Posted by soros228 > 2016-02-21 15:56 | Report Abuse

Well written.
Play smart and safe.

Posted by CFTrader > 2016-02-21 17:17 | Report Abuse

I just want to ask .
HOW CAN YOU EARN MONEY BY GETTING MARGIN CALL ?

It doesn't make sense right ?

Okay, lets say,
if someone buy at 1.50, and the share price increase, they get a bigger collateral amount. And they keep buying.
The average acquisition price of share increases.

And when you get margin call, you had to sell some of your holdings and you claim it's taking profit action.

First, usually a person's position won't have any profit left if they get a margin call.

Second, if you still have profit to take at a certain position during margin call , it means that "another" position which is badly performed causing the drop in portfolio value.

Example , buying A @ 1.00, B @ 1.00, and C @ 1.00 ,
When margin call , A is priced at 1.30, B at 1.00, C at 0.30

To reduce collateral, he sold A .... and claim I take my profit ....

Posted by soojinhou > 2016-02-21 18:05 | 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.

Posted by PlsGiveBonus > 2016-02-21 18:14 | Report Abuse

Bank always win
No one else can win if bank loss once

Posted by soros228 > 2016-02-21 18:28 | Report Abuse

Well said. Very timely and gentle reminder play safe.

Posted by soros228 > 2016-02-21 18:37 | Report Abuse

Well said Tomm.
Nowadays very difficult to earn a living.
Don't simply throw away hard earned money.
Play safe.

Posted by PlsGiveBonus > 2016-02-21 18:44 | Report Abuse

Anyone can assume the house price can go up indefinitely
What is the rational to buy house now since it has gone up by how many hundreds percentage over last few years? House leverage better than best performing stock?
Buy gold is far more convincing than any overpriced asset.

Posted by soros228 > 2016-02-21 18:53 | Report Abuse

Well said Tomm.
I go through some of KYY counters for example he is holding VS about 10,000 big lots;
Imagine if market crash like 1997; how he run??????
I also notice he promotes his stock once the stock has moved up eg FL Bhd.
I'm sure KYY notice theme play has changed maybe he is buying some other counters ; he will slowly accumulate then promote to us when already up 50%.
Therefore I avoid his call. For example he mention about Canone when 4.50; how to buy at this level which I already bought at 2.00??????

Posted by limayseng > 2016-02-21 18:54 | 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.

Posted by PlsGiveBonus > 2016-02-21 18:57 | Report Abuse

No doubt property by historical it always goes up after a major recession, can you afford a property at much more higher than your salary and can you eat your house when your salary end up all go to service your house loan, house cannot guarantee more reward able than gold in an overpriced equity market, gold has its value when market heading to the recession. Compare to cash, gold is more valuable than cash.

Posted by soros228 > 2016-02-21 19:00 | Report Abuse

Exactly.
Health is still the upmost important.
Should off from volatility which will affect his emotion and eventually his health.
Charity can be many ways, not only in the form of monetary.

Posted by PlsGiveBonus > 2016-02-21 19:09 | Report Abuse

Buy gold
Buy high dividend stock at discounted price
Put in epf for its high dividends too
Buy good food, buy good lifestyle.
I will also try to move my cash into different currency since ringgit will be strengthen for a while, took this opportunities to exchange at a better rate.

Posted by PlsGiveBonus > 2016-02-21 19:12 | Report Abuse

Didn't you know we can use margin loan to buy asb?
Asb is giving 8-9% "guarantee" income, it is unlikely to get margin call from buying asb.

Posted by youlee > 2016-02-21 20:21 | Report Abuse

KYY was lucky his margin call was not in 1998! He wouldn't be shouting but cursing.

Posted by stockraider > 2016-02-21 20:53 |

Post removed.Why?

Posted by Desa20201956 > 2016-02-21 21:44 | Report Abuse

Forget it chong......

A bad carpenter blames his tools.

Debts, margins and many things are tools of the industry

A bad carpenter blames his tools

Of course all tools can be misused , yin and yang of stuff.


Go and teach people the tools of the industry.....the tools of finance, tools of the rich and famous, the tools tycoons use to have a leg up on the other......

Everybody want to be rich and famous......the price many are willing to pay.

Posted by Desa20201956 > 2016-02-21 21:47 | Report Abuse

There is no credit in being like those ancient sifus of China.

That is why you are teaching.

Go and teach people every thing, every tool of the industry....

Don't hold back the last step.

Posted by Desa20201956 > 2016-02-21 21:58 | Report Abuse

It's called the last chapter.

We don't want the last chapter to be missing anymore.

Posted by Desa20201956 > 2016-02-21 22:01 | Report Abuse

Beebee....I think a lot of people want to learn about the last step, the last chapter.


They don't want sifus to be selfish and to hold back the last step, the last secret, the last chapter.

Posted by kcchongnz > 2016-02-21 23:29 | Report Abuse

Posted by stockraider > Feb 21, 2016 08:53 PM | Report Abuse

Raider, thanks for your comments. obviously our opinions on margin finance differs by thousands of miles, especially for your statement below.

[RAIDER SAYS ON CONTRARY MARGIN FINANCING SHOULD BE ENCOURAGE TO BE USE BY INVESTOR DURING THEIR YOUNG AGE, IF THEY ARE SUCCESSFUL AND GOOD IN THIS YOUNG AGE OF EXPOSURE AND TRAINING THEY CAN GO REALLY FAR AND SUCCESSFUL LOH....!!]

I do think youngsters can be trained to be good investors to buy stocks with margin of safety (MOS)as you said. That should be able to ensure the success of their investing experience in the long term, safely.

But that won't guarantee the short-term success, simply because the market is unknowable and uncertain, and you could very well be wrong in your assessment.

That is precisely the problem. If youngster invest with margin finance, say 50%:50%, and if the market falls and their stocks lost 60%, their stocks bought with that MOS would have been forced sold long ago and they would have not only lost everything, and even owe the bank more money.

If they have invested in good stocks with high MOS with the money of their own, they can ride it out and the stocks they have bought will eventually rise up in prices.

Even if they are successful the first time, the second time and the third time in using margin finance, it doesn't mean that they will be successful subsequently and all the time. It only requires a couple of times of failure, because of exaggerated losses with margin finance, they can fall and never be able to get up.

Tell me, what do you think of the percentage of failure compared to those who are successful for the general retail investors?

What makes you think that one is more superior in their usage of margin fiance to make out-sized return than others, especially betting against the institutional investors, insiders and syndicates?

Isn't it better to survive happily but lose the opportunity of big gain, rather than fallen down and unable to get up again?

everybody makes mistakes in investing, but they will get up again easily. But with margin finance, few can fall two or three times and get up again. I know of some remisiers and individuals still paying their debts for the losses they have incurred in 1998, 2008 etc. because of the use of margin finance.

[JUST IMAGINE U CAN INVEST AT GETTING FIXED RETURN OF 20% PA WHEN THE FUNDING COST IS ONLY 5% PA....!!]

The above at is also the sales pitch of brokers from investment banks. Seems like there are big fat frogs jumping around.

"When you locate a bargain, you must ask, 'Why me, God? Why am I the only one who could find this bargain?'" - Charlie Munger

Posted by Frank Soweto > 2016-02-22 05:55 | Report Abuse

That is precisely the problem. If youngster invest with margin finance, say 50%:50%, and if the market falls and their stocks lost 60%, their stocks bought with that MOS would have been forced sold long ago and they would have not only lost everything, and even owe the bank more money.

If they have invested in good stocks with high MOS with the money of their own, they can ride it out and the stocks they have bought will eventually rise up in prices.

Even if they are successful the first time, the second time and the third time in using margin finance, it doesn't mean that they will be successful subsequently and all the time. It only requires a couple of times of failure, because of exaggerated losses with margin finance, they can fall and never be able to get up.

-------As always good advice n facts from Kc - sometimes all it needs is juz ONE time of failure or bad timing like the recent selldown where some good stocks with MOS also got thrashed - yeah so AVOID it like a plague - this advice you can definitely followblindly even if you're extremely suwey ( bad luck )LOL

Posted by Desa20201956 > 2016-02-22 06:34 | Report Abuse

I don't know how smart or how stupid people are...but politicians everywhere know how popular it is to protect other people from their own stupidity.

But KYY did bring up another dimension of margin accounts and margin calls. The margin call he received woke him up from his comfort zone, forced him to reexamine the portfolio and market conditions in a manner that proved beneficial to him.

I don't know how smart or how stupid people are..To each his own.

Next question...the role of the teacher, it is to protect or to nurture?

protect or nurture?
give a fish or teach people how to fish?

Posted by Frank Soweto > 2016-02-22 06:37 | Report Abuse

Desa20201956 There is no credit in being like those ancient sifus of China.
That is why you are teaching.
Go and teach people every thing, every tool of the industry....
Don't hold back the last step.

haiya like tat oso dun understand - he is teaching u NOT TO USE MARGIN not simply shout wan BUT from his reasons n oso his reply - that was the ONLY STEP if u dun want margin call when the bank force sell your shares if the unexpected market crash occurred :) n believe me there will be plenty of credit not only to your health but oso your pocket if u listen to this sifu :)

Posted by Desa20201956 > 2016-02-22 06:57 | Report Abuse

hahahaha, to each his own, No risk no gain.
But I can tell you some thing. If you organise a seminar with the title " Secrets of the tycoons revealed" or " How to borrow more and more money" Your seminar will be full house.

To go where only the brave dares to go is not common. Uncommon people achieves uncommon rewards.


Desa20201956 There is no credit in being like those ancient sifus of China.
That is why you are teaching.

Posted by Icon8888 > 2016-02-22 07:23 | Report Abuse

Somebody Poh lan pa like nobody has Poh lan pa before in hope of gaining something

Posted by Frank Soweto > 2016-02-22 07:26 | Report Abuse

margin Finance- plenty of risk n not enough gain - juz like human nature gain 1 buck want 10 when gain 10 want 100 etc but that is normal n sure one day will kena when mart crash - if use own money no worries if mart tanked - juz wait it out - no simply tembak - speaking from experience :)

yep agree with you on this one - " How to borrow more and more money" Your seminar will be full house - becoz again human nature many wants to earn fast money without hard work n these is where these fools part with their hard earned money LOL n good luck to u :)

Posted by Desa20201956 > 2016-02-22 07:29 | Report Abuse

I guess that is all a small time pusher like you knows, icon.

Posted by Desa20201956 > 2016-02-22 07:32 | Report Abuse

Margin finance remains to this day very very popular.

Just look at any substantial shareholder list.......full of bank nominee accounts.

You want to be teacher, please teach people "the hidden secrets of tycoons."

Posted by Frank Soweto > 2016-02-22 07:52 | Report Abuse

You want to be teacher, please teach people "the hidden secrets of tycoons."

LOL those r no teachers those are snake oil salesman :)

Posted by Frank Soweto > 2016-02-22 07:54 | Report Abuse

No point debating further it's your own money after all juz like i told those loyal bravehears of General wolf Lee :) all i can say is good luck to u :)

Posted by Frank Soweto > 2016-02-22 07:54 | Report Abuse

I meant bravehearts :)

Posted by Frank Soweto > 2016-02-22 08:04 | Report Abuse

LOL invest88 Sorry i missed your kind wishes - now juz checking back in the previous thread. Thanks n hope all is well with u. All is well here - trying to enjoy this couple of days of nice weather :) Hope u had a great time with Kc n tony the tiger LOL. somedays man somedays will be able to join u n the others :) cheers :)

Posted by kcchongnz > 2016-02-22 08:11 | Report Abuse

Posted by Frank Soweto > Feb 22, 2016 07:52 AM | Report Abuse
You want to be teacher, please teach people "the hidden secrets of tycoons."

LOL those r no teachers those are snake oil salesman :)


"Best comment of the month".

Posted by Frank Soweto > 2016-02-22 08:20 | Report Abuse

haha Kc that is too kind - but I learn from the BEST following u and i oso donfollowblindly LOL cheers :)

Posted by soojinhou > 2016-02-22 08:29 | Report Abuse

What is a catastrophic event?
Black Monday - 17/10/1987, Dow Jones crashed 22% in 1 day.
1997 Asian Financial crisis - Bursa halved from 1,200 to 600
2007 Submprime crisis - Dow Jones crashed 54%

These are bourse indexes typically tracking large cap blue chips. The decline for small-mid cap stocks that typically make up the majority portfolio of many forumers are likely to be more severe. These crashes can wipe you out clean if you are heavily leveraged using margin financing.

Posted by soros228 > 2016-02-22 08:32 | Report Abuse

Soojinhao, no point enlighten them wiser.
Stubborn like stone

Posted by stockraider > 2016-02-22 10:21 | Report Abuse

The reason KC and Raider view on margin are miles apart....bcos we looking at different symptom mah.....!!

Let raider explain loh....!!

"Margin can magnify your gain and also your losses"!! These is the tacked line loh....!!

Why u make losses ?
Because u do not have a good investment system, emotionally u r not train to invest properly...also u thought u r investing but actually u r gambling loh.....!!

Now assume u make 10% average return....when ur cost of funding is 5%..u already double the return....!!

The Doubter of margin of finance argue against....margin finance...bcos they failed to recognise....there is an implied cost of funding or opportunity cost...even they use their own monies loh...!!

What is the opportunity cost for free monies ??
The wrong perception is zero cost....!!
Some say 4% pa.....based on risk free rate...or fixed deposits
Same say....the opportunity cost is your next best fixed return...raider think EPF is the best benchmark is 6.4% pa...!!

If raider tell...i3investor...to accept 6.4% pa...as their target return....Raider think they will be a revolt...actually they are asking for return of 15% pa on the average loh.....!!

The problem is alot of young investor cannot even breakeven...and make losses....!!
To be successful the strategy is to address their investment principle, strategy, technique and psychology make mah....!!

Posted by paperplane2016 > 2016-02-22 10:24 | Report Abuse

Yes. Margin is just a magnifier. If u screw up, u !ay screw up x2, but if gain also gain x2. Simple as that. Dunno why ppl wanna input the moral or their own interpretation of margin here??

Posted by stockraider > 2016-02-22 10:34 | Report Abuse

Now...assume u have address...the investment system weaknesses and say u make a modest 9% pa....does this mean it exceed your EPF opportunity cost of 6.4% pa.....!!??

Does it not make sense u borrow also, if the borrowing cost is lower than your opportunity cost of 6.4% pa....!!
If u can borrow at 5.4% pa......when ur average return, would it not it magnify your return loh....!!

if u cannot even make ur opportunity cost of 6.4% pa....would it not best for u to avoid & leave the market completely loh....!!

Thats why raider says...it is no harm for young people to use margin..when is cost is even lower than the opportunity cost loh...!!

The benefit of margin for young people....is that they will force to learn and be discipline quickly mah.....!!

Btw....what is the perceive weaknesses of young people ?
The answer....is lack of capital....!! Of course beside the lacked of skill.!!

If u can get capital cheaper than ur opportunity cost thru borrowing why not ??

The key is not margin of financing is dangerous....but the wrong and lack of investment expertise for young is the problem...!!

This need to be address the investment skill n system b4....we just say Blanket margin of financing is bad mah!!.
We need to understand the cause of failure is not due to margin, when cost of funding is low mah....!!

Posted by Desa20201956 > 2016-02-22 10:50 | Report Abuse

.....perhaps they think they are moral teachers......while teaching stock market.

If it is stock market, talk about the tycoons in the stock market lah.

If it is moral teachings, taught about Jesus, or Modhamed or Buddha.

Right, paper?

-------------------


as that. Dunno why ppl wanna input the moral or their own interpretation of margin here

Posted by kcchongnz > 2016-02-22 11:04 | 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?

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?

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?

Posted by kcchongnz > 2016-02-22 11:19 | Report Abuse

Desa20201956 .....perhaps they think they are moral teachers......while teaching stock market.
If it is stock market, talk about the tycoons in the stock market lah.
If it is moral teachings, taught about Jesus, or Modhamed or Buddha.
Right, paper?


A responsible teacher teaching youngsters in investment must first instill in them the right way of investing, before he even starts teaching the bolts and nuts about investing. That is my core principle. I don’t teach moral science in my investment course. But think about it, I should include that in my course materials in view of so many snake-oil salesmen around and my course participants should be aware of them.

Yes, if you notice in my article here, I did include the teaching of Buddha, Islamic and the Christian teaching about use of debts. I hope youngsters pay attention to them. They are more important than the analysis and interpretation of financial statements and valuations I teach in the course. But of course you have to read between the lines and have your own independent thinking, which you can see, i didn't follow them strictly.

I do talk about a lot of the principles and methodologies of super investors; I mean real super investors in the world. Talking about tycoons when teaching about investing? I fully agree with icon that it is just PLP.

Posted by noobnnew > 2016-02-22 11:25 | Report Abuse

Rule number one in investing. Never borrow money to invest. Nobody can predict the market in short term. If things turn ugly, then margin will wipe out all your hard earn gain.

An example scenario:
Hevea had been going down from 1.7x to 1.2x recently. If you bought on margin, you might facing margin call and force selling which will wipe out most of your capital.

However, if you bough on your own cash, you are free to buy more or hold on to the Hevea as the fundamental of company still intact.

Use margin unless you are 100% certain on the direction of the company in short term. But I love people using margin account because it will provide liquidity to the market and opportunity for real investor to acquire more during margin call.

Posted by kcchongnz > 2016-02-22 11:38 | Report Abuse

Posted by CFTrader > Feb 21, 2016 05:17 PM | Report Abuse
I just want to ask .
HOW CAN YOU EARN MONEY BY GETTING MARGIN CALL ?
It doesn't make sense right ?
Okay, lets say,
if someone buy at 1.50, and the share price increase, they get a bigger collateral amount. And they keep buying.
The average acquisition price of share increases.
And when you get margin call, you had to sell some of your holdings and you claim it's taking profit action.
First, usually a person's position won't have any profit left if they get a margin call.
Second, if you still have profit to take at a certain position during margin call , it means that "another" position which is badly performed causing the drop in portfolio value.
Example , buying A @ 1.00, B @ 1.00, and C @ 1.00 ,
When margin call , A is priced at 1.30, B at 1.00, C at 0.30
To reduce collateral, he sold A .... and claim I take my profit ....


I can’t fathom that too.

However, I am thinking more of this scenario. When say Focus Lumber share price, a relatively illiquid stock, was purchased up by someone from RM2.40 to RM3.00, I would think the average buying price would be much higher, probably in the region of RM2.80. When margin calls came in, it was sold down probably from RM2.20 to below RM2.00. Those share sold would have incurred a loss, plus now FLB at the closing price of RM2.51, there would be a loss. I always think that when margin calls come in, the loss would be substantial. So how can earn money from margin calls? I am as bewildered as you do.

Anyway, I am just guessing.

Posted by kcchongnz > 2016-02-22 11:45 | Report Abuse

noobnnew,

Thanks for your excellent, up to date example on Hevea.



Posted by noobnnew > Feb 22, 2016 11:25 AM | Report Abuse

Rule number one in investing. Never borrow money to invest. Nobody can predict the market in short term. If things turn ugly, then margin will wipe out all your hard earn gain.

An example scenario:
Hevea had been going down from 1.7x to 1.2x recently. If you bought on margin, you might facing margin call and force selling which will wipe out most of your capital.

However, if you bough on your own cash, you are free to buy more or hold on to the Hevea as the fundamental of company still intact.

Use margin unless you are 100% certain on the direction of the company in short term. But I love people using margin account because it will provide liquidity to the market and opportunity for real investor to acquire more during margin call.

Posted by NOBY > 2016-02-22 12:35 | Report Abuse

The problem with margin finance is not the interest payment or beating the interest payment rates but the risk of margin calls. There are other type of funding sources one can tap instead of margin finance to optimize investment returns:-

1. If lack of capital consider investing into good fundamental companies with warrants first for the leverage effect. This way you get the amplified returns with limited downside. Avoid call warrants though. These are highly manipulated by the investment banks.

2. If you have a property that has been appreciating in price, consider refinancing the property at a higher loan and take the excess to invest. There is no margin call as long as you can service the monthly repayments and confident of your returns beating the interest rate. Consider the refinance costs as part of the cost before contemplating.

3. If you own your own home, you can withdraw EPF Account 2 in a whole lump sum and use the proceeds to invest. Or you can also opt for monthly withdrawals which go straight to your cash account which can be used for investment. This is different from the EPF Account 1 withdrawals where you can only invest in unit trusts.

4. Some credit card companies offers personal loan with effective interest rate of about 6%. The interest rate is higher than margin account but you dont get margin calls. This can be considered also if you have the repayment capability and can beat the interest rate.

Posted by Desa20201956 > 2016-02-22 12:49 | Report Abuse

People pay good money for course in the stock market because they want to be tycoons in the stock market , simple as that.

And margin accounts are as popular as ever by looking at the shares of substantial shareholders held by bank nominees.

Posted by coolinvestor > 2016-02-22 13:01 | Report Abuse

I fully agree with kc on not using margin finance for the youngsters.

It will purely be a gambling mindset that they will definately set themselves into if they applied margin finance.

heck even i dun use it for fear of losing everything.

Its dangerous especially if they go all out with ignorant thinking of fast gains.

I believe that they should have years of inv experience first before even going for margin finance. This will teach them the ins and outs of the market before attempting margin finance. this is my opinion.

yes all businesses borrow money to do business. this is the norm. but margin finance and business loans are 2 different things. business loans u dun get margin calls.

I know this is because I am from a business related family involved in the manufacturing/construction industry in malaysia. we do borrow loans/get credit facility to do business. its normal. But of course as in all prudent businesses less debt is better for us simply because we dun have to service a big loan every month and conserve cash flow. There is an optimum level of debt for all businesses and of course again every business is different.

cheers

Posted by kcchongnz > 2016-02-22 13:44 | Report Abuse

Posted by Desa20201956 > Feb 22, 2016 12:49 PM | Report Abuse

People pay good money for course in the stock market because they want to be tycoons in the stock market , simple as that.

And margin accounts are as popular as ever by looking at the shares of substantial shareholders held by bank nominees.


Are you sure? How come you are still not a tycoon at the age of 60?

Does it mean substantial shareholding held by bank nominees are all on margin finance? I seriously didn't know it.

Posted by Ven Felix > 2016-02-22 13:46 | Report Abuse

Kikiki.. Desak, is speechless.