4th Aug 2015

Unfortunately, this was what happened to a friend of mine as he shared his predicament with me on Facebook messenger last week.

Time and again, I see people averaging down on their positions on stocks like Noble Group before their share price tanked and it frustrates me that people just don’t learn.

If I were in my usual sarcastic humor mood, this is what I would have advised him to do,

“Since you have so much faith in Noble Group, just keep averaging down until you have no more money to do that anymore….and then, hope for the best. I’ll be praying hard for you, bro.”

Of course, I did not say that in the end.

I knew my friend was genuinely worried about the near collapsed of Noble Group share price and I did not want to lose a friend by making such a sarcastic yet harsh and honest remark.

On the news front, Iceberg Research has already publicly implied that Noble Group is a “repeat of Enron”.

Muddy Waters Research Group has also alleged that Noble Group “exists solely to borrow and burn cash”.

Innocent investors like my friend thought that they had gotten a good bargain accumulating a good blue-chip STI component stock.

Somehow, they always ended up getting into very stressful situations like this instead.

While the big funds were dumping Noble Group and the traders were shorting this stock like nobody’s business, my friend was one of those who absorbed these stocks that none of the big boys wanted to hold on to.

I bet he is regretting his decision now.

 

My friend is not alone

Unsurprisingly, my friend’s experience is not uncommon among the many retail traders and investors out there.

Think about it. Were you trapped in similar situations before as well? Is Noble Group one of the stocks that you have averaged down on and is still holding onto right now?

Stories like this usually started in very similar settings.

Someone whom you trusted (friend, stock broker, financial consultant or research analysts) encouraged you to use the dollar cost averaging strategy on your stock investments.

“If the price of a good stock falls, just buy some more to lower your average buying price because you are buying a good company at a cheaper price. You are getting a good deal,” they said.

Unfortunately, every good stock that becomes cheaper, looks like a great opportunity to average down on, until when it did not look so good anymore.

As the price fell further and further every passing month or even passing year, you started to get worried if you will ever see any returns from this investment.

You have already sunk in so much of your savings all this while and now, all that you are still holding on to are these paper losses.

You don’t know when you will see the light at the end of the tunnel, yet you are afraid to admit your mistake and move on.

You decided that your fate lies in god’s hands now as it is too late for you to do anything anymore.

And while you sit there doing nothing other than hoping, you watch in disgust as other stocks surged higher and higher and you played no part in those gains.

I see situations like this happening time and again to our trading customers when I was still working as an investment analyst and now, it is happening to my friend and maybe you as well.

 

What are the possible scenarios going forward?

If you are lucky enough, Noble Group might stop its persistent slide soon and starts to reverse towards a medium to longer term uptrend. I’m not banging too much on this possibility honestly.

Like many other similar cases, this stock might finally stop falling in time to come but instead of recovering from there, it could simply fade into nothingness as the market losses interest in this newly minted “penny stock”.

It could be dropped from the Straits Times Index and then, most of the sell-side brokerage analysts will suddenly announce that they are ceasing coverage of this stock due to a “lack of market interest” (while ironically asking investors like you to BUY or HOLD all this while).

And if you are really unlucky, you might lose all your capital as this stock ended up in bankruptcy, like what happened to Enron.

So, if you are in the same position like my friend who averaged down on the sinking Noble Group, what should you do next?

 

For a start, STOP buying any more

With a stock that looks increasing likely to fail with every passing day, the worst thing that you can do now is to buy more of it in the name of “lowering your breakeven price”!

Your job as a responsible trader or investor is to learn how to manage your risk.

Continuing to buy a stock that looks increasing likely to fail is hardly a good risk management practice.

So for god’s sake, stop averaging down on Noble Group anymore!

 

Liquidate your positions partly or fully, then move on

Even if this stock is lucky enough not to go bankrupt at the end of the day, it will still take many months or maybe even years down the road before it will see a real turn-around.

It could take a long time before you can even see a break-even or any paper profit, if it ever does.

Sometimes, the best thing you can do is to admit you made a mistake, accept it, correct it, learn from it and move on.

It is understandable that a human’s natural instinct is to hang on persistently, regardless how bad things have become and likely to deteriorate further.

You “hope” that things will turn around sooner or later, although that hardly happens.

Whether in a bad relationship, wrong career choice or unwise investments, we see people hanging on to their positions and unwilling to snap out of them and move on.

This has a disastrous psychological impact on your future ability to discover and participate in other better opportunities.

It is now the same situation with the position you have on Noble Group.

At this current stage, there is no best time to get out of your Noble Group position anymore.

If you make a clean break now, you can at least seek a closure to this episode.

Recoup whatever capital you have left from your Noble position, learn from your mistake and look for the next greener pasture to be in.

If you don’t, whatever capital that you have left will always be stuck in this position.

Worst of all, you will be unable to empty your troubling mind to discover and invest in other stocks that could be more promising.

 

Latest Update (14 Dec 2015): How does Noble Group share price look on the technical front?

As you can see from the latest updated technical chart of Noble Group on 14 Dec 2015, the stock is still very entrenched within its 1.5-year downtrend channel.

 

noble-group-share-price-trend

— Noble Group Share Price Trend on 14 Dec 2015 —

 

However, the slightly positive note is that the sharp declines during the first half of the year seems to have moderated. Over the past 5 months, Noble Group has been range trading between the $0.38 support and $0.56 resistance.

Any technical rebound from here will likely prompt investors or traders who didn’t managed to get out earlier to take the opportunity to get the hell out.

This one step up, two steps down movements will likely continue on until the day when no one cares about this stock anymore.

And with all the allegations about Noble Group just reaching epic proportions recently, it is hard to see how Noble Group is going to see a significant turn-around anytime soon.

However, it might be a different story if our nice, old sovereign fund, Temasek Holdings decides to come into the picture to save the day again, like what it did for Olam International.

Sure, go ahead and hang on if you think that Temasek is likely to come in and save your day as part of the SG50 celebration/salvation.

 

So when can we consider Noble Group to be out of the woods?

For medium term traders and long term investors, there is no reason to consider Noble Group as a potential buy yet until the stock is able to break out of its entrenched downtrend channel.

This means that the Noble Group share price must overcome the red downtrend line marked on the above chart.

Until that happens, I suggest that you just leave this stock alone for now and focus your energy and capital on other stocks that are looking to trend higher from their current positions.

Furthermore, there is still a high possibility that we could see a further broad market decline in the months ahead. So instead of focusing on stocks that could go higher, maybe its more prudent to focus on shorting stocks that looks like they are building up for the next leg of sharp decline.

This is why I strongly encourage you to let go of your emotional attachment with Noble Group as soon as you can and move on.

As what I always like to share with my seminar attendees,

“Never be so blindly in love with someone undeserving, that you totally overlooked on that most desirable person who walked past you time and again.”

Let go of this unhealthy relationship so that you can welcome the next better opportunity into your life.

I am sure you can do it!

 

Philip Teo

Founder & CEO at Traderwave Pte Ltd
Philip Teo is an entrepreneur, speaker and trading coach who specialises in the field of Technical Analysis of the financial markets. He is currently the Founder and CEO of Traderwave Pte Ltd, a financial technology company that offers a web charting application to global traders. He has conducted many trading seminars and appeared on national television before. He is also currently an official speaker and trainer with SGX Academy. Learn more about him at his Google+ Profile, LinkedIn Profile and Facebook Profile
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