Would DIYQuant be caught in Asian Pay TV Trust's recent Mega Crash?

On 14th November 2018, Asian Pay TV Trust (SGX:S7OU) reported its third quarter earnings. Apart from the gloomy outlook, the decision to cut its distribution per unit by 81.5% caused massive unloading of its shares and sent its share price crashing almost 50% to close at 0.161 for the day. Up till today, the share price did not recover and traded in a tight range around 0.16 - 0.17. It is horrible. It is something we wouldn't want to ever happen in our investment journey.


However, such things do occur if you invest long enough, and our job is to try to make it as infrequent as possible.

For the record, Asian Pay Tv Trust has never been in my system's portfolio. Fortunately. But still I decided to pluck the historical prices of this stock into my system now to perform a 'What if' scenario, that is, to see what would happen IF somehow I ended up buying such a stock.

If you have visited my strategy page, you would know that a big part of my system's strategy is based on trend following, meaning the system buys when it confirms that a stock is exhibiting a clear uptrend and sells when the trend reverses. The chart below shows my system's simulated position in Asian Pay Tv Trust, backtested based on its historical prices since 2017. I could have run it from the beginning in 2014 but in order to nicely fit the chart in this blog, I truncated the data to start from 2017 (Anyway the chart shows that Asian Pay TV is in a general downtrend since 2014! Not a good candidate for trend following at all).

(1)
Entry: 26th Apr 2017 @ 0.515
Exit: 15th Jun 2017 @ 0.535
Return: +3.88%

(2)
Entry: 13th Nov 2017 @ 0.605
Exit: 20th Dec 2017 @ 0.575
Return: -4.95%

Since the beginning of 2017, the system (supposedly) only held the stock twice. Both positions were only held for less than 2 months as the uptrend did not follow through. From then onwards, the stock is in a downward spiral which ended with a crash on 14th Nov 2018.


From the above scenario, you can see that, even if I somehow fell in love with this stock and decided to put my money into it, the system would have stopped me out when the price reversed downwards in late 2017. That is why I always advocate that before you enter any trade, you must already have a clear exit plan. When the stock price is not going your way, you must be prompt to execute your exit plan.

The above is just one part of the safety net that my system is deploying. The other crucial one is position sizing. The idea is not put all eggs into one basket. I try to keep each position not more than 15% of my total capital. Even if I was caught in the bloodbath on 14th Nov and my position lost 50%, that would only be at most 15*50/100 = 7.5% of my total capital, something that would not throw my investment journey off the road.

Sometimes in investing, it is hard to predict what would come our way. That's why we have the term black swan event which is an event that is unprecedented and unexpected at the point in time it occurred. What we can do is to build as many safety nets as we can to protect our portfolio from risk of ruin. We try not to let the black swan event happen too often and if it really happens, we try to reduce the damage as much as possible.

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