In my last article, “What are my stock tips?” in the link below,
https://klse.i3investor.com/blogs/kcchongnz/2020-04-05-story-h1485815265-What_are_my_stock_tips_kcchongnz.jsp
I gave many reasons why I do not wish to give any stock tips, nor I like to show off how much money I have invested in whatever stocks. This is despite that I have at least 3 portfolios put up in i3investor since early 2013 with a mid-term investment horizon of 5 years for sharing of my investment philosophy and methodologies. These portfolios had done very well at their closures compared to the broad index then. I even have a recent portfolio set up in i3invesot since January 1, 2019 which is still running. Despite the rout in the stock market recently, this latest portfolio still makes about 5% as on today. Not too bad at all and I am quite satisfied with it.
The question now is “Should you listen to the stock tips given by your friends, relatives, investment bankers, uncle, aunties and “stock gods” in the internet space etc.?”
Don’t listen to stock tips
“Do not buy stocks purely based on tips, rumours and recommendations is one of the earliest lessons I learnt.”
That was highlighted by KC Chong in his interview with The Edge Magazine as published on 29, March 2020 in the link below,
https://www.theedgemarkets.com/article/first-person-never-too-late-be-investor
Many people speculated in the stock market based on rumours and stock tips and had lost money. Most of them had lost so much that they just refused to talk about the stock market anymore. Most of them know many of their friends and relatives who had lost a lot of money doing the same thing in the stock market. None of them know anyone who had become rich.
There is no big frog jumping everywhere in the stock market, or there ain’t no tooth fairy in the stock market who want to help you to get rich quick by giving stock tips to you, is there?
I have written numerous articles in i3investor discuss about this issue. The earliest one was this,
https://klse.i3investor.com/blogs/kcchongnz/2014-01-24-story-h49652782-A_Christmas_reflection_of_the_pitfalls_in_investing_in_Bursa_in_2013_Repo.jsp
Let us look at some of the hot Bursa stocks tips which some people in i3 forums asked me about seven years ago in 2013. Following that, nine stocks were singled out as shown in Table 1 in the Appendix, and I carried out numerous detail analysis and came out with comprehensive reports on why those hot tip stocks should be avoided.
What is the outcome of those hot tips?
Return of stock tips
The portfolio of nine hot stock tips suffered a median loss of a whopping 88.2% over the seven years’ period as at today, while the broad market, with dividends, has gone up by about 16% during the same period, or a negative alpha of 72%. Eight out of the nine stocks suffered heavy losses. Two of the stocks, CSL and London Biscuits, have gone to London (Delisted). Two others lost more than 90%, and the minimum loss was 65%. The only positive return stock, Guan Chong, has done quite well at +145%, after adjusted for the one for one bonus issues.
How bad was that!
Jaks and Sendai
The other hot tips I have written numerous articles about and warned against following were Jaks Resources and Eversendai in 2016 when the share prices were pushed up from 40 sen to RM1.80 and RM1.40 respectively. I was motivated to write the articles more because when the stocks were promoted relentlessly, share margin finance was encouraged indiscriminately in the public forum. Just goggle and you will find many of my articles in i3investor about them.
The ultra-hot stock of Jaks dropped from the height of RM1.80, all the way down to 40 sen in just a couple of years. What if they had also followed the call for the use of margin finance? Eventually, at on today, investors of Jaks may be doing alright with its closing price at 93.5 sen, if they had also subscribed to its warrants.
The same cannot be said about Evensendai. At the close at 21.5 sen on April 13, 2020, those who followed this hot tip at its peak would have lost a whopping 85%, in just two years! How much for those who had followed the call for margin finance on top of their own money?
What other hot tips?
Freebies
Heard about the hot tips of companies giving free money, money drops from the sky? Here we had the great Vivocom and EAH. After giving free money in terms of numerous bonus issues, share splits, free warrants, their share dropped from adjusted high of 30+ sen and 14 sen to close at 1.5 sen and 1 sen respectively on 13 April 2020, for a humungous loss of 95% each!
https://klse.i3investor.com/blogs/kcchongnz/2016-10-14-story-h1448817730-Are_freebies_goodies_kcchongnz.jsp
Does it mean that we should never pay attention to stock tips and analysis of some contributors in i3investor.Not really, but there are rare. Here is one.
Hot tip Dayang Enterprise
Dayang has been promoted relentlessly with tens of articles in i3investor, stating that if you don’t buy Dayang, and with margin, you have to examine your record to see why you are so poor. The great promotion started when it was selling at less than RM1.00. After that it reported a quarter of losses, and its share price tanked to below 60 sen. If an investor had paid attention to this tip, he whould have looked at its financial performance and would have found something different from what the public perceived. The losses were mainly due to impairment of plant and equipment. However, its core operation, although suffered accounting losses, had made very good cash flows, and even good free cash flows. In fact, Dayang has had positive free cash flows for all the years, even when the oil price was at its low of US20+ per barrel in 2015. Here is a link explaining that.
https://klse.i3investor.com/blogs/kcchongnz/2019-05-12-story206052-The_cash_tale_of_two_contracting_companies_of_Sendai_and_Dayang_kcchongnz.jsp
With articles and articles of promotion, the share price of Dayang was chased up to RM3.00 per share in just a couple of months ago. Those who held Dayang were told to continue buying, and with margin, as its profit growth seems to have no limit, and they were told that they are stupid fools for selling this up-trending stock. One who have done some valuation would have sensed that the normalized earnings does not justify the rich valuation, and there is no margin of safety holding the stock at this price, and profit should have taken.
The rest is history.
Conclusion
“Do not buy stocks purely based on tips”. This is always my theme. History has shown the expected outcome, again and again. Do some analysis yourselves before investing in tips. It is a must. Check if the stock is of a good company. Then do some valuation if it is worthwhile to invest in. A good stock is not necessary a good investment if the price is not right. Treat buying a stock as investing in part of a business. Then you can avoid losing following hot tips, and occasional, may even profit from it.
But how can you know if the hot tip is worth following. There are resources in the internet including many good books on learning about the fundamentals of investing. Here is one,
This book is on sale in the major bookshops such as MPH and Popular. You may also contact me to purchase a copy if you wish at the following email address.
ckc15training2@gmail.com
This may end up as your best investment.
KC Chong
Appendix
Table 1: Return of Lemon as at 13th April 2020
https://klse.i3investor.com/blogs/kcchongnz/2020-04-13-story-h1505955007-Don_t_listen_to_stock_tips_kcchongnz.jsp
