PCSO’s Suspension of Operation – A Black Swan

What will happen if there was suddenly negative news about your stock? What was your reaction when you heard it? You are lucky if it popped out during the weekend because you still have time to absorb the news and think about it. You still have plenty of time to review your positions and check whether your stock will be affected by this news. Another big new for this month….

Let us recall the past week prior to the news. Last July 22, 2019, President Duterte commended Ms. Andrea Domingo for PAGCOR’s collection of about 16B which was mentioned during his SONA. He even joked on his statement, “Magpasugal ka pa ng marami” and everyone on that event laughed at his joke. Few days after, there was suddenly news that the gaming operations of PCSO will be temporarily suspended because of “Massive Corruption”. Let us be clear that PAGCOR is different from PCSO.

The PCSO or The Philippine Charity Sweepstakes Office is the principal government agency for raising and providing funds for health programs, medical assistance and services and charities of national character. Its main products are the sweepstakes and the lottery games. While the PAGCOR or Philippine Amusement and Gaming Corporation is a government-owned and controlled corporation which act as the sole government corporation conducting and establishing gaming pools and casinos in the country. It also raises funds for the government and the largest contributor of revenue to the government after BIR and BOC. PAGCOR also regulates privately owned casinos, bingo parlor, as well as e-games business.

With the news, I think all gambling and casino related stocks will be affected. PAGCOR and PCSO are hard to differentiate and the traders will assume that any stock related to gambling and casinos is affected. There might also be a negative impact on the status of PSEI. First of all, let us not go to the political side of the issue and let us not blame the President because as far as I know, I think his decision is based on the corruption-related issue and he is just doing his job as President of the Philippines. However, as retail traders, this could mean additional loss/losses on our port.

Let us go to the technical analysis side relative to the news. As per my research, some of the gaming stocks in PSE are LRW, LR, BCOR, WEB, LOTO, PLC, PRC, PHR and BLOOM.

If you are a COL user, you may go to Quotes >> Market Information >> Sectors and then select Casinos and Gaming on the dropdown. The PCSO suspension news is an example of the term called “Black Swan” in the investment world.

What is a “Black Swan”? According to Investopedia, a black swan is an unpredictable event that is beyond what is normally unexpected of a situation and has potentially severe consequences. Black swan events are characterized by their extreme rarity, their severe impact, and the practice of explaining widespread failure to predict them as simple folly in hindsight. You may refer to Investopedia website for further information using this link: https://www.investopedia.com/terms/b/blackswan.asp

From the definition of Black Swan that it has potentially severe consequences, you must be aware of the probable price breakdown on the stock price because the usual instinct of holders is to sell the stock and if ever you encounter this on one of your stocks I’m sure you will have a strong urge to sell the stock as quickly as possible. Because if you will not act on selling it immediately, you can lose even more just like what happened to some gaming-related stocks this week which have had a gap down. Who knows, you can suddenly become a long term investor of that stock if you will not sell it. Just as what others would say….. “Mahuli – Taya”.

It is painful that your money will lose 5%, 10%, 15% or even more in just a short time. If you have been through tough times on consistent losing traders – then you are not alone. All traders have been through that and I would say that it is all part of the process

However, if there is a sudden price drop/gap down in price in a short period of time because of the impulsive decisions of traders, you should know that there is also a possible opportunity / potential gain awaiting for scalpers from this kind of event. You should be aware that the black swan is also an opportunity for scalpers/day traders to gain. But, I would like to warn you that before you try to trade this strategy, you must know that this is a risky kind of trade and might give you a big loss in just a few minutes if you will not trade it well. So trades like this requires a lot of backtesting, practice, quick decision making and presence of mind. So as a warning, I would like to say CAVEAT. 

This is for study purpose only and you will need a lot of reading and practice before you do this kind of trade. 
Observe the price action at this chart
Lahat naggap down, pero lahat bumawi that day. Kawawa mga nagcutloss..

This is the difference between a typical trader called the “NOOB” from a professional trader. Remember the quote – “Be fearful when others are greedy. Be greedy when others are fearful.” from Mr. Warren Buffet himself. We always hear that. I would say, it is easier said than done. This kind of trade requires a lot of guts and I admit, I am still in a trial and error process to do this kind of trades. I still trade the minimum amount and sometimes use virtual money. I am still a student of the market, and we will always be. I am just happy to share this observation/my study and you might be able to trade this strategy in the near future even better than others.

So let us assess…. What should we do if ever we will encounter a black swan on our stock position? I just want to share my personal answer (you can have your own opinion on this):

  1. Plot the chart and mark the support and resistance – up to 2 levels
  2. Remember, we have to protect our capital first.
  3. You can invest your money in other stocks.
  4. Move on. Learn from that experience. You will earn it back in the near future.

    Let me remind you that we are here in trading business not to lose money. We are here to learn. We are here to earn more and to have a passive income… To earn more than what we are earning from an 8am-5pm job. But prior to reaching that stage, we have to grind. This career/business will require us a lot of time, hard work and efforts. It needs passion and a lot of patience. As they say, you reap what you sow. In this business, losing is part of the game. The Black Swan is part of the game. We just have to be prepared for it for every possible scenario in each of our trades. So invest only the money that you can afford to lose. It is also important to diversify your money into other forms of investments because trading is a high-risk investment since stock prices vary from time to time. You will probably do so many cut loss in your trading journey but make sure that at the end of the day or week or month or year, your gain should cover all your losses and time and efforts.

    Smell the pain – embrace it. Use it to make you stronger.

    We know that only a few people can do it – To outsmart the Market. And our goal is to become one of those few who can defeat the market. I want you to know that just like us, all those successful traders have also been at our level before. They used to be newbies like us. They used to be students of the market like us. Nauna lang sila…. Put that in your mind. Susunod na tayo

    If we will believe in ourselves and we will work hard on improving our trades, our system, our strategy and be able to control our emotion, I am sure that eventually, the gains will also follow. We will improve and we will become like them. But before that happens, you should put it in your mind that the most important asset in this trading business is YOU – not your chart, not the TA or FA, not the indicators and not your Trading plan…. Because they are all just part of you. You are the businessman in this business so invest in learning and experience and keep on improving yourself so that the fog towards your goal will suddenly go away and you will be able to see your path clearly. There was a quote by Mr. Martin Luther King Jr. that I remembered relative to this.

“If you can’t fly, then run,
If you can’t run, then walk,
If you can’t walk, then crawl,
But whatever you do,

YOU HAVE TO KEEP MOVING FORWARD.

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