Is it possible to earn over HK$5 billion in three months by investing HK$1 million in stock futures? No way, you would say, as such fabulous return appears beyond the realm even for legendary punters such as George Soros.
Well, hang on and take a look at what a Hong Kong woman appears to have achieved, even though if it is just in theory.
In a contest organized by Bright Smart Securities (01428.HK) recently, a woman named Linda Lee Lai-kwan reaped a nominal return of 5,200 times her investment in stock futures over three months.
The contest saw each participant handed HK$1 million in notional money and asked to make Hong Kong equity futures bets over a three-month period from April.
At the end of June, whoever reaped the most gains would be declared the smartest investor.
As things turned out, Lee won the contest, as she grew her HK$1 million initial capital to much as HK$5.2 billion.
The first and second runner-up, meanwhile, had HK$2.7 billion and HK$55 million respectively.
What’s the secret of Lee’s success?
Well, she made the right bet with regard to the outcome of Britain’s June 23 referendum on the nation’s membership of the European Union, and the market swings prior to the vote.
As for Lee’s background, she is said to be just an ordinary investor who had been making small investments in Hong Kong equities regularly, helping her gain some expertise.
In the simulated trading contest, she placed her bets on the assumption that the “Leave” camp will emerge victorious in the UK referendum, which is exactly what happened.
Anticipating market turbulence following the Brexit vote, Lee sold stock futures at a peak level prior to the vote when most people were hoping the “Remain” camp will prevail.
After the shock referendum result, the Hang Seng Index once plunged more than 1,200 points, helping Lee score big gains.
Of course, it was all just a game and Lee didn’t actually put in any of her own money.
Still, she was recognized as a savvy investor and was awarded prize money of HK$25,000. The first and second runner-ups got HK$15,000 and HK$12,000 respectively.
Stock index futures are widely known for use of high leverage. The leverage level could reach over 10 or even 15 times with margin money.
How did Lee reap such whopping returns? She opened position with HK$1 million in April and bought 16 Hang Seng Index futures contracts.
She placed all her bets in one direction and closed her position after taking massive profit. Then she would increase bets in another direction and score further gains, making money over several rounds, as the market swung both ways ahead of the vote.
Lee displayed sharp investment sense as well as great courage, but we should bear in mind that all this may work only in a paper competition.
In real life, when people use real money, very few will have the courage to make such large bets.
Most people will play safe if they manage to make HK$10 million from HK$1 million. After achieving their target, investors tend to become conservative and not put their gains at risk.
During the contest period, the Hang Seng Index saw five big ups and down, during which most participants placed bets in the wrong direction. But Lee anticipated all the swings correctly, helping her score big gains.
If there is one lesson for investors, it is this: Do your best and don’t get distracted by various market noises while making your investment decisions.
If you get carried away or turn too emotional, the results may not be good.
This article appeared in the Hong Kong Economic Journal on July 25.
Translation by Julie Zhu
[Chinese version 中文版]
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