kcchongnz blog
Is debt good? When is it good? kcchongnz
“The Lord will open to you his good treasury, the heavens, to give the rain to your land in its season and to bless all the work of your hands. And you shall lend to many nations, but you shall not borrow.” Deuteronomy 28:12
“The taking of a loan is not something that a respectable individual would do without necessity, to create a burden upon themselves. When it is a necessity, then people should seek to assist their relatives and Muslim brothers, according to one’s capability.” Muslim teaching.
“Monks, because of poverty, people borrow money from the others; borrowing brings about suffering. Because of debt, they have to pay interest; to pay interest brings about suffering. When they cannot pay interest in time, they must be pressed for payment; the requirement of payment brings about suffering. When they are pressed for payment and they cannot pay, they will be charged; the charge brings about suffering. After the charge, if they cannot repay, they will be sentenced to jail; the imprisonment brings about suffering. Monks, all of these; poverty, debt, payment of interest, the pressure for payment, the charge and the imprisonment bring about suffering to the world”. The Buddha
Most of those born about our country’s independence day were from poor family and had to rough it out in order to survive. Some of us were very lucky to get a good education through a scholarship, or a loan. When we started work, we need a car to travel around for work. Our parents were unable to help us then, unlike the Y-generation. A Datsun or a Lancer cost about RM15,000. Where did we get the money? Of course we have to get a car loan. It was a necessity and we had no issue about it. Our salary, and mileage claims were able to pay and maintain it.
After a few years of working, got married and had the first child, we needed to think about getting a home of ourselves. Having a roof over our heads is essential for us. A single story house in SubangJaya cost about RM130,000 then. Where did we get the money? Of course we had to get a housing loan from the bank. We had to pay about RM1000 a month. However, it is not an issue as we had a double income then.
Didn’t I have to worry about losing my job and unable to pay the instalment? No, why? Firstly, it was highly unlikely I would lose my job as I had a golden rice bowl then. Even if one lost his job, it was likely he could find another one or did something to earn a living, couldn’t he?
Our house actually dropped in price to RM100,000 in 1987-88. Was there an issue? None. The bank did not force us to put in more money, nor they threatened to force sell our house at whatever price they wanted to recover their money, for we were able to pay the monthly installment without any problem. The house price rose to about RM250000 a few years later and we sold it and moved on our life.
Our children were luckier as they have had better, much better life than us when we were young. However, many of them here and in overseas still get a student loan. They may not have to pay for a car loan if they get a second hand car when start work for their parents may pay for them, especially in overseas when second-hand car is dirt cheap, but may have to pay monthly instalments for their car loan if it is a new car. They will of course have to get a housing loan to buy a house too.
Clearly many had to borrow money for some of the essential things in our life, unless their parents are filthy rich. But my opinion is even if their parents are filthy rich, it is not good for them to get loans and pay for themselves too
Personal debts for buying a house or a normal car for work purpose, or a student loan are okay and in fact essential as these are considered as “good debts”. Borrowing for a holiday, luxury goods which you have not earned, are considered as bad debts.
What about borrowing money to do business?
Posted by Desa20201956 > Feb 20, 2016 10:54 AM | Report Abuse 
Put it this way.... never seen a successful business man without borrowings.
Have anyone?
In the low interest rate environment, you are supposed to borrow if you are smart.
I actually have no issue on the above statement. It is just that it appears in my thread where I discussed about margin financing in stock investment/speculation, a wrong place.
Is borrowing to do business, or a house, the same as using margin financing in the stock market? I see the vast difference it them, don’t you? We will discuss more about this later.
Since we are in i3investor and you want to talk about borrowing to do business, why don’t we focus on a larger issue about investing in companies which are using debts; Is corporate debt good?
Corporate debt
The main reason companies decide to go public is to raise money to do business, a lot of money from a large group of shareholders and debt holders. Furthermore, a public listed status gives it a solid standing when negotiating interest rates with banks.
There are two reasons why a company should use debt to finance a large portion of its business.
First, the government encourages businesses to use debt by allowing them to deduct the interest on the debt from corporate income taxes. With the corporate tax rate at 24% in Malaysia, that deduction is quite enticing, reducing the after-tax cost of debt to be below five percent after considering the tax shield associated with interest.
Second, all capital providers require a return on their capitals. It happens that debt is a much cheaper form of financing than equity. It starts with the fact that equity is riskier than debt. Because a company typically has no legal obligation to pay dividends to common shareholders, those shareholders want a certain rate of return. Debt is much less risky for the investor and bankers because the firm is legally obligated to pay interest for it. In addition, debtholders are the first in line to claim back their loans when a firm goes bankrupt. Finally, much of the return on equity is tied up in stock appreciation, which requires a company to grow revenue, profit and cash flow. An investor typically wants at least a 10% return due to these risks and uncertainties, while debt can usually be found at a much lower after-tax rate.
A company with say half equity and half debt financing will have a much lower weighted average cost of capital than a purely equity funded company. Hence using other people’s money, or OPM, is a very enticing proposition for a business.
So shouldn’t we buy the stocks of companies with a lot of debts instead of those which do not know how to use OPM to do business?
Well, be my guest and you can go ahead to do that but don’t try to convince me to follow you. For me if the two exactly similar companies, except one with no debts and plenty of cash, and the other with high net borrowings, you go ahead and invest in the high net borrowing company and leave me out to invest in the low debt and plenty of cash company.
Why? Please read the article appended blow for my opinion.
http://klse.i3investor.com/blogs/kcchongnz/84689.jsp
But do I invest in companies with considerable debts? Of course, but only if the return of capital is higher, preferably much higher than its cost as discussed in Sciientex in this link here:
http://klse.i3investor.com/blogs/kcchongnz/56316.jsp
And it must have good earnings, especially good quality of earnings with high cash flows which are many times covering its interest payment of debts, also for Scientex as shown here:
http://klse.i3investor.com/blogs/kcchongnz/83903.jsp
So corporate debts, or borrowing to do business is also a good thing, of course with some caveats as above.
Now come to the last part. Is using margin finance in stock investment good and should be encouraged for use by youngsters, newbies and the general public?
Margin Finance
Posted by stockraider > Feb 20, 2016 10:48 AM | Report Abuse
Raider says.... margin could be a better tool for good investor too...!!
Especially in low interest environment...!!
I have no issue on the above statement, never. It actually came out from a respectable forumer in i3investor. Before continue, I would like to say that I have seen seemingly very successful, good investor and heavy margin user lost more than 50% of its portfolio before. So don’t underestimate this “power” of margin financing in stock investment. A 50% margin financing would have wipe up the equity completely.
The many postings of me on margin finance were not meant for “good investor”, or “tycoon”, I repeat. My postings on margin finance were all targeted for the younger generations, my course participants, the newbies in stock market, and the general public.
I used to just provide my opinion about the perils of margin financing in stock investment to those people, but now I treat it as an altruistic act of mine “advising” the younger generation against engaging in this act. However, there is no issue for me too if they do not want to accept. It is none of my business too. It is good to encourage them to have independent thinking.
I always treat buying a stock as an investment, invest one’s money which he doesn’t need to use it for the next couple of years or more, and let compounding does its magic. Investing to me should also be a stress free endeavor; take care of the downside and let the upside takes care of itself. It is not about making RM100m, but not to lose RM100,000. I never like banks calling me to top up my margin when I am putting for a birdie, just because I want of make 100% more return using margin finance. It is just me.
I have written and provided numbers and different scenarios the peril of leverage here with various scenarios that margin financing can be devastating if the outcome of events goes against you and you can lose everything and more, with an example of a leverage fund I had had experience with where selected savvy investors lost everything.
http://klse.i3investor.com/blogs/kcchongnz/44344.jsp
I wrote and repeated about what happened in 1998 in KLSE when Anwar Ibrahim was sacked as the Deputy Prime Minister, and warned that Black Swan, or a six sigma event can happen, and it happens quite frequently nowadays.
http://klse.i3investor.com/blogs/kcchongnz/61822.jsp
I don’t know how many people, including big time tycoons, ordinary investors, remisiers, lost their pants then with margin finance. Some experienced forumers also told their stories there.
Sometime in June 2015 I was arguing with someone regarding the peril of margin finance when the Shanghai Stock Exchange, SSX, was at its peak at 5023. It was only 8 months ago and today SSX closed at 2860 for a loss of the broad index of a whopping 43%. How much do you think those individual high flying stocks would have gone down?
http://klse.i3investor.com/blogs/kcchongnz/79429.jsp
What happen for a speculator with heavy margin finance when SSX is closed at its peak and held on to his stocks?
In the above article, again I have given different scenarios how margin financing in stock investment can make or break the wealth of a speculator.
In this article below, I have even given a real life example, someone who is supposedly very skillful and competent in investment, and using OPM which I personally know of, how precarious is margin financing in stock investment.
http://klse.i3investor.com/blogs/kcchongnz/82699.jsp
Margin financing in stock speculation can incur heavy losses to speculators and has ruined many individuals and families. When stock market falls, margin calls are effected when many investors have to sell down. It is not good for the overall market too as every investor is affected when the market experiences a free fall due to margin calls. Obviously margin calls can’t be good and it is not good for the society at large.
Looking at the recent small “ripples” in the stock market when Ringgit just strengthened a little after falling a lot and some export stocks lost up to 30% of their values from their peaks, how much a heavy margin financed investor would have lost? Could he sleep well? How sure he was the market would recover then when he may be at the brink of margin calls?
I do have some export stocks too in Sam, Focus Lumber and Latitude but I had no worry when the market dropped as nobody called me for margin top-up.
Every investor thinks that he is good, skilful, competent and will make exaggerated gain from the stock market from margin financing. But is that a realistic expectation? What if it is the other way round; you make amplified losses in the stock market with margin financing? Are you that special?
Finally, I would like to reiterate that this message is for youngsters, newbies and the general public. Avoid margin financing in stock investment, yes, like a plague.
I advocate investing in the stock market to build up long-term wealth through compounding with a fundamental approach and in a stress free environment. If you are interested to learn about it at a small fee, please contact me at
K C Chong
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Discussions
16 people like this. Showing 50 of 141 comments
Posted by kcchongnz > Feb 22, 2016 11:04 AM | Report Abuse
Posted by stockraider > Feb 22, 2016 10:34 AM | Report Abuse
Btw....what is the perceive weaknesses of young people ?
The answer....is lack of capital....!! Of course beside the lacked of skill.!!
What would be the result of lack of capital, lack of skill, and combine with the use of margin finance? RAIDER AGREE LACKED OF SKILL CAN BE TRAINED...BUT USING MARGIN FINANCING IS ALSO PART OF THE OVERALL INVESTMENT SKILL....SHOULD RAIDER SAY TRAINING INVESTOR TO MANAGE THEIR MARGIN IS ALSO PART OF THE INVESTMENT SKILL,,,PERHAPS RAIDER SAY IT IN A DIFFERENT WAY...IT CAN BE CONSIDER ADVANCE PART OF INVESTMENT LOH....!!
Still want to encourage youngsters to invest with margin finance?
Yes, skill can be taught, but that guarantee the success in investing, especially in the short run? AS RAIDER SAY EARLIER...INVESTMENT IS NOT SHORT TERM....IT IS A LONG TERM PLAY....!! REMEMBER THIS ....SHARE PRICE IS A VOTING MACHINE IN THE SHORT TERM....THAT MEANS U UNABLE TO PREDICT ITS MOVEMENT IN SHORT TERM, BUT IN THE LONG TERM IT IS A WEIGHING MACHINE, THAT MEAN ITS VALUE CAN BE DETERMINE LOH...!!
If one uses margin finance, he has to be right, not only in the long run, but also in the short term. Otherwise any sharp fall in the market incurs short selling and capital can be wiped out easily.
So a skilful investor guaranteed of short-term success in investing with margin finance? WHETHER PEOPLE USE MARGIN OR OWN MONIES TO INVEST...THEY NEED TO BE RIGHT IN THE LONG RUN...IF THEY ARE WRONG WEALTH WILL BE DESTROYED LOH....!!
DON'T FORGET, EVEN IF U INVEST USING YOUR OWN MONIES....U R EXPOSE TOO...SAME AS MARGIN LOH....!! U MEET TO MAKE HIGHER THAN UR OPPORTUNITY COST....!!
IN FACT SOMETIME IT IS BETTER TO USE MARGIN THAN UR OWN MONIES LOH...!!
FOR EXAMPLE IF U LEAVE MONIES IN THE EPF...UR RATE RETURN IS 6.4% PA BUT IF U CAN BORROW USING MARGIN AT 5.4% PA, THEN IT IS BETTER FOR U TO BORROW LOH....!!
HAVING SAY THE ABOVE, AN INVESTOR NEED TO ON GUARD MORE ON MARGIN COMPARE WITH OWN MONIES.
1. WHEN SHORT TERM MOVEMENT MAY TRIGGER MARGIN CALL
2. THE BANK MAY CHANGE THE CAPPING VALUE OF YOUR SHARE, AGAIN THIS MAY REDUCE UR SECURITY..RESULTING THE RISK OF MARGIN CALL AND FORCE SELL.
3. THE BANK MAY COMPLETE DISALLOW THE VALUE OF YOUR SHARE PLEDGE, AGAIN THIS MAY TRIGGER A MARGIN CALL,
IN THE CASE OF A MARGIN INVESTOR...HE NEED TO BEAR IN MIND OF RISK ITEM 1 TO 3 COMPARE TO SHARE INVESTOR.
OTHER THAN ITEM 1 TO 3....THE RISK OF CASH INVESTOR AND MARGIN INVESTOR ARE EXACTLY THE SAME.
SO IN ORDER TO USE MARGIN FINANCING U NEED TO MANAGE YOUR MARGIN RISK LOH....RAIDER WILL ELABORATE THIS LATER...!!
2016-02-22 23:53
Margin a/c only good while makro r stable, uptrending chart counter, make sure your porfolio simple < 6 counters and bea bit diversify. Left 20-25% cash, so that u can always make a comeback. PROFIT TAKING IS ESSENTIALLY ! The more u practise the more u know where is your porfolio weak point. So make sure u start it small, till u can till it fine,,,then increas 3-5 times till your porforlio hit the 75% of your porfolio amount. Make sure u get an apps that can alert u the cut loss & profit set by your mobile. Good luck !
2016-02-23 00:09
How can margin call be good? - felicity
Author: Tan KW | Publish date: Mon, 22 Feb 2016, 02:18 PM
Monday, February 22, 2016
I read an article or a blog. The person claims that he faced margin call recently, but because his stock had already appreciated and it was an opportune time to sell. When the margin call subsided, he will continue to buy as the stock according to him is undervalued.
THIS IS REALLY RIDICULOUS!
Investors. THINK. How can your stocks forced sold by your lenders be good? RAIDER COMMENT; IF U R RIDING ON THE WAVE OF SUCCESS...THE 1ST SIGN OF DANGER OR WAKE UP CALL!! THAT MEAN MARKET TELL U TO SELL EARLY LOH..!! THIS MEANS LEAST DAMAGE RUNAWAY EARLY!!...THIS MEANS TO FORCE SELL IS GOOD LOH...!!
It does not matter if the stock is undervalued or a wake up call. An investor has much less control during margin calls and stocks can be bearish for a long long time - like many months. When that happens, your holdings can be totally wiped out. Stocks in the short term can be really volatile especially in today's age where computer algorithm trading creates huge volatility in the market. RAIDER ALREADY MENTIONED THE 3 IMPORTANT LIMITATION OF MARGIN INVESTOR IN TERM OF RISK!!
This is not about borrowings for trading (as I am not totally against it), but be sure you have strong enough collateral to sustain. This advice or statement so irresponsible is really bad for man on the street who is discovering investments step by step. WHY DO U NEED TO SUSTAIN YOUR COLLATERAL ? IF THERE IS A BIG RISK COMING, THE BEST STRATEGY IS TO REDUCE YOUR EXPOSURE TO MANAGEABLE LEVEL...DO NOT ANSWER A MARGIN CALL WITH NEW MONIES....!!
2016-02-23 00:09
Another important things is 'Capping value' and investment Bank re-rating to your counters in the porfolio will affect your cash value of your porfolio.
2016-02-23 00:13
In a nutshell...raider like to explain...that margin investor...is like a boxer...that they will likely take more punches compare with ordinary cash investor loh....!!
If one can master the technique of taking more punches...he will do very well forward....bcos he has a very powerful tools beside own monies loh...!!
2016-02-23 00:14
Practise will fine tune the skill. Bet small for a starter during the gestation period.
2016-02-23 00:17
I find that the word 'bet'appears on a majority of margin Finance topics/discussion. Goes to show it's still a kind of gambling mentality.
This is the kind of knowledge knowhow which is grossly wrong n teaching our youngsters the wrong way.
We Shld be using the word invest especially for your future. They shld learn the prudent man rule as well. This will teach them responsibility on their own future.
2016-02-23 11:34
Investing is not betting nor gambling. However my statement is of course my bread. My bread is totally different from other ppl.
Cheers
2016-02-23 11:36
Posted by coolinvestor > Feb 23, 2016 11:34 AM | Report Abuse
I find that the word 'bet'appears on a majority of margin Finance topics/discussion. Goes to show it's still a kind of gambling mentality.
This is the kind of knowledge knowhow which is grossly wrong n teaching our youngsters the wrong way.
We Shld be using the word invest especially for your future. They shld learn the prudent man rule as well. This will teach them responsibility on their own future.
I totally agree with the statement. Investing should be a boring and long term process which required a lot of skill, analysis and independent thinking. However, youngster now a days like to follow different GURU or tips in order to make a quick bucks. Most of them buy a stock and expect it to goes up tomorrow which is totally unrealistic.
2016-02-23 11:44
we cannot live without one debt or another. however, excessive debt will be a burden to anyone. live within your means. never-never borrow money (to gamble or speculate )this my advice to everybody reading this blog
2016-02-23 11:51
Two kinds of skill sets
One, the stock picking skill sets. The ones followed by internet gurus and sifus , the self taught investors, those who read some books about Warren Bufett
Two, the skill sets needed in managing portfolios. The kind of stuffs universities and CFA courses spend a lot of time on.
Once you are on borrowed funds and margin accounts, once you buy more than one stock , you are in this territory.
All the Warren Bufett wannabes and copy cats just repeat what they read.......and become sifus......how about teaching the basics of portfolio theories?
Margin accounts remain very popular. You cannot be complete sifu by focusing on 1 and completely neglecting 2.
Margin account too risky is not a good answer.
Assume a portfolio of two stocks.....perfectly and negatively correlated. Why got risk one?
It will be silly not to margin this portfolio if the dividend income is higher than the interest cost. This will , then , be your perfect compounded growth, exponential growth portfolio at zero risk....why cannot margin?
Chong.....don't just criticize margin accounts, be creative.
If done well, it can be a popular course. The people wants margin accounts.....what they need are some basics of modern portfolio theories.....even Koon Ywe Yin soon attend. His portfolio is too focused and therefore too high risk for a margin account. But how do you tell a guy that unless you are equipped with all the knowledge of modern portfolio theories?
For those who are innovative and creative, there are business opportunities....but only for the creative and innovative.
2016-02-23 13:47
Since someone mentioned about portfolio management then I will talk about it a little. Markowitz Portfolio Theory emphasize on borrowing in risk free rate in order to invest in high yield stock for more return. Given 10 year MGS rate is around 4% according to BNM, you need to borrowing with interest rate less than 4% to earn money. Look at the interest charges on margin account provided by investment bank. I doubt that borrowing to invest will work.
Another issue on correlation, KLCI always had been a creative market with little to no correlation with world market. You might not be able to get precise correlation calculation to build up a portfolio. Apart from that, when everyone is in fear and keep selling. I don't think correlation will be working since everything is going down.
2016-02-23 13:58
By the way I never know that a fund manager will borrow or use margin account to invest. When an investment bank are trying to set up a new fund, they will determine the size of the fund and selling it to public. And the fund manager will be managing the money within the clause of IPS. So far, I never read any IPS that grant the authority to fund manager to use margin account.
2016-02-23 14:02
Debt is only good IF it can give u higher and better returns than debt installment.
2016-02-23 14:16
a very good informative write up on margin trading.
http://www.investopedia.com/university/margin/
seems it is really for short term investing
may the best luck win. cheers
2016-02-23 16:22
I love the paragraph below. Exactly my point, but some ball licker keep on talking about portfolio management
In a cash account, there is always a chance that the stock will rebound. If the fundamentals of a company don't change, you may want to hold on for the recovery. And, if it's any consolation, your losses are paper losses until you sell. But as you'll recall, in a margin account your broker can sell off your securities if the stock price dives. This means that your losses are locked in and you won't be able to participate in any future rebounds that may take place.
2016-02-23 16:27
Posted by Desa20201956 > Feb 23, 2016 01:47 PM | Report Abuse
Two kinds of skill sets
One, the stock picking skill sets. The ones followed by internet gurus and sifus , the self taught investors, those who read some books about Warren Bufett
Two, the skill sets needed in managing portfolios. The kind of stuffs universities and CFA courses spend a lot of time on.
ME: BELIEVE ME, THE FIRST KIND OF SKILL WILL PROVIDE YOU WITH A MUCH HIGHER PROBABILITY OF SUCCESS IN INVESTING THAN THE SECOND KIND MENTIONED ABOVE. BUT NOT ONLY BOOKS ABOUT WARREN BUFFET AND HIS LETTERS TO SHAREHOLDERS, AND BOOKS OF OTHER INVESTMENT GURUS SUCH AS JOEL GREENBLATT, SETH KLARMAN, HOWARD MARKS, MOHNISH PABRAI, PAT DORSEY ETC.
THE SECOND KIND HAS NO USE AT ALL FOR THE INVESTMENT SUCCESS OF A RETAIL INVESTOR WHICH WE ARE DISCUSSING AND CONCERN ABOUT.
Once you are on borrowed funds and margin accounts, once you buy more than one stock , you are in this territory.
WHAT THE F????
All the Warren Bufett wannabes and copy cats just repeat what they read.......and become sifus......how about teaching the basics of portfolio theories?
YOU ONLY TALK ABOUT PORTFOLIO THEORY WITHOUT KNOWING MUCH ABOUT IT. PORTFOLIO THEORIES DESERVES NO PLACE FOR RETAIL INVESTORS. IT HAS LITTLE USE TOO IN FUND MANAGEMENT.
YOU FUND MANAGER AH?
Margin accounts remain very popular. You cannot be complete sifu by focusing on 1 and completely neglecting 2.
WHAT THE F? WARREN BUFFETT, SETH KLARMAN, MOHNISH PABRAI, HOWARD MARKS MANAGING FUNDS WORTH BILLIONS USD AND MADE BILLIONS FOR THEIR INVESTORS. ANYONE OF THEM USES MARGIN FINANCE?
Margin account too risky is not a good answer.
INVESTING ITSELF IS ALREADY A RISKY ENDEAVIOUR. MARGIN ACCOUNT AMPLIFIES IT MANY FOLDS. WE DON'T NEED THAT.
Assume a portfolio of two stocks.....perfectly and negatively correlated. Why got risk one?
REALLY AH? NO RISK? ARE YOU TALKING ABOUT USELESS MODERN PORTFOLIO THEORY FOR RETAIL INVESTOR?
OK OK. GIVE ME EXAMPLE OF TWO “PERFECTLY AND NEGATIVELY CORRELATED” STOCKS IN BURSA.
FOR YOUR LEARNING PURPOSE, IN REAL LIFE INVESTING, YOU CAN’T EQUATE RISK WITH PRICE MOVEMENT OF STOCKS.
It will be silly not to margin this portfolio if the dividend income is higher than the interest cost.
1) HOW SURE ARE YOU THIS DIVIDEND WILL CONTINUE?
2) WHAT IS MORE IMPORTANT; DIVIDEND RETURN OR TOTAL RETURN?
This will , then , be your perfect compounded growth, exponential growth portfolio at zero risk....why cannot margin?
HOW WONDERFUL. EVERYONE WILL BE RISH THEN. TEACH THEM, TEACH THEM PLEASE.
"When you locate a bargain, you must ask, 'Why me, God? Why am I the only one who could find this bargain?'" - Charlie Munger
Chong.....don't just criticize margin accounts, be creative.
PROPAGATING AND ENCOURAGING YOUNGSTERS TO USE MARGIN FINANCE IS THE WORST THING AN INVESTMENT COACH TEACHES HIS STUDENTS. IT IS ALSO A GREAT DISSERVICE TO THE SOCIETY. PERIOD.
If done well, it can be a popular course. The people wants margin accounts.....what they need are some basics of modern portfolio theories.....even Koon Ywe Yin soon attend. His portfolio is too focused and therefore too high risk for a margin account. But how do you tell a guy that unless you are equipped with all the knowledge of modern portfolio theories?
YOU TELL THAT TO KKY, YOU LAUGH DIE HIM AND HE WILL LAUGH UNTIL ROLLING ON THE GROUND
For those who are innovative and creative, there are business opportunities....but only for the creative and innovative.
WHY AREN’T YOU A TYCOON YETAH?
2016-02-23 17:11
Actually there is no difference between managing cash investment or margin investment except for the points stated below;
HAVING SAY THE ABOVE, AN INVESTOR NEED TO ON GUARD MORE ON MARGIN COMPARE WITH OWN MONIES.
1. WHEN SHORT TERM MOVEMENT MAY TRIGGER MARGIN CALL
2. THE BANK MAY CHANGE THE CAPPING VALUE OF YOUR SHARE, AGAIN THIS MAY REDUCE UR SECURITY..RESULTING THE RISK OF MARGIN CALL AND FORCE SELL.
3. THE BANK MAY COMPLETE DISALLOW THE VALUE OF YOUR SHARE PLEDGE, AGAIN THIS MAY TRIGGER A MARGIN CALL,
IN THE CASE OF A MARGIN INVESTOR...HE NEED TO BEAR IN MIND OF RISK ITEM 1 TO 3 COMPARE TO SHARE INVESTOR.
OTHER THAN ITEM 1 TO 3....THE RISK OF CASH INVESTOR AND MARGIN INVESTOR ARE EXACTLY THE SAME.
SO IN ORDER TO USE MARGIN FINANCING U NEED TO MANAGE YOUR MARGIN RISK LOH....RAIDER WILL ELABORATE THIS LATER...!!
As Desa has mentioned if ur funding cost is lower than ur opportunity cost and your investment return is very much higher than than your funding margin cost, taking margin is an obvious advantage, but u just bear in mind the 3 extra risk that raider has highlighted....!!
2016-02-23 17:22
Posted by stockraider > Feb 23, 2016 05:22 PM | Report Abuse
Actually there is no difference between managing cash investment or margin investment except for the points stated below;
HAVING SAY THE ABOVE, AN INVESTOR NEED TO ON GUARD MORE ON MARGIN COMPARE WITH OWN MONIES.
1. WHEN SHORT TERM MOVEMENT MAY TRIGGER MARGIN CALL
2. THE BANK MAY CHANGE THE CAPPING VALUE OF YOUR SHARE, AGAIN THIS MAY REDUCE UR SECURITY..RESULTING THE RISK OF MARGIN CALL AND FORCE SELL.
3. THE BANK MAY COMPLETE DISALLOW THE VALUE OF YOUR SHARE PLEDGE, AGAIN THIS MAY TRIGGER A MARGIN CALL,
IN THE CASE OF A MARGIN INVESTOR...HE NEED TO BEAR IN MIND OF RISK ITEM 1 TO 3 COMPARE TO SHARE INVESTOR.
OTHER THAN ITEM 1 TO 3....THE RISK OF CASH INVESTOR AND MARGIN INVESTOR ARE EXACTLY THE SAME.
SO IN ORDER TO USE MARGIN FINANCING U NEED TO MANAGE YOUR MARGIN RISK LOH....RAIDER WILL ELABORATE THIS LATER...!!
As Desa has mentioned if ur funding cost is lower than ur opportunity cost and your investment return is very much higher than than your funding margin cost, taking margin is an obvious advantage, but u just bear in mind the 3 extra risk that raider has highlighted....!!
Raider, so are the three points a small or big concerns? How can a retail investor guides against them?
Tell us how you manage margin risk.
What is your opportunity cost? Forget about using epf rate, as investors should have a good asset allocation that he should have some in fixed income, and epf is the best fixed income to me.
Cost is a fixed thingy, is your investment return, especially in the short term a fixed return, or just an expectation? Bear in mind, your return in the short term must be realized too, otherwise if you lose big, margin calls will be made.
2016-02-23 17:30
To date, epf has returned better than the FDs. Leave your money in epf and treat this as the income asset in your asset allocation.
2016-02-23 17:56
The margin call make margin loan as bad as it sound
It is no any better than loan shark force you to pay the money by rewriting their margin rules, banker can always make new rule unfavorable on them.
2016-02-23 18:21
They moment you sign up the margin loan, you are one step closer to hell.
This hell is governed by the bank and it is called financial system.
2016-02-23 18:23
Can we put all the blame to banker?
Of course no, banker core business isn't margin loan, they need to deal with plenty of clients who need money every now and then, when they are short of cash, margin loan will be the first to be victimized.
2016-02-23 18:27
UNLIKE KYY...RAIDER DON RAMMED UP GROWTH STOCK INVESTMENT...RAIDER INVEST BASED ON A BALANCE PORTFOLIO...A COMBINATION OF DIFFERENT TYPE OF STOCKS, THAT HAVE GOOD MARGIN OF SAFETY LOH...!!
2016-02-23 18:41
Posted by 3iii > Feb 23, 2016 06:13 PM | Report Abuse
Debts can be bad and can be good. As for margin financing to buy shares, my advice to the majority is DON'T. Those who use margin financing should stress test their portfolio. What if the values of their portfolio drops by 50% over a few months, will they be financially alright or will they be mortally financially harmed? If the consequences are not too harmfuk, I suppose they can employ some margin financing in their investing. On the other hand, if the consequences are too harmful, they should not. Let us be reminded of Pascal's wager. Investing in the stock market is fraud with uncertainties. The good investors avoid and keep these uncertainties to the minimum. They invest into companies they understand, that are easy to value and where they can acquire at a price when the reward risk ratio is to their advantage. Even the appearance of a "black swan" event, they will survive financially. Pascal wager - "In the face of uncertainty, your action should be guided by its consequences and not by its probabilty."
THE ABOVE RISK IS APPLICABLE TO BOTH CASH EQUITY INVESTOR AND MARGIN INVESTOR TOO....!!
FOR MARGIN INVESTOR AT LEAST THE BANK TRIGGER A SALE, IF IT DROP TOO MUCH...BUT FOR CASH EQUITY INVESTOR...THEY MAY KEEP HOLDING THE STOCK UNTIL IT BECOMES PN17 LOH..!!
THUS IN A WHERE MARGIN IN INVESTORS ARE MORE ALERT THAN CASH EQUITY INVESTOR LOH...!!
2016-02-23 18:46
chong...after reading all your replies, I still think you need to register yourself for a course in Finance as much as newbies to the stock market need to register to your course.
They learn Part 1 form you, you learn Part 2 from the pros.
2016-02-23 19:13
Posted by Desa20201956 > Feb 23, 2016 07:13 PM | Report Abuse
chong...after reading all your replies, I still think you need to register yourself for a course in Finance as much as newbies to the stock market need to register to your course.
They learn Part 1 form you, you learn Part 2 from the pros.
Please enlighten me on who are the "pros" i need to learn from; and what constitute the "part 2" you are talking about.
2016-02-23 19:25
chong..part 2 is asset allocations and Portfolio Theory and Management as someone mentioned.
because firstly you seem to be confused with some basic terms, and some concepts I tried my best to explain in simple terms, you still cannot grasp.
2016-02-23 19:39
Posted by Desa20201956 > Feb 23, 2016 07:13 PM | Report Abuse
chong...after reading all your replies, I still think you need to register yourself for a course in Finance as much as newbies to the stock market need to register to your course.
They learn Part 1 form you, you learn Part 2 from the pros.
Desa, let me tell you that I have learned business administration, personal financial planning and gone through the highest level of study in finance, i.e. Master of Finance course and have done an academic research paper of a calendar anomaly in an overseas University. I was top in the class obtaining a degree in Master of Finance with Distinctions. I could give lectures to finance undergrads on corporate finance, financial risk management, and investment, no sweat. May be not now as it has been a while. No, I can’t teach accounting, though I have done some papers of accounting.
I have worked as a licensed independent financial planner with CMSRL, CUTA and FAR licenses before.
So wonder why I challenged you when you mocked me, and kept on mocking me about what I have written? But you just chickened out, good move by yourself. Save yourself from embarrassment.
But have you read about me boasting about this? Not until now after being irritated by you, by your very strange behaviour of agreeing and singing along, and kept on praising everything and whatever someone you idolized, whether it makes sense or not, but on the other hand, mocking all others, and you have climbed over my head.
Why didn’t I boast about this? Because though the course is very mathematically challenging and I enjoyed them very much, and it had provided me with a foundation in finance, there is very limited use in investing in the stock market. In other words, those modern portfolio theory, efficient frontier, capital asset pricing model, the alpha, beta, gamma, theta and all the Greeks, Real option, the financial engineering such as Straddle, Strap, Condor, Butterfly and what not, value at risks etc. have no use for retail investors like us, and they have limited usage even for fund managers.
So what is really useful in investing? Those are all listed down here which have been mocked by you all this while I and others write about them:
http://klse.i3investor.com/blogs/kcchongnz/88007.jsp
So continue to “hit the horse’s fart” if you wish, that is your prerogative, but stop mocking and telling me what to do in investing. You are not qualified to do so.
2016-02-23 22:01
I challenge Desa to write an article about Modern Portfolio Theory and how it can be used in Bursa
Contribute, don't just attack others
Posted by Desa20201956 > Feb 24, 2016 07:33 AM | Report Abuse
Good response.
I like that, Chong.
That is factual
2016-02-24 10:23
One sentence.
People call diversification the only free lunch.
Why? What is the meaning?
The market theory says no free lunch. It's all risk and reward.
But MPT says diversification when done properly can increase the portfolio returns per unit of risk, not available to the individual stocks.
Key words.......when done properly, ......returns per unit risk.
Some may ignore you because they seek maximum returns irrespective of risk but those who seek the optimum level between risk and rewards will appreciate that.
If you are not going to cover this elementary stuffs clearly, convincingly and understood.....the investment guru is not really an investment gurus.
It helps in planning every thing with the word portfolio in it....including and especially margin accounts.
.......
I challenge Desa to write an article about Modern Portfolio Theory and how it can be used in Bursa
Contribute, don't just attack others
2016-02-24 14:52
moron Desa retired accountant, what you said above, we all know already
they are directly from finance text books
we are not interested in general statements - Quote some numbers, quote some facts, show us how to implement step by step, show us how you can make use of what Harry Markowitz mentioned in Modern Portfolio Theory to apply to real life portfolio management
Because that is what u claimed you know
Show us you got substance
2016-02-24 20:26
I have ideas how to do it, make it interesting, applicable, relevant but it's too much effort for a public forum.
2016-02-24 22:24
Posted by Desa20201956 > Feb 24, 2016 10:24 PM | Report Abuse
I have ideas how to do it, make it interesting, applicable, relevant but it's too much effort for a public forum.
You should start to recruit students now to teach modern portfolio theory as a passionate job and at the same time earn some income like some of us do.
2016-02-24 22:34
Thanks for sharing KC, avoid margin financing, invest in stock market using our own blood money.
Market down, no margin call, market up, no margin call too~
：）
2016-02-24 22:38
Posted by bluefun > Feb 24, 2016 10:38 PM | Report Abuse
Thanks for sharing KC, avoid margin financing, invest in stock market using our own blood money.
Market down, no margin call, market up, no margin call too~
bluefun,
Wise saying.
2016-02-24 22:44
Don't play up with simply type few wikipedia phrases; be understand of we comment, else i3 sifu challenge we juz like eating durian...can't say a single words.
2016-02-24 23:02
Just say you don't know how to do it
or you don't even know whether it can work or not
just admit that you are a big talker with no substance
don't hide behind "require too much effort"
Posted by Desa20201956 > Feb 24, 2016 10:24 PM | Report Abuse
I have ideas how to do it, make it interesting, applicable, relevant but it's too much effort for a public forum.
2016-02-24 23:03
No need to talk so much, a retired accountant cannot send children overseas ? Must be a pretty messed up accountant
His financial skills must also be very poor. Otherwise, won't be so poor after working for so many years
2016-02-24 23:33
Research and development is considered to bring more insight to human genome project
http://www.briskinsights.com/report/global-biochips-market-forecast-2015-2022
2016-02-25 00:10
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