kcchongnz blog
Unimaginable Magic from Margin Finance on Jaks Resources kcchongnz
In my previous article on “Sendai and margin finance: the most valuable lesson” in the link here,
https://klse.i3investor.com/blogs/kcchongnz/228507.jsp
James has learned an important lesson of avoiding using share margin finance (SMF) in investing, basing on the experience on the stock of Sendai he had dabble with.
There, I have received a good comment from a regular reader of my article as below,
[Posted by popo92 > Oct 6, 2019 9:35 PM | Report Abuse 
KC, since you said there's pros and cons on leverage i do suggest you to write an article on how to use leverage wisely next time. Include some strategies, awareness of traps. Using case study on the darkness alone doesn't actually help them understand SMF as whole.]
In all my articles on SMF, although I do illustrate that margin finance cuts both ways, with details come with numbers, I always emphasize more on the dark side of it. This is simply because, I have to admit, I do not know how advice people to use SMF wisely.
As it was requested, here, I will try to do whatever I can. However, I have to borrow the wisdom of someone who is an expert in it, one who appeared to have made a fortune using it and has written numerous articles about it, to illustrate the “Unimaginable From Margin Finance”. I have to copy some concepts from his article in the link below,
https://klse.i3investor.com/blogs/koonyewyinblog/232386.jsp
I will use Jaks Resources for illustration as it is a stock I am familiar with, have traded on it a number of times. Jaks is also an excellent example as it was also a high-flying stock familiar with most people dwelling in i3investor for the last three years until this very present moment. At that time, Jaks was touted as “the stock” every savvy investor must own. It had obtained a power plant project in Vietnam which would be the game changer for the company. It would made hundreds of million of profit from its construction in the next 5 years, and then the recurring income from the operation of the plant would be in the hundreds of millions to Jaks for the next 20 years. Its share price would be easily worth $3.00, at the minimum.
Heavy SMF was also involved and numerous articles also had been written touting the wonders, as well as blunders (mostly by one kcchongnz) of SMF on this stock.
The unimaginable Magic of SMF on Jaks
Figure 1 below shows the share price movement of Jaks in the last three years.
Figure 1: Share price movement of Jaks
The share price movement of Jaks in Figure 1 above shows that the stock was trading at about RM1.00 three years ago at the end of year 2016. Assuming Jesse, a stock genius had a capital of $1m. He further used another $1m from SMF to make up a total initial capital of $2m. Jesse utilize all the money to buy 2m shares of Jaks at $1.
Jesse's buddy, Ben, also got interested in Jaks as recommended by Jesse, and he also bought 1m shares of Jaks at the same time with his own money without borrowing money.
Jaks share price went up to $1.40 two months later in February 2017 as shown in Figure 1 above and Scenario 1 in Table 1 in the Appendix. The market value of Jesse’s 2 million Jaks was worth $2.8 million and his buying facility would be increased by $800k. With the additional buying facility, Jesse bought another 571400 Jaks at $1.40. Jesse then had a total of 2.5714 million shares. Note Jesse had used a total of $1.8m in SMF then.
Another month later in March 2017, Jaks share price went up another 15 sen to $1.55 as shown in Figure 1. The market value of Jesse’s 2.5714 million Jaks was worth $3.986 million as shown in Table 1 and his buying facility would be increased by another $386k. With the additional buying facility, Jesse bought another 248800 Jaks at $1.55. Jesse then had a total of 2.82 million shares. Note Jesse had used a total of $2.186m in SMF then.
Another month later in April 2017, Jaks share price went up another 15 sen to $1.70 as shown in Figure 1. The market value of Jesse’s 2.5714 million Jaks was worth $3.986 million as shown in Table 1.
At this point of time, Jesse could have taken profit and sold all his Jaks shares at $1.70. After paying his margin loan of $2.186m, he would have an equity value of $2.61m, or a profit of $1.61m, or 161%, within a short period of just 4 months. Here we ignore loan interest and all transaction cost.
However, Jesse is just human. He thought it would be damn stupid to sell Jaks at $1.70 while the target price was $3.00 or more, but not less. With the increase in share price and hence increase in buying facility, he thought he was so clever, and he bought another 249k shares of Jaks at $1.70. Jesse then had a total of 3.07 million Jaks shares. Note Jesse had used a total of $2.61m in SMF then.
After rising 70 cent, or a whopping 70% within four months, Jaks Bull finally decided to take a break, as the saying in the stock market goes, “there is no stock which can continue to go up”. A couple of "stupid" analysts from investment banks had given a target price of $1.30, instead of $3.00 for Jaks. For this, Jesse had given them some fiece condemnations.
Without buying support for half a year since then, the share price of Jaks dropped and continued to drop to $1.30 in October 2017, for a drop of 30% from its previous peak of $1.70.
Jesse was so sure of the future of the power plant development of Jaks in Vietnam and its target price of minimum $3.00, he decided to hold on to the shares as he was able to transfer some other shares into the account to top it up and avoid margin calls.
Sure enough, the share price of Jaks recovered and galloped to $1.80 within four months in February 2018 as shown in Figure 1 above. The market value of Jesse’s 3.07 million Jaks galloped to $5.52 million as shown in Scenario 4 in Table 1.
At this point of time, Jesse could have taken profit and sold all his Jaks shares at $1.80. After paying his margin loan of $2.61m, he would have an equity value of $2.92m, or a profit of $1.92m, or 192%, within a short period of just over a year. This ignores the cost of borrowings and transaction costs which are negligible compared to the profit made.
And that is the “Unimaginable Magic” of margin finance.
Ben, who did not utilize any additional buying capaciity as a result of the rise of the share price, only managed to make $800k. Jesse has been laughing at Ben as such a stupid person who doesn't understand the ünimaginable Magic" of margin finance.
However, for those who are new to my articles, please read this article with a fistful of salt. This is just the chapter one of a story. I do not advocate you to follow this trick of Unimaginable Magic.
There is this famous saying,
“it ain't over until the fat lady sings”
That would be the next part of the story.
For those who wish to know more about my philosophy and methodologies in stock investing for reasonably good return with little risk, you may write to me for a eBook which I have written at the following address,
ckc13invest@gmail.com
This eBook is given out free of charge.
KC Chong
Appendix
Table 1: The Unimaginable Magic of SMF on Jaks
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Discussions
2 people like this. Showing 35 of 35 comments
Armada An Quantum Leap Stock In 2019/2020
Thx To KC Chong
For : Unimaginable Magic from Margin Finance on Jaks Resources kcchongnz
2019-10-31 22:04
Some further details of the SMF:
Margin on capital (pledged FD, cash, property & shares (based on valuation). The limit provided by bank is usually 1.5 to 2.5x. Need to fulfill FMR % to avoid margin call.
Pledged FD will earn interest; cash, property & shares won't earn interest.
Theoretically, SMF with pledged FD is the cheapest financing option in town (FD interest 3.8% p.a less SMF interest 4.5% p.a = 0.7% p.a). However this is subject on one's drawdown amount of the SMF facility.
I do not view SMF as a quantum leap leverage tool. I view it as a cheap source of fund. How much we profit from share price increase is based on our knowledge (FA, TA and news).
2019-11-01 11:20
There is a saying that 80%-90%of the retailers are not making money in the stock market, only those skillful ones are able to survive to make profit!!
Same analogy impling that only 10-20% investors are able to use margin wisely as to generate extra profit in stock market. So please make sure you yourself is the cream of this group of talented investors before leveraging with margin account. ^o^
2019-11-01 11:25
margin is like smoking, smoking not good for health still ppl smoke. But if smoke lightly it gives you boost. so use margin wisely.
U cannot tell ppl smoke no good hence cannot smoke. Must give ppl freedom mah
2019-11-01 13:15
Posted by speakup > Nov 1, 2019 9:37 AM | Report Abuse
Jaks CEO Ang knew Koon was on margin, so Koon was easy target to fark
Who in i3investor does not know?
2019-11-01 13:27
Posted by paperplane > Nov 1, 2019 1:15 PM | Report Abuse
margin is like smoking, smoking not good for health still ppl smoke. But if smoke lightly it gives you boost. so use margin wisely.
U cannot tell ppl smoke no good hence cannot smoke. Must give ppl freedom mah
Who here is restricted from, or cursed for smoking?
Smoking is one of the few things proven for not good for the well being of a person, and can shorten the life of a person. But if you enjoy smoking, please go ahead. In life, quality is better than quantity.
However, if you know smoking is not good for health, do you still keep on telling how good smoking has done to you and pestering others to smoke, and feel damn proud about it?
2019-11-01 13:35
aiyo. kc. in real life, apa macam ppl pun ada. to certain ppl result more important than process, vice versa for other as well mah
2019-11-01 13:45
Posted by paperplane > Nov 1, 2019 1:45 PM | Report Abuse
aiyo. kc. in real life, apa macam ppl pun ada. to certain ppl result more important than process, vice versa for other as well mah
This article illustrates that if one uses $1m of his own capital and hare margin finance to the maximum buying Jaks from RM1.00 all the way up to $1.80, he would have made a profit $1.92m, or 192%, within a short period of just over a year.
What if he uses $50m of his initial capital? The profit would be close to $100m.
Wasn't me talking about "results", the unimaginable Magic of margin finance?
2019-11-01 14:14
KC, I have one millions ringgit and so what is your advise going forward next 6 months of JAKS?
2019-11-01 15:03
already happen easy for u to cerita lah...
who really know the future then...
if know, nobita can also sailang and jadi kaya raya
...
2019-11-01 16:37
let say a meteor from space chun chun drop on vietnam plant...
kabooommm...
u regret selling at rm1.70 then...
the market is unpredictable...
really
2019-11-01 16:40
if u rely solely on charts, one fine day u will get burn...
buy 40sen... then sell rm1.70...
big kaki create a pattern for u to see... chun chun
then once fine day skip the charts rule and send u to slaughter house
2019-11-01 16:49
u see charts pattern, big kaki sharks also see the same charts...
can be manipulated
2019-11-01 16:50
when oversold, mcd divergence ask u to buy...
sharks see the same charts and do the opposite, short the stock...
send retailers masuk longkang
2019-11-01 16:52
u think u only see charts meh...
sharks see the same charts and take your opposite trade...
they have millions bullets...
retailers sure get burn
2019-11-01 16:56
By the way, kc, whats your result compared to him? Results is what all ppl see end of the day. Dont care abt process one ppl nowadays. Only look at yearly return.
2019-11-02 00:26
Posted by paperplane > Nov 2, 2019 12:26 AM | Report Abuse
By the way, kc, whats your result compared to him? Results is what all ppl see end of the day. Dont care abt process one ppl nowadays. Only look at yearly return.
"Him"? Who is this "Him"? Why "Him"? Is this article about "Him"?
This article is about the "Unimaginable Magic from Margin Finance". It is purely a subject matter. Does it involve any personality?
Anyway, it is your prerogative to worship money, and rich people. Money to me is at the bottom of my list. I value more on personal traits such as honesty, incredibility, humility, truthfulness etc.
Well, everyone is different. Let us agree to disagree.
2019-11-02 10:36
Ya. Everyone is different. Then why u preaching not using margin, and what wrong when other preaching using margin. Right. Be fair loh.
2019-11-02 13:58
Still, result is everything to me. Personal traits you mentioned worth nothing in the scenarios when u even struggle surviving daily life. Thts the real life, maslow theory.
2019-11-02 14:01
Posted by paperplane > Nov 2, 2019 1:58 PM | Report Abuse
Ya. Everyone is different. Then why u preaching not using margin, and what wrong when other preaching using margin. Right. Be fair loh.
Is this article about "preaching on not using margin"? Or it is abut the unimaginable Magic of Margin Finance, praising the great thing about margin finance? Can you read it again and see if you understand it?
Is there anything wrong for me to "preach not using margin" if I intend to do so?
To be fair mah if I present an opposite view.
So please may I write an article on the opposite view on the margin finance, please?
2019-11-02 16:04
THE USE OF MARGIN OR NO USE OF MARGIN, HAS BEEN DEBATED MANY TIME LOH..!!
SOME SAY GOOD AND SOME SAY NO GOOD LOH....!!
TO USE MARGIN OR NOT THE GENERAL CONCLUSION ARE ALL DEPEND ON THE INVESTORS & ITS RISK TOLERANCE LOH...!!
RAIDER VIEW IS THAT YOUNG CIKKU SHOULD USE MARGIN QUICKLY TO LEARN & BUILD UP HIS ABILITY FAST, AND AS HIS BORROWING CAPACITY OF CIKKU IS LIMITED THE DAMAGE AND RISK, CAN BE BEARABLE EVEN IF HE FAIL LOH...!!
FOR OLD FOLKS LIKE KYY, HE SHOULD SCALE DOWN HIS MARGIN FINANCING LOH....!!
2019-11-02 16:13
the discussion has gone out of the point
KC is actually telling you , if you follow uncle Koon style to trade
you can become rich very fast and also can become bankrupt very fast also
Uncle won't go bankrupt because 64M is sap-sap-sui for him
most of us will go bankrupt because 64M is no play-play for us
conclusion : play small small . earn a little more to make yourself happy loh.....
2019-11-02 18:58
Monday go buy BJL lah....
privatization play is more interesting than margin play
if you win, take big money home
if you lose , be happy to be appointed as a life long member of BJL
same conclusion : play small small . no harm
2019-11-02 19:02
tell you quietly I was once a royal supporter of uncle
the one who had defended him the strongest to fight sslee
now ?
run far far away from him
or play hit and run to get some kopi money
2019-11-02 19:06
once upon a time I called uncle sifu
he had helped me to make a biggest gain in my investing history
not because of his SMF but his big money
conclusion : without margin you still can make big money . unless your big is too big a big that you yourself also do not know
2019-11-02 19:15
Aiyo, ah seng. Conclusion still use margin wisely nah. Even fong siling use margin mah. Must learn how it was used mah.
2019-11-05 23:35
Me one of them, been using SFM for over 10 years, so far so good (only on good quality stock)
Posted by lachai2004 > Nov 1, 2019 11:25 AM | Report Abuse
There is a saying that 80%-90%of the retailers are not making money in the stock market, only those skillful ones are able to survive to make profit!!
Same analogy impling that only 10-20% investors are able to use margin wisely as to generate extra profit in stock market. So please make sure you yourself is the cream of this group of talented investors before leveraging with margin account.
2019-11-06 00:04
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2019-10-31 21:23