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Thursday, February 18, 2016

The Advantage Of MARGIN CALL - Koon Yew Yin

The Advantage Of MARGIN CALL - Koon Yew Yin

Author: Koon Yew Yin | Publish date: Thu, 18 Feb 2016, 11:35 AM

I know many readers would say that I am just joking. In fact, during the recent market down turn, I have margin call and I expect many readers are laughing at me. Let me explain in details with examples so that you can learn how to make more money using margin to its limit, provided you know how to select really good shares to buy.

I have trading accounts with all the financial institutions in Malaysia and my loan limit exceeds Rm 100 million. I have always been using the loan to nearly the approved limits. As a result, I have margin call in the recent market down turn.

At first I thought I should not use the margin loan so much to avoid margin call and forced selling. After I have a closer look at the prices of the shares that I am forced to sell, I am convinced that it is not so bad as I thought. Actually I have been forced to sell some of my good shares to realise profit which I would not sell normally. In other words, I am forced to make more money.

For example: I started buying Focus Lumber in 22nd Aug. last year after I saw its 2nd quarter announcement of 7.80 sen per share. Its first quarter EPS was 3.22 sen. It was trading between Rm 1.40 –Rm 1.60 per share. I continue to buy aggressively and as the price went up higher, I could borrow more to continue buying because my collateral value has increased.

It went up to peak above Rm 3.00 in mid-January about one month ago. When the market started to crash I had margin call and I was given 3 days to normalize my position. I sold some between Rm 2.80 – Rm 2.40, averaging about Rm 2.60 to meet margin call. I still manage to make more profit than if I did not use margin loan to its limit.

The 1st quarter EPS was 3.22 sen, 2nd quarter EPS was 7.8sen and 3rd quarter was 9.35sen. I foresee its annual EPS to be above 30 sen which will be announced in the next few trading days. Basing on P/E of 10, its price should be above Rm 3.00. The share price had dropped drastically from above RM3 to low of RM2.01. It has dropped too rapidly and as I said before it should rebound rapidly. I have been bottom fishing in the last few days.

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