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Unimaginable Magic from Margin Finance


For the purpose of this demonstration, I assume my capital is Rm 1 million and I keep using 50% of margin finance to buy Dayang.   

With Rm 1 million as capital and I borrowed another Rm 1 million from margin to buy Dayang at Rm 1.00 sen each. I will have 2 million shares. 

When Dayang went up to Rm 1.10, the market value of my 2 million Dayang is worth Rm 2.2 million and my buying facility would be increased by Rm 200,000. With the additional buying facility, I can buy another 182,000 Dayang at Rm 1.10 each. Now I have a total of 2 million + 182,000 = 2.182 million shares.  

When my 2.182 Dayang went up to Rm 1.20 each, the 10 sen price increase will create additional buying facility of Rm 218,000 with which I can buy another Rm218,000 divided by Rm 1.20 = 182,000 shares. Now I have a total of 2.182 million + 182,000 = 2.364 million shares. 

When my 2.364 million Dayang went up to Rm 1.30, the 10 sen price increase will create additional facility of Rm 236,400 with which I could buy another 236.400 divided by Rm 1.30 = 182,000 shares. Now I have a total of 2.364 million + 182,000 = 2.546 million shares. 

When Dayang went up to Rm 1.40, the 10 sen increase will  create additional facility of Rm 254,600 with which I could buy another 182,000 shares. Now I have a total of 2.546 + 182,000 = 2.642 million shares. 

When the price went up to Rm 1.50, the 10 sen price increase an additional buying facility of Rm 264,200 with which I could buy another 176,000 shares. Now I have a total of 2.642 million + 176,000 = 2.818 million shares.   

When the price went up to Rm 1.60,the 10 sen increase will create an additional Rm 281,800 with which I could buy an additional 176,000 shares. Now I would have 2.818 million + 176,000 = 2.994 million shares. 

When the price went up to Rm 1.70, the 10 sen increase will create an additional Rm 299,400 with which I could buy an additional 176,000 shares. Now I have a total of 2.994 million + 176,000 = 3.17 million shares.  

When the price went up to Rm 1.80, the 10 sen increase will enable me to buy an another buy an additional 176,000 shares. Now my total holdings is 3.17 million + 176,000 = 3.346 million shares. 

When the price went up to Rm 1.90,I could buy an additional 176,000 shares. Now my total holding is 3.346 + 176,000 = 3.522 million shares. 

When the price went up to Rm 2.00,I could buy an additional 176,000 shares. Now my total is 3.522 + 176,000 = 3.698 million shares.    

Conclusion: My 3.698 million shares at Rm 2.00 is worth Rm 7.396 million and my margin loan is 50%. My net worth is Rm 3.698 million. I have to deduct interest charges for 4 months at 4.6% pa = about 1.5% and transaction cost of about 1% totaling 2.5% of Rm 3.698 million. Total deduction is Rm 92,500. 

Rm 3.698 million – Rm 92,500 = Rm 3.605 million as net profit. My assumed capital is Rm 1 million. 

With a capital of Rm 1 million, I have made a final fantastic profit of Rm 2.605 million or 261% in about 4 months. In fact, my capital is more than Rm 1 million and I dare to use 50% margin finance whenever the share price went up. You can imagine how much profit I have made.   

Caveat or condition: Studies have shown that short term traders or foolish investors who cannot see Dayang’s good profit growth prospect will not be able to make this kind of   fantastic profit. Sad to mention that one famous chartist and fund manager has sold too early because he believes Dayang’s proposed right issues will dampen its share price. 

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