kcchongnz blog
Secrets of tycoons revealed Part 2: Use margin to its limit kcchongnz
I read about this from an article published in i3investor recently. It is a big hit and as usual appear as the top article. This is a catch phrase in the article.
“Let me explain in details with examples so that you can learn how to make more money using margin to its limit, provided you know how to select really good shares to buy.”
It is precisely that this statement came from a very popular and famous person that it can be fatal for the youngsters and newbies who respect him so much and tend to follow what he preaches.
Having been in i3investor for quite some time posting my articles and responding to comments, it is in my opinion that if I do not write something about this topic (again), I am doing a disservice to the younger readers and newbies in this forum, and to the society at large.
In most civilized societies and in a criminal case, a witness who fails to give evidence or produce the required documents can be punished for contempt of court. So I am just an ordinary citizen doing his duty.
This article titled “Secrets of tycoons revealed” by “using margin to its limit” is actually misleading, I admit. I have had no experience on that actually. It is merely done so to catch your attention, as who doesn’t want to be a tycoon? Got you!
But don’t get me wrong. I do believe there are some investors who have become very rich tycoons using margin to its limit. You can even read some testimonials about them in public forums, even in i3investor forum. My sincere congratulation to them, deep down from my heart. Give me a “five”.
However, for youngsters and newbies, and even for most experienced investors, before you embark on this journey of trying to “make more money using margin to its limit”, it may be wise for you to read this article posted by someone else here first. I think it was from Warren Buffett.
http://klse.i3investor.com/blogs/kianweiaritcles/67466.jsp
So everyone is waiting for the book of “Secrets of tycoons revealed by using margin to its limit” from this guy below. I presume “margin accounts” mentioned below is for stock market investment/speculation.
Posted by Desa20201956 > Feb 26, 2016 04:42 PM | Report Abuse 
Secrets of the tycoons
..........the secret of the tycoons is that they all have margin accounts, they all have higher risk appetite than their neighbors at one stage in their lives.
My article below clearly is not an article about “Secrets of tycoons revealed by using margin to its limit”. It is also not for those coin flippers who gotten ten, or even twenty flips of heads, but rather for the rest who participated in that coin flipping contest.
The wisdom of Super Investors
I have written an article on “The Core Principles of Super Investors” in this link below:
http://klse.i3investor.com/blogs/kcchongnz/88007.jsp
These super investors include Warren Buffet, Joel Greenblatt, Seth Klarman, and Howard Marks. They managed multi-billion USD funds for investors and they themselves are worth billions from the success of their own investments. For those who are interested, you can follow the above link and find out who they are, how they do it, and why are they so successful.
Do super investors all have margin accounts as proposed by the above statement that “the secret of the tycoons is that they all have margin accounts”?
To answer the above question, we will read between the lines of what they have said.
“I've seen more people fail because of liquor and leverage—leverage being borrowed money. You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing.” Warren Buffett
“If you are going to be a very concentrated investor, you should not use leverage. You can’t leverage because you need to live through the downturns and that is incredibly important.” Joel Greenblatt
“The trick of successful investors is to sell when they want to, not when they have to.” Seth Klarman
“Leverage magnifies outcomes, but doesn’t add value.” Howard Marks
“Trying to avoid losses is more important than striving for great investment success. The latter can be achieved some of the time, but the occasional failure may be crippling. The former can be done more often and more dependably….and with consequences when it fails that are more tolerable.” Howard Marks
To me, these are all very inspiring words of wisdom. They will guide me throughout my investing journey. I hope you embrace them too. But of course it is your personal choice, and I have no issue about it.
The Perils of Margin Finance in Investing: A Summary
I have written too many articles about the perils of investing using margin finance. In my previous article on “Is Debt good, when is it good?”, I have quoted how the Buddhists, Christians and also the Muslim fervently discouraged their followers to be in debt, especially the bad debt. Yes, lessons of moral science which are essential for the investors in a jungle out there.
http://klse.i3investor.com/blogs/kcchongnz/91556.jsp
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.
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, and many investors with margin finance lost their pants.
http://klse.i3investor.com/blogs/kcchongnz/61822.jsp
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 2767 for a loss of the broad index of a whopping 45%. How much do you think those individual speculatos in high flying stocks with margin finance would have lost?
http://klse.i3investor.com/blogs/kcchongnz/79429.jsp
I have even given a real life example, someone who is supposedly very skillful and competent in investment, and in using OPM too to show how dangerous is margin financing in stock investment.
http://klse.i3investor.com/blogs/kcchongnz/82699.jsp
Margin financing in stock speculation, asyou can see from the above examples, can incur heavy losses to speculators and has ruined many individuals and families. 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.
This is a good comment regarding the use of margin finance appeared in my last article.
Posted by soojinhou > Feb 21, 2016 06:05 PM | Report Abuse
Thanks KC for the timely reminder of the danger of margin financing. All investors should prepare for a catastrophic event. It doesn't need to happen often, it only need to happen once in your lifetime to wipe out your entire wealth, if you are heavily leveraged using margin financing. These events are not that rare really. Very few economists predicted the subprime crisis, and no one foresaw the recent crash in oil price. The only way to recover from such catastrophic events is to sit tight and wait it out, and you cannot wait it out if you are heavily leveraged.
Beware that stock returns are not normally distributed and fat tails are very common in the stock market.
But does it necessary to have a fat-tail event like that of 1987, 1998, 2001, 2008 in the equity markets to get speculators killed using margin finance?
Let us just look at the recent small “blips” in the stock market when Ringgit just strengthened a little recently, and how the share price of some seemingly good stocks which I own a couple of them too, were affected, and the effect on those using margin finance when they bought their stocks at their peak prices. This maximum drawdown of share prices from its peak to its trough is the risk which investors should be more concern about.
Using margin to the limit to become a tycoon or a pauper?
“Investing is not easy, and anybody who thinks it is easy is stupid.” Charles Munger
First up is this V.S Industry which has been heavily promoted in seminars and forums including this i3investor. You know this type of seminars co-organized with investment banks would have some YST promoting margin finance to participants at the end.
For sure many retail investors have made a lot of money if they have invested in V.S a couple of years ago, especially if they followed the advice of using margin finance then. They may continue to make money in the future too. But “how to make more money using margin to its limit” is not my favorite topic. What I want to talk about is “How not to get yourself killed for using margin finance”.
Figure 1: Share price movement of V.S Industry
V.S share price dropped by 32% from its peak of about RM1.68 to RM1.16 in the one-and-a-half-month period from around 25th December 2015 to 12th February 2016. There seems to be margin selling with heavy volume closed to 20m shares a day around that time. An investor who have bought the shares at its peak and with 50% margin would have lost about 60% of his equity. How long does an investor need to recoup a 60% loss in shares in a normal market? 5 years?
Let us look at Focus Lumber Berhad, a stock I hold a little. It has just announced its final 2015 results earning 10.4 sen for the latest quarter and 30.7 sen for the whole year. It has zero debt, high double digit returns on capitals, and a Free cash flow of RM28.6m in 2015, or 27.7 sen per share. At yesterday’s closing price of RM2.58, its cash yield is a whopping 10.8%, more than twice that of bank fixed deposit rate. My article appended below has argued that a cash yield of more than 5% could be a no-brainier investment.
http://klse.i3investor.com/blogs/kcchongnz/76694.jsp
Isn’t Focus Lumber a good share to buy? It is quite obvious actually that it was, even at RM3.00. But shouldn’t you try “to make more money using margin to its limit” in order to become a tycoon?
You make your own judgment by referring to Figure 2 below here:
Figure 2: Share price movement of Focus Lumber Berhad
If a newbie had bought Focus Lumber at its recent peak of RM3.02 around mid-January 2016, he would have lost a whopping 33%. If he has followed the persistent advice to buy good stocks using margin to its limit, say 50%, he would have lost more than 60% of his equity as a result of margin calls around 10th February 2016, in less than a month period, even in a slight blip of the market! He has no chance to wait to recoup when the share price recovered to RM2.60.
I have a question here. How can margin calls be good when your shares were forced sell around RM2.10, and now with the forced sell proceeds, you can buy the shares from the bottom up to RM2.60?
Let us look at another stock, a good stock in my opinion, Hevea, as shown in Figure 3 below.
Figure 3: Share price of Hevea
Hevea’s share price dropped by 34% from RM1.73 around 5th January to RM1.15, in just one month. Don’t you think most of those who bought Hevea at RM1.75 with margins were struck by margin calls and forced sell by investment banks? If investors have bought the share without margins and hence able to hold on, they would have recovered as the share price has risen to RM1.40 now, and likely to rise some more because of its good quarterly results just announced.
The above drawdowns of share prices of seemingly good companies were nothing compared to this, also seemingly good company, Genetic, as shown in Figure 4 below.
Figure 4: Share price of Genetic
Genetic’s share price dropped by 48% in less than three months. The 50% margin players on this stock would have all their equity completely wiped up in just three months, due to just a small blip of the overall market, not even a major correction of the market.
In this case, instead of the title “Secrets of tycoons revealed by using margin to its limit”, the more appropriate title should be “Secrets of tycoons become paupers revealed by using margin to its limit”.
Here is another good stock but if you use margins to its limit to buy it at its peak at RM2.30 in early January 2016, you will sustain heavy losses too when its share price dropped to about RM1.70, just a month later.
Figure 5: Share price movement of Chin Well
Conclusion
So what do you think about this statement below?
Posted by Desa20201956 > Feb 26, 2016 05:58 PM | Report Abuse
If margin a share that goes up.....everyday, you can buy more shares......everyday the banker give you more money to buy shares.
No margin account.....you cannot buy anymore shares.
The first guy becomes a tycoon.
The second guy makes enough to eat a little bit.
I would like to make my own statement as below:
KC: If margin a share that goes down.....everyday, you have to borrow from Ah Long to top up.
No margin account, you can sleep well and invest for long term
Got margin account..... .......everyday the banker forces sell your shares and you cannot sleep.
The first guy becomes a tycoon in the long term.
The second guy eats shit.
As a senior and respectable citizen, it is unwise to keep on propagating and encouraging the general public to use margin finance in stock investing which goes against the moral of the society and the proven conventional wisdom.
Widespread margin calls can happen in a big way, any time. The stock market is highly unknowable and unpredictable. Margin calls affect all investors as the overall market plunges and it will take a long while before recovery like that of the Great Depression, the Asian Financial Crisis, the KLSE Second Board Saga, the Dotcom Bubbles and most recently the US subprime housing crisis which affected the whole world.
Margin calls can also happen during a perfectly normal market during a correction as recently.
Here is a better advice from a forumer, an ordinary investor:
Posted by limayseng > Feb 21, 2016 06:54 PM | Report Abuse
yes, i saw my friends who bought shares using margin, still paying debts to banks though it happened in 2007/2008? Beware of the consequences because not everyone has the skill to stomach any unsuspected avalanche in stock during a crash.
“Keep the forest intact, and you will never worry about no wood to burn” A Chinese proverb.
Those who wish to learn the trick of “make more money using margin to its limit”, please contact me at
Oop, wrong sentence.
It should read, “For those who wish not to become a pauper using margin finance to “play” the market, please contact me at the above email address to learn how to build up long-term wealth for a small fee, slowly but surely.
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Discussions
17 people like this. Showing 50 of 85 comments
Sifu Desa why u hide here and talking to yourself ? Come chit chat with me lah
2016-03-01 11:58
When you are bankrupt you cannot travel oversea also. Spend the rest of your life here
2016-03-01 11:58
what is your measure of wealth?
wealth I argue can be measured by how much you can borrow.
2016-03-01 11:59
what is your measure of wealth?
wealth I argue can be measured by how much you can borrow.
if you learn how to borrow 1 million
your disposal wealth is suddenly increased by 1 million.
2016-03-01 12:01
More bankruptcy is basically benefited banker
As they can redeem bankruptcy loss from the central bank
Less one headcount to feed
2016-03-01 12:05
Do not compare royal family with peasant life
Many peasant think they are having royal life in fact they are peasant on the physical looks
2016-03-01 12:07
Some (a minority) who borrow can become rich. But for the majority, better stick to cash. Better be a tortoise than be a rabbit. Always play safe.
2016-03-01 12:17
Posted by stockraider > Mar 1, 2016 10:51 AM | Report Abuse
Actually using margin and not using margin the investment risk is the same.....don be mislead for avoiding margin all together.
Especially in very low interest rate environment.
USING MARGIN AND NOT USING MARGIN IN INVESTMENT IS THE SAME? YOU MUST BE KIDDING!
HAVE YOU CONSIDERED MARGIN CALL RISK, BANKRUPTCY RISK, EXAGGERATED LOSS RISK, SLEEPLESS NIGHTS RISK, STRESS RISK ETC?
Fyi....a margin investor actually enjoy lower cost compare to cash equity investor loh.!
For example margin cost is 5% pa, whereas epf cost is 6.4% pa loh...!!
THE COST THE SAME? HAVE YOU CONSIDERED THE SETUP COST, COST OF MARGIN CALL, ETC?
U just need to manage the margin better loh....!!
They are 3 points raider mentioned earlier, that u need to take note for using margin.
PLEASE RAISE YOUR "3 POINTS" HERE AND WE CAN DELIBERATE HERE.
2016-03-01 14:20
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 NEED 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...!!
2016-03-01 14:53
Posted by stockraider > Mar 1, 2016 02:53 PM | Report Abuse
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....!!
Me: Most young people can’t even handle the elementary part of the investment skill, so you want to training them the “advance” part, using margin financing? Would you want to train an aspiring pilot to fly now when he can’t even understand the instrumentations in the plane?
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...!!
Me: How can investing with margin finance to belong term when the change in share price can be more than 30% in less than two months as some of the stocks described in this thread, or even up to 50% in a year? Isn’t there high risk of margin call? Even there is no margin call, won’t youngsters subject to the high risk of losing 60% in a year like what have been described in this article?
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....!!
Me: No, margin users not only have to be right in the short-term but have to right in the short-term too as described in this article. Genetic lost 48% of its share price within 3 months. 50% margin users would have lost everything.
DON'T FORGET, EVEN IF U INVEST USING YOUR OWN MONIES....U R EXPOSE TOO...SAME AS MARGIN LOH....!! U NEED TO MAKE HIGHER THAN UR OPPORTUNITY COST....!!
Me: I can withstand even short term losses, and I often do, but not necessary must be higher than opportunity cost. You are exposed to short-term margin call risks, besides higher return from your opportunity cost.
Anyway, opportunity cost should not be the prime concern of a margin user. The high risk of margin calls and forced selling due to market volatility, which is very common, is the concern.
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....!!
Me: Why do you compare with the return of EPF and use it as an opportunity cost? Why not from your FD, or Along? Do you also encourage youngsters to take up their safe EPF and reasonable return fixed income to invest in risky assets, not guaranteed of higher return?
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...!!
Me: So you do see the high risk of margin finance from your above statement. Aren’t they any concern to youngsters? Why still encourage and want to train youngsters to use it in the first place?
Let us hear how you manage them.
2016-03-01 15:16
Funny la...raider.
U seem to suggesting people to use margin, but keep talking about risk and dangerous of using margin, and how to prevent from kena them.
Investor? How many of us here invest a company and hold for 10 years? Even uncle KYY with super heavy bullet only holds for like 1 year and keep buy sell buy sell buy sell.. If I had recently used margin to follow his recommendations which meet all his golden rules (very good companies), I would have started paying a loss repayment plan offered by investment bank.
Correct me on this: I think need to withdraw money from epf and put somewhere else with IB to invest instock market?
2016-03-01 15:32
HAVING SAY THE ABOVE, AN INVESTOR NEED TO ON GUARD MORE ON MARGIN COMPARE WITH OWN MONIES.
in other words, want to play, play for real.
2016-03-01 15:53
margin this portfolio, sure no margin call one..............Bornoil, AAX, Tguan, VS, KESM, RHB, Scientex
if got margin call, look for me.
2016-03-01 15:57
Youngster do not how to manage finance correctly
Even some old generation has problem with finance
No one is perfect to finance
Finance itself is like a mistake
No one can forever make no mistakes
2016-03-01 16:05
margin this portfolio, sure no margin call one..............Bornoil, AAX, Tguan, VS, KESM, RHB, Scientex
if got margin call, look for me.
sure no mistake one.
better than EPF, twice better than EPF.
2016-03-01 16:07
Small finance is small mistake
Big finance is big mistake
When you play with finance
You play with mistake
The more mistake you did the less mistake you will do later
If your first mistake is big enough to kill you, do you have second chance to make or avoid the mistake?
2016-03-01 16:08
If you make small mistake everytime, you learn to manage mistake more carefully, make it small to save yourself from trouble, think about it you only live once
2016-03-01 16:10
Everyone hope to make it small
Too bad if you make it small in the stock market
You won't go far, the intermediate fee to the financial system alone is enough to make any of your investment unprofitable, all this financial system want you to make it big so you can faster go to hell and they have one less headcount to feed.
2016-03-01 16:16
To make you go to hell faster
They invent credit card, margin loan any leverage to help new generation to make bigger mistake. New generation will need to learn to manage this leverage since they was bornt.
2016-03-01 16:20
in a population of a million, there will be some who will become tycoons via the margin account in the stockmarket.
give yourself a chance.
2016-03-01 16:43
It is not conspiracy. It is just tycoon gone through those stresful time, they dun advise normal ppl use margin. Margin can kill u and familly just one day if not managed properly. But it is also reason why they strikr big.
2016-03-01 22:42
Your housing loans are different, that is consumption debt, not investment
2016-03-01 22:45
I think there is an argument that certain things are better leveraged and some not. I would say things like car and house loans are leverages on things we otherwise cannot buy. And in a low interest rates and benign investment period, with a steady and secure job income, it makes the most sense to use the least cash and leverage to the max - get the biggest margin of financing from your bank
2016-03-02 10:27
While in investment itself, certain leveraged instruments - eg long maturity company warrants - are OK for certain counters. Margin in a brokerage account - no, thank you very much. Market goes up slowly and crashes fast.
2016-03-02 10:29
RAIDER HAS NOTHING TO AGAINST KC HERE....BUT RAIDER THINK....KC THINKING IS FLAWS HERE...ON THE PREMISE...THE FAILURE OF THE ASPIRING MARGIN TYCOON...IS NOT DUE TO HIS MARGIN....BUT THE ISSUE OF LACK SKILL....TO MAKE THE GRADE LOH..!! JUST LIKE AN OLYMPIC ATHELETE U NEED TO MASTER THE NECESSARY THE INVESTMENT ROBES OF TRADE...B4 U CAN REALLY DO WELL LOH....!!
Me: Let us see which argument on margin finance is flawed, me or yours. You have actually contradicting your own argument with these statements below.
YES RAIDER ASK HOW MANY PEOPLE CAN MASTER A SKILL....B4 HE CAN COMPETE IN OLYMPIC LEH ?
YES RAIDER SAYS W BUFFET....IS THE ALL TIME GOLD MEDALIST IN THE INVESTMENT WORLD LOH...!!
Me: How many Buffetts in this world? How many Olympic gold medalists are there? How many gold medals Malaysia, with a population of more than 30m, has achieved? How many investors in Malaysia have achieved the status of “investment tycoons” using margin finance? How many “Star Investors” are there?
RAIDER SAY YES....W.BUFFET...STARTED INVESTING WHEN HE IS 7 YRS OLD....IN FACT HE HAS GONE THRU ALL THE ROBES OF INVESTMENT LOH.....!!
HE HAS USED MARGIN B4 TOO....WHY HE DISCOURAGE ? BCOS WARREN ADVISE IS FOR THE AVERAGE INVESTOR LOH....!!
HE DO NOT MEAN FOR STAR INVESTOR.....WITH ASPIRING OLYMPIC MEDAL IN MIND....AND MASTER INVESTMENT....TO BE A TYCOON LOH...!!
Me: When did Buffett say “Star investor” should use margin finance? Which statement he made which infer that?
RAIDER SAY ALL THE ABOVE EVENT....KC MENTIONED MARKET CRASH....BUT IN ALL OCASSION IN THE HISTORY OF INVESTMENT....IT ALWAYS COMEBACK AND GO EVEN HIGHER AFTER THE SHAKE UP LOH....!!
Me: Agree with you above. But how many of those who got killed using margin finance such as at the time of 1998 manage to come back?
AGAIN THIS RAIDER DISAGREE LOH....IT ADD VALUE....WHEN YOUR EXPECTED PAYBACK IS HIGH AND THE DOWNSIDE IS LOW LOH....!!
Me: Agree with your statement. But “expected payback” is just an expectation, especially we don’t know when that expectation will be realized, and if there is a big downside when margin finance users are already killed before that expectation is realized.
IT IS COUNTER INTUTIVE LOH....IF U WANT TO AVERAGE JOE....LISTEN TO THE ADVISE OF THE GREAT RELIGION....BUT IF U ASPIRING TO GO FOR IT....U SHOULD REALLY GOLD FOR THE MEDAL....THEN ....LEVERAGE IS AN IMPORTANT TOOL LOH...!!
Me: Investing is not always come with upside. The downside happens as frequent as the upside. Yes, go for the Olympic Gold Medal, everyone of you!
RAIDER SAYS IF U REALLY WANTS TO BE A TYCOONS THAN U BETTER START YOUNG...NOT ALL CAN MAKE IT...U HAVE TO GO THRU HARD AND DIFFICULT PART...LIKE AN OLYMPIC ATHELETE..U NEED MASTER MANY MANY SKILLS B4 SUCCESSFUL LOH....!!
Me: “Not all can make it”. So what is the percentage who make it? How sure you are that any youngster who doesn’t even have the basic investment skill is the only few lucky ones?
2016-03-02 11:16
There are no ending in arguing margin trading, both are right, some are aggressive type n some are conservative type. Only that newbies need to improve the financial knowledge & skill before engage to margin trading.
2016-03-02 11:47
Yesterday should be enough to punish some overstretched margin player.
They may start serving their margin repayment scheme prepared by their banker
2016-03-02 15:59
Warren Buffett on leverage
"When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious," explained Buffett in his 2010 shareholder letter. "But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade — and some relearned in 2008 — any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people."
2016-03-02 16:02
newbie,own experience,learnt one point lesson. margin financing,a tool only.gaining or losing depend on whom that use it. want to use,GOT TO HAVE A VERY HIGH DISCIPLINE. only use 20% to 30% of margin limit only.use to its limit,wait to die la .also have to know own finance power.how long own can TAHAN paying margin interest. when have to cut loss,just do it.if not,die la.
2017-04-05 23:55
Raider earlier do support, the use of margin for investors....bcos raider had use margin quite successfully for many years loh.....!!
But looking....how Kyy and mammy promoted.....their dynamic investment....and how poorly their selection of stocks....raider fear for safety, for those, who use margin follow and....mammy sailang loh...!!
Thus raider, decided....not to support the use of margin anymore loh..!!!
Even raider's own margin.....right now raider no longer using anymore..bcos after close to 10 yrs of mkt run up....time now is de-gear and cutdown borrowing loh....!!
It is better to earn less than be sorry loh...!!
2017-04-06 00:05
he he..glad to see raider himself waked up to reality..and down to earth now...
2017-04-06 00:11
I look at PLC Annual Report, fully 90% of CEO of own company also use margin accounts.
left scared of ghost, right scared of devil.....how to be CEO?
2017-04-06 00:24
Leveraging is everywhere, it is even more when comes to property investment. So should we ditch mortgage loan? We are living in a capital market, understand the tools first before you use is the key afterall. In fact the product of share margin financing are getting less riskier than last time in terms of limit given and pledged share limitation. Of course, you will only know if you try to understand more.
2017-04-06 00:24
osted by NOBY > Mar 2, 2016 04:02 PM | Report Abuse
Warren Buffett on leverage
"When leverage works, it magnifies your gains. Your spouse thinks you're clever, and your neighbors get envious," explained Buffett in his 2010 shareholder letter. "But leverage is addictive. Once having profited from its wonders, very few people retreat to more conservative practices. And as we all learned in third grade — and some relearned in 2008 — any series of positive numbers, however impressive the numbers may be, evaporates when multiplied by a single zero. History tells us that leverage all too often produces zeroes, even when it is employed by very smart people."
REMEMBER THE ABOVE W.BUFFET ADVICE LOH.....!!
ONE WRONG MOVE U ARE DEAD .....IF GEARING IS TOO HIGH MAH..!!
AS FOR PROPERTY MARGIN FINANCING....RAIDER ALSO ADVICE U CUTDOWN THE LOAN TOO.....JUST ACCELERATE YOUR LOAN REPAYMENT....WHENEVER U HAVE EXCESS MONIES LOH.....!!
2017-04-06 00:30
If you only average up, never average down where got margin call?
If you got good cut loss strategy, where got margin call ?
If you got huge profits and keep buying with unrealised gains, some times, market can suddenly drop causing a margin call. In such cases, margin calls are hardly the end of the world.....it is just an excuse to sell some shares and realise some profits.
2017-04-06 07:21
Negative news sells,
Insurance agents and financial advisers will tell you to save money ( so you can have money to buy their products)
Investment books will tell you to be prudent and conservative...and save money.
Turn on the radio, read the papers, you are surrounded by negative news and people asking you to save money.
If you want to be super investor, you have to beat your own path.......that risk is not to be avoided at all cost. Afetr all, no risk means no gain.
The stock market rewards you for taking on risk and later proven correct. ....that is what it is all about.
2017-04-06 07:33
Risk freaks people out.
look at self proclaimed value investors...Calvin, this raider, KC........risk freaks them out.
but stock market is there to reward investors who assume risk and later proven correct...That is what stock market is all about.
KC.....
if KC is genuine value investor, he will recommend Genting ( Genting is fantastic under valued stock ) instead of recommending small little manufacturing company with a few million revenue per quarter. That is what irritates me.....KC, the self proclaimed value investor is but actually small cap speculator....hang pig head to sell dog meat.
2017-04-06 10:02
all the so called value investors.....kc, stock raider, calvin.........they all hang pig head to sell dog meat.
2017-04-06 17:47
KYY cannot sleep loh......!!
He bought tonnes of an overvalue counter with poor fundamental using margin loh.....!!
Need to wait 5 yrs....for 1st production of electricity loh...!!
He trying to promote the dog jaks....to many greater fools....but not many fools can follow loh....!!
His side kick....try very hard to assist....but the public already aware pump & dump strategy of kyy loh....!!
So pls do not fall into his trap loh....!!
If u had bought....u better sell ahead of Kyy loh...!!
2017-04-06 17:52
If it is a good company at least u can push the company to squeeze a little more profit & cashflow loh.....!!
This will help u tie over....when u r stucked...with margin loh..!!
But if u r holding....a lemon stock like jaks with big losses....how much u can squeeze water from hard rock leh ???
2017-04-06 18:05
kc
you disappoint me.
Applying your fancy formulas on small cap stocks is like a carpenter with wrong tools.
A genuine value investor will recommend Genting with a market cap to EBITA ratio of 5. Apply your fancy formulas to a mature Company like Genting la.
2017-04-06 18:11
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Can you afford to loss your opportunity to secure any more reward able financial loan for a high risky margin loan?
2016-03-01 11:57