Truth on Why People Lost Money

I found something very interesting, I'm just requoting someone who speaks the truth from the Star article.

W’e re 50 years old and Bursa Malaysia is 35 years old, and yet we are not doing it right. We refuse to learn from our neighbours or peers and we refuse to change.
In every stock market, there is always a bull and a bear. Both of them are fighting daily on the trading board, and sometimes the bull wins and sometimes the bear.

Whatever the market condition, investors must have the option to choose whether the bear or the bull will win. So, for trading in the structured warrant, if you think the bull will win, you trade the Call Warrant and if you think the bear will win, you trade the Put Warrant. But this is not the case in Bursa Malaysia.

There’s only the Call Warrant and no Put Warrant. So during the bear market and you still continue to trade on the Call Warrant, you are actually swimming against the flow of the river. This is also against the normal logic of trading.

Look at some of the strike prices of the Call Warrants, which are ridiculously high compared with the shares’ underlying price. By the time they expire, the Call Warrants could be worthless. The last person holding the Call Warrant is the loser. Maybe Bursa is the only stock exchange in the world that has the Call Warrant but not the Put Warrant on the trading board.

The bear started to appear in late November 2007, when the problem with the US economy surfaced. Till today, we can still see that investment bankers are issuing chunks of Call Warrants with high premium in the range of 35% - 50% low issue price. Most people, especially those who do not know much about the Call Warrant, are trading in this Call Warrant.

So with the bear storming in recently, there’s not a single cave for them to hide in. These Call Warrants will be just worthless information in their CDS account when they expire. Some 'hope' it will recover, but really? For example, HSI-C2 Call Warrant is based on the Hang Seng Index and the exercise level is 30,870 points. The index is now at about 22.000. This Call Warrant will expire on May 28. Can the index reach this level by May 2008? I doubt it.

It is time that Bursa fixes this problem fast. Introduce a legislation whereby for every issue of a Call Warrant on a particular underlying share, there should be an equivalent issue of a Put Warrant on it. Let the people decide whether the bull or the bear wins.

http://thestar.com.my/news/story.asp?file=/2008/1/23/focus/20087713&sec=focus
Interesting article isn't it? This article is posted on The Star, Wednesday January 23, 2008 which is the start of the severe bear trend. If Bursa Malaysia and the investment banks have not been so stubborn and listened to ideas from bloggers or people out there, they would have saved a lot of investors money. The investors could hedge on the 'put warrants' when they purchase the KLCI index-linked mother shares. Of course most of all, it would have saved retailers money too. At the time of the article was written, KLCI is at 1383. But where are we today? at 1177. That is -206 points drop and billions of investor's capital were wiped out clean, not to mention retailers money were stuck in 'out-of-the-money' call warrants. Look at the BURSA-CF recently, from a high of 0.635 to completely worthless now at 0.01. If we don't employ a 'trader's mindset' to cut-loss, our capital would have been wiped out clean if we stick to the old 'investor's mindset' to average down. If there is ever a such thing as BURSA-PW (put warrant), that is sure to cheer up investors/retailers as they could hedge against the mother share BURSA which peaked at 16.3 in January to 8.4 today.

So now I guess you guys must realize that you have been 'indirectly' conned by the investment bank seminars on "How to Trade Structured Warrants Successfully", simply because they never reveal the 'TRUTH' to you people. THE TRUTH IS MARKETS ALWAYS WORK BOTH WAYS, we need bulls & bears. By only issuing call warrants as bull market instrument and ignoring the put warrants as bear market instrument, they are only telling you 50% of the truth while hiding the other 50%.