Posted by kcchongnz > 2019-11-05 20:28 | Report Abuse

This is the best lesson in margin finance.

Posted by ChoCho > 2019-11-05 21:54 | Report Abuse

There are several key factors that lead to Jesse's dark side:
1. If Jesse is to invest (sailang) all his capital in a counter, she better make sure that she is in the same page is the majority shareholder.
2. One is easily caught up if over-invested because liquidity will be a new issue. Jesse is actually a victim of his own action. Cannot find buyer when want to sell. End up have to lelong sell.
3. One has to know how to read, draw and interpret a chart.
4. Rights and warrant issuance may appear on the surface to raise fund. However it is also a tool to dilute minority interest holding and to increase majority shareholders' holdings to further tighten their grip on their beloved company. A good example was Sapura Energy's recent year rights issue which was unreasonable highly diluting. End up most of the rights was subscribed by the majority shareholders. Until now the share price remains at lowest range because the rights has widen the share pool too greatly.

Posted by cheoky > 2019-11-05 22:14 | Report Abuse

Jesse bought out the max of human greed. kc bought the potential candidate to the border of fear of failure. Both got its pros and cons. Jesse can get the reader jump off the building in a instant. Kc can hypnotize macam ttb asking ignorance buy and hold regardless.

but kc intention is definitely noble.

To achieve higher than passive investing return, we perhaps need the middle path perhaps macam icon.

Posted by kcchongnz > 2019-11-05 23:04 | Report Abuse

This is the best real life case study.

When Jesse and Ben first invested in Jaks three years ago with $1m, they were both attracted by the fantastic future 25-year cash flows from the operation of the power plant a few years down the road.

Jesse, besides using his own $1m, he used another $1m from margin finance, and continued to borrow more and more when the share price rose up from $1 to $1.80.

Ben, on the other hand, invested in Jaks for the long haul, as power plant investment has a long gestation period and time is needed for the extra-ordinary return. He endured the up and down of the share price of Jaks.

Three years later, the result is,

Jesse lost all his $1.0m initial investment, plus has to fork out another 328k to pay the bank due to the margin calls.

Ben, as at to-date, his $1m initial, plus 125k used to subscribe for the warrants, has grown to $1.49k.

Which is a better way of investing?

Posted by ChoCho > 2019-11-05 23:24 | Report Abuse

Both also not good ways to invest. Ben must learn TA to avoid the 'caught up' holding period. Jesse must learn not to over invest. lolz

Posted by paperplane > 2019-11-05 23:27 | Report Abuse

Your example is bias. What if margin used in dutch lady, nestle last 10yrs?

Posted by kcchongnz > 2019-11-05 23:48 | Report Abuse

Posted by paperplane > Nov 5, 2019 11:27 PM | Report Abuse
Your example is bias. What if margin used in dutch lady, nestle last 10yrs?

Well, I do not know who and how anyone used margin on Dutch Lady and Nestle. I use real example which I can find in Jaks and Sendai which margin finance were highly publicized and touted in i3investor in the last three years. It is more effective to use real examples to provide an opposite view and to educate the masses, rather than made-up examples.

as I have said, I have nothing against anyone using margin fiance including you. I hope you did not do it in 2018.

https://klse.i3investor.com/servlets/pfs/99613.jsp

The above could be used as a real life example on the peril of margin finance too.

Posted by paperplane > 2019-11-06 13:36 | Report Abuse

i did not use margin, because i got few billions to invest. Moral of story is not that using margin is no good. But using bias example and views on margin is bad(though i did not use) to jump into conclusions.

I doubt doing investment in such manner is good for long run.

Posted by kcchongnz > 2019-11-06 15:18 | Report Abuse

Posted by ChoCho > Nov 5, 2019 11:24 PM | Report Abuse
Both also not good ways to invest. Ben must learn TA to avoid the 'caught up' holding period. Jesse must learn not to over invest. lolz

Good point. but perhaps it will be more useful if you look at the chart of jaks and try to do a back-testing; when you should buy and sell Jaks and based on what signals, Head and shoulder, cup and handle, shooting star, Eliot Wave, or whatever, and then see if you could have doe better than Ben.

Posted by kcchongnz > 2019-11-06 16:08 | Report Abuse

Posted by paperplane > Nov 6, 2019 1:36 PM | Report Abuse
i did not use margin, because i got few billions to invest. Moral of story is not that using margin is no good. But using bias example and views on margin is bad(though i did not use) to jump into conclusions.
I doubt doing investment in such manner is good for long run.

You see you never margin finance already a few billionaire, whereas the one using heavy finance only has a few tens of millions, so why does one need to use in the first place?

I would like to see your "ünbisas" example of how to make billions using margin finance too. Please elaborate and compare with my "bias" example.

Posted by kcchongnz > 2019-11-06 23:23 | Report Abuse

Posted by cheoky > Nov 5, 2019 10:14 PM | Report Abuse
Jesse bought out the max of human greed. kc bought the potential candidate to the border of fear of failure. Both got its pros and cons. Jesse can get the reader jump off the building in a instant. Kc can hypnotize macam ttb asking ignorance buy and hold regardless.

but kc intention is definitely noble.


First thanks for your complement. You are the few who understand my intention of writing this article.

This is the puzzle. If you think Jaks power plant will provide huge amount of cash flows in the future, and Jaks share price should worth more than RM3.00, it is likely that the share price will continue to rise in the next few years. Why would you want to sell at say RM1.00 now, and hope to buy back cheaper later?

Does it make good business sense?

Is it so easy to time the market?

Posted by 4444 > 2019-11-06 23:31 | Report Abuse

Why no Q&A between KC and OTB on Jaks?

Posted by OTB > 2019-11-06 23:42 | Report Abuse

I bought Jaks at 0.50 three years ago and sold it at 1.00 before Mr Koon
bought Jaks.

I discourage Mr Koon to buy Jaks, he refused to listen to my advice.

I bought Jaks again at 0.82 (Oct 2019) and hold on Jaks until now.

I post this article in Jaks forum.
Looking at the technical chart of Jaks,
Golden Cross Buy signal appeared at 0.80, I bought Jaks at 0.82.
I will hold on to Jaks until "Golden Cross Sell" signal appears, then I will sell Jaks.

At present price of 1.06, my ROI is 29% now.

Thank you.

Posted by ChoCho > 2019-11-07 00:15 | Report Abuse

RE: kcchongnz

I am vested in Jaks currently. I am trading based on monthly chart inverse head and shoulder. The right shoulder is currently forming. Next target will be reaching for the neckline.
On hourly chart, it is forming a bullish flag (trading sideways). Flagpole was established last week.

I do take profit or cut loss if parameters are violated.

Posted by kcchongnz > 2019-11-07 07:22 | Report Abuse

What it is:

From Investopedia

Backtesting is the process of applying a trading strategy or analytical method to historical data to see how accurately the strategy or method would have predicted actual results.
How it works/Example:

For example, let's assume you devise a model that you think consistently predicts the future value of the S&P 500. By using historical data, you can backtest the model to see whether it would have worked in the past. By comparing the predicted results of the model against the actual historical results, backtesting can determine whether the model has predictive value.

Posted by 3iii > 2019-11-07 09:18 |

Post removed.Why?

Posted by Ricky Yeo > 2019-11-07 09:36 | Report Abuse

Margin is an excellent way to understand fragility.

To find out whether something is qualify as fragile, you can ask 2 questions:
1. Can randomness harms it in a nonlinear way?
2. Will one get squeezed?

To question one, the answer is yes. When you do margin, any negative black swan event would kill you instantly compared to those who don't use margin. And it is nonlinear - the bigger the black swan/randomness, the more one gets hurt. Which goes to 2nd question, which is yes too. Under normal circumstances, margin does little harm, but when it gets into black swan category, you get squeezed. Because you're forced to liquidate all your position at whatever price the market tells you. The lack of optionality makes margin fragile.

Posted by Ricky Yeo > 2019-11-07 09:39 | Report Abuse

And going back to understand KYY. Sure he would tell you how much you stand to gain by using margin. But for a barber who wants you to have a haircut, he never tells you why you don't need a haircut, even if you're bald.

Posted by Icon8888 > 2019-11-07 09:39 | Report Abuse

I have been using margin for more than 30 years

never once margin call

survive so many black swans white swans grey swans red swans yellow swans, absolutely no problem

it boils down to how you manage it

margin is actually good stuff, very good stuff

those that don't use it don't know what they are missing

Posted by Choivo Capital > 2019-11-07 09:41 | Report Abuse

Keep margin below 30% of capital/equity, and think about your risk properly in terms of sizing, and you should do fine.

Quite a good tool in that case.

Just not a fan of the higher brokerage fees.

Posted by Icon8888 > 2019-11-07 09:45 | Report Abuse

btw, when I said "depends how you manage it", I am referring to a very easy and simple process of prudence, no rocket science

in other words, any Tom Dick and Harry can do it

Posted by Ricky Yeo > 2019-11-07 09:47 | Report Abuse

@paperplane there is no bias. But I would recommend you to look up ergodicity. Finance is non-ergodic.

You say what about Dutch Lady, you can get wipe up even though Dlady has compounded their share price for the long-term. Just go and count how many times has Dlady's share price fallen more than 10% in a matter of few weeks. The most recent one being 22 Aug - 22 Sep 19. Of course depending on how leveraged you're, you can get wiped out even if Dlady do well in the long-run.

Posted by Icon8888 > 2019-11-07 09:53 | Report Abuse

basically :

(a) like Jon Boy said, keep margin at lets say maximum 30% of your portfolio

(b) diversify (never use it like KYY, putting all money in one single stock Jaks, or Dayang)

(c) don't punt rubbish stocks that can lead to huge losses or go PN17

that is all

nothing difficult

Posted by Icon8888 > 2019-11-07 09:53 | Report Abuse

lets take a black swan event

911

planes slammed into towers

the next day market nosedived

I was fully margined, at 30% of my portfolio

I got call from brokers said my margin is in trouble

so I sold off 15% of my portfolio (some of the liquid and good quality stocks that can be sold easily and down probably 10% that morning), and the margin problem disappeared completely

I never got margin call again over next few years

so, what is the problem ?

Posted by stockraider > 2019-11-07 09:57 | Report Abuse

Don u think Black Swan may also harm buy hold cash investor leh ??

The degree of losses for cash investors maybe higher if the buy hold investor did not cut loss compare to margin investor loh.....!!

Posted by Ricky Yeo > Nov 7, 2019 9:36 AM | Report Abuse

Margin is an excellent way to understand fragility.

To find out whether something is qualify as fragile, you can ask 2 questions:
1. Can randomness harms it in a nonlinear way?
2. Will one get squeezed?

To question one, the answer is yes. When you do margin, any negative black swan event would kill you instantly compared to those who don't use margin. And it is nonlinear - the bigger the black swan/randomness, the more one gets hurt. Which goes to 2nd question, which is yes too. Under normal circumstances, margin does little harm, but when it gets into black swan category, you get squeezed. Because you're forced to liquidate all your position at whatever price the market tells you. The lack of optionality makes margin fragile.

Posted by 1Bid > 2019-11-07 09:59 | Report Abuse

Because you're one of the very few exceptional investors in i3.

KC is right. 99% of stock market players lose money. Margin should be avoided. If you can make money you can make money. Cash account should be alright.

Btw, TSM is a good call. Thanks for sharing.

Posted by Ricky Yeo > 2019-11-07 10:01 | Report Abuse

@Icon8888 there is alot of nuance in your "depends how you manage it" which most likely ruled out 99% of people from using margin.

Remember, those that refused to evacuate before Hurricane Katrina hits New Orleans are those that have survived all the previous hurricanes, and their experience betrays them.

Not saying something bad will happen to your way of using margin, but what is important is not 'I have survived so many black swans before using margin", rather it is "will I survive the next black swan?". Remember you only need to get it once. It is like playing Russian roulette. Will you play it once to make $10 million? Sure but you're still dumb. But no one would play it 6 times in a row, because that is just beyond dumb.

And then there is the problem of "I have survived so many black swans before using margin". If Titanic never sank, you'll be pretty sure human will continue to build bigger and bigger ships until one eventually sinks (to learn the lesson). Similarly, if one never ever get caught in irreversible losses for using margin, that person is going to keep increase his leverage (risk) until he hits one. So be careful with that.

Posted by stockraider > 2019-11-07 10:01 | Report Abuse

If u act like a pondan, u may better off just use cash & buy without use of margin loh....!!

Margin is for u to whacked big when they is big profit opportunity loh..!!

Just like my armada, i could not afford to buy much, if i do not use margin loh....!!

Posted by Icon8888 > Nov 7, 2019 9:39 AM | Report Abuse

I have been using margin for more than 30 years

never once margin call

survive so many black swans white swans grey swans red swans yellow swans, absolutely no problem

it boils down to how you manage it

margin is actually good stuff, very good stuff

those that don't use it don't know what they are missing

Posted by Choivo Capital > Nov 7, 2019 9:41 AM | Report Abuse

Keep margin below 30% of capital/equity, and think about your risk properly in terms of sizing, and you should do fine.

Quite a good tool in that case.

Just not a fan of the higher brokerage fees.

Posted by Icon8888 > 2019-11-07 10:04 | Report Abuse

margin is not supposed to be used for holding Dutch Lady for 10 years

it is costly

with interest rate of closed to 8%, it eats into your capital gain

(KYY always told people margin interest is only 4% or 5%... that is BS (as it is only partially true). If you use margin to buy Blue Chips, you tend to get low interest rates as per KYY. But if you buy any other stocks, expect closed to 8% rate)

it is not meant for nurturing your investment over long period of time

it is best use for quick money, especially for low risk sure return scenario that is almost arbitrage quality

one good example is CIMB recently I bought at 4.95 using margin

it has since gone up to 5.33

a gain of 8% over few weeks.

without margin, you can only look at it with mouth wide open when an opportunity like this presents itself

Posted by Icon8888 > 2019-11-07 10:10 | Report Abuse

margin also helped me a lot when I punted Airasia back in 2016 / 2017

when Tony announced he was subscribing for 10% by pumping in RM1 bil (or RM2 bil ? I can't remember), I margin to buy more

like they say, the rest is history

(Ricky, no need to tell me Katrina Hurricane story. I am a pragmatist)

Posted by stockraider > 2019-11-07 10:11 | Report Abuse

This perception is totally wrong loh....if 99% investors lose monies loh......!!

The correct figure is about 55% of the investors lose monies but the ratio is much higher for newbies & uninformed upto 75% loh...!!
WHY leh ?? Bcos they are actually gambling instead of investing loh..!!

Posted by 1Bid > Nov 7, 2019 9:59 AM | Report Abuse

Because you're one of the very few exceptional investors in i3.

KC is right. 99% of stock market players lose money. Margin should be avoided. If you can make money you can make money. Cash account should be alright.

Btw, TSM is a good call. Thanks for sharing.

Posted by Icon8888 > 2019-11-07 10:14 | Report Abuse

don't be afraid of margin

I some time geared up to the max of my credit limit

that is risky territory

but I won't stay there for extended period of time

most of the time, within the subsequent few weeks or months, some of my stocks will go up, and I sold to take profit

and my margin automatically drops to very very safe level

no sleep lost

Posted by Icon8888 > 2019-11-07 10:18 | Report Abuse

recently I saw a lot of newbies appeared in i3 (they seemed to come out of no where, strange)

I look at the way they punt, I shake my head

people like that no need margin also will die kow kow

if they use margin, they die even faster

but they are not the majority

the rest of the people in i3 are quite high quality

they are the type that can use margin....

..... very comfortably



Posted by stockraider > Nov 7, 2019 10:11 AM | Report Abuse

This perception is totally wrong loh....if 99% investors lose monies loh......!!

The correct figure is about 55% of the investors lose monies but the ratio is much higher for newbies & uninformed upto 75% loh...!!
WHY leh ?? Bcos they are actually gambling instead of investing loh..!!

Posted by 1Bid > 2019-11-07 10:18 | Report Abuse

You also know 75%. 7 of 10 people lose money in stock market no matter what methods they use. KC is teaching new generation how to survive in stock market. You just proved that he is absolutely correct regarding this MARGIN.

Posted by Ricky Yeo > 2019-11-07 10:19 | Report Abuse

Pragmatist or not, there is a fine line between experience helping and deceiving you. If that is valuable for a non-margin person, then it is live or death for a margin person.

Posted by SALAM > 2019-11-07 10:19 | Report Abuse

Knowledge and discipline determines the outcome.......

Posted by Icon8888 > 2019-11-07 10:22 | Report Abuse

Ricky too academic

every of his sentence I need to read at least twice in order to understand

most of the time I never understand

Posted by Ricky Yeo > 2019-11-07 10:24 | Report Abuse

Haha. Just be careful. Every black swan is different.

Posted by KClohloh > 2019-11-07 10:25 | Report Abuse

Icon8888, don't forget to take your medicine

Posted by stockraider > 2019-11-07 10:38 | Report Abuse

U need to understand & differentiate between investing & financing loh.......!!

1. U need to get your investing technique right, that i suggest u can learn from KC loh.....!!

2.If u has master the investment technique successful, the next thing u can consider whether u should use margin loh...!! Using margin is neutral & not an evil thing...it just like any businessman who is contemplating expanding their business using bank loan loh...!!

If u r young, based my experience, u better jump right in earlier to use margin, do not wait until u r 40 to 55 years old, b4 u use margin, if u make a mistake at this age, it may be disasterous and take along time for u to recover loh...!!

Just can start small while u r young, it is ok to master the art of margin given time loh....!!

Posted by Icon8888 > 2019-11-07 10:38 | Report Abuse

No matter what kind of black swans , if you stick to proper margin principle (mine is one), you will be safe

First of all, This has been proven empirically over past 30 years I used it

Secondly, logic dictates that I will be safe - I will only get forced selling if black swan is so big until my entire portfolio plunged 30% or more in a day. If that happens, that means the market has been hit by something catastrophic. Under that kind of scenario, a seasoned investor will be able to benefit immensely from the following up bargain hunting (maybe over next six months, one year or two years). I always say that don’t be afraid of net worth shrinkage when market plunge , you should only be afraid of net worth shrinkage during normal market (meaning you made terribly wrong investment decisions) , because there is no bearish sentiment for you to capitalise on to recover

Posted by 1Bid > 2019-11-07 10:45 | Report Abuse

Posted by stockraider > Nov 7, 2019 10:38 AM | Report Abuse

If u r young, based my experience, u better jump right in earlier to use margin, do not wait until u r 40 to 55 years old, b4 u use margin, if u make a mistake at this age, it may be disasterous and take along time for u to recover loh...!!

Totally understand this part. I believe we have gone through this stage. I once lost everything. It was only few thousands back in the days. But I have learnt the crucial mentality and knowledge to not to repeat the same mistake today.

Posted by Icon8888 > 2019-11-07 10:51 | Report Abuse

Yes, if you are young, and you know how to punt properly, you should do as raider said “jump into margin”

When I was young, I have no capital. I only have a job. So I cash advance using my credit card, and then use the cash to buy shares, and then use the shares to margin

That is what I did to kick start my investment portfolio

Was I being reckless ? Of course not. I knew I have a stable job that generates recurrent free cash flow at month end. So I know I can service the credit card interest rate and principal repayment

Anyway, the credit card debt didn’t last very long time. By end of year I also got bonus from boss, and it went into repayment

To sum it all up, don’t be afraid of debts, manage your cash flow properly and debt can be a productive instrument

(Btw, The above is only useful for gearing up to skilfully invest. If you withdraw credit card cash advance to buy TV buy holidays, you are not acting wise)

Posted by Cakes Moon > 2019-11-07 10:52 | Report Abuse

All the sifus are here, I learnt a lot from all the experience & knowledge shared here.
Thank you so much.

Posted by Icon8888 > 2019-11-07 11:37 | Report Abuse

usually margin facility has two critical levels to watch out for

if your portfolio shrinks by lets say 20%, it will trigger "no more buying"

then you know your portfolio is heading in wrong direction, and you need to start paying attention, or even start trimming exposure

if portfolio drops further to lets say shrinks by 30%, it will trigger margin call, that is when you really need to trim to avoid force selling

from No Buy level to Force Selling level will usually take days or weeks, so you will have ample time to think and react

it is not as scary as what you think

Posted by yoyo > 2019-11-07 12:08 | Report Abuse

Thanks KCChong for giving such in-depth lesson on margin finance

Posted by Lukey_Greek > 2019-11-07 12:26 | Report Abuse

Margin of financing is like borrowing money for business, ie gearing. No one will dispute whether business should or should not borrow.

The key questions are whether:
1) the business is profitable (your share selection)
2) how you manage the cashflow/ margin
3) whether are you over gear (margin again)

Posted by popo92 > 2019-11-07 12:50 | Report Abuse

If you are really scare of getting margin call, you may wait until your origin portfolio is profiting. Let said your existing portfolio raise 30%, you buy extra using margin base on this 30%. By protecting your capital in many ways, managing your portfolio well, cutting loss on shares that bought using margin can minimize your fear on getting margin call. People I have seen struggling with using margin usually lost money in share investing without using leverage too. Over optimistic sailang and go beyond own financial capability is the real problem kc had illustrated, leverage itself is never the problem don’t you agree?

Posted by Choivo Capital > 2019-11-07 13:32 | Report Abuse

Icon, i think you're overpaying for your margin.

Mine is only 4.8% interest.

Posted by Choivo Capital > 2019-11-07 13:39 | Report Abuse

Having said that, there are three ways for a smart guy to screw up his life.

1) Ladies
2) Leverage
3) Liquor

I keep margin mainly for the optionality, and keep it way below 30% of portfolio most of the time. Its currently like 3-4% only. Its only for me to leverage up in downturns or interesting opportunities, with salary going in next month to pay it off.