Try My Luck Using Zecco

When I opened a Zecco trading account and made my first trade a little over a week ago, my choice of stock was Xinhua Finance Media (XFML), the stock I also bought on its IPO day for $11.10 a share. So how’s my latest addition doing?

Currently, XFML is traded at $8.57, a gain of $1.62/share (I purchased 143 shares at $6.95 a piece) or more than 23% in over a week or so.

After I posted my first trading experience, reader TY left this comment at the post:

chasing a stock in trouble? you don’t offset losses by “adding more shares”. you just get more junk shares.

My initial intention was indeed to make up some ground after the stock dropped to below $7 after being hammered by alleged violations. Yes, the stock is in trouble lately and there are at least 8 pending class action law suits against XFML (well, the lawyers will seize every possible opportunity to make money for themselves), but to answer TY’s comment, I will have to ask whether anything has fundamentally changed before and after the revelation of irregularities. My answer is no and I don’t think I am adding “more junk shares.” In contrast, the company has done a couple of things recently that boosted the stock price:

  • Bought an advertising company, Singshine Hongkong Ltd, to extend the coverage of its radio program
  • Acquired Beijing Mobile Interactive Co., Ltd to provide program to mobile users
  • Bought back $50M of its shares

In addition to XFML, I actually have some other plans with my Zecco* account and will add more funds to it soon (I only put $1000 when I opened the account as I thought that was the minimum required, but there’s actually no minimum to open an account). Since Zecco* doesn’t charge commissions for stock trading, I’d like to use the account and a few thousand dollars (“play” money) to buy stocks that could make me a few quick bucks. I used to do a lot of tradings in my early days of investing, but haven’t been active for a long time. With Zecco* I could restart the activity without worrying about the costs, whether I can really make money or not is another story. I don’t have anything on my mind yet, but it could be interesting to see how my stock picking *skills* (if I have any :D ) work.

BTW, China Life Insurance (LFC) was also sued shortly after its IPO three years ago for violations. LFC was traded around $7 at its lows in May 2004. Now the stock price is around $48 a share.

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5 Responses to “Try My Luck Using Zecco”

  1. Andy |  Jun 13, 2007 at 5:39 pm

    TY is right — never, never add to a losing trade. Don’t get stuck on the old “buy low, sell high” maxim. An equally worthy objective is to to buy high and sell higher. I don’t follow any Chinese stocks after having lost $6k in one. I suggest you keep a very close watch. The Chinese market is operating on its own set of rules.

  2. James G. |  Jun 13, 2007 at 11:27 pm

    @Andy

    The problem with “buy high, sell higher” is that you don’t know when or if something will be going higher after you buy it. You can analyze it all you want and apply several sets of criteria, but the bottom line is that the market is fickle and no one can predict with certainty and accuracy that any one stock will continue to grow.

    Still think that adding to a losing trade is a bad idea? Imagine this situation: stock X was at $10 per share, then plummets to $5 per share. An investor who bought at 10 shares at $10, now buys 10 more at $5 for a total investment of $150. If the investor is right and the stock eventually reaches $15 per share, his total now is $300 ($150 profit). If he is wrong, and the stock becomes worthless, he loses $150.

    Same investor now tries the “buy high, sell even higher” approach, buys 10 shares at $10 per share of stock Y. The stock then rises to $15 per share. He figures that the stock will go higher so he can afford to “buy high” and buys 10 more shares. He now has invested $250. Let’s say he is right and the stock goes to $20 a share. He sells all and gets $400 for a profit of $150. Sounds pretty good right? If he is wrong though and the stock becomes worthless, he lost $250 ($100 more than the buy low sell high strategy).

    Notice the relationship here between potential losses and gains.

    In short, by buying stocks LOW, you can minimize your losses (since you didn’t pay much) if the stock tanks and maximize gains if the stock excels. Buying high and selling higher is nearly impossible to do with any consistency and doesn’t really give more advantages return-wise.

    Some of the greatest investors like Benjamin Graham, Warren Buffett, Bill Miller, and others have all advocated the “Buy Low, Sell High” approach, but who advocates the “Buy high, sell higher”? The guys on CNBC’s Fast Money….and that is not a good thing (if it works so well, they would all be billionaires).

  3. Sun |  Jun 15, 2007 at 3:16 pm

    Andy: Regarding China, I agree with you that things are working in a different way in China than here in US. They have their rules and regulations that are also different. Fortunately, when you invest in ADRs, you are not exposed to the same amount of risks than investing direct in Chinese market. So there’s a kind of buffer between US investors and the Chinese market that can reduce the risk.

    James:I agree with you that nobody can predict which price is higher and how high/low it may go. As for XFML, I feel its sharp decline has nothing to do with their business or earning and that’s why I feel adding a little more when the price became attractive makes sense.

  4. KMull |  Jun 16, 2007 at 6:45 pm

    Won’t you hit tax issues with the day trading?

  5. Sun |  Jun 19, 2007 at 10:17 pm

    KMull: Yes, I will have to pay taxes if I make any money from trading, but I think making money is more important and that’s also the whole purpose of trading.