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Sunday, 12 May 2019

THE BANDAR MALAYSIA TRADE : A WEEK OF BOOM, BUST, AND BOOM

 

If you had seen the above page in online forums/newspapers, you know what this story is about. 

But far from our usual boastful manner and arrogant know-it-all behaviour, this time you have the privilege to laugh at our misfortune and stupidity. We will demonstrate, in excruciating detail, our mistakes and why we ought to have known better when it comes to trading. We were the market fools this time, but on the other hand, this story does have a happy ending.

Our experience in trading the Bandar Malaysia stocks was about being stupid, but also about the rewards of staying calm under pressure. We ultimately prevailed, though we sacrificed a lot of money through a series of bad decisions.

It is our genuine hope that you don't partake in such stupidity - consider this a survival story.

Which one would you swipe right? Source.

ROUND 1 : BOOM

Friday, 18 April 2019

It seemed like an ordinary day but for one thing (two things, actually). Following a bout of weakness, we saw that both IWCITY and EKOVEST opened the day strongly. They were really showing the best kind of 'gap up' behaviour. EKOVEST-WB in particular went into overdrive.  From an intraday low of 8 sen on 17 April, the warrant hit 16 sen the next day. A 100% gain in 24 hours is bloody ridiculous: there must be something going on.

(Editor's Note : we are understaffed and do not have access to all available information. We only found out much later that the trigger was an exclusive story in a Chinese newspaper reporting on the looming reinstatement of Bandar Malaysia by the government. As usual, on that day we were operating purely based on the technical chart movement and the price/volume activity of the stocks).

By 4:40PM, it became clear that the stocks were going to end the day strongly. At 4:45PM, news started emerging that the project had in fact, been reinstated, with IWH-CREC at the helm (same terms as before). We were old enough to remember the "Great 2017 Boom-Bust Bandar Malaysia Trade", so we knew the stakes.

                              If you weren't there during G2017BBBMT, is life worth living?
 

By sheer luck, we managed to acquire a small position in IWCITY during the closing period. We fortuitously managed to get an order met at 4:58PM. It proved to be all the difference. The stock closed near its highest intraday point of RM1.02.

Obviously, throughout the weekend we were salivating at the thought of massive profits and limit up scenarios. So would you, if you were smart/lucky enough to buy into any one of IWCITY, EKOVEST, or EKOVEST-WB. Guess what happened next?

Monday, 21 April 2019

As we wiped our collective drool on Monday morning, it quickly emerged that the pent-up sentiment towards these Bandar Malaysia stocks is, to put it in one word : intense. IWCITY  hit limit up. EKOVEST opened close to limit up and eventually ended there as well later during the day.

And then there's that beast known as EKOVEST-WB. By the afternoon trading session, the warrant also hit limit up, or a very pretty 166% rise within a day. Trading activity in all these stocks and the warrant seized. People just couldn't get enough of it.

As for us, having been too late to catch the signs and find a trading angle in the two EKOVEST stocks, we decided to get cute instead. We correctly surmised that there's only one way to get into these limit up counters - trade an associate call warrant that's still available for sale.

That's how we ended up with a huge position in EKOVEST-CS, an illiquid, short-tenured call warrant that was also exhibiting crazy moves. The logic is simple : with no chance to get into EKOVEST or EKOVEST-WB, the call warrant is the only viable thing to buy into for everyone else.

Essentially, the call warrant is trying to price in the expected value of EKOVEST when it opens the next day. We got into this call warrant as early as we could, while the rest of the market caught up with us.

And so that concludes our activities on this day, as we went almost all-in on the Bandar Malaysia angle.

So did the trade work?

Well, if there is heaven on Earth, it probably looks like this:


There they are, in the flesh. Once-a-year kind of exceptional, extraordinary profits. Great move. Wonderful insight. It was pat-ourselves-on-the-back-time.

We realised much later that we committed a cardinal sin: several, in fact.

The number one, major, undisputable warning sign was this : we boasted about these extraordinary paper profits without contemplating an exit. In other words, pure ego got the better of us.

To understand this very human failing, think of it like this : we're like the Instagram influencer who took pictures with flashy cars and clothes without actually owning them. In this case, we didn't take ownership; we failed to convert paper profits into real ones.

We had our rules, but failed to stick to them. It should have been plain and simple : at our maximum realistic profit target of 30% (return on investment), we ought to have exited completely. We even had that rule in writing. We'd be lucky if we get a single trade that yields 30% during an entire year.

But we didn't oblige. To be frank, we got greedy and started fantasising of another round of limit(s) up. For most of you who stayed in these trades, we're sure you contemplated the same.

Most embarrassingly, this was not the first time we encountered this behaviour. We have let slip a profitable trade of 30% ROI before - several times!

Not only that, the 30% profits could turn into a massive loss, with no chance of exit in between. This is the price to pay for volatility. What goes up fast can come down fast... and hit you squarely in the face like a rotten egg.



Swipe challenge version 2 : My App Just Crashed. Source.


Some of you may not realise this, but it is not in a company/major shareholders' best interest to see their stock prices go absolutely nuts. There is in fact a great degree of regulatory scrutiny that comes about. Regulators can come down hard on companies that conceal materially important information. Millions of ringgit in fines had been given out in past cases.

So the two companies - IWCITY and EKOVEST, did the responsible thing (of course they did!). This involved a clarification of something patently obvious to anyone with a partially functional brain.


We're not making light of this announcement. It had to be done to temper the speculative frenzy - the very same one that we (that includes you) were a part of. Of course, it would have been great if it wasn't announced, but we can only play with the cards we were dealt with.

You will find the real reason why the companies did this shortly, but for now, we knew we were toast. Very burnt toast.

So this next part must excite you to no end!

ROUND 2: BUST


Tuesday, 23 April 
 

Of course, our positions disintegrated like a snap from a big-headed, purple man.

The previous night, we came up with different permutations of the extent of losses to expect. We even contemplated a limit down for the prices of EKOVEST and IWCITY. Mentally preparing for this possibility was no fun, but we had to process it.

While there was admittedly a tinge of regret and disappointment, we had to clear our minds quickly to deal with the market open. There was no time for sentiments when these positions are being traded.

That morning, EKOVEST opened down 15% at 82 sen, just like that. IWCITY also fell exactly 15% at the open to RM1.11, from its previous closing price of RM1.32 (the limit up point). These are huge big double-digit one-day price shifts.

Even more spectacularly, our position on EKOVEST-CS fell in value by a staggering 41%! And yes, we had to contemplate this very scenario the night before. The fact that it actually happened is, of course, no fun at all.

Blergh,

This was when we had to really focus. We had a game plan to minimise the damage. In other words, we had to try to undo the snap.

The first order of business is to decrease overall exposure in this mess of a Bandar Malaysia portfolio. We decided early on to sell our IWCITY stake at the best available price. This we did during the first 30 minutes of trading on 23 April, at RM1.16. While not a 30% profit, it still brought returns of 13% within 2 days, and for that we were grateful. The stock eventually went up a bit more, but we had other more pressing concerns.

The next stage is to manage the EKOVEST-CS position. We initially acquired these call warrants at the 17.5-20 sen range. When the call warrant closed at 24 sen the day before, everything was wonderful. Today, it was a fight for survival. Oh, we also had in excess of 100,000 call warrants, so this was a big deal.

We made a calculated decision to increase our exposure in EKOVEST-CS. And we absolutely did not flinch when we bought an additional 100,000 call warrants at 13.5 sen.

There are multiple reasons (we hate to say it's all instinct), but the main ones are as follows:

1) This was a classic example of a pure market panic. The selling frenzy almost assures us of a good entry point when buying the call warrants at the lower price, even if we were already incurring losses from our existing position. This was not averaging down: it's about identifying mispricing and value, and we managed to do this.

2) On a larger scale, we knew that there will be buying volumes at these lower prices. Given the trajectory of the stock recently, overall volumes, and sentiment, this phase of volatility and price decline is not the end of the Bandar Malaysia trading angle. We have seen similar situations before : it seemed that this was only Round 1, and there's money to be made for the courageous trader.

Essentially, we were angling for a price recovery in EKOVEST once the frenzy dies down. This phase was helpful in the sense that the movement essentially established a bottom. If this is not breached, there is nowhere else to go but up.

EKOVEST's chart essentially screamed this, having briefly touched the 80 sen mark before subsequently recovering. We made a call that a Round 2 is imminent.

Nice bottom.

With our positioning in EKOVEST-CS secured, we retreated for the rest of the day. There was nothing to do but wait, and watch for signs that our expectations would be validated (or invalidated). The call warrant closed unchanged on that day at 14 sen, still 41% down from the previous day's peak.

Remember that part about companies needing to pre-empt the speculative frenzy? In this case the explanation turned out to be straightforward. EKOVEST announced this after the market close:

It's a private placement proposal, with an indicative price of around 79 sen per share.

This was a useful benchmark, because we will know very quickly how the market will react to this. A negative reaction and the rally would be well and truly over, with the stock price breaching 79 sen and below. A good reaction? Again, there's only one way to go - up.

After all, a placement proposal brings many more interesting questions. Who's taking it up? This is an extremely important question when it comes to a company as well-connected as this.

We don't care about the answer, really. At least it wasn't a bloody rights issue.


ROUND 3 : BOOM


Wednesday, 24 April


Our logic was this : with that announcement out of the way, the stock would really, finally, be left to its own devices. There is no more surprising clarification or out-of-the-blue disclosures to be wary of. That ship had just passed.

In other words, if EKOVEST was going to recover, these next 2 days would be it. Nothing excites us more than a stock that keeps going up after all the news have been priced in. If that's not an indication of buying strength, we don't know what is.


We were quite confident, as you can see.


And yes, EKOVEST practically followed our script, closing the day with an 8% gain on very heavy volume. The closing price? 93.5 sen, or within striking distance of its recent peak of 97 sen. The developments have been well and truly priced in. And it's still going up.

EKOVEST-CS, our sole position in this Bandar Malaysia trade at this point in time, closed at 17.5 sen, or a 25% increase in one day. Our purchase at 13.5 sen earlier made all the difference. We were reaping the rewards of not panicking, and for identifying the mispricing at a most opportune time.

Being back in business, it was time to plan for the incoming buying frenzy.


Thursday, 25 April


 Avenge the fallen. Source.

Managing profits can be a hard and inexact science, but it's our favourite problem to have.

Crafting an exit plan can be as simple or as complicated as you want to make it. But they have to follow a rigid set of rules and logic. The intention is to exit at the very best price point, all things considered.

For EKOVEST-CS, our exit plan was as basic as we could make it. Too complicated and we'd get confused, ruining the execution phase.

Before the market opened on 25 April, we specifically envisioned this scenario : there will be an attempt for EKOVEST to break its recent high of 97 sen. It can go to RM1, or RM1.10. Given the previous day's positive sentiment, there will be a short window of opportunity to sell into the frenzy.

To be more precise : as soon as EKOVEST breaks 97 sen and makes an attempt to break RM1 (which by this point it most likely will), we would sell ALL positions in EKOVEST-CS. For the call warrant, we'd be fine with letting go of the call warrants at the 19.5-20 sen range, even though they may very well go further.

This is the difficult part : to not get greedy, and to sell when everybody's buying.

This scenario pretty much unfolded as we had anticipated. Take a look at the 5-minute chart for EKOVEST below during the opening hour of trading on 25 April.

The optimal selling point, encircled.

The rate of change, and the intensity, was how we identified the above area as the best moment to exit. The stock broke the RM1 mark within 15 minutes with no sweat. We were always skeptical of its ability to stay above RM1 anyway, so we thought this was as good as it will get for EKOVEST, at least for the next few days.

Again, remember that after all, the news have all been priced in. The extent of the rally is probably capped, if there is no fresh news. Previously, there was nowhere to go but up, and by now it has done so. What did you think was going to happen afterwards?

Below is proof that we sold into the rally, with conviction. We ended up selling EKOVEST-CS at the 18.5-20 sen range, though the call warrant eventually did hit a peak of 22 sen.


So what essentially happened was that although we sacrificed incredible profits (those 30% gains from the two stocks earlier), we managed to recover without a single sen of loss. In fact, from a percentage gains standpoint, the final profits were still terrific, and in the end that's what this trade would be remembered for.

To put it another way, we managed to turn RM6,000 in losses into RM7,000 in profits within 2 days.


17% profits? You don't get those every day. And having just lost out on gains of 30% (twice), we did not fail to realise that fact this time around.

Adding to the earlier IWCITY profits, our final take comes to about RM9,800 for a week's work. It was not easy, but it really never is.

Remember this : stupidity doesn't have to be temporary. Improve and you can win.






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