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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.
Few months back, the forum was hot with news on XOX grand revival due to the entrance of a man with the name Daniel Tam. Even the local mainstream news reported this as shown in the above picture with this headline. I am not sure if it was an error by NST or it was a collusion between the reporter and the syndicate. This Daniel Tam was actually an executive / shareholder in We Solutions Ltd. A jewellery company which was transformed to an electric vehicle company. It was renamed today to Apollo Futures Mobility. Li Ka Shing and his foundation invested in We Solutions Ltd some years back. This Daniel Tam is not a director or shareholder of Li Ka Shing's Cheung Kong Holdings. The news report by NST totally confused between Cheung Kong Holdings belonging to Li Ka Shing & Chong Kin Group Holdings Ltd belonging to Daniel Tam's own private vehicle. So basically whoever that is trying to play up this wrong / poor reporting - was trying to manipulate (goreng) the stock. My advice back then to my readers and subscribers was definitely to stay away from XOX. What is the price today? It went to a high of 30+ sens and plunged to 12 sens today. I wonder how many retail investors are still trapped in XOX today?
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.
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: