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Food for thought:
About 2 weeks ago, Elon Musk's Tesla revealed they have taken a huge position in Bitcoin and he believe in this cryptocurrency so much so he think it is worth more than cash (I am assuming he is only talking about currencies which are subjected to negative rates). Then, this week he said he feels Bitcoin is a bit on the high side. Few weeks ago, he promoted Dogecoin. Then he said it is best to sell. In 2020, the most watched or followed twitter account was Donald Trump. After Trump was banned, Elon Musk pretty much became the new king of twitter. One was a mad president. Another is a mad richest man in the world. Both are extremely powerful people with great influence.
In the past year, retail investors participation in stock market globally like US, South Korea were at record highs. This is largely due to the prolonged Covid-19 lockdown and flood of liquidity expanding the money supply in the economy (M3).
Locally, in 2020, foreign funds outflow from KLCI ballooned to RM25 billion. On the contrary, Retail investors were net buyers at RM14 billion and local funds at RM11 billion. Hence, it can be concluded it was retail investors who supported KLCI. As a result, Bursa is on track to deliver record profits for FY20/21 due to record high retail participation, so are the IBs and other brokerage firms. Active retail participation is a boon for the stock market. If social media changes the landscape and levels the playing field between retail investors and institutions, it should be welcomed. Of course some level of oversight is a must to prevent abuse however the same can be said towards the conduct of the Foreign IB whose research report was a sales piece to pitch to institutions to capitalise on RSS ban lifting in KLCI to short the 3 glove stocks. If Regulators intend to clamp down on retail investors, equal scrutiny should be accorded to those questionable IB’s analysis.
Irrationality in the stock market swings both ways and over time it will normalise. A fundamentally sound stock will not go down indefinitely. When the buying volume and momentum outweigh selling, the share price goes up and vice-versa. The point to note, however, it is important for funds to come in to support for share price ascension. For glove stocks, it has been punished irrationally and retailers banding together can be seen as a reactionary market forces.
Indeed, the circumstances of GameStop vs Gloves stocks while sharing a common distaste for shorters, the substance is different. Unlike GameStop, the Glove stocks are undervalued, delivering continuous record profits and good dividend yields. The demand won’t disappear overnight just as when I repeatedly said the vaccine announcements won’t eradicate Covid-19 instantly. 3 months since Pfizer / Moderna announcement, globally and Malaysia is in a much worst state than 1 year ago. For those who choose to ignore the supernormal profit of glove stocks, please reassess your valuation model impartially. This is not the same where a company disposes their core business and net a huge windfall, declare one-off dividend and is left without a profitable business the next year. How many times have we seen the glove stocks grow post pandemics (H1N1, SARS)?
I understand valuation is subjective. The argument can go on indefinitely. So let’s leave it as that. I am just a blogger and a retail investor. In my years writing, I have always put the interests of my readers and retail investors close to my heart. It pains me to see many subjected to losses resulting from “pump & dump” operations. This means I would not write on companies or sectors which I deem risky, questionable or fundamentally weak.
I would like to take this opportunity to share my honest view on the “Glove Movement” with retail investors.
1. Do not invest in glove stocks if you don’t believe in the fundamentals and not willing or able to hold for the long term. Only do so if you believe in buying a wonderful company for the long haul.
2. Do not get carried away, caught up in the hype and be emotional. No point using hard earned money to spite anyone, be it IBs or shorters. They don’t care about you, only their books.
3. Do not use margin to invest in stocks, only excess cash. Invest within your means at all times (regulators can clamp down, banks can impose margin caps anytime)
4. Avoid structured warrants, derivative products especially if you have no knowledge.
The stock market will keep evolving with the advancement of technology. Retail investors, looking out for each other may just be a new way forward. I do not know for sure, but this is surely an experience we will all remember.
End Part 2