Discussion 4 (Part 1) : My Broker Says... No Guts, No Glory!

End of February 2008, one of my buddies, Gary, rang me up and yelled the following at me,

Illustration (i) : Gary Enters!

"MK, my broker spotted me an opportunity of a lifetime! Look at BJCORP right now! The trend is reversing. You can consider buying that now."

After I did a little researching, I called him back later that day, and advised him to not rush the decision. I asked him to be patient and wait to see how it turns out for the next few days before doing anything.

Ignoring my advice, he went into the stock.

Come end of April 2008, he called me up again, and he said,

"The stock doesn't seem to be perfoming right now. Regretted entering that time, should've listened to you earlier."


Illustration (ii) : No Guts, No Glory!

After looking at the chart again, I said:

"Look, Gary. You should make an exit now. It's dangerous to linger around any longer."
"But I haven't made any profits yet. Besides, I am sure that the stock would give me returns. My broker said so."
"I'm now asking you to ignore what your broker says. The Malaysian economy is free-falling right now. What makes you think the stock would perform?"
"My broker says he has insider information which is extremely reliable. I don't want to miss the boat!"
"Are you willing to take such risks?"
"No Guts, No Glory!"

Illustration (iii) : With Guts, Still No Glory...

Illustration (iii) shows what happened after 1 year. I need not to tell my readers that Gary is still holding the stock at that time.

Somewhere around in early April 2009, I met up with Gary in a classmate gathering, and I asked him how is it going with his stocks. He told me that he had sold the stock, when the price rallied up a few days earlier.

I was shocked hearing that. I said,

"Are you nuts? The global economy is recovering. You are patient enough to have waited through the downturn. Why are you so impatient when things just seem to be getting better?"
"Come on, my broker says the economy is still cloudy. If I escape now, I could've salvage a little from an even further potential drop. My broker says the wave has not ended yet."

I lie defeated. I couldn't believe that there is actually someone who could've worshipped a broker to such extent. If only had he invested in himself, things won't turn out like this. When I say invested in himself, it means spending more time to read up materials that would improve his Financial Intelligence.

Illustration (iv) : MK Enters!

I took a look at the chart immediately after the evening gathering ended. I was very surprised to have found that the stock price was in a nice setup. So I queued to buy the stock the following day.

In illustration (iii), I zoomed the period in to show only prices from end of July 2008 to April 2009. My readers may try to spot the setup that made me queue to enter at this price.

Initially, I wished to exit at RM0.59 for quick profit (note that my entry price is RM0.55). But later, the chart turns out that I could profit even more, that I decided to change my profit target to approximately RM0.80.

My readers may begin to ask, "How do you do that?"

It is a matter of simple knowledge to spot these signals. In this example, I profitted 45.5% in 6 days.

Illustration (v) : MK Exits

My readers, compared to a staggering loss of 57.9% in a year, do you now think that investing in yourself pays off? If Gary was a little less ignorant and learned up how to play along the market, he would not have followed the broker's advice with a blindfold around his eyes.

I will share with you how a Sophisticated Investor would have analyzed this stock in the second and third instalments of this discussion. Now, you may try to review the charts above and seek for any indications for the decisions I have advised, or taken.

Let's make the "Thinking Cap" as part of our uniform beginning from this New Year!!