Wednesday, 7 August 2019

TRADE OF THE WEEK #18 : PENTAMASTER CORP BHD



 
Outcome
Gross Profits : RM7,700
Return on Investment (ROI) : 22%
Duration : One month



Before we get to the meat of today's story...


 'Memba this?


Let's go back to our post in July, advocating PENTA as a good stock to buy. Let this post be proof once and for all that we do eat our own cooking. Or blow our own trumpet. Or eat what we kill; whichever metaphor works for you.

We began writing about the stock when it was trading at RM3. Now let's do a little revision. This post came out on 7 August, so we have about exactly a month since the earlier post was published on 9 July to do a proper comparison.

The chart for PENTA from 9 July to 7 August looks like this:




That's a 10% return in a month. At its peak, the stock was up by 19%. It was a shame that Trump decided to open his big fat mouth, thus damaging our exposure a bit.

Now here's PENTA-CB's performance over the same period:




Looks cool enough right?

Here are our positions, average price going in and out. Note our 1 sen per warrant profit buffer, as per our guide previously on this.



So,

1) What did we do right?

We followed our own instructions to the letter. We simply created a profit buffer and sat back. We even sacrificed some profits but that's quite alright in this kind of environment.

We can be lazy. We can be tempted by greed. We make dumb trading decisions very often. Our only insight was to force ourselves to stick with our self-devised plan, withstand the natural price fluctuations, learn to swallow sacrificed paper profits, and lived with the balance (Editor's Note : we sold this position after PENTA had already given up more than 30 sen from its recent highs).

The overall return on investment of 22% shows that the yield was out of the ordinary. All things considered, we were quite happy to have the privilege of sitting back and relaxing, as opposed to active day-to-day trading.


2) Why did we sell out?

Simply to acquire cash for short term trading activities... you know how volatile the markets have been this week. We are looking to trade into this theme. We know that we know exactly what to do in the current volatile scenario

Peace of mind is the real power of this long term call warrant strategy. Again, the key ingredients are apparent for all to see:

- Great stock. Solid fundamentals. Fairly illiquid - thus it moves faster.
- Strong growth prospects in the company.
- Good call warrant; cheap enough to express our bullish views.
- Warrant was priced at an appropriate point to create that 'natural profit' buffer.
- We also demonstrated the power of newly issued call warrants that came out at a fortuitous time for the alert trader. This made all the difference.

Again : any guesses to where the stock is now?


The key lessons stand. Our point is that there are actually many opportunities like this that will crop up within the year. You can transfer this knowledge to any stock, provided that circumstances are similar. The trick is to find the proper stock that coincidentally, fortunately carries a proper call warrant. It hardly requires deep analysis, but you do have to cover all the bases diligently.

This trade was best expressed in a longer term context. Not everything can be intraday. Not everything can be contra. To achieve 20% plus yields, you have to buy and hold - most of the time, anyway. 

Note : while we only had the guts to hold for a month (and thus are susceptible to making convenient excuses), we do stand by our opinion that the stock is at least a six months' buy-and-hold, and this trading theme remains expressible in call warrants. We are looking to go back into this at some point, though we will wait until PENTA announces its latest quarterly earnings at the end of this month.

Addendum to Note :

We are terrible at predicting things, but this one from 9 July was our finest moment (possibly):

Donald Trump can eat a brick as far as we are concerned.







Popular Posts