kcchongnz blog
Dayang and contrarian investing kcchongnz
Howard Marks, in his book, “The Most Important Thing”, says,
To be a successful contrarian, you have to be able to:
- See what most people are doing
- Understand what’s wrong about most people’s behaviour
- Possess a strong sense for intrinsic value, which most people ignore at the extremes
- Resist the psychological pressures that make most people err
- Buy when most people are selling and sell when most people are buying
This is intuitive. Just imagine, how can one earn extra-ordinary return if he follows the crowd? How can everyone be extra-ordinary if everyone is doing the same thing?
More importantly, how are you so sure that everyone is wrong except you? And can you bear to be a contrarian who could be wrong often in the short-time, even you are right eventually?
Let me use a hot stock, Dayang Enterprise, for illustration. I know this is after-the-fact and can be viewed as 马后炮, but just bear with me as it is just an example.
The share price of Dayang was at its low of 70 sen after the announcement of its fourth quarter result for year ended 2017 sometime at the end of February 2018. The quarter saw the company lost RM60m, and the loss for the ear was RM145m, or 15.5 sen per share. That was devastating for investors who could not see beyond the accounting numbers. However, if one has deeper knowledge about industry and the financial statement analysis and the performance of the business, he would be able to see that the losses were due to one-time-off items in impairment of property, plant and equipmen and foreign exchange loss, coupled with the high non-cash depreciation. Cash flows wise, it was great with +RM207m for the firm, or 21.5 sen per share.
The share price dropped further to below 60 sen after another quarter of losses as announced at the end of May 2018. The share price did not recover despite the announcement of good profit of RM39m and RM49m for the next two quarters due to the political uncertainties after GE14 and the escalation of the US-China trade war, until the announcement of final quarter 2018 results in February 2019.
Dayang announced an excellent set of final 2018 quarterly result on a Friday at the end of February 2019 with a jump of profit to RM97.7m for the quarter, or 10.13 sen per share. For the full year 2018, net profit was RM160m, or 16.6 sen. The share price of Dayang jumped by more than 20% on the following Monday when the market opened, as expected. That was when the “Golden Rule” and momentum investors came in with numerous articles and promotions in FA, TA, BS, and investing forums organized everywhere promoting the stocks and the “Golden Rule”. With the high quarter EPS of 10.15 sen, annualized with target price to RM3.00, RM4.00 etc. The share price went all the way up to RM1.70 in a month. The promotors swear they would hold the stocks to at least RM2.50, or even RM4.00, and cursed those who sold the shares early as ”stupid”.
How would a contrarian profit from this?
A contrarian who is knowledgeable and widely read would probably know the crude oil price has climbed back from a low of $30 a barrel to $60 a barrel some time at end of year 2017 and major oil companies had started capital expenses after laying off for a few years. The Petronas Activity Outlook (PAO) for the 2018 to 2020 period also showed more demand for the downstream and the upstream maintenance kind of works. It is expected that there will be more demand for topside maintenance, which will benefit maintenance, construction and modification contractors (MCM) like Dayang Enterprise Holdings Bhd.
A contrarian investor who is knowledgeable in the analysis of financial statement would have found that the share price at 70 sen and below was attractive and bought the share due to the good cash flows of the company despite the accounting losses it incurred, and the masses shun it. When the fear of the investing community was exaggerated due to trade war and internal political uncertainties, the contrarian investors would continue to hold the shares and even bought more when the share dropped further to 50 sen.
When the fear is present, everyone sells, and the contrarian buys. Of course he must know what he is doing and the high probability the he is right with the knowledge he has, better than the crowd.
What happened when the investing community was euphoric on Dayang when its share price rose to RM1.70, and with the target price of RM2.50, RM3.00 or even RM4.00?
The “Golden Rule” and the momentum players continued to write numerous articles in the internet promoting the shares and their rules. Ini kali lah, they shouted, and everybody bought and keep on buying.
A contrarian would pause and think;
- Has the share price gone up too fast too soon?
- What about the law of mean reversion in investing?
- What has changed so much that the share price could double and triple in just a month?
- What about seasonality?
- What should I do when everyone is euphoric?
- What should I do when everyone is buying?
The share price of Dayang consolidated around RM1.50 after three investment banks downgraded Dayang after its steep rise in a short period of time. Its share price plunged below 90 sen after the release of its first quarter result 2019 in May 2019 when it incurred a small loss, instead of another increased profit as forecasted by the “Golden Rule”.
The share price of Dayang closed at RM1.05 today on 13th June 2019.
What would a contrarian do next? That is the pertinent question.
Please, I have no intention to promote this stock, neither do I condemn it. I have also never said I have done the above. This is purely used as an illustration of a contrarian strategy.
I have written a eBook on personal finance and investing, not just on contrarian investing. Anyone interested please email me at,
It is free.
KC Chong
Appendix
Dayang’s Quarterly results
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| Chart | Stock Name | Last | Change | Volume |
|---|
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Discussions
2 people like this. Showing 50 of 138 comments
I am a pro. ...so good bad ugly also I can do.... for the masses, focus on quality, low turnover is good enough.
2019-06-14 20:12
Posted by qqq3 > Jun 15, 2019 7:48 PM | Report Abuse
OTB...my profits from Dayang enough to say my 2019 target achieved..............but that does not make me into a deity..........or fake ego.
Ans :
50k capital, how much you can make ?
I need 2 months, the profit is more than your EPF saving for your whole life of working.
Nothing to compare.
2019-06-15 21:13
Mr Ooi,
We do things very differently in the market, however, respectfully, i think everyone is aware of your skill and quality.
It would do you no good to interact with someone like him in the market.
2019-06-15 21:33
Jaks and Sendai are not high quality companies but I made a lot of money from Jaks and Sendai because I am a trader.... just a small time trader. I don't write for a living
2019-06-15 23:32
Posted by qqq3 > Jun 14, 2019 5:37 PM | Report Abuse
Posted by kcchongnz > Jun 14, 2019 5:26 PM | Report Abuse
So why did you entice the newbies masses in margin and sailang in Sendai in the last two years when it was trading at RM1.40?
=====
that is what u say, I didn't say that....
I did write a few articles, if u want to be rich like KY, u got to be like KYY, not afraid to sailang and margin when the opportunity presents itself.
In the two years in 2017 and 2018 when both Jaks and Sendai were heavily promoted by someone when they were trading above RM1.50 and RM1.20 respectively, you have been asking the masses and newbies to sailang and margin on Jaks and Sendai, using your apa ini Panic moment, penis point, dynamite investing, etc. Go and read back what you have written. There were all over i3investor. You talked about nothing else except sailang and margin on Jaks and Sendai for the whole of two years. Are these your so-called quality stocks, something you just know it by experience?
[Posted by qqq3 > Jun 14, 2019 4:28 PM | Report Abuse
quality of a company is some thing u know it once u see it., its called experience.]
Yes, there were also many PLP comments, so much so that someone was drunk with too much kool-aid that he lost more than two hundred million, all realized on the two stocks, and you claimed that you made a killing on the two stocks. And yet, on the surface, he was happy to be associated with you.
You only know talking nonsense in the forums, and nothing about investment. There is no evidence at all in what you write that you know anything at all in investing.
Yet you are thick skin proud to make personal attacks on contributors of i3investor.
2019-06-16 12:38
There is a saying in a recently Godzilla mivie.
Sometimes, its maybe good to make peace with an evil monster.
But, the case here in i3, how r you make peace with a liar ?
Whats the best way to deal with it ???
Anyone ?
Tq !
2019-06-16 12:55
Posted by qqq3 > Jun 15, 2019 11:32 PM | Report Abuse
Jaks and Sendai are not high quality companies but I made a lot of money from Jaks and Sendai because I am a trader.... just a small time trader. I don't write for a living
You made a lot of money touting the newbies and the masses to sailang and margin Jaks and Sendai? Did you?
Actually no one give a damn whether yo make money or not in any stock or how much you have made. Why would he?
But knowing Jaks and Sendai are not quality stocks and yet touting the newbies and public to sailang and margin those stocks at their peak prices and at the end lost their pants, just imagine, what kind of evil you are!
Worse still, ""making a lot of money"" out of telling the newbies and public to sailang and margin them at their highs, furthermore kept on proclaiming that he made a lot of money by doing so, I just have no adjective to describe the evil spirit in you! God bless you!
2019-06-16 13:12
Posted by qqq3 > Jun 16, 2019 1:19 PM | Report Abuse
kc... what is your problem? I cannot make money trading Jaks and Sendai?
Okay, I accept that you are not able to comprehend English well. I will repeat here.
""Actually no one give a damn whether yo make money or not in any stock or how much you have made. Why would he? ""
But knowing Jaks and Sendai are not quality stocks and yet touting the newbies and public to sailang and margin those stocks at their peak prices and at the end lost their pants, just imagine, what kind of evil you are!
Worse still, ""making a lot of money"" out of telling the newbies and public to sailang and margin them at their highs, furthermore kept on proclaiming that he made a lot of money by doing so, I just have no adjective to describe the evil spirit in you! God bless you!
2019-06-16 13:23
Posted by qqq3 > Jun 15, 2019 11:10 PM | Report Abuse
I still Otb is a very irresponsible guy. OTB don't feel responsible for stuffs he write one
I haven't read any recommendations or articles from OTB in i3investor for a long time of few years already. He may have written and circulate to his subscribers with willing buyers and willing sellers basis, but that has nothing to do with the public.
On the other hand, I have read many comments and articles by the commentator above, telling newbies and public to sailang and margin Jaks and Sendai at their peak prices of above RM1.50 and RM1.30 respectively for the whole two years in 2017 and 2018, and even now. Look what are the prices of Jaks and Sendai now? 70 sen and 43 sen.
Tell me, who is the irresponsible culprit?
2019-06-16 14:01
kc...I think u are a sick man. I told u I make a lot of money on Jaks and Sendai. That is the truth.
Is that a crime? a sin? immoral?
I did not lie.
As for some positive comments about Jaks and Sendai........why cannot meh?? I believed I was doing a friend a favour....why cannot ? After all he believed what he says one....He didn't lie . He might have lost money but that is not relevant.
2019-06-16 14:56
y Dr Jho Low 42 billion > Jun 16, 2019 1:47 PM | Report Abuse
admin please ban people spewing lies, we have enough of liars in the country already.
========
I support u....liars must be ban.
2019-06-16 14:58
Mr Ooi,
Unlike qqq3, you have better use for your time.
He has no achievement in life, and so, if he can get you to reply him, for him it is a success.
Your time, if well spent, can get you another 100%. His time, at best, can get you to reply.
2019-06-16 15:20
Posted by qqq3 > Jun 16, 2019 2:56 PM | Report Abuse
kc...I think u are a sick man. I told u I make a lot of money on Jaks and Sendai. That is the truth.
Is that a crime? a sin? immoral?
It is definitely highly and extremely immoral by touting newbies and public to sailang and margin some rubbish stocks as explained here,
But knowing Jaks and Sendai are not quality stocks and yet touting the newbies and public to sailang and margin those stocks at their peak prices and at the end lost their pants, just imagine, what kind of evil you are!
Worse still, ""making a lot of money"" out of telling the newbies and public to sailang and margin them at their highs, furthermore kept on proclaiming that he made a lot of money by doing so, I just have no adjective to describe the evil spirit in you! God bless you!
2019-06-16 15:23
Hahahaha,
Qqq3 sold Sendai at peak price of 42 cents? And never look back?
Posted by qqq3 > Jun 11, 2019 10:02 AM | Report Abuse
sendai I sold at 42 cost 50, no big deal.
expected the balance sheet to have been better
The best way to deal with qqq3 is to laugh off his writing even better to make fun at him and laugh at him. But if you are kind hearted then spare some sympathy for him, 60+ only has 300K to invest and another 300K in EPF, how to be as rich as KYY?
Pity him 20 years not working and has all the free time to talk 3 talks 4 and talk cock in i3 and has no one to talk to in real life.
Qqq3 my suggestion since you have so much free time why not volunteering your time and effort in service of others, and for the causes that are dear to your heart is a great way to broaden your horizons, and to connect with new and similarly passionate people.
https://www.jirehshope.com/posts/362
2019-06-16 16:02
Hahahaha,
Qqq3 why so much hatred inside you? Learn from Buddhism no attachment
2019-06-16 16:32
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Post removed.Why?
2019-06-14 20:10