Case Study of Econpile Holdings Berhad (5253)

Overview

Econpile Holdings Berhad is an investment holdings company established by the Group of Managing Director, Mr The Cheng Eng, which principally involved as a leading specialists’ provider for piling and foundation services in Malaysia. There are two wholly subsidiaries of companies under ECONBHD such as Econpile (M) Sdn Bhd and Tropical Broadway Sdn Bhd. Econpile (M) Sdn Bhd engaged in the business of piling and foundation services for property development while for Tropical Broadway Sdn Bhd engaged in the business of rental for investment property and machinery. ECONBHD also holds a Grade 7 License from the Construction Industry Development Board of Malaysia, which allows the Group to tender projects of unlimited values in the categories of building and infrastructure works.

Business Model

ECONBHD provides piling and foundation services such as earth retaining systems, earthworks, substructure and basement construction works, which are mainly for high-rise property development and infrastructure nationwide such as in Klang Valley, Penang, Johor, Pahang, Sabah and Sarawak. The notable projects completed since inception such as bored piling for Klang Valley Mass Rapid Transit, Pavilion Shopping Centre, as well as a deep basement for Elite Pavilion, W Hotel and The Residences. The company also involved in the construction of bridges, elevated highways, electrified-double tracking projects and power plants. ECONBHD also generates some recurring revenue from construction contracts and rental income such as investment holding rental of investment properties and machinery, trading of machinery and some related accessories at a full-fledged workshop located in Rawang.

Financial Review

Based on the past 5 financial years as above, the net profit for the year is increasing years by years start from FY2014 (+11.32%), FY2015 (+50.27%), FY2016 (+44.91%), FY2017 (+19.58%) until FY2018 (7.84%), marking its best-ever full-year net profit.

According to the Annual Report FY2018, it stated that the revenue derived from piling and foundation works for property developments contributed of RM548.5 million equivalent to 75.3% of the year 2018 group revenue (shown above), with a growth of 4.7% from RM523.3 million previously. While for the infrastructure and other projects, it increased more than three times from RM49.6 million, contributed to the remaining of RM179.9 million or 24.7%.

Gross profit increased 1.4% from RM130.1 million in FY2017 to RM131.9 million in FY2018 due to the larger proportion of infrastructure works. The gross profit margin lower from 22.4% in FY2017 to 18.1% in FY2018 mainly due to the hike of steel price.

ECONBHD also incurred with higher operating expenses of RM26.7 million in FY2018 from RM24.9 million in FY2017 due to higher expenditure managing the larger base of ongoing projects. It resulted in the finance costs of the company also increased by 41% from RM1.7 million in FY2017 to RM2.4 million in FY2018.

Based on the chart shown above, Since the finance cost is increasing from 2015 until 2018, is the company able to pay back its liabilities? Based on my computation of liquidity ratio, indicate that ECONBHD has a current ratio of 2.086 times in FY2018 compared to 2.177 times in FY2017. Although there is a slightly decreasing in this ratio, the company still do not face any liquidity problems and are capable of paying off the obligations when comes to due in FY2018 by using the current assets such as trade and other receivables, prepayments, other assets, cash and cash equivalents.

Cash Flow Statement

Net Cash from Operating activities in FY2018 amounted to RM11.3 million, which is lower than the FY2017 figure of RM52.8 million. But it still considers healthy with this amount of cash generated.

The Net cash from investing is decreased in FY2018, which is RM4.4 million, while RM 32.2 million in FY2017 due to lower capital expenditure.

Net cash from financing activities in FY2018 is in a negative figure which is (- RM19.2 million), while in FY2017 is (- RM22.452 million). It was due to 2 factor, lower dividend payout in 2018 camper to 2017 and debt reducing by paying back partial loan.

Total cash and cash equivalents of ECONBHD has decreased to RM24.2 million in FY2018 compared to RM36.4 million in FY2017 to fund the working capital requirements of a larger project portfolio.

Future Prospect & Challenges

According to Annual Report FY2018, management has stated that ECONBHD has an outstanding order book of RM1.1 billion and it successfully secured over of RM450 million in new projects, which comprising a healthy mix of new property development and infrastructure projects.

The biggest project is known as Pavillion Damansara Heights, which sits between two Mass Rapid Transit stations. In FY2018, they have carried out the basement works in Phase One as well as moving into initial stages of Phase Two. However, ECONBHD also successfully tendered for and won its first Light Rail Transit (LRT) contract amounting to RM208.7 million to undertake the bored piling and general infrastructure works for Packages GS04 of the 37 kilometres of LRT3 Line. Besides, ECONBHD also secured RM119.1 million contracts to perform the bored piling, projects, pile caps substructure and basement work for the redevelopment of TNB quarters. Last but not least, some investment banks stated that ECONBHD could be a potential beneficiary for the revival of East Coast Rail Link (ECRL) project. As a specialist’s contractors, ECONBHD may responsible for piling for this project. (Sources: TheSunDaily 15Apr2019)

How can ECONBHD maintain its strong record spanning for three decades? With experience technical expertise it helps the company to secure more jobs and capture for future growth. The strategies that they implement is to submit tender for property-related projects and optimise the fleet and workforce capability.

In line with the new government, it brings an adverse impact on the infrastructure sector in Malaysia. ECONBHD continues to tender for mixed development projects in Klang Valley to secure more property related jobs going forwards as their core expertise of piling works and substructure works in an urban environment. Besides, ECONBHD also enhances its operational efficiency by enhancing the skillsets of their workforce through extensive training to improve their business process with stringent planning and careful execution.

My Insight

Based on my calculation, Econpile Holdings Berhad has a fair value of RM1.446. The current market value of ECONBHD is RM0.785 (Based on 23 August 2019 is undervalued. While for dividend, ECONBHD has declared a first single-tier interim dividend with a total of 1.6 Sen in respect of FY2018. Based on the AR 2018, the dividend payout of RM21.4 million constitute of 24.6% of net profit in FY2018 thus complying with a minimum of 20% dividend policy. ECONBHD also have a beta of 1.783 (500days) indicates that the company has slightly volatile than the market. Based on my computation of CAGR calculation, ECONBHD has an expected market return of 6.24%.

In my opinion, the prospect of this company is very exciting because ECONBHD successfully secured a few projects and this company have a very strong fundamental. Even though the Return on Equity has a slightly decreasing from FY2016 to FY2018, it still able to achieve an ROE with double-digit which is 23.563 times. I believe that the company can achieve a fantastic performance in the future.

Disclaimers

The research information and financial opinions expressed by ShareInvestor.com website are for information and education purpose only. We do not make any recommendation for the intention of trading purpose or advice. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. You should not rely upon the material and information on this website. We will not be liable for any false, inaccurate, incomplete information and losses suffered from you. You need to do your research to make your own investment decision wisely.

Written by Stella Goh | 26 August 2019

What Should You Know Before Register for Chartered Financial Analyst (CFA)


What is Chartered Financial Analyst (CFA)

Chartered Financial Analyst (CFA) is a globally-recognised professional designation offered to finance and investment professional, administered and awarded by American-based CFA Institute. This program provides the most reliable foundation in investment, analysis and real-world portfolio management skills along with the practical knowledge you need in the industry.

Candidates who qualify in CFA exams will be designated with the CFA credential. Candidates are required to pass all three levels of exams covering areas such as Ethics, Quantitative Methods, Economics, Financial Reporting and Analysis, Corporate finance, Portfolio management, Equity investments, Fixed income, Derivatives and Alternative Investments. This credential is mostly sought after by finance and investment professionals looking forward towards building a career in investment banking, financial management, financial analysis on stocks, derivatives and so on.

Entry Requirement

First of all, before you register as a CFA candidate, you need to fulfil specific requirements. The CFA Institute requires that every CFA Program candidate must have a valid international travel passport to register or sit for the exam. All of the candidates must be prepared to take an exam in English because CFA Program exams are only in English. CFA charter holders, regular members, affiliate members, and candidate in CFA Programs must complete a Professional Conduct Statement form to attest that they comply with their requirement.

Besides, the candidate also must have either one of these:-

a) Have a bachelor’s (or equivalent) degree, OR

If you are not sure that your program is compatible with the CFA program, you can have enquiries from your college or university.

b) Be in the final year of a bachelor’s degree program, OR

If you are a student in final year program of your degree, you can also register for the Level 1 Exam, but you must complete your degree program before registering for CFA level II.

c) Professional Experiences

If you have a combination of professional work experience and education with a total of at least four years, you are also eligible to register for CFA Programs.

Practical Work Experience

CFA candidate must take note that they must have a minimum of four years which equivalent to 48 months of experience in evaluating or applying financial, economic, and statistical data as a part of investment decision making the process, supervising people who conduct or teaching activities. Almost 50% of your time must be spent directly in the investment decision-making process or producing a work product. They must work full time before, during or after they have participated in the CFA Program.

Exam Structure

To acquire the Chartered Financial Analyst, each of the candidates required to complete three levels of the exam.

a) CFA Level I

Tier I exam consist of 240 multiple choice questions separate into two sessions which are morning and afternoon. Each session is covering 120 multiple choice question with a duration of 3 hours per session.

b) CFA Level II

For the Level 2 exam, there are 18 sets of six multiple-choice questions, 3 sets with four multiple-choice questions, a total of 21 sets. It is also broke into two sessions, morning and afternoon, covering 60 sets of multiple choice question with a duration of 3 hours per session.

c) CFA Level III

For the morning session, it includes of constructed response (essay) which will be between 8 and 12 questions with several subparts. While for the afternoon session, there have ten sets of a subject with a total of 6 questions each part.

Percentages in CFA Exam Topic Area

Topic Area

Level I (%)

Level II (%)

Level III (%)

Ethical & Professional Standards

15

10 – 15

10 – 15


Quantitative Methods

10

5 – 10

0

Economics

10

5 – 10

5 – 10

Financial Reporting & Analysis

15

10 – 15

0

Corporate Finance

10

5 – 10

0

Portfolio Management

6

5 – 15

35 – 40

Equity Investment

11

10 – 15

10 – 15

Fixed Income

11

10 – 20

15 – 20

Derivatives

6

5 – 10

5 – 10

Alternative Investment

6

5 – 10

5 – 10

Total

100 %

100 %

100 %

 

Based on the illustration above, we can say that for CFA Level I, the Ethical & Professional Standards and Financial Reporting & Analysis consist of the highest marks compared to other subjects. While for CFA Level II, Ethical & Professional Standards, Financial Reporting & Analysis, Portfolio Management, Equity Investment, and Fixed Income may be the highest marks among other subjects. While for CFA Level III, the portfolio management may consist of the most top scores among the different topic.

Passing Rate

Based on the information from CFA Institute’s website, the passing rate for three levels of the CFA exams is not high. In June 2018 exam, the passing rate for Level I is 43%, Level II is 45%, and Level III is 56%. While for December 2018 exam the Level 1 passing rate is 45%.

Passing the CFA Program, one must have a solid discipline and an extensive amount of studying. They need to arrange their time very carefully because each exam typically required you to put hard work for more than 300 hours. With the given of the considerable amount of time that must spend on study, many candidates deterred from continuing the CFA Program after failing the first levels.

Each candidate who sits for the CFA Program exam will be provided with exam results and detailed information on their performance. After candidates receive their results, they can start to register for the next exam. Candidates who did not pass the exam can re-take the exam at a later date. They can take as much time as they need before registering for the next exam. To pass a CFA Exam, candidates must score a minimum score of 70% for each of the subjects.

Exam Fees

  Early Registration Standard Registration Late Registration
Program Enrolment (New Candidate Only)

USD 450

June 2019 Exam

Ended Sep 2018

Ended Feb 2019

Ended Mar 2019

December 2019 Exam

Ended Mar 2019

Ended Aug 2019

Ended Sep 2019

Exam Registration
(All Candidates)

USD 650

USD 950

USD 1,380


* Program fees are subject to change.

For the one who is the first-time register for CFA exam, you are required to pay a one-time program enrolment fees which are about USD450 together with the exam fees of USD650. After you have done your CFA Level I, you need to register for CFA Level II; you only need to pay USD650 for Level II if you register the exam earlier. The earlier you register for, the cheaper the fees which you can refer to the table as above.

The program fees are subject to change. However, the exam fees are in US Dollar, when you want to make the payment, it will base on the current currency exchange rate in the market. The costs of the exam fees are including the e-book for you to study. For the hardcopy of the original textbook, you need to purchase when you are making payment for your exam fees.

Self- Studying / Tuition Centre

You can choose to self-study in the house or study in a tuition centre across the country. There are few tuition centres provide CFA courses such as Noesis Exed, Kasturi, TARUC, Sunway College, etc. Different tuition centre may charge a varying fee. Noesis Exed charges a registration fee of RM500 in one time off, course fees plus revision course fees is around RM6,500 per level. However, they offer a discount for a student or ex-student from TAURC, RMIT Monash University, Help University, UiTM, UTAR & Sunway University, etc. If you are choosing self-study and currently have a full-time job, you need to manage your time very well. Sometimes, when the exam is around the corner, you need to take leaves to study at home.

Conclusion

Based on my experience, the CFA exams are challenging, the exam questions are tricky, but if you spent your efforts to study, you might pass the exams by studying over 300 hours by utilising all the alternative prep materials, do a lot of practising questions as possible. Companies across the finance industry recognise the CFA Program. CFA candidates, who completed all of the exams, can advance their investment careers through the knowledge they gain and their access to an extensive and impressive network of CFA professionals.

Written by Stella Goh | 8th May 2019.

How do interest rates work?

The interest rate is a percentage charged as compensation on the cost of borrowing by a lender to a borrower. A central bank is responsible for formulating a country’s monetary policy and regulation. One of the ways is by controlling the benchmark of interest rate. They can adjust the interest rate to balance the economic status of the nation. But why a simple action on the rate adjusting can make a massive effect on the country economy and even the impact of US’s rate adjustment can swing the world?

US increased their interest rate several times in these few years in preparation for higher inflation, indicating the economy in fast recovery mode and worldwide investors turn their money to the US market to avoid missing the train.

How does the interest rates work?

When the economy is in recession, the central bank will lower the borrowing cost by reducing the interest rates. Hence, consumers are willing to make big purchases, such as houses and cars. For a businessman, this is perfect timing to borrow money in expanding their business and buying more equipment. Therefore, the output and productivity of an economy increased, and the stock market will also show a bullish sign as most industries will be expected to grow.

When the rate is deemed high, the cost of borrowing will become more expensive. Economist suggests that this is a time that the consumer spending will be moderate due to higher borrowing cost, so it is a way to slow down an overheated economy. But it will send a signal that the economy will start to normalise, translate to business will no longer growing exponentially in the foreseeable future. The investor will begin to pull back the money from the market and put it in a bond for a more stable return.

Economy takes place in a cycle. When the economy was in a downturn, economists suggested lowering the interest rate to stimulate a sluggish economy. The interest rate is a catalyst for the economy because it affects people’s decision whether to save more or spend more, which helps to achieve the overall economic situation. Therefore, economists pay a vital role at this moment; they need to observe the economy and identify the timing of raising interest rates.

However, an economic cycle cannot depend only the monetary policy; consumers behaviour is the core contributor to an economy. The subprime crisis is the exact example, the ratio of household debt to disposable personal income in the US rose from 77% in 1990 to 127% by the end of 2007. The situation has shown the market was overheated. Federal Reserve had raised the interest rate from 2.25% to 5.25% in the year 2004 to 2006. But, the situation has failed to calm down and then the bubble burst. In the Dot-com bubble in 2000, Hong Kong’s interest rate had declared up to 13.35% to entice an investor to stay invested in the economy. Sadly, the action deems too late and not enough to stop the crisis happened.

What will happen when the interest rate adjusted?

Capital Flows

When a country announced an adjustment on the interest rate, there is indeed a level of hot money flows occur. Hot money refers to the short-term capital which will flow to countries with higher interest rates. The higher the level of hot money within a state, the more severe the effect will suffer for the economy when hot money flows out. For example, companies and investors are more likely to park their capital into U.S. banks as the Federal Reserve engages in a series of interest rate hikes in 2018. When the foreign investment went out from Malaysia, our market will suffer a drop and value depreciated as low demand.

The value of a currency

An increase in interest rates may lead to a currency appreciation due the economy is on an upward path and Investor tends to invest in good economy. Hence, the currency will appreciate when the money outflow lesser than inflow in the country. However, currency appreciating is not that welcoming by export-domain country. When the currency increased, the exports become less competitive, and purchaser side will incur higher cost. Hence, the purchaser may try to change their supplier from another lower currency country to get cheaper cost.

Inflation rate.

An adjustment in interest rate can indirectly affect the inflation rate. As a higher interest rate can slow down economic spending growth to take some of the edges off of rising inflation. Vice versa, when the interest rates in a low period, more people tend to spend more and aggregate demand increased. Hence, causing the economy grows, follow with the increase of inflation.

Housing Industry

Adjustment in interest rates will have significant impact on property buying. Due to the house mortgage loan is a long term loan, a small increase in the interest rate can result in a substantial amount differing in total payment.

Conclusion

There is no specific answer whether it is good or bad in adjusting interest rate as there is no one size fits all. However, interest rate adjusting is still significant and is a MUST-do action to approach a normal economic cycle. Balancing is essential to achieve long-term sustainability. As a consumer, we need to control our spending in every phase; as an investor, we must adjust our portfolio in every period to maximise our profit and minimise our loss.

Written by Evelyn Yong | 16 January 2019.

The Common Mistakes Made By Investors

When you begin investing in stock, it’s important to understand how you might lose money if you not careful enough by making some common mistake. Investors must know how to seek vital information and be sharp minded to reduce the risk of failed investment. Here are the few common mistakes that investors should watch out.

Diversification – Too Much / Too Little

As what Warren Buffet said, investors should not put all eggs in one basket; they should diversify their portfolio to spread out the investment risk. However, investors may over-diversified and under-diversified their shares portfolio. Over-diversification may result in retail investors lose tracks of their investment efficiency by diversifying into such as stock, futures, commodities, bonds and so on. As a result, any profit makes from the specific investment will be quickly written off by other non-performing investment. However, it can multiple investment portfolios can be managed together with a dedicated team of the fund manager.

On the other hand, if the investor was under-diversified, which he may only invest in one or two stock at the same time,  his portfolio will become highly sensitive to the fluctuation the stock pricing due to the short-term market uncertainties.

For another reason, if the investors concentrated only on one investment class such as bonds, he might not enjoy the opportunities arising from other asset classes such as equities when it happens.

Emotional Attachment

Commonly there are two types of emotions that influence most of the retail investors. They are none other than the sense of greed and fear. Investors may quickly catch by fear when the share prices dropped drastically in short period. They will lose their rational and make wrong judgments by disposing good investment on hand at the wrong time. These will cause them suffer a loss on the capital over an extended period.

While the market is bullish, the majority of the retail investors may turn greedy so FOMO (fear of missing out) will kick in, and they will chase to buy particular hot trending stock even though the shares are way overvalued. These will cause their capital easily locked up at peak price for an extended period.

Just as what Warren Buffet said, “When Investors sell on fear; it will drive a stock price down. Likewise, when they buy on greed, it will drive the stock price up in short-term.” Investors should invest based on the reliable information tools, instead driven by emotion.

Lack of Knowledge

Another common mistake made by retail investors is lack of investment knowledge. These group of people wish to earn quick profit from investment but lazy to learn a new skill. They do not know where to set the cut-loss point and also target profit. They more willing follow blindly what the analysts and experts said without doing own analysis. Most of the analyst report was for long-term investment period so it will be irrelevant for retail investors to look at it and try to make a quick bet based on the analysis report.

Therefore, investors should know how to establish an entry and exit strategy which can help them to make better and quicker decision.

Not Doing Research

Analysis research on the stocks is essential as it tells the better story inside the company. As what Warren Buffet said, “Risk comes from not knowing what you are doing”. Investors should study how well the company is operating, where the fund of the company investing and the company’s objective which will give us the insights of the company future and gauge the risk. Investors should always look at the business potential and prospect of the company to make their own investment decision.

Conclusion

In conclusion, investors should always keep all these factors in mind as a lesson so you can make a right investment decision in future. Discipline is the key to success, be patient and look at the long-term gains instead of short-term profit. As what Warren Buffet said, “The stock market is a device for transferring money from the impatient to the patient.” Therefore, investors must invest smarter with patience to grow their money.

Written by Stella Goh | 7 May 2018.

Why Investing in Stock Market is NOT considered Gambling?

Bull-and-Bear-GamblingInvesting in stock market is just like gambling.

Some people fear of investing by thinking that way. It will depend on the perception of how we feel about it. The problem arose when most of the people treated investing in the stock market like a casino, wish to win big, especially the novice investors should not assume this way.
So, what do you think about it? It was a myth that stock market equates to gambling which spread on the internet a few years ago. There are some similarities between investing and gambling which may confuse us.

Risk

Both investing and gambling involve risk. You need to put your capitals at risk to get returns from your investment or gambling. Both of the investors or gamblers should have their risk tolerance before they start to invest or gambling. They must know how much they are willing to lose. However, the risks that took by stock investors are much more on fundamental-based and calculated. The risk is manageable by using strategies of diversification across various types of assets. Just like what Warren Buffet said, “Do Not Put All Eggs in One Basket.” At the same time, gambling is as easy as flipping a coin. The players will either win or lose, with nothing in between.

Ownership And Information

Investors who purchase a share from common stock mean that they are acquiring the part ownership. More importantly, investors still can get a small fraction of profits that they have invested when the company is giving out dividend back to the investor. To get benefits from investment, investors must gauge the company and its profitability. The earnings from the business are ever changing; investors must analyse the company by using charts, fundamental analysis, news and some company’s metrics to estimate the future earnings of a company.
However in gambling, you do not have any ownership, and nothing useful information can be obtained that give you an edge on the gambling table.

Zero Sum Game

In investing, It was entirely different from gambling due to it can help the companies to generate more profits by increasing productivity and develop new products which may change people’s lives.
On the other side, gambling is a zero-sum game. There will be no values created because the money is transferred from a loser to the winner all the time. Therefore, investing helps to generate wealth for long-term for investors.

Time Horizons For Trading and Gambling

There was a significant difference exist between trading and gambling. Gambling is a probability event that you are either a loser or winner and there is no middle ground in between.
However, for investing, investors may receive dividends from the company when they have purchased shares from them. In the stock market, the price of your stock fluctuates from time to time so you may experience paper gain or loss. However, you may be still able to get dividends for each quarter as long as you hold the stocks. Investing on the valued stock will have a higher chance of rebound back or even going higher than initial buying price.

Valuation

In gambling, the value of the money does not grow even the bet size or pool of money increase; it stays the same.
On the other hand, the value of the stock will grow because the value of the company will increase whenever there is innovation created or new asset bought.

Social Acceptance

The differences between investing and gambling are how society will perceive them. Investing played a significant role in today’s economy; due to people invest in improving their life in future. Investors nowadays favour companies that will enhance people’s experience and contribute to social life security.
On the other hand, gambling brings negative connotations. Gaming business may help to stimulate the economy. However, it had adverse side effects like attracting illegal triad activity.

Conclusion

By the way, there are still a lot of people thinking to get rich quick in the stock market and confuse trading with gambling. Please remind that investing and gambling have some similarities, but they had few significant differences between each other. Gambling can be considered as a short-lived entertainment for fun while investing in stock is to improve future lives.

Written by Stella Goh | 23 March 2018.

Kitchen versus Trading Philosophy

This few weeks I obsessed watching old TV show Kitchen Nightmares, where famous Chef Gordon Ramsay hits the road to help struggling restaurants all over the United States turn their luck around. Ramsay examines the problems each establishment faces, from unsanitary refrigerators to lazy or inexperienced staff, and searches for resolutions. With help from his team, Ramsay redecorates each eatery to give it a fresh new look and updates the menu as needed. Ramsay’s ultimate goal is to make the restaurants he visits popular and profitable, but it’s up to the restaurateurs to take his advice and turn their business nightmare into the American dream.

I observed in each episode; each restaurant had a different type of problems but all down to 3 similarity which is:

  1. The owner/s is in denial
  2. Losing support
  3. Lack of Principle/had swayed from the original principal

Why and how all this related to investment/trading?

  1. The owner is in denial

In the TV show from the start of each episode, the owner will keep saying to the Chef Gordon,”The food is perfect, I don’t agree with you that the food is terrible. The kitchen is clean and the food is not frozen and fresh waiting to serve. I had dedicated the job to him/her, so it is not my responsibility”. And the owner will get angry whenever his customers or staff is complaining and telling him the truth.

When Chef Gordon show the owner all the frozen package, the expired food, the cooked food had been put together with the raw food (which is a big no in kitchen rules; the cooked food will get contaminated easily) all inside the freezer which is most of the time not work correctly. The owner will either cry and blame the others or realise it is his responsibility because he owned the business.

When a trader is in denial, It means that he keeps denying by telling everyone including himself that he saw nothing is wrong, did nothing wrong and assumed that he had done everything correctly. So how he knows he is wrong? Just look at the trading account statement, and it never lies! If you keep losing money in the long run just like a restaurant business owner, you should start finding out what is the problem and fix it. If you still in denial, you will never be able to see the problem clearly, therefore finding the solution will be a mounting task to do.

  1. Losing Support

In the interview before Chef Gordon comes to help them, all the owners had the same/similar speech which is ”I don’t know why I lose in this business and I don’t know what to do next”. By the time Chef Gordon pointed out their mistakes, the owner realises all the error were apparent that they already should know it long before from the customers and people around him. The problem is the owner stop listening.

When you stop to listen, you stop getting valuable feedback from your staff, from your client and even from your own family. When you are in ignorance, people around you will stop communicating with you and the worst thing will follow is they stop supporting you.

As a trader, you may think why I need others people support? Whether you are fund manager or just a garbage collector; you will still need human support because we are only human. A trader at some point will need either emotionally or financially support from family, friends and even traders community itself. You need a mentor like Chef Gordon to guide you if you are a restaurant owner, same as you will need successful traders or fund managers to guide you along the way in your trading journey as well. You also will need support from investors when you become a successful fund manager. You can’t trade like George Soros if you don’t have investors to back you up. Please bear in mind that even George Soros makes his fortune by managing investors money first.

  1. Lack of Principle/had swayed from the original principal

In some episode, the owner had a good business before it goes downhill. It happens when the owner changes their business model like serving more type of foods, reduce costs by cutting headcount and cook using frozen food which needs lesser people to handle. All this practice is to improve profitability for the business but also jeopardise the quality of the service and the food. Eventually, the customer stops patronising the restaurant and business start to lose money. The owner had no longer follow their principle which providing good food and excellent service to customers which had become their pride when business is thriving. In the end, they lose their business and worst, their principal and pride.

A lot of traders will try to increase their profit by double the lot size every time they make some money without a proper plan, so they can quickly double the gains. They will also try to find brokers that offer cheap brokerage without checking their credibility. Instead of focusing on how to improve their trading skills and knowledge, they try to take a shortcut by concentrating on short-term gain. When you lose a principal, you will start to lose focus. Eventually, you begin to lose money.

Written by Jeff Kum | 27 February 2018.

A Right Trading Mindset to Profit in Stock Market

I had lunch with one of our member, Kent yesterday. His objective is to become a full-time trader so that he can spend more time taking care of his family. I am sharing my past failure experience as a full-time trader with him so that he won’t repeat the same scenario. I always like to share my failure with some traders with the hope that they can learn from my mistakes to speed up the learning journey and reach their trading goal sooner. One of the famous quote from Jack Ma when he was asked about the point of view in MBA courses, “Instead of learning from other people’s success, learn from their mistakes. Most of the people who fail will share a common trail (to fail) whereas success can be attributed to various kinds of reasons.”

We start a conversation about retail traders mindset. One of the most exciting topics that we have discussed is about trader’s objective in the stock market is to make a profit. But many of the trader’s mindset is not heading in the right direction. They are just looking for excitement and hope to be able to choose the right stock that can give them profit almost immediately. Most of the time, this kind of traders will end up losing more. It is because they had put their high expectation into the market and wish to hit one time like winning a jackpot, instead of listening to the market and trade accordingly. In this case, there is only one outcome; they will hit the one-time jackpot but holding a few losing stocks which the losses too massive to be covered by the winning amount. Since they are losing, why do they continue doing it?

Hitting the jackpot makes them feel excited, and the satisfaction of the winning enough to blind them from the real losing situation. You can call this group of traders, a gambler. When they hit the right stock, they are happy. But when they choose the wrong stock, they will change their strategy into investment mindset, which holds it for the long term and finds a million reasons from the web to support their thought that losing stocks is worth to invest or to collect dividends in the long run. Between this conversation, another famous quote by George Soros strikes into my mind, ” If investing is entertaining and if you are having fun, you’re probably not making any money. Good investing is boring.” So ask yourself, are you a gambler who is always looking for star stock pick or are you boring every day due to repeating same method trading routine?

If you are looking for one-hit wonder kind of excitement, trading is not for you. We believe real traders react to the market and we strive to achieve consistency in our trades. I assume that some traders will still try to convince themselves that they are not gambler after reading this. The numbers will never lie, look into your trading result, are you consistently making a profit every month? You know your answer.

Stock Market = Gold Mine, but do you know how to mine?

Written by Kelvin Yap, founder of Round & Surge

What is an Edge in The Market & Why it Should Not link it to Win : Loss Ratio

This posting is regarding my explanation of what is an edge in the market and why it should not link it to win : loss ratio. Where most traders thought high win rate more than 50% or by applying good risk-reward ratio, or by simplicity, as long as you make money, you have an edge.

You may have learned something from some guru or from some article which tells you what to do and give you the formula to follow, but you don’t understand why and how he designs the method. Then you might change the plan due to 1 or 2 losing trade and come with your formula and keep adjusting until you satisfy and make some money. But in the end, you still don’t know why you make money, and you thought you have an edge in the market because you make money.
Your next question is “I can apply good Risk:Reward ratio so I still can make money in the long run, so does it mean R:R also an edge?”. My answer is right R:R is not an edge. It just helps you to minimise the chance of losing money. You should not be applying R:R if you do not know what your advantage is.
For the better understanding of this situation, please look at 2 example below (sample only):

You observed that market would trend up most of the time after Christmas day. But you do not know how many times it will happen, and you don’t see how far it will go. So you will come out with an assumption report that we call it “hypothesis”. What you should do next is backtest and record it down. Once you have sure that your hypothesis is true and high probability to be correct then you shall have more information and some conclusion which part of it will be;

Sample 1: “Stock S will go up eight times out of 10 times after the Christmas day”. By your conclusion, you already can make money by applying 1:1 win : loss ratio on this stock.

Sample 2: “Stock A will likely go up triple from the opening market price before market close at evening (if stock A open at 1 dollar, it will go up to 3 dollars before day close). It happens 3 times out of 10 times after the backtest”. From this info, you may have 3 wins, and 7 loses, but you can apply 1 risk and 3 rewards for this time and still make money.
So you may not be able to apply right R:R on case 1 due to lack of some details, but you can use it on the second sample.

My conclusion is, so both info also considers as an edge regardless of win:loss ratio.

Written by Jeff Kum | 18 January 2018.

Why New Traders Choose Not To Understand Their Trading Strategy

Here is my thought, some seniors trader that I have met always emphasised that we need to do backtesting, to know what is the edge of our strategy. It is essential to see it, but when I read some of the posts about trading/investing in social media, most of the new trader posting their trades and a picture of their chart with fancy indicators and ask ‘what do you think?’, In my opinion, by posting your strategy on social media will not help them to pursue useful knowledge due to different traders had a different experience, different views and different approach. So my answer to them is I don’t know what it thinks and the market will not even bother what I think or what the others think of your strategy!

New traders always ask for confirmation (which I mean the group of young & new traders that already had some knowledge but still struggling), but I think they can get the confirmation info from the backtesting instead posting their one particular trade with the all-new fancy indicators. By backtesting their strategy, it will reveal whether their approach will work in the long run or not but more importantly, they will have to admit when they realised their plan is not going to make them money and by accepting the fact, they will rework on their strategy. This process will be tedious and annoying because it is a cycle, you had to do it again and again. Once you were able to find a stable and potentially profitable strategy, you will be facing more problem which I will have to explain in a lengthy essay, so you will have to rework your plan again, and the process is ongoing, it will never end.

New traders are not lazy, they are eager to learn but struggling. They choose not to understand it by themselves because they try to avoid the reality, reality that you had to disagree with yourself and to accept that you are wrong at some point and you need to change. The fact is that you will be more understanding of yourself and you are afraid of facing it. You don’t want to admit it, and you try to find someone else and hope they tell you what you want to hear.

The senior can only guide you to the path, but you had to walk thru it…..

Here are some additional point at below from pick from the book ‘Market Wizard’ as a support of my view:

1. Personal feelings and opinions are far less accurate than markets… – William O’Neil

2. Do you still talk to other traders about markets?
Not too much. Over the years, it has mostly cost me money. When I talk to other traders, I try to keep very conscious of the idea that I have to listen to myself. I try to take their information without getting overly influenced by their opinion. – Michael Marcus

3. I can always tell a rookie trader because he will ask me, “Are you short or long?” Whether I am long or short should have no bearing on his market opinion. Next, he will ask (assuming I have told him I am long), “Where are you long from?” Who cares where I am long from. That has no relevance to whether the market environment is bullish or bearish right now, or to the risk/reward balance of a long position at that moment. – Paul Tudor Jones

4.Do you use the opinions of other traders in making trading decisions, or do you operate completely solo?
I usually ignore advice from other traders, especially the ones who believe they are on to a “sure thing.” – Ed Seykota

If you want to read more content, I strongly suggest you to buy the book! You are welcome to comment below.

Written by Jeff Kum | 28 December 2017.

Site last updated October 10, 2019 @ 1:39 am