money.
Let us look at a scenario that the market collapses. You would have lost all the equity if the return of total investment is minus 34% as shown in scenario 6! Whereas my loss is just that 34% and as it is just my own money which I can afford to lose, temporary, or even for a few years. That is ok as it is part of the game in investing.
Leveraging in the stock market with margin account can result in many other unpleasant things. What if the market falls by large amount in the next few days? Your bank will ring you every hour to ask to top up your margin account, failing to do so will result them forced selling your stocks, sometimes at any price to protect themselves from losses. This in turn will push down the price of your stocks further and further. I don’t think that friendly remisier who has been happily giving you that margin account previously has any mercy at all when the tide turns.
The risk of leverage is investing that debt and losing what you borrowed, which can wipe out any profits, or even your entire capital.
This thing won’t happen? Let us just look at some recent events.
During the political crisis involving Umno in 1998 when Anwar Ibrahim was sacked from cabinet, the KLSE went into a tailspin, dropping 442 points, or 59% from 745 to 303 points, within 6 months from February to August 1998. Before that, the market has already dropped by 41% since a year ago from February 1997 high of 1271. During the internet bubble, KLSE dropped by 410 points in February 2000, or 42% from 982 to 573 in just 15 months up to May 2001. The most recent meltdown was after the US sublime crisis from December 2007 to October 2008. For less than a year, KLSE dropped by 580 points, or 40%.
These so-called black swan events happen too often to be comfortable with at least it is for me. Look how leverage can cause devastating effect for investors. Leverage does not improve your return. It merely amplify your gains and losses.
The thing is the market somehow recovered every time and if you investing some good stocks at good price, you will still get some decent long-term return. But if you are investing with leverage, you may never have a chance to recover.
In summary, it may be advisable to get rid of your loan as much as possible rather than thinking of making extra-ordinary return from leveraging. The pain of losing is two and a half times more than the joy of winning.
Is the future knowable or unknowable? I feel I don’t know what the future holds and hence I will do differently; diversifying, not leveraging, staying high in the capital structure, and generally girding for a variety of possible outcomes.
KC Chong (8/10/2014)
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Discussions
6 people like this. Showing 50 of 71 comments
Use margin only for very short term momentum play and cut loss target must be enforced. If you ask me I say don't use margin... I have margin facilities but only use for 2 to 5 days turnover and even then 90% time I keep a positive balance. During this latest Dec correction I already 90% in cash. I only use 10% cash to buy during this period and I can't make money as I average down! until now still losing about 10% from begining of Dec to now. If I use margin well sure die twice!
At the moment things are very volatile but Gov will not raise rate by much maybe 0.5% to contain the RM/USD fall. Don't forget the Gov cannot raise rate bcos Gov Debt is at all time high, Household debt also v high. Only option is print more money and fiscal spending which is already running unofficially. Our Index is artificially held up so I don't bother how it goes.
So Keep Stock Market exposure low and punt if there is a really good deal with cash only! Kong hee fatt choy may God of prosperity came knocking on your door!!
2015-01-12 10:43
RAIDER COMMENT
THIS MARGIN......RAIDER HAS BEEN USING FOR A LONG TIME.........IMAGINE....U CAN GET RETURN OF 10% TO 20%.....AND U BORROW FROM THE BANK 5% TO 6% PA.....THIS MEAN U R ENHANCING YOUR BUT IN A BEAR MARKET...WHERE ALMOST ANYTHING SELL OFF....IT QUITE RISKY LOH.....!!
RAIDER ADVISE MARGIN HOLDERS TO REDUCE EXPOSURE TO MAX 20% LEVERAGE LOH....!!
SET CUT OFF POSITION....WHENEVER YOUR SHARE FALL BY 10% SELL IT DOWN BY 30%.....UNTIL U REACH A COMFORTABLE POSITION.
U CAN ALSO REBALANCE YOUR PORTFOLIO GO FOR;
1) STRONG BALANCE SHEET COMPANIES
2) PROFITABLE,CASH RICH & DIVIDEND PAYING
3) HUGE DISCOUNT OF INTRINSIC VALUE
4) STRONG RECURRING CASHFLOW BUSINESS
5) STRONG CONSUMER STAPLE
6) MARKET LEADER BUSINESS LOH
7) ARBITRAGE WHERE YOUR CASH RETURN IS LOCK IN AT A FIXED RETURN
ALTHOUGH REBALANCING DOES NOT GUARANTEE U COMPLETE LOST OF PAIN FROM THE MARKET....BUT IT DO REDUCES THE IMPACT...& HELP U WITHSTAND THE TSUNAMI.......IF U R HIT...!!
WHAT....IS A REAL MARKET FALL??...........RAIDER THINK.....IT SHOULD FALL.....AT LEAST......30%.!!.....THE CURRENT CORRECTION ABOUT 15%....This HAS NOT FELT THE FULL IMPACT OF THE SELLOFF LOH........!!
BUT U SHOULD..NOT too fear!!....DESPITE BEAR!!....Bcos MARKET MAY.....RECOVER & REBOUND...VERY QUICKLY.WITHOUT U.....KNOWING........LEAVING U BEHIND........!!
SO U MUST NOt BE TOTALLY OUT OF STOCK.........ALWAYS have SOME MARGIN OF SAFETY STOCK..........THAT CAN WITHSTAND........!!
2015-01-12 10:48
Raider, fully agree on your points on limiting the leverage but I like the use of leverage especially for this one
7) ARBITRAGE WHERE YOUR CASH RETURN IS LOCK IN AT A FIXED RETURN
Think about it, SPACs trading below cash level with certainty that cash will be returned to shareholders. If the return p.a expected from this investment exceeds the interest rate the bank, I would use leverage to buy this. Of course there is always a risk that banks can designate or reduce the SPACs collateral value so I would still limit the leverage exposure to avoid having to top up. Diversification and moderation is the key.
2015-01-12 10:57
“I don’t like stress and prefer to avoid it" Walter Schloss
that is why I like ks55's comments
Posted by ks55 > Jan 12, 2015 12:34 PM | Report Abuse
Remember how people get bankrupt during 1996 when market was still good? All because of margin trading. Everybody taught market was the place to get easy money with margin.
Those still were with margin in 97/98 all went holland. Hardly see any left today. Mostly bankrupt.
Were you one of the lucky one still survive? Then you will do well in 2015/16.
Posted by ks55 > Jan 12, 2015 12:38 PM | Report Abuse
No OPM please no OPM.
Buy with OPM will land you sleepless night each time DJ down by 200 to 300 pts.
2015-01-12 12:54
There are three group of investors; the not-much-money, the average, and the rich.
the not-so-much-money can't get margin financing. No need to talk.
The average one can get margin financing and they are the ones who wish to make more money using OPM. Unfortunately most of them got caught when the market is in euphoria and due to greed wanting to get rich fast, they obtain margin financing from the "good and friendly" investment bankers when stocks seem to be flying. However, that is the time most of them were caught, and when the market turns badly. Note that market always revert to the mean. I have a couple remisier friends still working very hard after retirement age, just to slowly paying back their debts.
The rich has no problem getting margin financing. The investment bankers will crawl to them to beg them to get margin financing from them as they are extremely happy to help the rich make big money and become even richer. But market can turn any time as usual, and can be very fast and furious too like in 1996 (second board) 1998 (Anwar fiasco), 2001 (Internet bubbles), 2008 (US sublime crisis) and many times before those. So like ks55 said, it can be very stressful.
But I really cannot understand is, if you are so rich that you have no worries of survival even for your next generation, why do you want to subject themselves to this type of stress and risk losing all you have now?
2015-01-12 15:05
Hahahaha... Bank only lend to those who have money safe mah. Anyway almost all the people I know got totally burned bcos of margin during the 1998 so I talk from experience. Learn to leverage in different ways eg Warrants, Iculs call warrants BUT ONLY play this if you are damm sure the underling stock is solid and never buy anything with big premiums. Of course you may say its the same. Yes and no, Yes you can lose everything if it goes to zero ( quite remote but I was caught before) but then you don't get in debt. Naked is better than be a slave to banks my friend. Alway can earn back some money and buy clothes HeHeHe... Well If you so interest in Warrants and options read up before doing anything stupid, you can search for my random post here and there for beginner tips. Disclaimer I am no expert just play long enough to know what to play and what not to touch and I usually just play warrants and possible growth stocks
2015-01-12 18:31
SO WHAT R THE SAFEGUARDS ?
SINCE IT IS IMPORTANT.....RAIDER DON MIND REPEATING LOH.....!!
GENERALLY RULE OF THUMB IS TO AVOID USING MARGIN TO INVEST IN STOCK AT ALL COST. THIS MEAN AVOID SHARE MARGIN LIKE A PLAGUE LOH....!!
HOWEVER RAIDER SIFU SENIOR ANALYST....FELT DIFFERENTLY & IT MAKE SENSE TOO.....!!
HIS ANALYSIS IF U TREAT INVESTMENT IN STOCK LIKE A BUSINESS & YOUR BUSINESS MODEL HAD SHOWN U HAD OUTPERFORMED THE STOCKMARKET.....IN MID TERM AND U HAD EXPERIENCE WITH BEAR RAIDS & LIVE THRU IT...U SHOULD STICK TO YOUR MARGIN LOH....!!
STOCKMARKET IS JUST LIKE ANY BUSINESS LIKE PROPERTY DEVELOPMENT BUYING LAND, PLANTATION COMPANY BUYING MORE PLANTATION, MANUFACTURING BUYING MORE MACHINERY & EXPANDING USING BORROWED MONIES MAH....!!
THE MAIN DIFFERENT OF MARGIN IS THAT....IT IS MARKED TO MARKET MORE INTENSIVELY & IT FALL TOO MUCH....THERE WILL BE MARGIN CALL LOH.....!!
THE KEY TO MARGIN FINANCING AS WITH OTHER BUSINESS....U MUST NOT OVER LEVERAGE LOH...!!
U MUST BE READY WITH SAFEGUARD & DEFENSE LIKE WHAT RAIDER HAS HIGHLIGHTED MAH.....!!
BUT IN A BEAR MARKET...WHERE ALMOST ANYTHING SELL OFF....IT QUITE RISKY LOH.....!!
U NEED TO MANAGE THE RISK LOH....!!
"RAIDER ADVISE MARGIN HOLDERS TO REDUCE EXPOSURE TO MAX 20% LEVERAGE LOH....!!
SET CUT OFF POSITION....WHENEVER YOUR SHARE FALL BY 10% SELL IT DOWN BY 30%.....UNTIL U REACH A COMFORTABLE POSITION.
U CAN ALSO REBALANCE YOUR PORTFOLIO GO FOR;
1) STRONG BALANCE SHEET COMPANIES
2) PROFITABLE,CASH RICH & DIVIDEND PAYING
3) HUGE DISCOUNT OF INTRINSIC VALUE
4) STRONG RECURRING CASHFLOW BUSINESS
5) STRONG CONSUMER STAPLE
6) MARKET LEADER BUSINESS LOH
7) ARBITRAGE WHERE YOUR CASH RETURN IS LOCK IN AT A FIXED RETURN
ALTHOUGH REBALANCING DOES NOT GUARANTEE U COMPLETE LOST OF PAIN FROM THE MARKET....BUT IT DO REDUCES THE IMPACT...& HELP U WITHSTAND THE TSUNAMI.......IF U R HIT...!!
WHAT...........IS A REAL MARKET FALL...........RAIDER THINK ...........IT SHOULD FALL.........AT LEAST..........30%........THE CURRENT CORRECTION ABOUT 15%.........HAS NOT FELT THE FULL IMPACT OF THE SELLOFF LOH........!!
BUT U SHOULD.......NOT FEAR....DESPITE....BEAR MARKET...BCOS IT MAY....RECOVER & REBOUN VERY QUICKLY....WITHOUT U.....KNOWING.....LEAVING U BEHIND........!!
SO U MUST NOT BE TOTALLY OUT OF STOCK.........ALWAYS HAVE SOME MARGIN OF SAFETY STOCK..........THAT CAN WITHSTAND TSUNAMI........!!
ALTHOUGH MARKET SELLOFF MAY OVERSHOOT....BUT IF YOUR BUSINESS MODEL U RELY MUST BE SOUND & HAVE SAFEGUARDS MAH . U MAY ACT LIKE A PON...DAN.....BUT U SHOULD NOT FEAR THE STOCKMARKET MAH...!! IF OPPORTUNITY COMES...U MAY USE LEVERAGE TO BUY IF THE RISK REWARDS FAVOURS !!"
2015-01-12 21:37
i bookmark this in my browser to remind myself
马股过去 30 年 11 次的熊市
http://klse.i3investor.com/blogs/ss2020_vaInv/61899.jsp
When you think low, market can go lower.. Japan suffered the lost decade after the bubble burst. 1MDB is a time bomb
2015-01-12 22:01
If u asked me what is the best sentence to sum up my 2014, I would say this above title
2015-01-12 22:08
I am very happy that my this old post attracted a number, all of them, very high quality comments and criticisms. There are indeed a lot of very knowledgeable investors in i3investor.
First I thank SapuMalaysia’s appended chart, http://klse.i3investor.com/blogs/ss2020_vaInv/61899.jsp.
This chart is extremely useful and I will “leverage” it later for some of my future articles to share. That is one of the great advantage of leverage, but not leverage with margin financing.
Eleven occasions of serious drops in Bursa in 30 years of an average of 42.3%, or at least once in three years does sound very frequent and scary to me. For those who embark on margin financing, don’t you think so? Can you imagine the consequence if this happens when you are with margin financing at the peak of one of these cycles? I believe most probably margin financing was used at the market euphoria when people got greedy, and not at the low end of the market when it was full of fear. In any of these cases, most likely the equity of the one engaging in margin financing would have gone to zero or even negative. Few recovered.
[Posted by ks55 > Jan 12, 2015 12:34 PM | Report Abuse
Remember how people get bankrupt during 1996 when market was still good? All because of margin trading. Everybody taught market was the place to get easy money with margin.
Those still were with margin in 97/98 all went holland. Hardly see any left today. Mostly bankrupt.]
[Posted by lcwin > Jan 12, 2015 06:31 PM | Report Abuse
Anyway almost all the people I know got totally burned bcos of margin during the 1998 so I talk from experience.]
[Posted by matakuda > Jan 12, 2015 10:08 PM | Report Abuse
If u asked me what is the best sentence to sum up my 2014, I would say this above title]
The problem is research has shown that nobody can predict correctly in a statistical significance when the market turned.
On the other hand, if you were investing for the long term, you can see from the chart that market always recovered and you would have a satisfactory positive return in the long term. The positive return could be amplified with some good fundamental investing strategies.
[Posted by stockraider > Jan 12, 2015 10:48 AM | Report Abuse
RAIDER COMMENT
BUT U SHOULD..NOT too fear!!....DESPITE BEAR!!....Bcos MARKET MAY.....RECOVER & REBOUND...VERY QUICKLY.WITHOUT U.....KNOWING........LEAVING U BEHIND........!!
SO U MUST NOt BE TOTALLY OUT OF STOCK.........ALWAYS have SOME MARGIN OF SAFETY STOCK..........THAT CAN WITHSTAND........!!]
[馬雲：今天很殘酷，明天更殘酷，後天很美好，絕大部分人死在明天晚上]
So what course of action do you think you would take in investing?
2015-01-13 05:56
Hi KC yes if you follow the KLCi chart it is on long term rise with correction every few years. Lets not forget KLCi component stock is change to reflect " present time" or can I say massage to "look good". I would say again KLSE is more like a zero sum game for 75% of the market yoyoing up and down now and then following sentiments. I admit I haven't been playing the market for many years before this last 2 years but I still follow the treads of KLSE. I stay out mainly bcos of my financial condition which I should add never play the market if you are cash strapped or don't have positive cashflow to support you daily needs.This bcos you will never be able to make rational decision amids the personal chaos. This is also the reason I negative on Margin usage except on short spurt of bull run. Having said that I think Margin is very useful to have and by all mean obtain one but use it sparingly. You know like Malaysia we buy submarine though of no use but then again you will never know one day we catch Sulu pirate with that!
2015-01-13 09:56
Posted by stockraider > Jan 12, 2015 10:48 AM | Report Abuse
RAIDER COMMENT
THIS MARGIN......RAIDER HAS BEEN USING FOR A LONG TIME.........IMAGINE....U CAN GET RETURN OF 10% TO 20%.....AND U BORROW FROM THE BANK 5% TO 6% PA.....THIS MEAN U R ENHANCING YOUR BUT IN A BEAR MARKET...WHERE ALMOST ANYTHING SELL OFF....IT QUITE RISKY LOH.....!!
Borrow at 6% and get a return of 20% a year for a net gain of 14% a year. Yes very logical. So where do I sign? Investment bankers somehow are very kind and willing to lend you that money for you to make that extra-ordinary profit instead of them doing it themselves.
For the last 5 years, KLCI has gone up from 1300 to 1730 points now. The compounded annual gain is 5.9% a year, just short of the 6% of interest charges for margin financing, not forgetting the upfront set up cost of 1% and other administrative charges. And what do you think of the market the last 5 years? I would think it has been a good market, and not an average market.
This means that what an ordinary investor get is just enough to pay bank charges. The only extra in a good market is the annual dividend estimated to be around 2%-3% a year. Is 2%-3% return commensurate with the risk a margin financing investor gets? You tell me.
Of course many investor will tell you that they are above average investor, and not an ordinary investors. Every investor seems to think that he is much better than an average investor. Does this sentence make sense?
Don’t get me wrong, I sincerely believe those saying they made more money in this thread here by borrowing money to do it, did make it. But they aren’t average investors.
2015-01-13 09:57
Yes Leno is correct!
I remember vividly before Anwar was arrested.
Dr M said there will be shocking measures. Indeed there were 3 shocking measures
1) The sacking of Anwar
2) The implementation of capital control.
3) The demise of clob in Singapore.
At the same time KLSE fell to its lowest point of 262.
Dr. Neoh Soon Kean wrote in the headlines of Malay Mail
KLSE NOW THE BARGAIN OF THE CENTURY.
And at that time I had Zero shares.
On my way to the stock market - just as I arrived - I received a call from Mr. Ho - He said, "I want to commit suicide by jumping of a building!"
I was momentarily frozen. So I didn't participate in the subsequent revival of KLSE.
Mr. Ho, together with 2 other business friends of mine lost RM3 Millions, RM5 millions & RM500,000. The two that lost millions played margin.
All ran away from loan sharks and went into hiding.
Later one by one emerged with new names, still hiding from loan sharks.
2015-01-13 10:27
opportunity ? timing is very important whether you buy or sell.but unfortunately in Malaysia ( short selling in Bursa is on the rope- meaning only for the selected few )
borrowing to invest (is not encouraged) but during a bull run everything is feasible. when the market is down invest within your own means. no matter how the market turns. you have the holding power unlike those who trade on margin.
2015-01-13 10:55
dun forget to add the fall of apek koon of mudajya also because of margin ... kkekekekekekek ....
2015-01-13 11:18
RAIDER ADVICE !!
ALWAYS STICK TO MARGIN OF SAFETY LOH.....!!
AT LEAST BY DOING THIS U DON GO OVER COMMITTED WHEN CRISIS STRIKE MAH....!!
1.FIRST SIGN OF CRASH LARI KUAT KUAT SELL AT LEAST 30% OF YOUR HOLDING.
2. SELL THE STOCK U HAVE HAND THAT IS NOT PAYING GOOD DIVIDEND YIELD OR HAS LOWER MARGIN OF SAFETY MAH.....!!
3. HANG ON TO YOUR STOCK WHICH HAVE GOOD DIVIDEND YIELD, HIGH MARGIN OF SAFETY, STRONG BALANCE SHEET AND LOW PRICE TO BOOK VALUE.
4. WHEN MKT CRASH DOWN 20% OCCUR....DON JUMP IN IMMEDIATELY LOH....WAIT FOR IT....TO STABILISE AND VOLUME IS XTREMELY LOW B4 U JUMP IN WITH YOUR 1ST 15% LOH.....!!
5. LOOK FOR SIGN OF UPTREND B4 U BUY YOUR BALANCE 15% MAH.....!!
6. TYPE OF STOCK U SUPPOSE TO BUY ? MARGIN OF SAFETY STOCK......ESPECIALLY THE STOCK....U HAD SOLD...AND NOW U GOT CHANCE TO PICK UP AT A FRACTION OF ITS COST LOH......!!
AFTER MARKET CRASH NORMALLY IT TAKES ABOUT 3 YRS FOR IT RECUPERATE AND FINALLY RECOVER LOH...!!
YOUR WINDOW OF OPPORTUNITY TO MAKE EXCEPTIONAL GOOD MONIES IS IN THIS PERIOD LOH....!!
BE PREPARE TO HOLD LONG LOH......!!
BUY WITH MARGIN OF SAFETY .......BUT U MAY INCLUDE SOME GROWTH & BLUECHIPS STOCK INTO YOUR PORTFOLIO TOO LOH......!!!
WHEN THE PE IS XTREMELY LOW AND DIVIDEND YIELD IS XTREMELY HIGH AND THE BALANCE SHEET COMPANY ARE STRONG.....U MAY CONSIDER LEVERAGE LOH.....!!
THIS IS THE BEST TIME TO BORROW LOH.......!!!
BUT MAX LEVERAGE SHOULD NOT BE MORE THAN 30%
2015-01-13 11:57
Leno really tickles me to laughter.
Keep Cash until October?
Is This A Crash or A Deep Correction?
Will Oil be going down the drain in prices?
Is Malaysia finished?
I think there are counter balances in the Market. Only Oil has crashed. And it only impacted Oil & Gas Counters, Commodities, Banks & Some Real Estate Cos.
But that concerns only Malaysia. And in particular Oil Price Crash.
There are factors supporting Oil Prices
1) Shale Oil exploration has stopped.
2) Many are now going out of business.
3) Shale Oil could be a flash in the pan. And could be over within months if Oil keeps at US$60 a barrel
4) Saudi needs oil revenue more than any other nations on earth. The immense tightening they have to endure. Think they want low oil prices?
5) The US is selling more SUV & 4 x 4 due to cheap oil. Oil usage will pick up again.
6) And If Shale Oil failed, many US Banks will be in trouble of insolvency. So Uncle Sam will start QE 4 instead of raising interest rates.
7) Then cheap printed money will return back to emerging markets like Malaysia.
8) And last year China up 45%, India, Thailand, Indonesia & Philippines up 20% over while KLSE crashed 8%
9) Money will flow to value - And Malaysia might well be the darling of Foreign Fund Once again.
10) The cycle repeats.
"That which has been is that which shall be; and there is nothing new under the sun" King Solomon
2015-01-13 12:31
I think USA, europe, japan, china are doing fine....!!
It is just the unfortunate oil producing countries ....including msia will be suffering loh....!!
Shale has not much impact....bcos producer can simply shut production until oil go back to usd 70.
For traditional oilfield it is very difficult to stop production.
But they could produce less loh.....!!
2015-01-13 12:38
if u got stuck with stocks .. of course u must keep saying everi thing is fine. If u are stuck with stock plus margin .. than u must keep saying playing margin is fine.
EVERI THING IS NOT FINE LAR !! How do i know ? Because i no hold stock tats why i can see veri clearly ... BOOOOO CA$$$$$HHH CCCCCCCC AAAAAAAAAAAAAAAA !!!! HAHAHAHAHAHAHAH ! HAHAHAHAHAHAHAH !!
2015-01-13 12:42
lENO I hate cats but in your case foul mouth dirty cat like you I LIKE!
I also notice lots of investor talking about averaging down to reduce holding cost bcos still got money even though the stock is correcting big time likely using margin to help out. Margin is a 3 EDGE Sword one more pointing towards you my friend. Margin call only comes when you need it most and believe me those who top up will die harder.
As far as I know Ting is still rich so is HS, Eric family TKS etc most of them alrdy squirrel away the cash in nominees funds
2015-01-13 12:54
When the fund bosses are throwing out their shares borrowing it easily available and when are about to collect the stock market will retreat with hell lot of bad news,Then the margin squeeze,forcing the investors to top up or to sell at huge losses.
My sincere advice is not to invest more than 10% of your assets and with surplus cash so that you are not squeezed or cornered by bankers who will close their umbellas when it is raining.
It is not safe to invest in stock market as it is easily proned to falling due to many sensitive issues and can cause great financial disasters to you and family members.
The time to buy shares is after great correction and a crash but must have great discipline to practise it.It is easier to talk than to do it
especially to exercise great control over the right timing of buying and selling.
When recession is approaching,it is wise to leave the stock market completely for few years at least because it will be a falling knife in long run.
2015-01-13 13:17
Yes, last time I visited Kuching and the coastal resort of Suntubong. At night the long stretch of highways were all well lighted. All contribution from Ting
2015-01-13 13:18
U must understand this Leno...during 2013 election....he call everyone to hold cash.....!! Say he is 100% cash mah...!!
Those who follow him all send to holland....loh...bcos market run up.
Then this Leno will then ...will tell everyone.. why so stupid...he make tons of monies holding stock loh....!!
That is type of chracter Leno ....u cannot trust this fellow loh...!!
To him fame is very important loh...!!
Raider ...diff very humble...raider say spades is spades....there is no 2 way about it loh....!!
2015-01-13 15:57
hahahah ... no ... i did not call everi one to hold cash during last election ... i was asking LG (and onli LG) to sell off all his stock because LG think PR will win the election mar .. HAHAHAHAHAHAH .. SERVE HIM RIGHT ! He mix investing with politic and suffer BIG LOSS OF OPPORTUNITIES .. KaakakakakakakaK ... KAKKAAKAKAKAKAKAK .. i like !
2015-01-13 16:05
Leno, dun deny lah. You keep on boh chow see.
See-pohuat, hevea, latitdue, all 10-20% return!!
Only idiot listen to Leno-the HOLLAND CAT!
2015-01-13 16:08
things in investlah change when LG become admin there mar .. his purpose is to con people and to promote politics lor ... leno kena ban by him many many time for political reason .. and finally leno decide to teach him a big lesson of his whole life. Since he keep saying PR will win election .. leno give him GREEN LIGHT to sell off all his share during that time lor ... HAHAHAHAHAH ... KAKAKAKAKAKAAK ... this is wat we call ... BAD PEOPLE will suffer BAD KARMA ! U no see leno suffer bad luck leh .. why ? Because leno have good and sincere heart mar ... always help people one.
2015-01-13 16:14
Still want to use OPM to make money from the market? Read this latest example of FXCM leveraged losses leading to emergency rescue.
http://www.wsj.com/articles/swiss-franc-move-cripples-currency-brokers-1421371654
Anyone in the world foresaw this problem? May be one of two only.
Anyone foresaw the steep drop in oil price leading to drastic drop in share price of some even very good oil and gas stocks in Bursa by more than 50% in weeks? None!
Anyone foresaw the fast and furious drop of the stock markets in 2008 resulting the demise of this Dominion Fund, the highest Sharpe ratio hedge fund in the world in this article? Very few.
http://klse.i3investor.com/blogs/kcchongnz/44344.jsp
Still not convinced about the peril of using OPM for investing, or rather speculating?
2015-01-18 04:24
jeez. can use margin, every case is different. up to 400:1 margin avail in FX. up to you to decide to take. end of day, is the broker able to collect from non-domiciled clients. Of Course NOT. thats why Oanda (only offer max 50:1) offer to forgive client debt. also, up to broker to DECLINE risky business. manage RISK.
and nothing wrong with speculating. dun be DOWNER kc, jus because u're a WB fanboi. market took 20 Standard Dev move in 1987. r u going to be fright of stock market because of 1987???
https://twitter.com/nntaleb/status/555954401320239104
2015-01-18 05:28
I believe those people who used margin finance even up to 20% -30% will be hit very badly by margin calls in 1998, 2001 and end 2008. Many of them wouldn't be able to recover because the forced selling had diminished their chance to recover. Those who did not use margin finance had recovered and prospered.
Even those who used margin finance up to 30% were also hit very badly in a small downturn in Mid December 2014 and margin calls would have also diminished their chance of recovering. Just my hunch.
One can easily set up a spreadsheet and see the scenario analysis as shown in the link here:
http://klse.i3investor.com/blogs/kcchongnz/44344.jsp
2015-01-18 13:31
Icon8888,
My comments are in general nature and not specific on anybody. Having said that, for those who indulged in margin financing then, I think you were an exception.
Human nature is such that once someone has tasted sweetness, few can get away from it.
2015-01-18 13:57
Thanks KC, despite my own experience, I agree that it is better to teach people NOT to gear than teaching them to gear
Having conveyed my points to you, I think I better delete my earlier postings.
Better not geared for it can cut both ways
2015-01-18 14:02
OTB I will call to meet you if 1997 happens again. Hope to hear some TA perspectives from you. Maybe it works. : )
2015-01-18 14:05
My margin finance is 32.4% up till nov. When dec downturn came, my margin finance stilll no problem
2015-01-18 14:10
This safest way for most so called stock expert is to scream bearish bearish bearish all the time ! When bearish does come, then scream "i told you so". When bull market come charging, they still scream careful careful careful !! Full of nonsense!
2015-01-18 14:16
1997 is unique and impossible to escape because it unfolded over several phases
Dropped from 1100 to 900, everybody panic and sold down. At 900, it started rebounced, everybody rushed in. Then it collapsed again to 700. Everybody panic and sold off again (second round). Then it rebounced, everybody rushed in. Then it collapsed to 500...
The cycle kept repeating until 250
By that time, the street is already strewn with bodies. Nobody interested to buy anything anymore....
Then it recovered....
Ha ha see die or not die ????
2015-01-18 14:26
That is why I said unless I am GOD, there is no way I can escape unscathed !
2015-01-18 14:28
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kcchongnz
Mr Lee's portfolio would have been under forced selling due to margin calls. I hope he has followed my advice and have done away with his heavy leverage when I gave him my comment. Otherwise the consequence is no good, no good at all.
Mind you this present correction is nothing, like "a small woe seeing a big woe", compared to the 1998, 2001 and 2009 sagas.
There are many pitfalls in investing. Some of the top pitfalls are over-confidence due to past success thinking that one is so smart, which could most probably due to the right time and at the right place, and then greed in thinking that margin and leverage investing can only amplify returns, and not the other way.
2014-12-09 12:47