KLSE: DAYANG – Your volatile bipolar ex-girlfriend who’s a nice girl at heart

Jialat. Why are some stocks highly volatile? They have decent fundamentals but the price swings more dangerously than your ex-girlfriend’s unpredictable moods. They can be positively cheery one second and suicidally depressed the next. Being with them is a rollercoaster of emotions – a nail-biting existence of walking around eggshells and being careful not to breathe too hard lest you trigger a negative price movement.

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Dayang has a beta of 1.7, which is significantly higher than the average beta of 0.94 in Malaysian energy related stocks. Beta is a measure of volatility. The market as a whole has a beta of 1 by definition. Anything higher is volatile, and anything lower is more stable than the broader market.

Think of it this way: Nasi lemak bungkus is usually sold at RM1. Anything higher is considered “expensive” and anything lower is considered “cheap”. Dayang is RM1.70 which is very expensive (very volatile).

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Volatility is not all bad though. Many investors like volatile shares as there are opportunity in both the upside and downside price movements. I got to know about Dayang from a friend of mine. At the time, it was a goreng (speculative) stock. That’s not to say it’s not fundamentally sound, but rather there’s no new information to fuel its massive growth trajectory. Goreng stocks are used by investors with a well-defined stop loss (SL) and target price (TP) plan to benefit from technical analysis.

If I’m going to goreng a stock, I want the fundamentals to be good. I seldom buy into dubious companies (I type as I smile smugly despite knowing full well I do). Dayang has a fair valuation of RM3.38 and was trading at RM1.22 when I entered. It has a PE Ratio of 4.4x vs 9.1x industry average. Its earnings have grown 37.7% over the previous year. For me it’s a decent stock to buy and hold until I see a profit, despite the short-term volatility.

I purchased Dayang at RM1.22. Dayang dipped right after to RM1.04, which wiped out 15% off the value.

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Does it affect me? Sure. No one likes losing money, even though it’s unrealized loss. However, I believed in the fundamentals and will hold it until it turns a profit at my set exit point.

It’s not clear what causes volatility. Similar to bipolar disorder, mental illnesses are poorly understood. It just exists and we as investors need to deal with it. If you’re investing for the long term, short-term volatility should not be a major concern. It can be demoralizing to see unrealized losses in your portfolio but soldier on with the knowledge that you have done your homework and you’re in it for the long term.

I am still holding Dayang as of today. I could have realized profit of 2.7% at several points but decided to hold it for longer, until O&G (oil and gas) stocks rebound. Like all relationships, you try to make it work until the fundamentals change and your life goals are no longer aligned. Or at least until you reach your set point to take profit. It is the stock market after all, not a marriage.

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