Highlights

kcchongnz blog

Author: kcchongnz   |   Latest post: Thu, 13 Aug 2020, 7:43 PM

 

Sendai, a third lesson. “All-in” Poker Player kcchongnz

Author:   |    Publish date:


So far, from speculating in Sendai a couple of years ago, James has learned a couple of valuable lessons in order to avoid losing big in the stock market, they are;

  1. It pays to be a Doubting Thomas when investing, instead of being a sucker following blindly a simplistic golden rule.
  2. Beware of the dark side of margin finance and avoid it as much as possible.

 Here is the fourth of a series of articles on more lesson learned from Sendai. This article discusses an important maxim in investing;

Don’t put all your eggs in one basket”.

James have read many comments in i3investor from two to three years ago in i3investor as below,

[Posted by stockmanmy > Jul 6, 2017 09:51 AM | Report Abuse
and of course, I am very impressed by anyone who can put substantial portion of their wealth into Jaks and Sendai, don't blink, no fear, ......
You want the stock market to make a real difference? develop such qualities first.
There are not many who can do it, ....and that is why there are not many super investors.]

[Posted by stockmanmy > Jul 6, 2017 10:51 AM | Report Abuse

like playing poker.....don't all in....how to be a good poker player]

Posted by stockmanmy > Jul 7, 2017 11:25 AM | Report Abuse

Jaks and Sendai are for super investors...These super investors intend to make multiple baggers from Jaks and Sendai and already half way there.
 

The above three comments, out of hundreds of similar calls enticing readers to were made by in July 2017 when kcchongnz posted an article on “Stop being a patsy in the stock market” in the link below,

https://klse.i3investor.com/blogs/kcchongnz/127246.jsp

Basically, the pitch by the commentator was asking everyone to put all their money in the two stocks, Jaks and Sendai. In poker, it is putting all the chips in the pot. Note the share price of Jaks and Sendai were at RM1.50 and RM1.20 respectively.

Jaks share price went down to 40 sen one and a half year later at the end of year 2018, for a whopping loss of 73%. It has recovered somewhat and close at 85.5 sen today on 9th October 2019, still at a substantial loss of 43%, as shown in the chart below.

Sendai’s share price, on the other hand, dropped relentlessly, non-stop and close at 39 sen today, for a loss of whopping 68% in two years. James felt a little relieved when he cut loss Sendai at 50 sen. Note the broad KLCI Index has lost about 10% during the same period.

 

With all money put into two stocks, Jaks and Sendai in equal weighting, the average loss in the last two years was 55%. And that was the problem; a focussed portfolio of only two stocks, exaggerated by the stocks being in the same industry, the Construction Industry. In 2018, there was a change in Government, resulting in some uncertainties political situation, and the Construction Industry was the hardest hit and the share price of many of the construction companies went into a tailspin.

 

Stocks Portfolio Diversification

Investing in the stock market is a very risky endeavour. Even though you understand well and have done thorough analysis on a stock, you may have missed something which you may not know, and as a result, lose money and can even have your investment down by 30%, 50% or even more.

Every investment is subject to the influence of fear and greed in the marketplace. The duration, intensity and frequency of the unexpected changes of the macroeconomic, sectors and political situations are very difficult to predict. Some sectors of the market will do well while others falter. For example, export stocks seem to be doing very well in 2017 and their share prices have risen to all-time highs, while property, plantation and oil stocks are lagging. However, this could just reverse suddenly. The once-strong sector could fall, and the once-poor sector could gain.

Focus investing in just a handful stocks in one or two sectors with all your wealth can provide you with outsized return if your analysis is right and continues to be correct with no change in macro or microeconomic factors. However, these factors are unknowable, unpredictable, and they are filled with uncertainties.

Stock Diversification: Academic Approach

Many academicians believe there is a kind of free lunch in the market, i.e. in portfolio diversification. In academic, risk is measured by the standard deviation of return, the higher the variance, the riskier is the portfolio. So, to reduce risk, more stocks are included in the portfolio.

Figure 2: Reduction of idiosyncratic risk

As the number of stocks in the portfolio increases, the variation of return reduces sharply initially as shown in Figure 2 below. Studies and mathematical models have shown that maintaining a well-diversified portfolio of about 20 stocks will yield the most cost-effective level of risk reduction as shown in the figure 2 above, beyond that, there is negligible additional benefit for more stocks.

Stocks diversification won’t ensure gains or guarantee against losses but strives to smooth out unsystematic risks of companies in a portfolio which are not perfectly correlated so that the positive performance of some companies will neutralize the negative performance of others.

 

Stock Diversifications: Recommendation in Practice

The popular adage of "Don't put all your eggs in one basket" is very much suited for investing in the stock market for individual investors. It advocates diversification, a technique that reduces risk by allocating investments in a number of stocks in the portfolio. Ideally the stocks chosen should be spread come from a diverse range of industries, cover several geographic regions having different and uncorrelated underlying drivers that would each react differently to the same event.

In practice, the decision about how many stocks to own is the balance between risk and return. The more concentrated your holdings, the greater the chances of exceptional returns if you are right, but there is also a higher risk of a substantial decline if you stock picking is poor.

Another factor is your tolerance for volatility. If you are heavily concentrated in just a few fast-moving names or small-caps issues, it won't be uncommon to have swings of 5% daily. Many retail investors cannot handle that sort of movement and probably lose sleep at night.

Time frames also influence the number of stocks you hold. Some traders take the approach of high concentration for short periods of time. They can handle the lack of diversification because they are willing to move quickly at the first sign of trouble.

Another factor that will influence how many stocks you own is the amount of capital with which you are working. If it a very small account, it isn't possible to be highly diversified because of the high costs of transaction. On the other hand, there are large funds that will hold many hundreds of stocks because there isn't any other way to put their capital to work.

My take as a guide of number of stocks to own from different industries,

Less than RM100k capital: 5-8 stocks

RM500k: 10-15 stocks

RM1m: 15-20 stocks

More than RM10m: more than 30 stocks

For those who have more than RM1m for stock investment, it is advisable to diversify into the regional and world markets. With a diversified number of properly selected stocks in the portfolio, it is expected that some of them may not do well but won’t lose much, but more of them will earn satisfactory returns over the long term. Hopefully, a few of them become multi-baggers.

The above are discussed in more detail in an eBook which I have written. Anyone who is interested to obtain a copy of it may contact me at

ckc13invest@gmail.com

It is free.

Happy investing.

KC Chong

Share this
Labels: SENDAI

Related Stocks

Chart Stock Name Last Change Volume 
SENDAI 0.20 -0.01 (4.76%) 556,400 

  2 people like this.
 
john doe The hatred is real. lol.. Keep bashing.
10/10/2019 8:14 AM
speakup James cut loss Sendai at 50 sen?
Now 90sen, he must be crying!
10/10/2019 9:18 AM
kcchongnz Posted by speakup > Oct 10, 2019 9:18 AM | Report Abuse
James cut loss Sendai at 50 sen?
Now 90sen, he must be crying!

No, James was a little lucky to cut loss on Sendai at 50 sen, because the share price of Sendai continues to fall. It closed at 38.5 sen today.

On the other hand, the other construction stock, Jaks, fell to 40 sen at the mid December last year. Those people who encountered margin calls and forced selling have missed the recovery of the share price of Jaks. It has more than double its share price since its trough and closed at 91.5 sen today, in less than a year.

That is the peril of leverage in investing. In Jaks case, lost big and missed the chance of recovery.
10/10/2019 8:49 PM
qqq3 kc....no share in Bursa besides Sendai and Jaks?

whatever happened, happened already....

before it happened, there was no certainty it will happen the way it happened.,

After it has happened, only then it becomes a 100% certainty event...........

Its like quantum theory and until you open the box, the cat is both dead and alive..........

and....the future is not going to be exactly like the past............as for Jaks/ Sendai and KYY, the issue is simpler than u think.............

for KYY, whatever shares he has are the best in the world, whatever shares he has already sold are the worse shares Bursa ever produced.....it says more about KYY than about Jaks/ Sendai.............
10/10/2019 10:50 PM
qqq3 I woke up and found kc now actually wrote about shares besides jaks and sendai..............
11/10/2019 8:28 AM
Sslee Hahahaha,
qqq3, KCChong is talking about the peril of leverage in investing. May I ask you since you are now very chun-chun on your stocks than Calvintaneng, then why not you leverage to the max like Mr. Koon and be as rich as Mr. Koon?
11/10/2019 8:36 AM
CharlesT KYY is a big gambler...he bet big n sailang...either win big or lose big...

Not everybody is having such a high risk appetite
11/10/2019 8:45 AM
7300 strategic hero banker,never look ownself do thing cant see,must be loser
11/10/2019 8:53 AM
7300 only a winner knows a hero banker KYY way of fight
11/10/2019 8:55 AM
CharlesT Kyy is lucky that OTB saved his ass for 2 times
11/10/2019 8:57 AM
CharlesT Or else he has to sell his lands piece by piece
11/10/2019 8:57 AM
Sslee Good Morning CharlesT
Philip’s QL finally breakthrough the RM 7 again
Your MNRB when will breakthrough RM1.15 again
My INSAS still waiting for breakthrough 90 cent.

Thank you
11/10/2019 8:57 AM
CharlesT MNRB likely to declare div in next Q...stay tune
11/10/2019 8:58 AM
CharlesT Not goreng type of shares...
11/10/2019 8:59 AM
7300 atleast KYY stabilised market not those 2 legs buaya 's so called valuations
11/10/2019 9:01 AM
hollandking Yes, I'm the doubting type. If even there's 1 red flag, you are in my bad book forever. If you have more than 1 flag, I'll ban you for life. That's my style
11/10/2019 9:06 AM
qqq3 sslee....today is magni last day of cum........u want play big, play Magni.......this share will make u a lot of money or lose u a lot of money within a short time..................
11/10/2019 9:06 AM
CharlesT Posted by Sslee > Oct 11, 2019 8:57 AM | Report Abuse

Good Morning CharlesT
Philip’s QL finally breakthrough the RM 7 again
Your MNRB when will breakthrough RM1.15 again
My INSAS still waiting for breakthrough 90 cent.

Thank you

Closed at 1.17 ytd...with div policy (i think ard 40% to 60%) and an interim div of 2.5% just being annouced MNRB shall be a different ball game now
17/10/2019 6:12 AM
Sslee Dear CharlesT,
Good morning and congratulation on your MNRB breaking through RM1.17. I had been fighting with Dato’ Sri Thong for better dividend and a formal dividend policy for the last two AGM. The next AGM will go all out for a formal dividend policy and will not accept a NO answer from the board.
http://www.insas.net/pdf/img-20181226.pdf
Question: Dato’ Sri Thong was requested to give factual reasons why INSAS did not carryout what is clearly stated in the 55thAGM official minutes “seriously consider paying additional/special dividend and to formulate a formal dividend policy in FY 201

Answer: The Board has considered the level of dividends to be paid to shareholders for the FY2018 but in view of the current depressed market conditions due to numerous external and internal events, the Board has exercised a conservative and prudent management to retain adequate cash reserves in order to weather any potential unforeseen deterioration in the market conditions, and to position the Group for future growth and any good investment opportunities which may arise during this downturn.
The Board will evaluate and if appropriate, formulate a dividend policy when the markets recover.

Thank you
17/10/2019 8:03 AM
CharlesT MNRB is a safer bet....oredi annouce div policy....I think the co can post EPS ard Rm0.15-RM0.20 this year...
17/10/2019 8:09 AM
CharlesT Dont have to fight with Thong KK for div
17/10/2019 8:10 AM
CharlesT Unless u enjoy fighting lah
17/10/2019 8:11 AM
Sslee Hahahaha
CharlesT, shared prosperity so no fighting only asking for what is the rightful shared prosperity for minority shareholders.
17/10/2019 8:37 AM
CharlesT Why choose a tough path to go while there are easy way..
17/10/2019 8:39 AM
Sslee Dear charlesT,
Sometime someone need to stand up for what is right rather than what is easy.
Thank you
17/10/2019 8:41 AM
Sslee Thank you very much. I appreciated it. By the way I am very surprise Mr. Koon latest Dayang article reveal he only hold 20 million of Dayang. He used to hold over hundred millions in JAKS. JAKS really hurt him a lot.
17/10/2019 8:49 AM
kcchongnz Posted by Sslee > Oct 17, 2019 8:49 AM | Report Abuse
Thank you very much. I appreciated it. By the way I am very surprise Mr. Koon latest Dayang article reveal he only hold 20 million of Dayang. He used to hold over hundred millions in JAKS. JAKS really hurt him a lot.

In April 2018, he and his wife owned 220m shares in Jaks, and 78m shares in Sendai. When Jaks and Sendai were at their peak price of RM1.80 and Sendai at RM1.40 respectively, the value of their share holding in these two stocks were RM400m and RM109m respectively. That is equivalent to RM509m. Assuming RM200m was margin loan, that still equivalent too a personal wealth of about RM300m.

Even at that time, numerous articles were written on “How to use margin finance effectively”, and “How I managed to make more than 100% in 6 months?, etc.

Fast forward today, the same articles using Dayang were repeated, again and again.

20 million shares in Dayang is worth about RM40m. Some capital was obtained from selling land, and of course, as usual some from “using margin to the maximum”. So may be personal wealth in the stock market is about RM30m?

Of course this is still a lot of money for most investors here, but what a far cry from a couple of years ago.

Is “using margin finance in stock investment to the maximum” really that great?

Should it be constantly encouraged in the public forum?

You make your own judgment.
17/10/2019 7:37 PM
Sslee Hahahaha
3iii, I think he is safer listening to advice of OTB and never fall for PLP of qqq3 again then he should be able to build back his wealth.
19/10/2019 7:48 AM
CharlesT I m sceptical on his 20m dayang as he claimed dayang is his biggest investment...he should hv few hundred millions bullet (including margin)..even he may lose rm100m last year but his fund size couldnt shrink by so much..

Maybe typo..200m (his average cost should be below rm1.00)io...held thru few names to avoid troublesome in repoting to sc
19/10/2019 8:51 AM
CharlesT 200m dayang below rm1.00= below rm200m..

Sounds more reasonable
19/10/2019 8:52 AM
CharlesT As compare to 20m shares...
19/10/2019 8:54 AM
kcchongnz Posted by CharlesT > Oct 19, 2019 8:51 AM | Report Abuse
I m sceptical on his 20m dayang as he claimed dayang is his biggest investment...he should hv few hundred millions bullet (including margin)..even he may lose rm100m last year but his fund size couldnt shrink by so much..
Maybe typo..200m (his average cost should be below rm1.00)io...held thru few names to avoid troublesome in repoting to sc


Most of the very rich people I know won't tell you they have a lot of money. They always keep quiet of what they own. But there are exceptions.

You should be able to make a good judgment from what they say, and what they write, and boast about.

Anyway, even a few tens of million is still very wealthy.
19/10/2019 9:33 PM
kcchongnz Posted by Sslee > Oct 19, 2019 7:48 AM | Report Abuse
Hahahaha
3iii, I think he is safer listening to advice of OTB and never fall for PLP of qqq3 again then he should be able to build back his wealth.


Gambling is an addiction just like drug addiction. Can you convince a drug addict to give up taking drugs?

Some gamblers do win, but what is the chance of winning for most of them, 10%, 20%?

I have personal seen what gamblers do and how they behave. They do win once and a while but none that I know can keep his winning at the end.

One of them strike lottery for RM3m, but within a couple of years, all given back.

The fact is, most if not almost all gamblers lose because they never give themselves an opportunity to win; even when they have won a significant amount they will continue to bet until they lose it all again
20/10/2019 9:43 AM
CharlesT If he sticks to koon bee then i believe he shall do well for the rest of his days...

If his backside gets itchy again n wanna manage his own then likely to have xinquan 2 or jaks 2 or sendai 2 n hv to sell his lands again in near future
20/10/2019 9:48 AM


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
Perform Technical & Fundamental Analysis on Stocks
MQ Affiliate
Earn rewards by referring your friends
 
 

248  821  476  603 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 AT 0.10+0.005 
 DGSB 0.195-0.03 
 VIVOCOM 0.05+0.005 
 AEM 0.16+0.005 
 GPACKET 0.46-0.02 
 MAHSING 0.91-0.05 
 DATAPRP 0.18-0.015 
 HWGB 0.755-0.025 
 LUSTER 0.15-0.015 
 TRIVE 0.010.00 

FEATURED POSTS

1. The Equity Market Index Benchmark in Malaysia CMS
2. Trading Scenarios of Derivatives Bursa Derivatives Education Series
3. Derivatives 101 Bursa Derivatives Education Series
4. Why Trade FKLI? Bursa Derivatives Education Series
5. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!
PARTNERS & BROKERS