Donald [John] Trump, the US magnate once shared this about his investment philosophy in an exclusive interview with an author who was compiling his autobiography. [can't remember the title of the book] He [Donald Trump] reasoned that when a stock is trading at a deep discount to its NAV [net asset value], he would ring up his investment advisor and start his buying heavily for two reasons. Though such enormous transactions are not realistic to the average investors, there is perhaps something we can learn from his points and my experience in the like [will talk about it in a while but first..]
1) He pointed that he was not particularly concerned with or worried about sitting on a good company at a discounted rate [share price], if the price fell further, he would be happy owning more at a cheaper price.
2) On the other hand, IF the stock price should start to appreciate, it would be just as merry for him because he would then make a quick flip for a couple of few millions in profit. Either way he is a winner...up or down.
Now since when have we heard of an average player making such confident claims on his trading/investment strategies? There was no hedging needed, and the positions he was taking was interestingly one directional - buy only. Yet, whether the stock price falls or rises, he wins.
That doesn't sound all too familiar, but the truth is, there are some [but rare] investors [whom I served] who are mini-Donald Trump in the way they invest and take approach in the stock market. They are value hunters and they trust the fundamentals.
I wouldn't have completely believed it to be true that one could make in both ways of market direction. But one faithful day, I was made believed.
An order to buy heavy into a stock. So what stock was it?
You know that majestic building at the junction of orchard road, Singapore...next to Ascott and opposite of Icon..diagonally opposite of Lane Crawford... the oriental facet? Yes, that's the one. ahha..no name mentioned please.
My client was interested in a substantial stake [>5%] and jokingly told me that he wanted to sit on the board.
I asked why this stock. He said; let the business collapse, the building is still worth a lot more than its current share price. Okay. That made sense. Now its beginning to sound like a little Donald Trump philosophy isn't it? "Let the share price fall, I would be happier to buy them cheaper."
So as instructed, I was given the order to purchase and purchase and purchase. It was trading about 36 cts while its NAV was above 50 cts [before they pledged the building for loan facilities.]
On the first few days into my mission, the sellers sold heavily at my buy orders. I supposed they thought that it was an ordinary trader trying to accumulate a little for 'contra'. But weeks after weeks, as they tried to 'depress' the price in attempt to 'shake' us out of position, they began to smell something fishy about those purchases. My client took delivery of all the trades due.
By then, the stock had fallen [was driven down by seemingly a group of 'concerted' sellers] to about 26 cts. Anyone would have freaked off at the aggressive selling. But good gosh, my client did gave me strong moral backing as he continued with his unperturbed instructions to buy and buy; just go gentle, he added.
I was on the order for almost a month when suddenly something ......amazingly spectacular happened. On that faithful morning trading session, my client's net position on the stock was already slightly above the 3% mark and my last bargain for the stock was some 255 lots [if my memory still serves well] done at 26 cts/share and within minutes from that last fulfilled order, the stock price took an incredible U-turn before my eyes.
It was one of the most spectacular moments in my dealing days. There was a ultra aggressive buying force that started snapping up all the stocks in the sell queues without even waiting for the sellers to queue. I meant that the buying was going like 26 cts to 27 scts to 28 cts without the 26.5 cts or 27.5 cts in between. The stock closed at 36 cts that day.
In the following two weeks, the stock scored a high of 72 cts. Along the way, as I was 'unloading' on instruction to take profit, my order executions were so messy and chaotic that I had to send an assistant to count my selling as I continued dumping without time to calculate how much I was selling. WOW! That was some real wild trading. And the most marvelous return was its warrants which was trading at 1cts at its lowest scaling up all the way to 44 cts per warrant. That is a return of $440 thousands for every $10 thousand invested in the warrants in just two weeks!
What did my client do? Bought his wife a Porsche while he drives his proton?!! Why do you think the stock took such a contradictory turn? Was it a pure luck incident? What would be the price pattern of the stock had no one tried to accumulate heavily at 0.36cts and below? Most companies do not like being a takeover target especially at a discount price... the rest is up to your guess.
Well, what's the moral of the story?
So... Donald Trump is right! If you are an average investor, buy into value and keep buying. If you have the financial muscles, it seems like a sure fire strategy to follow when your decision is backed by strong fundamentals. BUT!!! Don't ever attempt this 'stunt' if you do not have the holding power or you may be in need of the money for something else soon.
Another well-known player on the same take is Oei Hong Leong who stripped Natsteel [delisted] apart for more value : Sum of its part is worth more than its whole.
In the following post, I might like to explain a little about the 4 price zones that I theorise stock prices fluctuate within and what trading strategies to deploy at each of these price zones. I termed them as
1) irrational price zone [ emotions driven]
2) intrinsic price zone [ fundamental driven]
3) technical price zone [ perception driven ]
4) mechanical price zone [ manipulated ]
Until then...
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