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Many Ways To Skin A Cat - Salvador Dali

Tan KW
Publish date: Tue, 17 Dec 2013, 02:39 PM
Tan KW
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Good.

 

Tuesday, December 17, 2013

 

Investors are concerned about insider trading ... about somebody knowing something ahead of time ... I guess all market participants do that, we dress it up as "rumours". If you are not sure, then they stay as rumours. If your sources are certain, then its an advantage. If you hear it directly then its possible to be getting insider information. If you are the 4th or 5th indirect recipient, e.g. from your remisiers, dealers, friends ... that would be harder to prosecute.


Other than the usual direct insider information, a lot of market participants esp on the trading desks, portfolio managers, investment banking community ... they get what is known as "order flow". It's their obscene profit advantage, called "Order Flow."

You're probably playing the investment game. They're playing the players, including you. But you're a small frog; they are much more interested in the big croakers. Those are the big-money funds, the state funds, hedge funds, pension funds, indexed linked funds, and anything else that scoops up the available capital of folks who don't know (or don't want to know) how to really make it work for them.

They're not dishonest, just astute business managers. But that puts you (and their customers) in at least 3rd place in the pecking order of the Investment Markets Game. When you are managing a large position, it is to your advantage as analysts will tell you of "upcoming surprises" of your holdings. Or you are a BSD, you will get first hand information of upcoming positive developments as you will buy big.


The investment markets, most of the time, are driven by so much advancing-knowledge-driven productivity from today's civilized world that there are plenty of crumbs falling off the table to keep poorly-informed folks with more income than they know what to do with (constructively), satisfied. If you're one of those, better find something more entertaining to read or pass the time with, because the rest of this article may be disturbing to you.

So I say, this is just one section of the market place and how anyone can say that the markets are efficient is beyond me. Because somebody somewhere will always know something ahead of you ... you just hope and pray you are not the last 25%.

What's this "obscene profit" advantage?

Back to that thing called "order flow." The orders in the flow of interest to them are the volume ones, in millions of shares, called blocks. 

Many big-fund holdings are in stocks that, at the level of the market's average daily trading volume would take weeks or months to exit from, and then to reinvest. Guess which way prices would move if they tried to do it that way.

So they try to split up their portfolio adjustment actions into smaller increments, and spread them around, into off-market "dark pools," into private deal arrangements with other croakers, and into anonymous offerings by MMs via the MMs' block trade desks.


That's where "order flow" intelligences come from. The market-making community has informal club rules that require keeping the trade order originator's identity secret, along with the precise size of his order, and a sense of its urgency of completion. But within the community of MMs, everyone knows who owns how much of everything that is either "in play" or likely to get that way. Big orders tend to get pretty well known and defined. The game gets very sophisticated as a result. High-fee investment information services have good businesses keeping on top of this shifting ownership scene and servicing their MM clients with updates.

The MMs have to try to keep a step ahead of their croaker clients, who in turn, have an obligation to their capital-investing clients to quickly get them out of situations turning sour. Even if it means "bagging" the MM at a high price before the MM learns what the fund has found out, by whatever means (in either case).

It may all look so simple, coming off a Bloomberg quote terminal. But the very serious game going on behind that screen can (and does) often make millions of dollars a minute in the pockets of MMs or croakers and their clients. Price-percentage wise, it can make similar differences to your involved capital, as an "innocent" bystander.


For example, TNB's recent huge uptick. It would have been great to be able to map out the buyers and quantum for the 2-4 weeks before the rate hike, and also the buyers after that. Usually in those cases, if say I was a big fund and has been given confirmed information about the hike, I could very well be a willing buyer 2-3 weeks before the announcement. I am not stupid enough to whack the shares out of the normal average daily volume but I will be aggressive. But I will also be buying after the announcement so as to legitimise the whole thing. So, I might buy up to 5mn before and another 5mn after ... These differences has to be borne by someone, guess who.

So when an order as such takes place, one or two trading desks will get wind of it of managing the buying. The info will flow out, the very same desks will even take on extra long positions in the stock. The reverse is true as well when a fund is trying to offload a big position. The beneficiaries of this little circle can be enormous, trust me.

Of course not every one does that, but it happens more often than not.

http://malaysiafinance.blogspot.com/2013/12/many-ways-to-skin-cat.html

Discussions
1 person likes this. Showing 6 of 6 comments

bsngpg

There is people like a Tauke Soo in a small coffee shop who does not know anything about financial terms, FA or TA. She just has a big remisier who somehow have connection to another Bigger remisier who manages big fund. So when the Bigger remisier accumulates a particular stock in a big way, the big remisier just follow and asking the Tauke Soo to follow. It can be 1-2 months or as fast as 1 week ahead the big news. The big remisier and Tauke Soo are not greedy, just target 25-35% profit after the big news. It was true for many times. Maybe 20% of the times, the stocks were not successfully up, but the lost was minimum as the entry price was at lower side. This was the way the Tauke Soo(or you can call her auntie) made more than million in each hot markets. She was not greedy in each transaction too, just 30000-50000 shares each time.

The far receiver of the info, made paper gain but actual lost as being informed the buy time but now selling time. Each transaction was confirmed with one big news follow suits after the purchase.

So friends, you have no way to dance with them.

Therefore I try to invest with my own very simple ways, find a reliable and value stocks and buy during correction times, then just Sit and Wait for long long times. As long as my ASSESSMENT on “reliable and value” are right, I will beat the market in long run.

Good Luck.

2013-12-17 10:46

kcchongnz

An investment approach based on solid value is the most dependable. In contrast, counting on others to give you a profit regardless of value-is probably the least.

2013-12-17 11:05

KC Loh

but.... but...... you know lah! LOL

2013-12-17 11:06

bsngpg

How to make a right ASSESSMENT on “reliable and value” stocks?

Many uncles, aunties and educated youngsters do not know how to assess for a reliable and value stocks. Do not worry, many players in Bursa are like you.

Then how?
Just read as many analyst reports as possible which can be obtained freely from internet. Limit yourself to branded counters, mainly blue chips or the favorite stocks of most of the fund managers, i.e. PBB, MBB, HL, Digi, Maxis, LDady, Nestle, Amway, Genting, YTL etc. Buy in batch ONLY whenever there is a big correction on Bursa. After that, you just sit and wait or keep them for your kids. Many years later you will find yourself having good positive return and better than at least 60% of other players in Bursa.

The above are the real experiences from Millionaire Ah Peks next door. I regret that I only believe Ah Peks lately but not the early years when I entered Bursa.

2013-12-17 11:10

haikeyila

how often did we NOT see a huge price movement before a major announcement? if ever? I wonder if there are actually laws that spell out clearly against this 'unfair advantage'. Nevermind the enforcement, of course.

2013-12-17 12:19

ipomember

totally agree with haikeyila, insider trading is everywhere

2013-12-17 15:03

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