Hengyuan: Psychology in share investment

The price of Hengyuan dropped Rm 1.80 per share yesterday which taught me an expansive lesson. My purpose of writing this piece down is to remind me of this expansive lesson in psychology and also for the benefit of all investors.

After it has dropped in the last 2 days consecutively, I thought the price would rebound. But instead it continued dropping to frighten the shit out of me. Its trading price range was Rm 13.90 – 12.00. It went up 10 sen from the opening bell which emboldened me; otherwise I would have started selling some of my holdings. It dropped continuously and eventually dropped 13% in a day.

After my several decades of experience, I thought I knew all about share investing, how to select shares based on FA, TA and the company’s profit growth prospect. But I have not mastered the psychology in share investment which I consider more important than FA or TA or Business outlook as being demonstrated by Hengyuan yesterday.

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How do control your emotion?     

The share price of Hengyuan went up from Rm2.00 to Rm 19.20, a rise of 800% within 12 months. As far as I know, it has created history in our local stock market that no one has ever seen before. As a result, no one really knew how to react. Of course, there are some egoistic braggards boasting how well they could time their buying and selling.

The ability to control my emotion to think logically is most important in share investment. For example, I was too greedy I did not sell when it went above Rm 19. As a result, I did not have money to buy when it dropped to lower prices.

But some people sold at Rm 17 and bought back a lot more shares at Rm 15 with all his sale proceeds plus their additional margin finance.

What are they going to do when the price dropped to Rm 12, below their purchase price?

To be a successful investor, I must be able to control my emotion of fear and greed to think logically. Don’t be too greedy while the share price is going higher and higher and too fearful while the price is dropping.

I must always bear in mind that no share can continuously going up or dropping without correction for whatever reason. I must control my emotion and take advantage of the situation.

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