Hello KC Chong,
I just started work and hope to build up my fund investing in the stock market. However, I do not have much saving now. Recently, a good friend who has been in the market for a few years mentioned that I need to build up my fund fast to have meaningful return from the stock market. He advised me to borrow some money and use that to do day trading as the market is currently suitable for day traders. So, I followed his advice and guidance in day trading. The first day I made about RM3000 because the broker heard wrongly the number of units I wanted to buy, and I was so happy. But then the next few days, I lost around RM5000++, I felt so lost.
Do you hold any investment course so that I can learn the proper way of investing?
Please note the content and the name above were changed to protect the privacy of individual, but the message is the same.
You may invest in yourself by purchasing some of the investment books in the market to acquire some knowledge in investing. One of the books is titled, “Invest like a stock market guru: the complete value investing guide that works!” by KC Chong.
Just for a few tens of Ringgit, you may be able to learn almost everything in fundamental investing, the right path of investing. It may end up as your best investment in your life.
If you are interested to purchase a copy and mail to your address free, you may contact me at
But first, I must make it clear to you. This book will not help you to make money in your day trading. Not a little bit at all. I sincerely believe there is also no other way, even those specifically mention that they guarantee to help you get rich quick from day trading. But quite to the contrary. In life, to achieve certain things, you need time. The good news is, being a young man, you have the time.
In March 2020 when the first phase of Movement Control Order (MCO) was implemented due to the threat of Coronavirus, Online broker Rakuten had more than 11,000 new accounts activated, a 100% increase from the previous month. On 18 May 2020, Bursa posted a record 11.2 billion shares worth RM4.4 billion traded. Individual trades made up a big proportion of the total trades. It is not difficult to see that many of the trades were done by day traders working from homes during MCO.
Day trading in the stock market is the buying and selling of a stock in a single trading day. Day traders enter and exit stock positions frequently to profit from the short-term movements in a stock's price. Some hold positions for hours, while others hold stocks for minutes or even seconds at a time.
Figure 1: A daily stock price chart
With a computer, day trading is so easy nowadays. You switch the computer on and go to the trading platform. You find that the stock at its lowest price at about 11.20am (blue line) as shown in the price chart in Figure 1 above, and you just make a few clicks and you have bought the stock in a minute.
You then glue yourself to the screen, when your stock goes up 10 sen at about 2.15pm (red line), you make a few clicks, and you have sold your stock and made a few thousand Dollar. Repeat that by buying at the next low at 3.00pm (blue line) and sell before the trading day closes, you have made another few thousand Dollars. It is so easy to make money. The world is so wonderful.
The big problem is, when you are doing the trading, you will not know where the blue lines and the red lines are and when they will appear. You only know after the fact! So, often, you would be licking your wounds and complaining,
"If I had gotten in here, and gotten out there, I would have made a fortune, instead of losing as it is."
Day Trading Success Rate
Most people would have heard success stories in gatherings how people brag about making so much money in a day speculating in the stock market. Many also bragged about how they achieved it with margin. Who would tell you he has lost money? It is disgraceful to tell you they lose money.
What is the fact?
Brad M. Barber and Terrance Odean in their paper “The behaviour of individual investors” confirms that collectively individual investors trading on their own under-performed the market. Many of them lost their savings completely. The underperformance was due to information asymmetry, overconfidence, failure to diversify, easily influenced by rumours, tips, media and internet forums etc., and last but not least, sensation and action seeking day traders, going in, make few cents, and out, and in again, but eventually lost a bundle when some of the stocks tanked abruptly. They do the same thing repeatedly.
According to another academic research by the same authors in May 2011 for the Taiwan Stock Market, “The Cross-Section of Speculator Skill Evidence from Day Trading”, only about 13% of day traders earn a net profit in any given year. Even worse, less than 1% of day traders are consistently profitable year after year.
The main reason being the various to-and-fro transaction costs due to frequent trading activities. The other reason is day trading is a speculative activity which is a zero-sum game. Winners make from losers. It is not difficult to imagine when individual day traders are up against the big boys in the market, who would be the patsy. There are many syndicates, manipulators, and other big-time traders who have the financial, technical and computer power in the market, all trying to profit from each other. The odds against an individual day trader is huge. It is a no-brainer that it is a loser’s game for individual day traders. My own personal experience in day trading told the same story.
Focus on investing
Figure 2 below shows the long-term return of the broad US market.
Figure 2: Long-term return of S&P500
Over the short-term, anything can happen in the stock market. I am sure market participants would have known well for this year in 2020, with its high volatility. However, over time, the market is always in the uptrend as shown in Figure 2 above. Historically, the broad S&P 500 Index has rewarded investors with compounded annual rate of 10% over a long period of time-- even when factoring in the bad years. That has been a very decent return compared to other alternative investments.
If you can save RM5000 a year now increase your saving every year by 4% when salary increases, and earning 10% compound annual returns (CAR), you would have accumulated RM2.2 million by the time you retire at 60. Figure 3 below shows how your saving grows from year to year in an exponential way. Well, not necessary making profit every year as there are ups and downs in annual returns, but at a compounded annual rate of return.
With the growing Employee Provident Fund, plus your saving and investment in a safe manner above, your total retirement sum can to a handsome RM4-5 million at age 60.
The notion that if you just starting in investing, you do not have much bullet and you need to build up that war chest quick in order to invest for long-term has a lot of flaws in it. You may end up keeping on losing money and wasting many years to build up your wealth. Start whatever little excess money you have now to invest, not do day trading and hope to make a lot of money in the short term. Often, it ends as, just hope. Using the principle of time arbitrage and compounding and following the right mindset and a proven successful investing process is a more reliable way to build long-term wealth.
If you wish to invest in the stock market without much capital, knowledge and experience in investing, you can do passive investing to select a well-diversified low-cost ETF or an Index fund in US and the global market. You would expect to obtain a decent return slightly below 10% over the long-term.
For those who wish to earn a little more to invest on his own, or carry out active investing, there is no other way except to spend some time and effort to learn about the fundamentals of investing. With some practice and experience, and following a right mindset and a proper process, I am quite confident that they can do better.
There is an interesting article in the latest The Edge magazine for the week of June 1 to June 7, 2020 discussing about passive and active investing written by Kuek Ser Kwang Zhe. A good read for you.
The above is just my opinion, and what I have read about and encountering many people who had gone through that before, and also include my own personal experience. If you still think day trading is the way to go, it is your choice.
Best of luck and stay safe, for protection against Covid-19, as well as your investment.
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