The share price of Powerlong Real Estate Holdings Ltd (1238.HK), since its listing in 2009, had stayed low for a couple of years, but it finally surfaced on 9 March and broke above its initial public offering (IPO) price of HK$2.75.

Now that it is no longer a “tied up stock”, I think its price stands to increase even further. In fact, the stock has been on an uptrend since 9 March, registering an increase of about 11 percent.

5-yr chart of Powerlong Real Estate Holdings Ltd. Source: Bloomberg

The difference between investing in stocks and gambling

I was a long-term holder of Powerlong stocks in the past, even though it had been a “crab stock”.

(Editor’s note: a crab stock is a Hong Kongese term referring to stock whose price fell after it had been purchased, and stayed low or “tied up” for a long time, and just like a crab with its legs all tied up, it cannot go anywhere.)

crabs tied up

When it comes to people trapped in crab stocks, there are people who invest and people who gamble. An investor who is tied up in crab stocks can still wait for a recovery and collect dividends in the mean time. Given that he has not invested into fraud stocks, he should be able to recover his capital sooner or later.

But it’s a different story for the gambler. Some gamblers increase bets when they want to increase their winnings, but doing so often cause them to incur heavy debts.

This is also why I discourage traders from averaging down (i.e. buying additional shares of the falling stock that you are holding, in order to bring down the average price of all the shares that you have paid for).

I see such a move equivalent to increasing bets. Do it a few more times, and you’ll have no money left in your pocket. The result is abysmal.

Do not buy additional stocks when tied up in crab stocks

If you happen to own crab stocks, the first thing you should do is to weigh and figure out if the stocks are fraud stocks. Even if they are not fraud stocks, please do not average down (or increase bets).

Instead, you should patiently wait for the stock price to rise back up while collecting dividends in the mean time. Learn to “forget” about this stock. It may be in your hands, but it should not be in your heart.

What if you happened to have bought fraud stocks? Too bad, I cannot help you. Just remember: Do not increase your holdings even if there are rights issues. Accumulating those stocks would only cost you more money.

I notice from television and radio that some traders would start panicking and phoning up experts for advice when the shares they’ve purchased fell by 2 percent. But in my opinion, if one cannot even handle a two-percent fall in the book value of his shares, he should probably reflect on whether he is fit for the game of trading.

One’s greatest enemy in the stock market is his own psychological weakness.

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