Dear fellow readers,
Once
again, these writings are just my humble highlights (not
recommendation), feel free to have some intellectual discourse on this.
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With
CMCO being reimposed for the next 2 weeks in the economic heart of
Malaysia, many have re-started the previous work arrangement of working
from home or at least alternate rotations. I believe this would once
again attract retail investors back to the market due to the flexibility
in work schedule. Hence, it is timely for me to share this article.
This
year in fact is a record year for retail investing in Malaysia. Due to
the lockdown as a result of the pandemic, retail investors flooded into
the share market. However this is not a phenomenon unique to us. India,
South Korea, US, China and many other countries experience the same
thing. There is a good article by CNBC on Malaysia retail investing, you
can check it out here :
This
reminds of an incident from few years ago when a subscriber told me he
invested in Sumatec. I asked him "why did you buy Sumatec? He said
because the volume is big, everyone is talking about it, share price
went up a lot and rumour is Halim Saad driving share price up as he is
going to inject Kazakstan oil & gas business into the vehicle".
Today, Sumatec is worthless. The rumour never materialised and many
retail investors got burnt.
Whenever
this happens, I feel very helpless. Majority of the retail investors
are either new investors, retirees, working or middle class with
insufficient exposure or in-depth knowledge of the financial world's
inner workings. Many worked hard to make a living and with the savings,
invest in equities hoping to get extra income to supplement their living
expenses or put their children through college. Majority end up losing
more money than they actually invested. This leads to vicious cycle.
Very few successfully invest their way out of the low or middle income
trap. It pains me to see this and it has happened to even close friends
and family of mine. We must understand that the
share market is a ruthless place where it punishes those who are
ignorant, greedy and stubborn. Let me share the example of XOX Bhd.
This
is but only one company I am highlighting. Definitely, what is done by
XOX and the operators / syndicates behind are grossly unethical, morally
wrong and bordering on criminal. However did our authorities like SC
act on it? Recently, The Edge also did very good investigative
journalism on the Hidden Hand behind Penny Stocks surge. They have done a
similar reporting in 2016 as well. By right, retail investors, as long
as you google and do your simple research, you would have come across
the syndicate operated companies which you should stay away and avoid.
2020 :
2016 :
These
are not new names. Maybe some are even the same company but names has
been changed. With evolution of time, probably now with different modus
operandi such as using social media and apps or fake gurus using
facebook live. Of course, the argument at large is willing buyer willing
seller or greater fool theory. Some even argue speculations indicates a
healthy and vibrant market. My
view is different - a healthy and vibrant market does not equate
allowing operators the free hand to cheat, lie, misrepresent or mislead.
Indeed,
today's investors are more astute then years ago. However it doesn't
mean that using fake MOUs or announcing questionable deals with no
facts & figures to back up which subsequently doesn't
materialize should be allowed. Those with basic legal knowledge would
know that MOUs are not legally binding but merely an expression of
intent / interest. It is not the same as signing an agreement with
actual transactions / consideration made. Looking at the list of stocks
above, I would say majority of these names should be avoided at all
cost.
This year, the returns from FBM Ace exceeded 120% and FBM Small Cap exceeded 60% from the March lows. FBM KLCI however only rebounded 20%. This essentially means if you put you investment capital in the Ace market in March, the chances are you would have doubled your money compared to KLCI stocks. Realistically speaking, are small cap or penny stock earnings doing much better than big caps? If anything, blue chip companies have sufficient cash reserves or borrowings to ride out compare to smaller companies. Hence, this disjunct between reality and expectation has widened significantly due to in flow of retail investing.
Before Jho Low, there was John Soh. One of the biggest market manipulators in his heydays with many "disciples", he is currently implicated as the mastermind in the SGX penny stock scandal. His pump and dump operations evolved and grew bigger over the years and many of his stocks that were manipulated trap and burnt retailers badly. Should we pity those whose money was trapped because they speculated on the penny stocks related to John Soh? Some say no. For me, I still feel sad knowing retail investors lose money to syndicates or operators unless of course the retail investors keep making the same mistake or driven by greed and stubbornness.
To be a survivor in the share market, it is of utmost important for fellow investors in the market to Be Cynical, Be Skeptical & Avoid Tips. Simply because :
- Hearsays are often truth mixed with fiction
- When the "tips" arrive to you, it must have gone through many channels which means more often than not, the good news have been priced in.
- Not being in the operators' inner circle, you will never know when is the bottom to enter and when is the peak to sell. If you are lucky, you get out before the dumping starts otherwise you are caught.
- Even insiders make mistakes and have incomplete information flow. So unless you have the full picture, there is no way of knowing what is actually happening.
- The saying "Buy on Rumours, Sell on News" is overrated. Truth is when the news is out, its usually too late.
I
would encourage all readers to focus your energy and effort on
understanding a business of the company you are considering to invest
than to seek out rumours / hearsays / "tips". Stay tune for my next
article "Principles of Investing - Rule 6 : "Comprendo, Invest Only In What You Understand."
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Food for thought:
https://klse.i3investor.com/blogs/tradeview/2020-10-17-story-h1534701240-_Tradeview_2020_Principles_of_Investing_Rule_5_Be_Cynical_Be_Skeptical_.jsp
