Showing posts with label Experience. Show all posts
Showing posts with label Experience. Show all posts

Saturday, 2 July 2016

The startling 80-20 rule

The 80-20 rule, a.k.a. the Pareto principle, states that roughly 80% of the effects come from 20% of the causes. For example, in business, 20% of customers equal 80% of sales, or you could say 80% of the profit comes from 20% of customers. 

I analysed my past transactions from different angles. My winning trades account for 57% of the total trades while losing trades stand at 43%. This is a bit surprise to me, because I always thought I lost more. It is now clear to me, that I magnify my losses and minify my victories, such that I self-blaming when losing, and feel nothing but want to earn more when winning -- an unconscious action (I can talk about this ceaselessly, but this is not the main point of this article).

Another thing I found startling is that 80% of the amount won comes from only 20% of the winning trades. Similarly, 80% of the amount lost comes from 20% of the losing trades. To make things clear, let say I profited RM 100K in 20 winning trades. Then, the 80K profit (80% of 100K) comes from only 4 winning trades (20% of the total winning trade). The rest 20K comes from 16 winning trades. The same applies to the losing trades. 

What a surprise.. Really?

The big question is: SO WHAT?

On the winning trades, focusing on the potential top 20% will boost the profit significantly. If the company is doing good, then just let the profit runs. On the other hand, limiting the losing trades, i.e., cut lose when necessary will prevent further losses. This will ensure that the losing trade will not belong to the top 20% that contributes to the significant loss. However, cut loss is something people don't like to do. I think the main reason is that cut loss means admitting our own mistake, and people always find it hard to admit their own mistakes (another unconscious action). But my past transactions have come down to this startling 80-20 rule. Thus, in the future, I will keep in mind of this

You are welcome to do your own analysis to find out if your past transactions follow this amazing rule.

Thursday, 23 June 2016

The consequence of stock market speculation

I have transacted more than 30 times last month, the highest in my history.

It all started with MISC, when it dropped 13% per day despite a good quarter report. I saw an opportunity coming the next day of the plunge: a chance of rebound. MISC has fundamentals. The daily chart is out of BB lower band. These two features satisfy my rules to catch a rebound. The feeling of securing a return of 20% intraday is so good.

MISC plunge

For a long time I have not earned like this in a single day. My next unconscious reaction is to continue speculation. I started to buy in stocks without even looking at the fundamentals and technical chart. KANGER and LSTEEL, just to name a few. I did not have solid grounds like I bought MISC call warrants. I just thought that luck will be on my side, and I can continue winning just like that. But once again, how unbelievably, I vomit out all earnings.

Only then I realised that the more I trade, the more I lose. 
Only then I realised that winning is the beginning of losing.
Only then I realised that my thought of playing stocks has ended up getting played by stocks.

After all, my best strategy is to hold for a few months. In the mean time, wait patiently for any opportunity of "fast money". If this kind of opportunity comes every week or fortnight, it is probably good enough to generate a considerable extra income.

Thursday, 2 June 2016

The technique of average down

Say if I buy a stock today at RM 1.00. Unfortunately the share price drops to RM 0.90 a few days later. I decided to purchase additional units of the stock. Say if I purchased the same quantity as the other day, then my average entry price is RM 0.95. In this case, I do not have to wait until the share goes back to RM 1.00 to break even, RM 0.95 is enough.

The idea of average down is simple. It sounds nice, as if averaging down will be easier to break even or even making profit. However, from my experience, average down has mostly resulted in horrendous outcome. I lost even more, let alone trying to break even.

Firstly, if a share drops 5-10% in a short time after buying, it means that I did not wait long enough to buy at a lower price. This implies that I made an impulsive decision to jump in. An impulsive decision is usually an emotional one. Stock market cannot allow emotional decision. This reason alone is good enough to lose money.

Secondly, my attitude of averaging down is horribly wrong. I admit that I carries a sense of gamble (a legacy?) when average down, longing that the more I average down, the easier it will to break even. Additionally, the action inevitably accompanies a feeling of vengeance. This emotional state itself is negative in nature. Negative emotion always resulted in negative outcome. And the market has never failed to give me a lesson on this.

Thirdly, and technically, it may be that the stock is in the down trend. If the share keeps on dropping, cut loss might be a wiser choice than average down.

Interestingly, on the other hand, if the share goes up shortly after I buy, "average up" usually brings even more return. Maybe earning money shortly after buying is a sign that the purchase is a good decision. Nevertheless, the psychological barrier to buy the stock at a higher price is much stronger than average down. This is human nature: if I can buy an item at RM 1.00 today, why would I pay for RM 1.10 in the next week? But my experience proves that this is a better way. So overcoming the psychological barrier to "average up" is an important way to make more money? Yes, I believe so.

Wednesday, 11 May 2016

So a good financial report does not mean a jump in share price

This is subtly related to a previous article the consequence of betting on quarterly reportIn the article, I talked about the lesson learnt from betting on financial reports. Now the market seems to "evolve" to another higher standard.

Malaysia International Shipping Corporation (KL: MISC) announced its quarter report on last Friday, 6/5/2016. The company's profit rises 17% quarter-over-quarter. Despite a good quarter report, out of a sudden, MISC plunged 13% on Monday 9/5/2016, with no apparent reasons.

This reminds me of the opposite example, IOICORP. On 16/11/2015, IOICORP posted a loss of 719M, downed 500%+ quarter-over-quarter. For a blue chip stock to incur a loss, people were expecting a big drop in the share price. However, nothing happened on the next trading day and the stock was performing just like normal.

What does this imply? The financial world is changing at all time. So the stock market changes pattern too. The "correlation" between financial results and short term stock price movement seems to disappear. While fundamentals are still important, my view is that its importance and significance has diminished to a lower "weighting". If this is true, then the old way of "long term investment" may no longer work. The big question is: what is the more important factor now? This is a question worth contemplating.

Sunday, 17 January 2016

A(nother) market turmoil

Recently, another market turmoil has emerged. Major overseas market are having big drops. Well, except KLSE.

This time, apparently sparked by a plunge in crude oil price and fears about Chinese economy growth, has the overseas stock market to drop 2-3%, literally every second day. Chinese economy growth problem? Really?

Brent crude oil: Looking back only to realise that oil really start to drop since 2H 2014. And it drop really quickly. I thought it would stop at around USD 40/barrel, but the market always surprises you. I has now come down to below USD 30/barrel. The financial market is interesting: the crude oil price has rarely gained any considerable attention in the past, and it is now ubiquitous on the media.

(Print-screened from Bloomberg)

NASDAQ: I have a dream of NASDAQ to shot up to 10000 points in coming years for another round of technology bubble. But it now looks like an impossible task?

(Print-screened from

DAX is literally dropping 2-3%+ every second day for the past week!

NIKKEI is literally dropping every second day too.

On the other hand, KLSE is like a heaven, completely oblivious to what is happening globally. Magic always happens in Malaysia, going along with the phrase "Malaysia Boleh".


The last "noticeable" adjustment occurred in Aug 2015, coming with no signal (at all). In less than six months, another round is coming. Frankly, no one can stand seeing stocks dropping to such an extent every second day, let alone that the bearish market has yet to be confirmed.

I am wondering, the market hasn't even drop for 20% and the market sentiment is already so negative, what if something worse is yet to come?

I would like to see if this would turn out to be another adjustment.

Sunday, 10 January 2016

2015 Review


1. 2015 signals the rise of put warrants in KLSE, which is something that I did not touch at all in 2015, which turned out to be a correct decision: when something seems so hot in the market and everybody is trying to make a slice from it, the wise action to do is to stay away from it.

2. 2015 also sees the birth of CHINA-A50 call and put warrants. Catching a correct trend could easily secure a profit of 20% in a week (and vice versa). I played once and that's it. China stock market is comparatively volatile and these structure warrants aren't meant to hold long.

3. 2015 is the year of export counters due to an abrupt depreciation of MYR. Glove stocks are the dominant players. Unfortunately I did not catch any of them.

About myself:

1. Dividend sums up to be RM 1338.19 -- not a big amount, really, but it is a bonus for me.

2. The number of trade I have transacted is close to the sum of 2011-2014, i.e., unbelievably high. Some are really good decisions, but followed by other bad decisions not long after. Still, I need to learn to hold cash without "feeling itchy on my hand".

3. I bought some CWs that if I continue holding I would have secure a huge profit. But there is no such thing anyway.

Using busyness as an excuse, I buy shares purely based on suggestions on the Internet. This is nothing to be proud of, but this is what I have done for the past year. Although quite a number of mistakes have been made, the overall return is satisfactory. Perhaps later this year I would have time to start making my own study on the market.

I set a high aim for 2016, hopefully to achieve it by the end of the year.

Sunday, 13 December 2015

US: The possibility of a rate hike

At this moment, the financial world couldn't have paid more attention to the next FOMC meeting on 15-16 Dec than any other thing.

Having kept the interest rate at 0.25% since Dec 2008, you always read news reporting the possibility of a rate hike in the US interest rate. This type of news is even more frequent this year, but there was no rate hike then.

In theory, a rate hike would be detrimental to the stock market. Therefore, whenever the stock market drops "considerably" in one day, the possibility of a rate hike will be the culprit. This is the case for last Friday when the US market once again bore the brunt and dropped sharply. Dow Jones and NASDAQ plunged 1.76% and 2.21% respectively while the Brent and WTI crude oil prices have slumped 4.53% and 3.10% respectively to a new low.

This causes a great pessimism in the market sentiment. People say that the market is going to crash after the rate hike. Yes, it does sound scary. But really? I mean, since when does a stock market crash become predictable? Let alone that the possibility of a rate hike has been rumouring in the market for months if not years such that the news would have been absorbed by investors and the effect would have been reflected in the current market.

Thinking from a different direction: would it be that there is no rate hike in the coming meeting, or that the rate hike is smaller than expected, such that the market is going the opposite direction as to what the public expects? Isn't this the way how the stock market works?

Tuesday, 8 December 2015

KL: The consequence of betting on quarterly report

This article was written entirely based on experience.

I like to bet on quarterly financial reports. The idea is simple. At the end of every month (esp. Feb, May, Aug and Nov) is the due date for companies to announce their quarterly reports. I like to buy in few weeks before the report was announced, such that if the report is good, the share will jump, snapping potential profit in short time.

However, this method of "playing" stocks seems to be tumbling this year. For whatever company that I bet on a good report, the opposite happened: share plunged after the reported was announced, causing losses.

PRIVA is the first example. I accumulated this counter in the beginning of May.  That is very naive of me. The result was announced on 28-5-2015 and it was a normal one, with a profit slightly less than the year-to-year quarter. On the next trading day, the share dropped 8%+. I cut loss not long after that. This has cost me 27% in less than 1 month.

The second experience is SIGN. This was mentioned before in a mistake on SIGN.  Because SIGN is an export counter, I was hoping that with the depreciation of MYR, I could profit from a good financial report.

SIGN is much more extreme. The very same thing happened twice! In Aug, the share plunged nearly 15% on the next day after the announcement. I lost the bet which cost me 25% in 2 weeks.

Not long after that, the share went up to the level before the announcement of Aug report. This gives an impression that the company is doing good in the coming quarter. However, the report which was announced at the end of Nov wasn't good as all. On the next day, SIGN plunged 15% for the second time.

SIGN drop after financial report

The third is GOB.

Prior to the announcement, the share has a big white candle, which of course I am very happy. I entranced in my own aspirations, as I always do. Then the company reported a loss. The next day GOB dropped 8.8%. This cost me to vomit out all profit.

GOB dropped after financial report

These examples may just be the tip on the iceberg. From these examples, it seemed that buying just before the quarterly report is no longer working, at least for small-cap companies. Looking at this trend, somewhere, someone seems to have the seer-like ability to predict in advanced.

Maybe there isn't any conspiracy theory, the company really wasn't performing.

Maybe there is a conspiracy theory, that the company manipulated the fiscal report such that a bad result was portrayed to wash out retail investors. If this is true, does it imply that holding a share for more than 3 months is not a good idea?

A very interesting trend is unfolding in KLSE.

Saturday, 10 October 2015

2015 Q3 Review

KLCI has not been performing well for this quarter. It took a roller-coaster ride to drop continuously in August before it finally rebounded in September. This round of adjustment is worse than Oct and Dec 2014, probably similar to Aug 2011 in terms of magnitude and pattern.

The Oct 2014 experience which cost me to vomit out everything is still lingering. Perhaps because of this, I have learnt from the past and "escaped" relatively unscathed in this adjustment.

On the bad side, I bought back SIGN not long after selling it.

On the good side, I bought MYEG-CK @ RM 0.055 in the morning of 25 Aug -- the lowest point of adjustment when KLCI was touching 1503. It wasn't an easy decision. The famous market quote of "buying fear, selling greed" is easier said than done. Seeing KLCI dropping everyday, it is tough to do the opposite. But if you have the confidence to do the opposite, the return can be very rewarding in a very short time.

The biggest lesson to learn from this big drop is to walk off after selling. My emotion remains wavering after selling. Making decision under this condition does not do me any good. If I could just walk off for 1-2 weeks after selling, things would have been much better now.

Past experience offers a chance to improve in the future. And this is a very good experience for me but to learn to walk off next time or history is destined to repeat itself.

Thursday, 24 September 2015

KL: A mistake on SIGN

I bought in SIGN in early July based on a friend's recommendation. During August (when KLCI was dropping everyday, literally), I did learn from the past to take profit on 7 Aug @ RM3.00 -- the second day of big drop. This is an exceptional decision -- the selling price is within 10% from the high of RM 3.27.

I was very happy at first. But then seeing the stock continue to go down, I tried to "catch low", hoping that the stock would rebound soon. This is a common error people make: catching low. Another reason is the thought of betting on the August financial report. I was thinking that by benefiting from the depreciation of MYR, export counters should be doing well.

I bought back on 12 Aug (it was just 3 trading days after I sold!), wishing to earn for a second round. Although suffering from unrealized losses straight after buying, I hold on to the optimistic side of a beautiful fiscal report -- another common error people make: take chances. The financial report was released on 27 Aug and it was bad. SIGN dropped 15% on the next trading day. Not only I "vomit out" all profit in the first round of trading, I incurred a further loss.


Buying back just after 3 days of selling is really unnecessary.  This decision has cost me an arm and a leg this time. I took one step forward (took profit), but then I took another step backward (bought back) to the origin. Perhaps  I should never look back to stock after selling.

Sunday, 13 September 2015

KL: the rise of put warrants in KLSE

Index call and put warrants (FBMKLCI-CX and FBMKLCI-HX) have been a hot topic for discussion lately. Opening the trading platform, you see that FBMKLCI-H and FBMKLCI-C warrants are trading in the top volume, literally everyday.

This is something that has never happened before in KLSE. Usually you only see penny stocks appearing in the top volume section. Now the game has clearly changed. It has already gone insane until the stage that when KLCI rises, you will even see put warrant to go up and call warrant to go down; and vice versa.

As far as I could remember, call warrants started to gain public acceptance around 2006. Back then, put warrant does not exist in KLSE. According to this website, it wasn't until 2010-2011 that the first index put warrant FBMKLCI-HA was issued (apparently by OSK?). But this put warrant was born in unlucky time of bull period and ended up worthless.

Then, FBMKLCI-HB was issued by CIMB in July 2014. It became the spotlight in KLSE during the big drop in Oct 2014. And because of that, put warrants are mushroomed by investment banks. To date, the latest put warrant is FBMKLCI-H9: more than 30 index put warrants were issued in less than 1 year. This is unprecedented and extraordinary

After all this time, I would say that the late 2014 to 2015 is where put warrants have gained the public awareness.  This is good, investors know that now they can trade the index or stocks in both ways. However, I do doubt if now is a good time to trade put warrants: everyday in the top volume has already made me lost interest, what more to say when these warrants are extremely overvalued now?

Sunday, 6 September 2015

KL: PRIVA price soared after selling

The unwillingness to sell a share is the worry that the share price will soar right after selling.

I sold the rebound-catching PRIVA on 2-9-2015, and the next day it shot up 30% with volume. This is probably the first time I have such a farcical experience: my previous target of 50% was completely forgotten at the time of selling due to fear. The rebound-catching timing is not bad, but the selling time is bad, resulting in a loss.  This is certainly not a good feeling, but blaming and regretting is futile because at the time of selling, I must have already used my discretion to come to the decision. I do not have the prescience for the movement of a stock, so even if the price soars after selling, there is really nothing I could do, let alone that the worry is purely based on a (negative) projection into the future.

Becoming conscious of the unconscious worry marks another advancement in my investment journey (on the mental level), that selling is nothing more than a transaction. Hopefully next time I have less mental obstacles when taking profit, which is crucial especially when trading call warrant.

Sunday, 16 August 2015

Currency talk 3.0

In Currency talk (1.0) I made a bold statement that the day of AUD:MYR = 1:3 is over, with a "however":

If you really want 1:3 back in the days of 2012, you will have to hope for a quicker depreciation of MYR than AUD. But even if that happens, how worthless is MYR at that time? And how much you could do with it?

Back then, the currency was trading at about 2.80. According to BNM rate as at 14-8-2015 17:00, AUD:MYR is buying at 3.0112. Unbelievably, something that I wrote without much contemplation has become true in less than 6 months.

And NO, this is not due to the appreciation of AUD but a quick depreciation of MYR since July.

And NO, even the ratio of 1:3 is back does not mean that the MYR you converted back has the same value. The 1:3 today is completely different from the 1:3 back in 2012.

And NO, I do not want to see this coming as this means that MYR is getting worse. It looks like there is no signal that could stop the depreciation of MYR.

Human's brain is hardwired to survive. At the critical moment, protecting own interest is always the top priority. This is really no different from politics where it is all about self interest. Therefore, believing that the government could somehow help the currency is unrealistic. Because of this, I have to be responsible to my wealth. I thought that it is now a bit late to change currency, but whatever it takes, I have to come up with a Plan B.

Sunday, 9 August 2015

Currency talk 2.0

In currency talk, I mentioned that MYR has no cure but insidious depreciation. Unfortunately, the prophecy has become a reality. The chart below shows the trend of USD:MYR in the last 2 months:

(Figure obtained from Yahoo finance)

Point A:  30th - 1st July. The credit rating of Malaysia remains unchanged and the outlook was upgraded to become stable. MYR has rebounded strongly in the following day. Shockingly, this rebound only last for 1 day! And because of this conspiracy theory arises...

Point B: 7th July. USD:MYR broke 3.80 for the first time since 1998. I thought that 3.80 will be a strong psychological support since it was the rate pegged 17 years ago. But it did not look as "strong" as it should be. The slope of that day is relatively steep, showing that it breaks the support "just like that":

Point C: 22nd July. After breaking 3.80, I was looking for a rebound -- to at least 3.70. The rebound did happen, but to a much lesser extent and a much shorter period than I expected. This scares me a lot.

Point D: 7th Aug. USD:MYR was trading at 3.92. Why does it depreciate so fast? Perhaps political issues has lower the confidence of foreign investors?

Seeing the rate of MYR depreciation, Many Malaysians stocking up on Singapore dollars, US dollars as ringgit weakens. This basically tells me that now is not a good time to change money.

In 1997, the damage on Malaysia was relatively "mild" as compared to its neighbouring countries (except Singapore). Looking back, it was definitely a right decision to peg USD. But the current situation in Malaysia seems to be developing another financial crisis. Keeping in mind that US has still yet to increase the interest rate and MYR already like that scares me a lot. What if US really increases the interest rate this September? It is also possible that BNM may raise the interest rate in September meeting in trying to stabilize MYR. Interesting things might happen in a few months time.

Sunday, 2 August 2015

KL: KLCI technical analysis

KLCI is really weak recently. Trying to earn money from KLCI lately has been challenging. Regardless of what shares you are trading, the index is still the most important benchmark in KLSE as it determines the general trend of the market. How is it doing? Let's examine this from the monthly, weekly and daily charts.

1. Monthly chart:

KLCI monthly chart

Monthly chart does not look good. MACD and stochastic are heading negative. The last candle, July 2015, was primarily due to the last trading day where KLCI was pulled up by 23 points. Was this a sign just to draw a "nice" chart or is it that KLCI is ready to go? It has 3 black candles followed by one white candle where similar trends have been observed in 2008 and 2011. While 2008 was a real bear, 2011 was an adjustment. Which way will it go this time?  Only time can tell. 

2. Weekly chart:

KLCI weekly chart

Weekly chart looks a bit nicer. The chart looks like forming a double bottom. All MACD, RSI and stochastic seems to recover from the bottom. However, no sign of strength was observed.

3. Daily chart:

Daily chart cannot tell much. Chart shows KLCI seems to have "triple bottom" recently. MACD, RSI and stochastic are heading positive, but the trend in daily chart can change very abruptly.

A lot of rumours say that if the PM were to step down, it will lead to political instability and chaos (as in the stock market) would ensue. I couldn't be bother about this factor. Partly because I don't think he will step down; and partly also because who knows which way will the stock market go if he really steps down?

While a number of investors do not look good on the current market, I still yet to spot a "madness" in the stock market. After all, standing at 1723 is less than a 10% drop from the peak of 1890+. Is that really bad? But perhaps the drop occurs successively due to the involatility of the KLCI, it felt as if the drop has been long and significant. My view is that while bear has not yet formed, the chance of "final bull" remains unclear. The way to deal with this is as always: prudent investment involving good fundamental stock.

Tuesday, 21 July 2015

KL: Call warrant analysis

Recently, MYEG touched a low of RM 2.40 on 16-6-2015 and a high of RM 3.03 on 2-7-2015 in 2 weeks time, equivalent to a ~26% return. If you leverage your capital by trading call warrants instead of the mother share, what would be your return then?

MYEG trend

Call warrant^ Low High Return
MYEG-CD* 0.340 0.480 41.2%
MYEG-CG* 0.190 0.325 71.1%
MYEG-CH 0.185 0.320 73.0%
MYEG-CI* 0.030 0.105 250%
MYEG-CJ 0.080 0.200 150%
MYEG-CK 0.060 0.145 142%
MYEG-CL 0.075 0.160 113%

* MYEG-CD,CG and CI expire on July, September and August 2015 respectively.
^ MYEG-CM was issued after 16-6-2015 and hence it was not included here.

The above table summarizes the return for MYEG call warrants. Based on How to choose a call warrant, the first priority is that the mother share must possess strong fundamental. For this criterion, MYEG is a no-brainer.

Next, look for the maturity date. This means that CD, CG and CI will be out of my sight. While CI secured the highest return in 2 weeks time, this is not a risk that I would take.

Then, look for the premium, gearing and volume. CH was good back then, but its gearing is comparatively low now, meaning a lower risk and lower return/loss. For a higher gearing, both CJ and CK are satisfying all criteria. As CJ has a lower exercise price and a lower conversion ratio, if I were to trade, CJ will be my pick. It turned out that CJ is indeed the best choice. It wouldn't be too hard to choose a call warrant in this way.

Another handy information is that we can actually know how much these call warrants were held by the issuer at the end of each month. If you go to Bursa Malaysia website > Listed companies > structured warrants. In the announcement category choose "Issuers' announcement", you will see this type of announcement:



You will see that for MYEG-CJ, 64.68% of warrants are not held by the bank, i.e., a huge portion of warrants are held by other people. It may be big fish or retail investors. Either way, when the bank is no longer the market maker, the buy/sell queue volume will be low (e.g., from 5000 lots per bid to 1000 per bid) and this provides another criteria to choosing a call warrant.

While call warrant could bring you high returns in short time, it is a double-edged sword product. It can accelerate your capital growth or completely ruin your financial dream. My principle is to only trade call warrants with strong fundamentals mother share. INARI is an example, MYEG is another. Call warrant for shares like KNM, no matter how attractive they are, will be completely blind to me.

Saturday, 11 July 2015

2015 Q2 Review

The total transaction in this quarter was very high, probably the highest in my history.

My portfolio reached a pinnacle on 23rd Apr, which have declined since then as KLCI has been dropping continuously. Indulging myself in insatiable greed, I saw many counters that I hold turned from green to red, from earning to losing. AWC and PRIVA are only a fraction of examples. I experience the highs and lows of the rise and fall in my portfolio, feeling completely numb about the change in numbers.

The transaction involving call warrant in this quarter has far exceeded the total call warrant transaction for the past 4.5 years. After all these years, I have finally felt comfortable to trade call warrant. The experience is: taking profit on call warrant is way too important. You can't hang on to call warrant like the way I used to do with a mother share. When you see a reverse trend, it is time to sell regardless of the return.

Going to the end of June, the Greece drama and the possibility of a downgrade in Malaysia credit rating have proven that my own insight into the market was right. This marks a great advance in my investment life: to be able to insist on my own view and not being swayed by the others. Yet I know that I still have a long way to go, for having zero experience in a real bearish market.

The investment return will remain undisclosed since now.

Thursday, 9 July 2015

News by media, view by myself (end)

Writing this, I couldn't help but to recall about past experience of "big drop", i.e. Oct 2014. Last October, there was no sign prior to dropping, and the US stock market touched a bottom on 15-16 Oct 2014.

DJI Oct 2014

Then, in the mid of dropping, came the news:

16 Oct 2014:
Dow suffers largest mid-day drop in THREE YEARS as Ebola fears

16 Oct 2014:
Anxiety about Ebola

When the stock market started to plummet, there was no sign and no news. Then, the news came out. The "timing" of the news couldn't have been more "accurate". I still remember vividly how every media was reporting the fear of widespread of Ebola, including a future projection of Ebola cases of how it will become an epidemic. Interestingly, do you still see coverage of Ebola now? It is miraculously disappear from the media. I was scared at that time and learnt a big lesson, I am not buying any story since then.

The current Greece drama is amusing. In my own view, there will be no "Grexit" (how interesting can English evolve!), not now. Time will unfold this soon.

The crux of this series of blog is no more than this: the media has been highly manipulated, and trading by news will bring you nowhere but losses (Holland). While it is not easy to do the opposite when everybody is selling fearfully, it certainly pays off, sooner or later, if you can think and act independently at those critical moments.

PS: A question to ponder -- now almost everyone is talking about the potential of US to raise the interest rate. While raising interest rate will be detrimental to the stock market, will this happen when everyone is expecting the same?

Saturday, 4 July 2015

News by media, view by myself (part 3)

Example 3: Index -- KLCI

This example is interesting.

Prior to 30th Jun 2015, there were rumours about a possibility of downgrade in Malaysia credit rating by Fitch. First the earliest rumour was during March published in Bloomborg: Fitch Sees More Than 50% Odds of Malaysia Downgrade on 1MDB. Since then, KLCI has been declining continuously.

Next, the "drama" has come to the point where a review will be completed by the end of June. When the due date is approaching, more negatives news about a possible downgrade since 1998 were released, causing fears in the market sentiment.

Now the review outcome was announced. As reported in The Edge, Fitch has maintained Malaysia rating at A- and upgraded the outlook from "negative" to "stable". This is in sharp contrast to the market's expectation.

What now? What did the news tell you prior to the outcome? The coverage was all about a high possibility of downgrade. What will you do if you trust the media? Knowing that the stock market would plummet, you would sell all, hold cash or buy put warrant. However what actually happened was on 1st July 2015, KLCI gained more than 20 points, something that you don't see for at least 6 months. 

What about myself? I don't buy any of this news. Think about this:

1. If they really want to downgrade, will they let you know in advance so that you have time to sell? Frankly, although Malaysia is a "commonwealth" country, but "wealth" is not meant to be "common" in reality.

2. Even if there will be a downgrade, provided that the media were covering this, the effect would have been "adsorbed" by the market since then, and the opposite trend may happen just like the case of AUD:USD.

3. Seriously, who cares about Malaysia rating? Perhaps they couldn't care less about this.

This comes from experience though. After reading all rumours, I recalled what happened in August 2011 where US was downgraded without any preceding news. That did cause a small bear in the global market. You will have no time to sell should there be a “real downgrade". This is why I know there would be no downgrade. However I did not dare to all in when the market dropped, but this is still better than previously where I just followed other people to panic sell.

[to be continued]

Sunday, 28 June 2015

News by media, view by myself (part 2)

Example 2: Foreign Exchange

If you keep an eye on the global financial market, you will observe that 20 countries have eased their economy policies by cutting interest rates in the first 2 months of 2015. This does not include Australia which cut its interest rate twice (Feb 2015 and May 2015) and New Zealand which cut its interest rate this month.

A currency should fall when a rate cut devalues it, as the rate cut makes it cheaper for banks to lend, and for borrowers to borrow. The following shows the movement of NZD:USD right after the rate cut was announced:

NZD:USD after surprise rate cut

In this case, nobody knows that the rate cut was coming. Because it came as a surprise, the currency movement fell sharply, as it should. You will have no time to sell if you were longing NZD:USD.

Now, for the case of AUD when the second rate cut came in May 2015. Research analysts have forecast a rate cut on May 2015. It was almost a certainty that a rate cut would be announced after the board meeting. The movement of AUD:USD right after the announcement went like this:

AUD:USD after rate cut

This rate cut has not come as a surprise. Everybody knows it. Because of this AUD rises despite of RBA's rate cut. The reason was that the effects have already been "adsorbed" and "digested" by the market sentiment. If you read the news before the rate cut announcement and went to short AUD:USD, then you will become "water fish". When it is something that everybody knows, it just wouldn't go the way it was expected to be going.

Both cases have the same rate cut decisions, yet completely different reactions. Why? The difference lies in whether the news has been made known to the public in advanced. In NZ, it came as a surprise. In AU, it was expected. If you tried to make money based on news that everybody knows, you aren't going to get it.

[to be continued]