A curious LT chart.
Question - Will this company even survive?
It's obvious - lay people like you and me will never know the answer.
Question - What kind of business is this?
At the same time, this situation can turn profitable if it turns out that the fear is unfounded.
Rational possible outcome?
Honestly, I don't think anyone knows the answer on future possible outcome. Everyone will have strong opinions - either (1) yes, (2) no, or (3) don't know. My personal take is likely the future outcome will be binary i.e.
Outcome #1. It goes to zero. (because the underlying business, books, numbers turns out to be "inaccurate" / "fake")
Outcome #2. The fear is unfounded, it eventually recovers (due to the underlying business reasons). If so, a new impulse wave commences lasting years, not too dissimilar to #1 (+410% over 8 years), #2 (+355% in less than 4 years) and/or #3 (+481% in 2.5 years).
Rational trading strategy?
The most rational strategy is probably to avoid this.
However, if you must really scratch your itch (because the itch is too itchy), then, Warren Buffett likes to say this:
Investment is most intelligent when it is most business like
What's the most business like strategy for this?
I think the most doable strategy for me personally, is to pretend as if I am going to Genting and gamble. Buy 1 chip only, bet in a 50/50 situation where the payoff is larger than 2:1.
In short, it basically means this:
1. Adopt a 1, 2, 5 year timeframe.
2. Accept this timeframe is gambling and not investment. Accept you could lose it all.
3. Fixed in advance how much to gamble. Say 0.5% capital (a small portion of your market profits). Accept you could lose all of this.
4. Buy only once near the bottom (the exact price near the NTA of RM1.62 probably doesn't matter).
5. After buying, lock this in a drawer immediately.
6. Tell yourself the market for this stock has been immediately suspended, with no further quotation available over the next 2-5 years.
7. Don't look at Mr Market quotation any more - it will only bring you emotional roller coaster.
8. In 1, 2 or 5 years time, look again at the stock. Use Market quotation to your advantage i.e. sell only when it makes sense by then.
Likely your outcome will be a binary one as mentioned above.
What about Luck?
If you absolutely must scratch the itch, then you'll definitely need the luck!
When I entered last week at 1.6x, it was an excellent price, but last night, the closing price was 1.25 i.e. a significant percentage loss. My commitment does not allow me to monitor prices intraday and this is exactly the kind of scenario that I had envisaged to happen and it has happened. Fortunately, my trading plan above tell me to pretend as if market is not trading this stock for a year, and tells me NOT to average down as well. Hence, I will stick to the original trading plan, forget this stock. Notwitstanding RAPID price drop, after I entered a small amount (0.5% capital), it has not stopped my total portfolio (including RAPID) to make new all time highs. The reason is simply because my winners offset my losers, and I let market decide which are my losers because losers naturally get smaller by themselves without you having to do anything further.
ReplyDeleteI have no plans to average down, because if this goes to zero, all good monies will be thrown into bad investments. Instead, there are a lot of good ideas out there that deserves your monies.
Price last Friday is 89 sen. Very fast loss. Expected, as caught a falling knife, where not yet bottomed.
ReplyDeleteNotwitstanding this huge % loss, my protection was small position size and not averaging down. Any buys at lower prices below RM1.6x would have lost monies on its way down to RM0.89.
This has allowed my portfolio to hit new all time highs several times in February, notwithstanding this large % loss on a very small holding. As KLCI rises, my other stocks rise and easily offset the $ loss here.
Still no plans to average down, until one day, I get around to studying its assets carefully. Or not. No time.