kcchongnz blog
Dayang: Can you lose 90% of your wealth? kcchongnz
In the third week of the month of March 2020, the stock markets all around the world crashed. Many investors, me included, had experience sharp drop of the value of their stock portfolios. I sympathize the predicament of every investor who suffered during this period. This article is written purely for sharing of an investing behaviour for readers to ponder about its merits and pitfalls in order to make informed decisions, rather for criticizing anyone’s investing strategy.
Recently, one question puzzles many people in i3investor. Can someone lose 90% of his wealth dabbling in Dayang in 2020?
In my article on Dayang when it was trading at RM1.10 as published in i3investor 11 months ago on 12 May 2019 in the link below,
I was comparing the cash flows of Dayang and Eversendai. I concluded that,
“With good cash flows, Dayang is likely to do well in the future if oil price remains good as present.”
I have also written an article in i3investor when a buyer of my book sought my personal opinion whether he should use Margin Finance (MF) to buy big on Dayang as its share price has plunged from RM2.95 to RM1.18 in the link below,
I provided some facts and figures and the different scenarios and left him to make his own decision.
In this “speculative” article, I try to find answer which may interest some people.
Can you lose 90% of your wealth dabbling in Dayang recently?
The answer to this question may be important to understand certain behaviour which could result in devastating outcome which could destroy one’s wealth in the stock market.
Let us have a look at the one-year share price movement of Dayang in Figure 1 below.
Dayang was trading at RM1.28 a year ago on 17 April 2019. It dropped to 84 sen four months later. Since then its share price moved up to a few critical stages; back to RM1.00, up to RM1.35, RM1.80, RM2.50 and to the peak at RM2.90 on 21 February 2020, just about two months ago, before plunging down to a low of 75 sen, barely a month later on 19 March 2020. Its share price has since recovered back to RM1.28 on 17 April 2020.
Figure 1: Share price movement of Dayang
Assuming Jill, with her initial capital of RM1m, bought Dayang shares at RM1.00 apiece. As on today, at RM1.28, Jill would have a paper gain of RM280k now, or 28%. This is not bad at all for a return in one year, more so considering the present rout in the stock market. If Jill had sold her share at the peak of RM2.95, she would have made close to RM2m, or a whopping 195% in less than a year.
So how could one who have done the same thing but lost 90% of his wealth, or RM900k from RM1m?
It depends on the context of the loss claimed. The culprit is again “the use of margin finance to the max.” Let us hear the story of Jack below.
Share MF on Dayang: The Bright Side
Let us talk about the Bright Side of MF first.
Jack, after convinced that the use of OPM is such a wonderful thing on earth, he digs out his saving of RM1m, and went to the bank to borrow another RM1.0m. The banks were too willing to lend to him. Why not? Banks earns a start up fee for the margin account, 5% interest every year and higher brokerage fee etc.
I have tabulated the return of the use of MF on Dayang as shown in Table 1 in the Appendix. The assumptions are as below.
- Initial capital = RM1m
- Borrowing = RM1m
- Total initial capital = RM2m
- Whenever share price had gone up, borrowing another 50% of the increase in value of the shares
- Top up investment at when the prices had gone up to RM1.35, RM1.80, RM2.50 and to the peak at RM2.95 respectively.
After buying 2m shares of Dayang at RM1.00, the share price went down to a low of 84 sen a month later on May 28. That didn’t worry Jak as he had a target price of at least RM4.00 based on the potential high profit growth of Dayang in the future. He was right. The share price went up unabated to RM1.35 in Mid July 2019, RM1.80 on 11 October 2019, RM2.50 at the end of year 2019, and finally shot up to a high of RM2.95 three weeks later on 21 January 2020 as shown in Figure 1 above. Jack was so happy, and he used the MF to the maximum.
On 21 January 2020 when the share price was at RM2.95, the market value of Jack’s Dayang was worth RM9.2m. Jack made a whopping profit of RM4.8m after deducting total MF of RM3.4m as shown in scenario 4 in Table 1 in the Appendix. His total wealth came to RM5.8m in shareholding in Dayang.
However, with a target price of RM4.00 in mind, Jack did not sell Dayang, even he had made so much money. Instead, with his gambling instinct, he doubled up again buying more shares with the additional facilities happily provided by the investment banks as a result of the rise of share price. How he wished to make a killing in this once a lifetime opportunity making huge profit in Dayang.
By now, his average buying price for Dayang is RM1.41 per share.
The Dark Side
Shortly after reaching the peak of RM2.90 on 21 February 2020, its share price plunged abruptly and sharply to RM2.20 in just two weeks on 2 March 2020 due to the sharp fall in the US market as a result of increasing fear of Covid-19 pandemic. There was a chance that Jack could sell at this price within a few days’ window. He could still had made a hefty profit of RM2.5m, or 250%. But he didn’t sell. How could he sell Dayang at RM2.20 when the peak price was RM2.95 recently and target price he had in mind was RM4.00?
After that the share price plunged sharply again all the way to 75 sen in just another two weeks on 19 March due to the collapse of crude oil price. Along the way, with no bullet or wish to top up, the investment bankers did not show any mercy and started selling indiscreetly as the equity of the holding had gone far below the total MF. Jack ended up with all his shares sold due to margin call at an average price of RM1.28, the same price at its close on 17 April 2002 after it rebounded.
Jack lost just 13 sen per share from his average cost of RM1.41, for a total loss of RM408,000 as shown in scenario 6 in Table 1 in the Appendix. With that loss, Jack’s wealth is reduced to 592k.
After the heavy loss, Jack still has 59% of his original wealth. However, compared to his wealth during the peak when Dayang was trading at RM2.95 of RM5.8m three months ago, he was left with 10%.
That is the “Power” and the Dark Side of using MF for quick gain dabbling in the stock market.
Conclusions
Margin Finance merely amplifies your gain or loss in investing. Dayang has again shown that the use of MF can make you rich in a very short-term, but it can also break your arms and legs. The question one needs to ask is what is the purpose of investing; is it to get rich quick while not worrying about any risk at all, or to build long-term wealth steadily over the long-term?
So, before investing, have a goal; understand your personal risk profile such as your age, your career or business stability, the status of your financial position, your family situation, your risk appetite etc. What other people do, or practise may not suit you at all.
More importantly, in order to be successful in investing, one must treat buying a stock as investing in part of a business. He must understand the business, its performance, finally if it is offering at an attractive price. There are some good investment books in the market to provide you with some guidance. This book below is one of them.
If you are interested to purchase one and posted to you within a few days during this lockdown period, you may email me.
Happy investing.
KC Chong @ckc15training2@gmail.com
Appendix
Table 1
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Discussions
7 people like this. Showing 50 of 60 comments
Genius Alex...check my blog made on 4th April...more importantly on what i wrote on the comments section... this one sure win
but sifu KC say dont listen to tips..if you lose money please forgive and forget me permanently...kiki
2020-04-19 19:45
No worry probability bro. Hehe. If lose I will open i3 thread broadcast my loss. Haha
2020-04-19 19:49
Why the majority is always wrong | Paul Rulkens | TEDxMaastricht
https://www.youtube.com/watch?v=VNGFep6rncY
how to achieve extraordinary results if u are part of the majority ( as in KCChong ) and not the 3%?
2020-04-19 19:58
Why the majority is always wrong
the only issue is how to benefit from this insight.............
2020-04-19 20:27
Why the majority is always wrong
the only issue is how to benefit from this insight.............
eg......currently all financial markets is bullish., so how?
2020-04-19 20:28
Why the majority is always wrong
the only issue is how to benefit from this insight.............
eg......currently all financial markets is bullish., so how?
simple...the trend is your friend noting also that the majority is always wrong..........
financial markets bullish
realists bearish...............
2020-04-19 20:31
Why the majority is always wrong | Paul Rulkens | TEDxMaastricht
https://www.youtube.com/watch?v=VNGFep6rncY
how to achieve extraordinary results if u are part of the majority ( as in KCChong ) and not the 3%?
anyone who wish to achieve extraordinary results has to act like the 3%.........not the 97%
2020-04-19 20:49
Posted by supersaiyan3 > Apr 19, 2020 4:59 PM | Report Abuse
Hi, Mr. Chong.
1. The margin finance given normally ranged between 2 - 2.5 times. If you adjust that (from 50%), at RM2.95 Jack would have 40m shares or so worth 120m, with 85m or so debt. Multiplier magnifies.
2. I am not going to go on because I don't like Dayang. You can see the problem already, the largest chunk of shares (17m or so) with highest margin limit (50m or so) is bought at highest price.
3. By the way, margin call actually saves Jack.
4. He is lucky with 10% left.
supersaiyan3, thanks for your correction. I learn something here. As I have never used any MF, I did not know you can get that for 2-2.5 times the money one has in the share. My assumption of 50% of increased in value of shares used for additional MF was certainly way understated if Jack is the type of player who "use MF to the max".
Hence the scenario on the dark side in the story could be much worse. I tend to agree with your point 4 now.
2020-04-19 21:05
in the first place that article is not posted by kyy... tt is not in his blog. No way he can lose
I
2020-04-19 21:23
we wont really know, anyway non of our business, enough to take home some expensive lessons, whc is foc for us, thks to kyy & kcchongnz
2020-04-19 21:31
speculating next week green or red at least can have a result............lol...........
2020-04-19 23:03
don't be fooled by apek story la..he just exaggerated the figure to run away from LHDN la..bought below 70cents and already making tons of money when the share price hit above 2.50. Sold most of the stock and perhaps left with 10%.
than its true..he lost 90% of that 10 % only.
2020-04-20 02:34
Posted by Ron90 > Apr 20, 2020 2:34 AM | Report Abuse
don't be fooled by apek story la..he just exaggerated the figure to run away from LHDN la..bought below 70cents and already making tons of money when the share price hit above 2.50. Sold most of the stock and perhaps left with 10%.
than its true..he lost 90% of that 10 % only.
Lol..this is possible also..he made more than 100% of his 90% stock holdings n lost 90% of his 10% balance
2020-04-20 06:51
Mr. Chong, we were talking about Jack and Jill right? Simple question of "can you lose 90%", I think we found the answer "yes".
Then there are people with good imaginative ability say actually Jack could make 10% instead. Eager to see their maths.
2020-04-20 07:41
Posted by Sslee > Apr 14, 2020 4:26 PM | Report Abuse
Dear Philip,
Do not understand how KYY loss lost about 90% of his wealth when his 35.87 million Dayang holding cost is RM 30.25 million?
https://klse.i3investor.com/blogs/koonyewyinblog/2019-12-13-story24733...
My wife and I have a total of 8.8 million + 27.07 million = 35.87 million Dayang shares.
Based on the last traded price of Rm 2.46, the open market value of our holdings is Rm 88.25 million on 13 Dec and on 29 March the open market value of our holdings was Rm 30.25.
We have made 88.25 million – 30.25 million = Rm 58.00 million within 9 months.
2020-04-20 08:27
it solely depends on what u want to believe...lol
whether he n his wife owns 30m plus dayang with cost below rm1.00 as per his post on 13 dec 2019..or whether he lost 90% of his wealth in dayang as per his post last week..
2020-04-20 08:29
Haha,
The question is can you lose 90% in Dayang? The answer YES. I even lose 100% in Xingquan.
The next question can Koon lose 90% of his wealth in Dayang? The answer you ask charlesT he know Koon like the back of his hand.
2020-04-20 08:29
as for KC, I think he wish n choose to believe that Mr.jack lose 99% io 90%
2020-04-20 08:33
Assuming old man kyy lost 90% of the "profit" of $60mil.. he still has $6mil profit..
But he cld have cash out the $60mil and donated to charity or give a lot of scholarships....
Its a case of miss opportunity, greed and bad timing (covid+oil price drop)..
2020-04-20 08:48
Kyy profit was reduced to $6mil.. well, thats still ok, no need to feel sad for his 'reduced' profit.. :)
Those on his scholarship will feel sad as now he may give out less i assume..
2020-04-20 08:51
For the market to survive, it has been said there must be a fool or sucker created every second
2020-04-20 08:59
Some people r fond of telling half the truth. To them, it's not a lie. Also, they think that we r moron n dungu people who will swallow wholeheartly what was said. Businessman, politicians r all alike. 90 percent loss of wealth bcos of dayang's price fall?. Get real..
2020-04-20 09:22
Posted by supersaiyan3 > Apr 20, 2020 7:41 AM | Report Abuse
Mr. Chong, we were talking about Jack and Jill right? Simple question of "can you lose 90%", I think we found the answer "yes".
Then there are people with good imaginative ability say actually Jack could make 10% instead. Eager to see their maths.
Yes, we are talking about an issue here. It has nothing to do with any one. Ordinary investors Jack and Jill were used to illustrate the bright and dark side of margin finance. The assumptions were clearly spelt out. It provide some useful information for any one who thinks that using OPM is such a wonderful thing in investing.
If anyone deviates from the assumptions, of course the speculative outcomes are all different.
2020-04-20 09:28
30 million shares @ $3 = $ 90 million, borrowed $ 45 million, equity $ 45 million
30 million shares @ $ 1.60 = $ 48 million, equity $ 3 million
if every thing is sold at $ 1.60, u lost 90% of your wealth ( equity) at $ 3. ........this assumes u have borrowed to the limit ( $ 45 million ) at $ 3 ..................
2020-04-20 09:29
30 million shares @ $3 = $ 90 million, borrowed $ 45 million, equity $ 45 million
30 million shares @ $ 1.60 = $ 48 million, equity $ 3 million
if every thing is sold at $ 1.60, u lost 90% of your wealth ( equity) at $ 3. ........this assumes u have borrowed to the limit ( $ 45 million ) at $ 3 ..................
this is you lost 90% of your wealth at $ 3............not 90% of capital at beginning of operation...........
2020-04-20 09:34
from $ 45 million to $ 3 million when price drop from $ 3 to $ 1.60....this is just math.
2020-04-20 12:11
knowing the math means no more margin in future?
how ridiculous.......................
knowing cars got accident means no more cars? how ridiculous.
2020-04-20 12:16
what is the motive of lying?
any crime sure have motive...............
People usually only lie in forums the other way round, not this way round.
2020-04-20 15:51
a spider whips up a web for other things to be caught. But if you are that kind of a spider who builds a web in which you yourself is caught are you not a stupid spider? KYY is not a stupid spider.
2020-04-20 15:52
lex. .................... KYY will take that as a compliment...........even the fact u call him a liar, is in a diabolical way a compliment..........
2020-04-20 15:59
lex. .................... KYY will take that as a compliment...........even the fact u call him a liar, is in a diabolical way a compliment..........and a vote of confidence in KYY...........
2020-04-20 16:00
Means he still have capital to play in stock market...lost money is common, lost strategy is game over...
2020-04-20 23:51
Philip ( Random Walk Theorist)
I believe that using OPM is a wonderful thing in investing, especially since I have the results to prove it.
KCCHONGNZ storytelling on the other hand, is like your mother telling you not to cross the road because it is dangerous.
Having never gone to the other side, she never knew about the ice cream and the wonderful park on the other side.
>>>>>>>>>
Yes, we are talking about an issue here. It has nothing to do with any one. Ordinary investors Jack and Jill were used to illustrate the bright and dark side of margin finance. The assumptions were clearly spelt out. It provide some useful information for any one who thinks that using OPM is such a wonderful thing in investing.
If anyone deviates from the assumptions, of course the speculative outcomes are all different.
20/04/2020 9:28 AM
2020-04-21 11:35
Philip ( Random Walk Theorist)
The concept of a common stock is based on the idea of OPM, using common resources to fund a company that goes on to generate superior results and achieve growth over a period of time.
KCCHONGNZ does not realize this, because he is too intent on grabbing cigar butts of the ground for its last puff, not realizing the wonderful companies out there for the taking.
But we should not blame those who don't dare to cross the road, thinking it is too dangerous.
But it is far far more dangerous to not know what you own. Right? Mr Jobstreet, Padini, Latitude tree?
2020-04-21 11:38
by Philip ( Random Walk Theorist) > Apr 21, 2020 11:38 AM | Report Abuse
KCCHONGNZ does not realize this, because he is too intent on grabbing cigar butts of the ground for its last puff, not realizing the wonderful companies out there for the taking.
===========
jackpot!...................needed you to show reality.
2020-04-21 13:39
It’s stupid, waste of time and irrelevant to question if uncle lose 90%.
The relevant question is whether one should stay with Dayang... and what prospect lies ahead...
2020-04-21 19:32
@chtan33 what's the point staying inside Dayang now? You all buy Dayang is bcos of KYY right? Not bcos of the comnpany itself. The biggest operator also lost hope and cabut liao.
2020-04-21 20:49
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
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Probability bro... Can buy what ah... I trust ur analysis... U help me huat I forever remember and thankful
2020-04-19 19:36