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Koon Yew Yin 官有缘 - A Good Lesson on CUT LOSS


Koon Yew Yin 官有缘 - A Good Lesson on CUT LOSS

With exception of stockmanmy and red_55 all the last 50 commentators of Gadang in i3investor.com, did not say that they have cut loss on Gadang. Obviously they have forgotten the word “CUT LOSS”.

About 30 years ago my wife and I attended a charting course by Mr Neoh Soon Kean, the producer of Stock Performance Guide, who was then lecturing in the University of Malaysia. He said that you must buy only up trending stocks and never buy down trending stocks because you do not know how long you have to wait to sell at a price higher than your purchase price. The down trend can last more than one year.

Readers who have attended Mr Ooi Teik Bee’s charting course should know that he also preaches the same thing. But many people including those attendees refuse to admit or recognize their mistake to cut loss. They cannot control their emotion of ego to admit their mistake and think logically.

How to make money when you have a margin call?

I also remember Mr Neoh Soon Kean advised us not to be afraid to continue buying up trending stock. As the price goes higher, the value of your securities also increases to enable you to use more margin loan to buy some more shares. As I said many a time before in some of my articles that no share can go up or come down for whatever reason. After a share has been peaking for a while, it will start to fall. When you have a margin call, you must sell some of your holdings to meet margin call at almost the peak price which should be higher than you average cost. So you can make money when you have a margin call.

Let me use Gadang as an example to elaborate or explain this lesson. The chart below shows that Gadang has gone up from Rm 1.40 to Rm 3.30 in the last 15 months. The average cost for all the smart investors would be about Rm 2.35 which is about the same as the current price. All smart investors would have sold as soon as they see that Gadang began to trend downward. Only stupid and stubborn shareholders refused to admit their mistake or recognize their losses continue to hold onto their Gadang shares. They will continue to blame KYY for selling to push the price down. In the past they complained that I did not tell them when I started to sell Latitude and VS Industry. As a result they lost money.

Now I told them to sell even before I started selling and yet they refused to sell.

gadang

They are stupid. They only believe in financial analysis which is encouraging as it is based on historical figures. FA cannot tell you the future of the company.

They do not believe in charts. They are stubborn and refused to look at the reality. Gadang has completed a large portion of its contract works and has only about Rm 600 million of works left in the order book.

In view of the oversupply of properties in every town and city in Malaysia Its property business is unlikely going to produce much profit.

Gadang said that it has submitted billions of Ringgits of tenders. From my long experience in the contracting industry, I can imagine Gadang is so desperate to get some contract works to cover its fixed expenditure, like salary, interest for bank loan and depreciation of assets. In such a situation, Gadang would have to submit cut throat tender prices to secure contracts. Even if it can secure some contracts in the next few months, its profit, if any, cannot be taken in the current financial year.

Moreover, it is unlikely that Gadang can make profit from the cut throat price contracts because all the optimistic assumptions it made to arrive at cut throat prices will not come true. Due to falling value of our Ringgit and GST, all the prices of building materials, labour wages, transport charges etc would have cost more than what Gadang has assumed in its tenders.

Gadang cannot make more than last year’s profit of Rm 123 million. Gadang shareholders must realize that when the company reports its annual reduced profit, its share price will definitely drop further. 

Koon Yew Yin 官有缘 - A Good Lesson on CUT LOSS
http://koonyewyin.com/2016/11/26/a-good-lesson-on-cut-loss/