Avoiding grief at the market

A QUESTION OF BUSINESS WITH P. GUNASEGARAM

Timely action taken now to return order to the market will save a lot of grief in the near future.
HERE’S some statistics for you. At least a 100 companies listed on Bursa Malaysia saw their market price increase by at least two-thirds this year. The increase ranged from two thirds to two and a quarter times or 225%!

If you had bought any of these companies, you would have made a pretty handsome return this year and you will proverbially laugh all the way to your proverbial bank as you deposit your not-so-hard-earned money.

The Malaysian market, it seems, has sprung into action again, or has someone sprung an act on it?

The stellar statistics are plain for all to see for the top 100 – only in terms of price performance that is.

That compares with a mere 15% for the Kuala Lumpur Composite Index, a measure of the performance of the better companies on the market. The all-encompassing Emas all-share index went up only slightly higher by 18%.

What gives? If you were a rational man, you would think that these 100 companies must have either been severely undervalued in the past or they may have suddenly been recognised by the investment community as having excellent prospects for the future.

However, a perusal of the list of companies in the top 100 show no such thing. Almost all of them are penny stocks – those whose share value is less than RM1.

In fact, about a third costs 10 sen or less per share. You could get one lot, or one thousand shares, for a mere RM100 or even less, below the cost of a business lunch for two.

Many of these top 100 – but not all of them – are in financial difficulty, have serious problems and small relative market values. Under such circumstances, one wonders why they are moving up the way they are.

And yes, the market is seeing very high turnover in terms of units. There is plenty of trading but the ringgit value of turnover, although higher, has not increased by as much as the increase in number of units traded.

That means the market activity this time is focused on those shares whose prices are lower, which generally means the second liners rather than the blue chips.

But it, as we saw earlier, does not seem to be focused on those shares that have exceptional value as indicated by their prospects and assets.

The only explanation for such irrational behaviour in the market is that unseen hands are moving them.

Their game plan always is to create momentum and pull the small retail investors in. At some opportune time, the play will disappear and the prices will collapse.

Those holding the parcel when the music stops will get their forfeits as they say goodbye to their investments and the market will take a longer time to recover from a loss of confidence. The retail investors will stay out for a bit.

Everyone will wring their hands in agony – pretended or otherwise – for a while and then the casino lights will beckon again and the cycle will repeat itself.

Why, oh why, do we subject ourselves to this needless pain again and again, which helps syndicates and their allies pocket millions at the expense of those with lesser knowledge, and in the process handicap our markets from playing their true economic role?

In case those responsible have forgotten, that role is for the market to act as an efficient intermediary for the trading of capital and thereby contribute to economic development – not earn income for brokers through churning activity, help enrich selected market players or create an impression that everything is OK in the country.

The signals are there. The time to take action to keep the market orderly is now before we come to grief a few weeks from now.

·Managing editor P. Gunasegaram says there’s already plenty of smoke indicating fires in the market. He wonders why those who wield the fire extinguishers don’t see it and put it out immediately.

TEH : I was reading my STAR paper while having my lunch just now. This article(I like his column!!) is very well-written and reminding me AGAIN and AGAIN to stick to my own plans. Normally we planned it well, but along the way ... we swayed away due to distractions and also EMOTIONS. Hence, to avoid such a situation ... a longer term INVESTING idea could be much more beneficial. I m not sure about others ... but I want to stick to my views on DJIA or KLCI -- bearish.

If you look at KLSE last-last Friday(refer to my previous posts), I was VERY surprised that even Mobif, Iris and such counters in play. That is a BAD omen. That shows the signs of stress in market. I have only 1 year plus experiences in KLSE but I hv seen a few BEAR-rallies ...

The dive in March 2008 was a total "unexpected" event for a novice(of 2 months old) like me. I was holding to Ranhill and Jaks at that moment. Teach me how to cut-loss? I was stunned to do anything ... plenty of emotions in play. If for a 'normal' newbie, he might throw-in his towel and never be in market anymore. That is WHY many view markets as a HIGH RISK place to put your money in!! But, luckily I m not so-normal. Phew!! I waited for any short rallies to CLEAR. Even that, I lost 40-60% of my funds,then.

The NOV-rally is still vivid. I could still recall some of the warrants and call-warrants I played with to gain substantially. I pulled out after CNY ... that was when JL came into my trading adventure.

This March-rally is much much stronger than anyone could expect. KLCI 'only' moved down to 850 level and strongly rebounded above 1000 level in 2 months!! It surely makes even a pessimistic person bullish!! I might wanting to believe it ... but I DO NOT. I traded it rather than buy and hold. Yeah ... if we bought in March and HOLD till this week, many have gained more than 100%. I was playing with AnnJoo-wb since it was at 0.18 level, ok? Yesterday it dived to 0.38 from 0.48 days ago!! IF I thrown in my whole fortune(kah-chan) at 0.18 and happily sold off everything at 0.36 ... I could have doubled whatever I owned now??! Yes? No? ... err ... NO. How do you know this BEAR-rally lasted so long?? Hmm ... all or nothing mentality? Hmm ...

So, I was sharing with JL many indicators and economic data and written here to convince others that this is a BEAR-rally and not a BULL-run. You do not need to read so much, but just use some simple common-sense to understand that the HUGE crisis could not be swept under the carpets just like that, ok?

So ... what's next? Is the correction temporarily and should we buy ... err .. say, LionInd at 1.10-1.20 next week? Hey, I sold LionInd at 1.40 days ago!! It went all the way up to 1.50 level, u know. So, IF a person think that next week onwards ... the rally could continue(we are at initial BULL RUN!!), by all mean ... buy LionInd(or any good counters u like) as it retraces now.

But IF we are on the similar side, believing that KLCI could go below 1000 level soon, or even 900 level soon ... or ... below 800 level soon or ... then, we shall be sideline to watch. Markets do not go up or down by themselves. It is traders/investors who are playing with EMOTIONS.

No good reason(s) for AnnJoo to go all the way down to RM1 level only to shoot up above RM2 in two months, ok? These are retail investors and traders nature ... they cant resist rallies. Yours truly included, of coz.

I m much calmer than I was last year. Wounded but I m seeing the healing much easier. In fact, I m so positive this morning ... and decide to focus on my readings. I like my investment/trading books ...