Thai Retail broker, the good with the bad or the bad with the good? Stop-Loss orders mai pen rai.

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Thai Retail broker, the good with the bad or is it the bad with the good?   Generalities, of course there are exceptions but one may know too late.   Stop-Loss orders mai pen rai.  Stop loss orders still don't exist directly on the SET.  Brokers should not directly offer stop loss orders as its a potential conflict.

--First and foremost realize that for the most part the Thai marketing officer for the most part do not see themselves as helping in new wealth creation, “that is up to the customer”.  He/she is here to transact trading and generate commissions!

--As the job title suggests, they are here to transact shares which then create commissions to the house and themselves.  Their financial and career rewards are commissions which is their mantra -as is stimulated and indirectly enhanced by the broker management.  Their firm is paramount, not the customer, this is too often the standard attitude.

--Through listening to the investor-client a few times on the phone or in person, the astute mkt. officer fairly quickly recognizes how much the client/investor knows or not, about generalities around stock market investing.  As many know little they can tailor influence decisions with added little comments adapted and geared up to the level of investor sophistication/experience/knowledge.  Again, which is too often little to none as its not taught in school.   Just to state a couple of examples off the cuff: “nobody ever lost money taking a profit”, often selling out a winning stock much too early.   Or, scare-mongering about some macro or micro unconfirmed news,  so scaring the investor to quickly sell his winning picks or worse.  Or even worse, acclaim some kind of news which in fact is just an unconfirmed boarder line rumor to enhance a buy or sell order.  Broker phones are monitored but not mobile phones.

--Essential & proper financial rules to long term successful stock market investing like, take-profits, cut-losses, shorter or long term stated investor objectives, trading vs. investing etc...all to often get camouflaged in time to the subtle determinant of the investor -as there is a conflict of interest and then mis adapt strategy.  In the end and regardless of good or poor performance results, creating high commission income for the mkt. officer.  Poor experience is often blamed on the SET and “stocks are risky”,  vs. the it was an inept broker practice of “burn and churn”.

--The retail broker management encourages the status quo which indirectly too often positions or encourages all retail investors to just trade. Their Mantra.  Yet, trading and investing is not the same and if you co-mingle the two it just fara too often leads to poor results over time.  This has been ample documented again and again in the US with many decade long studies by brokers, regulatory agencies and consumer-investor advocacy groups.

--Broker retail research reports can be at times questionably wrong and the Thai biz. press news at times, way off.   IPO prospectuses in English are not available, but on large Thai IPO’s are. Yes, to institutions abroad -but not to local English speaking investor community here.  Besides this lacking there is a huge amount of mis or incomplete/information, rumors, wrong understanding and more..all gearing up to create a tangled web of uncertainty which so induces, yes, yet more trading.

---Rules and regulations are there but these are not enoughly enforced;  abuses in my view have so increased, vs. a much needed betterment.  Again, the retail broker management encourages or at least accepts this mediocre status quo which impacts poor investor returns over time.

--The end result is a substantial exodus of Thai retail investor community in recent times as the numbers now show and has been happening, while nobody talks about this.   Its far from clear how many will return beyond a short term punt, when the market gets better or returns bullish? One reason why I conclude this article below as I do.

While too often retail investors in the SET are invariably twisted into inept traders, so to generate more brokerage commission, the important protocols to proper trading are often not adhered to.  Trading is a very different endeavor then investing and the two should not be co-mingled. 

It is a golden/cardinal industry rule that if your objective is to just trade stocks, you should: 
1) never mix this with your long term investment account (i.e. commingling trading with investing has long been proven to be a bad idea)  and
2) Traders should always enter an automatic stop-loss sell order at a predetermined set price, so to avoid a disaster (but see below).  A stop-loss order is one which gets automatically executed should the mkt price breach a certain predetermined price level and, most importantly, it must be entered at the same time when the stock is confirmed bought.  Yet such orders are not offered/allowed on by the SET.

The importance of this cannot be overstated and to me its one of the single most important rules not adhered here  -detrimental to traders (and at times investors) financial health in time.  Just, as a metaphor:  certain medicines cannot be taken with the consumption of alcohol, as it could be life threatening or liver damaging.  Same:  A stock-trader should never purchase a stock without a pre-set stop loss order entered at the same time the buy order is confirmed.  The reason for this discipline may be obvious to some, not to others, yet regardless its rarely explained by mkt. officers.  Why?  One cause is because such automatic stop-loss orders are not offered at the SET.   A trading dominated SET without auto-stop-loss orders offered by the exchange?   See below how I described at my Linked page. *

In the English language “Handbook For Foreign Investors” published by the SET, they explain the types of buy/sell orders which are allowed/offered, this see page 13.  You see there are no automatic stop-loss or so called stop limit-loss orders one can enter directly to the SET.  

Here is the link to this updated Handbook:

So in practice not being easily able to this stringent trader rule, means avoidable failures happen all the time, call it human frailty: 
a) the investor presumes he can note a mental stop-loss order manually if the stock price drops he/she calls and sells.. but in practice too often does not, or not closely watching it -or emotionally changing of minds at the time it takes the pain to sell at a loss.  Call it  the it will come back syndrome. And/or
b) far too often then changing his/her mind and/or outright missing it.  Like a person on a diet should not have desserts in the house, so to not be tempted.  Stop loss orders must be entered at the time of buying the stock, as a matter of rule. A key discipline all books on trading advocate.

The mkt. officer will too often assuredly claim, “don’t worry I will watch it for you if it rises or drops and will call you” giving so an assurance which…well, they may, or may not.  If the stock drops I price inertia sets in.   If not, “sorry, I did not see it..or I was out that day, or in a meeting etc..”.   Where sorry is the only word expressed, or how about this cliché  “don’t worry it will come back…which in time these days often requires another “sorry”.  They are sorry -yet too often it’s the retail investor which lost capital.  Mental stop loss orders often fail in practice!   Traders can and do make small profits here and there: but one big disaster (failure to automatic stop loss), can eat-up all the small winners -and then some.’

Most if not all brokers do offer what I would call in-house stop loss orders. Where they have some kind of internal system pre set-up which monitors stocks and sells them out automatically if the price breaches a certain predetermined level, called stop loss limit or market order.  But, and here is the big difference:  its not an order entered directly to SET exchange.  Again, not the same because in this case the brokers pre-know/see the order book.  In a card game its like seeing another persons cards.  I could elaborate.. but lets say it’s a bad and should be an outlawed practice.  Its been reported to me by a local broker that these are very frequently abused  and he  “not recommend!”

Meaning traders and speculators could be aware of these broker enabled auto orders and so artificially knock a stock price down just below the stop loss price, only so to execute such sell orders and then buy on the cheap.  A potential and reported abused practice which begs the question: why do they allows these?   I was told there are punters in the market which only monitor this. I say beware on broker enabled stop loss orders and avoid such.

Certain common mistakes must be avoided even while the broker may not help.

Yet,  there is a risk that over time the rational investor or trader holds on to losers while selling out all the winners; after-which in no time it becomes a portfolio of held-on losers. Having ditched for small profits all the winners…its show again and again how this is a recipe to poor investor performance in time.  Enhanced further (more than most think) because mkt officers are quick to call clients suggesting to take small profits vs. the goal to long term new wealth creation.  Often regardless of client investor objective stated in the broker suitability forms. 

Its our human nature to be happy to take a profit -yet reluctant to admit being wrong so enduring a loss.  Human frailty is often a detriment to stock market investing far more so if its influence by commission hungry mkt. officers  -which have a different objective then helping create new wealth. Its just one reason why in most countries this industry is highly regulated. Abuses are easily disguised until its too late.

So many keep the losers and sell out their winners when at certain times it was best to do nothing.  It takes real investor discipline and a mkt. officers understanding not to sabotage our human frailty which then prevents us achieving superior investor results.   At the same time -of course taking & parking profits at some point is very much  part of successful investing as is ridding from time to time perceived laggards. This so even by medium to long term investors which has always been the stated objective here.

The above article is timely in my view because there are good chances (this remains my view) we are entering a sort of renewal phase for Thailand with the firm currency and elections early next year…and accelerating economy. The big question is how long it will last post, can there be a continuation? A sort of renewal to escape the middle income trap?  At the present I don’t see this.   To me with near 30 year observation the Thai financial brokerage industry has become a failed industry towards the retail stock investor -and needs a vast change to get out of its own middle income trap.

The above are generalities, of course there are exceptions, yet as I see it overall there is allot of improvement to be desired. Changes in the past have not always been for the better and the status quo is not good enough.  I end this article with questions rather then answers:  Who is going to rescue the Thai retail brokerage industry?  Are individual stock pickers a dying breed due to all these handicaps. Or, can we rise above despite?

Best Regards,

Paul A. Renaud.


Stop Loss Orders on the Thai SET. No have.

First of all, the SET itself does not offer any so called stop-loss orders which is a key tool to any stock trader. Manually re-entered, mental stop-loss orders are too often ineffective and set-up to fail. Many if not all Thai brokers offer these through an in house system. But this may take away the confidential level needed on such orders, I say its paramount. Otherwise it can and has lead to abuses on stock prices getting hit artificially only to induce a stop sell, and then buy on the cheap having benefited from insights to the order book. In a card game it be close in seeing the other persons' hand. To me legitimate stop loss orders do not exist on the SET, even while its volume is often dominated by traders. The first rule/strategy of stock trading is in quickly cutting losses through auto-stop loss orders so near eliminating any single disaster.

In the current “Handbook For Foreign Investors” published by the SET on types of buy/sell orders which are allowed/offered on its exchange, see page 13.  No automatic stop-loss or so called stop limit-loss orders are shown offered.  Here is the link to this updated Handbook: