Homepage
PR Newswire
24-10-2010, 07:13 AM
Perhaps it's not about "refusal to quit". It's more about investing and focusing on the business, rather than the stock. And of course, in a bear market, over-leveraging kills......those are the lessons we can learn from this article by Dennis Chan.
Oct 24, 2010
small change
Harsh lessons from Asian stock crisis
By Dennis Chan, Deputy Money Editor
A recent Me and My Money column about grooming consultant Genecia Luo's fear of the stock market struck a chord with me.
Ms Luo, 28, told The Sunday Times that she considered investing in shares a risky business and steered clear of them. Her father had lost his life savings in the stock market during the Asian financial crisis in 1997. Her family's traumatic experience meant she had to earn her own pocket money from a young age. She started teaching aerobics, yoga and line dancing at the age of 16.
Those of us who were heavily invested in stocks can testify to the heartache and pain of losing our shirts during market crashes.
I can empathise with Ms Luo as I was similarly affected when my father lost his fortune during the Asian crisis. Like most novice investors at the time, Dad was sucked in by the monstrous 1993 stock market rally the likes of which have not been seen since.
The period from 1993 to 1996 was the golden age for stock investments. There was so much easy money to be made that everyone wanted to have a piece of the action. Prices climbed to dizzying heights, some quadrupling in one year. The market craze grew to such an extent that, at some wet markets, you could not get decent meat or fish by mid-morning because butchers and fishmongers would have packed up and left to be at the market opening at 9.30am.
In those pre-Internet days, you had to park yourself in front of giant screens set up at the stockbroking houses to keep up with stock price movements. And if you were chummy with your remisier, he might even have let you sit beside his trading terminal.
I did not know much about the stock market. Occasionally, I would run some errands for Dad, shuttling between home and the stockbroking house to fetch cheques and shares scrip.
But I could tell it was an exciting place, judging by the nervous energy from the crowds of mostly middle-aged men and retirees who nested daily in the stock-viewing gallery. Every now and then, some numbers on the screens would flash, invoking 'oohs' and 'aahs' around the room a la Mexican-wave style.
I had no clue what that was about.
To compensate, I smiled a lot. It wasn't hard. Everyone seemed to be having a good time.
Their beaming faces formed a lasting memory, for I have no recollection of the haunted mien of these investors when the bad times rolled by. I had a proper job by then. But I remained in the thick of the action, reporting on the financial mess for The Straits Times as a business reporter.
What a mess it turned out to be, with benchmark stock prices falling by as much as 80 per cent from its peak on February 1997 to its trough in October 1998. It was the biggest crash I have experienced, dwarfing even the 2008 sub-prime crisis in the United States that threatened to engulf the world in a financial meltdown.
We know now how bad the Asian crisis was. But only in hindsight. When stock prices started falling in early February 1997, no one recognised it as the bursting of a bubble. 'A healthy correction' and 'Market is taking a breather' were some popular refrains.
It did not help that the crash was not a spectacular one but came in dribs and drabs, akin to a frog that is slowly being boiled alive.
It was a slow, lengthy tumble that was punctuated by bouts of short, sharp gains as bargain hunters repeatedly plunged into the market. They were hoping to make a quick profit from a market rebound.
But the trouble was that stocks became cheaper and cheaper and the gungho investors soon lost heart. By the time prices hit the floor, investor confidence had been torn to shreds.
Ever the cockeyed optimist, Dad's propensity to take big risks with borrowed funds proved to be his undoing. He tried to recoup his losses by doubling up his bets as the shares fell, employing a trading technique known as 'averaging down' in order to lower the cost of his share ownership.
This idea has its merit. However, he was too eager and waded into the water when the worst of the storm had yet to come. Bad timing alone would not have been a fortune breaker. But he was also overleveraged and could not stave off the numerous rounds of margin calls from his broker. Consequently, he was forced to liquidate all his shares at a huge loss.
Fortunately, Dad is tough and he took the blow with equanimity.
Unlike Ms Luo, I was not put off from investing in the stock market by the debacle. Perhaps I was able to deal with the fallout better because I was much older than she was when our fortunes were lost. It also helped that Dad was then no longer the sole breadwinner of the family.
Nonetheless, I'm sure my conservative approach to investing is shaped by his failures. I tried to learn from his mistakes. He bought speculative counters like Renong, Idris Hydraulic and Promet. I prefer blue chips like Sembcorp Marine, OCBC Bank and StarHub. He treated debt like a bosom mate while I look at it as a dirty word. He watched the market like a hawk and was an active trader, changing and chopping positions regularly. I am a passive investor who buys shares to keep and seldom transact.
In enunciating our differences, I'm not laying claim to being superior in my investment style. Financial management textbooks tell us that no single investment approach can consistently outperform another. In some years, a passive approach that replicates the performance of an index may provide superior returns, whereas in other years, an active approach in stock picking may be the better alternative.
Choosing a strategy to adopt is often determined by the stage of the stock market's boom-bust cycle which, frighteningly enough, has become shorter and occurs with greater regularity than in the past. Knowing when to quit is key in today's fast-changing investment climate.
I consider Dad's business acumen masterful. He was adept at spotting undervalued stocks and working out the odds. He still has that ability, at 73, to pick a winner.
Some years back while riffling through things in the storeroom at my parents' house, I chanced upon a textbook on catechism belonging to Dad. Apparently, it was required reading for non-Muslim pupils in his primary school days. In the book was a passage on Egypt's seven years of plenty followed by seven years of famine. I thought the story held an important investment lesson for everyone and not just those of Abrahamic faiths.
If only Dad had taken it to heart.
A refusal to quit while he was ahead was what brought him down.
dennis@sph.com.sg
Oct 24, 2010
small change
Harsh lessons from Asian stock crisis
By Dennis Chan, Deputy Money Editor
A recent Me and My Money column about grooming consultant Genecia Luo's fear of the stock market struck a chord with me.
Ms Luo, 28, told The Sunday Times that she considered investing in shares a risky business and steered clear of them. Her father had lost his life savings in the stock market during the Asian financial crisis in 1997. Her family's traumatic experience meant she had to earn her own pocket money from a young age. She started teaching aerobics, yoga and line dancing at the age of 16.
Those of us who were heavily invested in stocks can testify to the heartache and pain of losing our shirts during market crashes.
I can empathise with Ms Luo as I was similarly affected when my father lost his fortune during the Asian crisis. Like most novice investors at the time, Dad was sucked in by the monstrous 1993 stock market rally the likes of which have not been seen since.
The period from 1993 to 1996 was the golden age for stock investments. There was so much easy money to be made that everyone wanted to have a piece of the action. Prices climbed to dizzying heights, some quadrupling in one year. The market craze grew to such an extent that, at some wet markets, you could not get decent meat or fish by mid-morning because butchers and fishmongers would have packed up and left to be at the market opening at 9.30am.
In those pre-Internet days, you had to park yourself in front of giant screens set up at the stockbroking houses to keep up with stock price movements. And if you were chummy with your remisier, he might even have let you sit beside his trading terminal.
I did not know much about the stock market. Occasionally, I would run some errands for Dad, shuttling between home and the stockbroking house to fetch cheques and shares scrip.
But I could tell it was an exciting place, judging by the nervous energy from the crowds of mostly middle-aged men and retirees who nested daily in the stock-viewing gallery. Every now and then, some numbers on the screens would flash, invoking 'oohs' and 'aahs' around the room a la Mexican-wave style.
I had no clue what that was about.
To compensate, I smiled a lot. It wasn't hard. Everyone seemed to be having a good time.
Their beaming faces formed a lasting memory, for I have no recollection of the haunted mien of these investors when the bad times rolled by. I had a proper job by then. But I remained in the thick of the action, reporting on the financial mess for The Straits Times as a business reporter.
What a mess it turned out to be, with benchmark stock prices falling by as much as 80 per cent from its peak on February 1997 to its trough in October 1998. It was the biggest crash I have experienced, dwarfing even the 2008 sub-prime crisis in the United States that threatened to engulf the world in a financial meltdown.
We know now how bad the Asian crisis was. But only in hindsight. When stock prices started falling in early February 1997, no one recognised it as the bursting of a bubble. 'A healthy correction' and 'Market is taking a breather' were some popular refrains.
It did not help that the crash was not a spectacular one but came in dribs and drabs, akin to a frog that is slowly being boiled alive.
It was a slow, lengthy tumble that was punctuated by bouts of short, sharp gains as bargain hunters repeatedly plunged into the market. They were hoping to make a quick profit from a market rebound.
But the trouble was that stocks became cheaper and cheaper and the gungho investors soon lost heart. By the time prices hit the floor, investor confidence had been torn to shreds.
Ever the cockeyed optimist, Dad's propensity to take big risks with borrowed funds proved to be his undoing. He tried to recoup his losses by doubling up his bets as the shares fell, employing a trading technique known as 'averaging down' in order to lower the cost of his share ownership.
This idea has its merit. However, he was too eager and waded into the water when the worst of the storm had yet to come. Bad timing alone would not have been a fortune breaker. But he was also overleveraged and could not stave off the numerous rounds of margin calls from his broker. Consequently, he was forced to liquidate all his shares at a huge loss.
Fortunately, Dad is tough and he took the blow with equanimity.
Unlike Ms Luo, I was not put off from investing in the stock market by the debacle. Perhaps I was able to deal with the fallout better because I was much older than she was when our fortunes were lost. It also helped that Dad was then no longer the sole breadwinner of the family.
Nonetheless, I'm sure my conservative approach to investing is shaped by his failures. I tried to learn from his mistakes. He bought speculative counters like Renong, Idris Hydraulic and Promet. I prefer blue chips like Sembcorp Marine, OCBC Bank and StarHub. He treated debt like a bosom mate while I look at it as a dirty word. He watched the market like a hawk and was an active trader, changing and chopping positions regularly. I am a passive investor who buys shares to keep and seldom transact.
In enunciating our differences, I'm not laying claim to being superior in my investment style. Financial management textbooks tell us that no single investment approach can consistently outperform another. In some years, a passive approach that replicates the performance of an index may provide superior returns, whereas in other years, an active approach in stock picking may be the better alternative.
Choosing a strategy to adopt is often determined by the stage of the stock market's boom-bust cycle which, frighteningly enough, has become shorter and occurs with greater regularity than in the past. Knowing when to quit is key in today's fast-changing investment climate.
I consider Dad's business acumen masterful. He was adept at spotting undervalued stocks and working out the odds. He still has that ability, at 73, to pick a winner.
Some years back while riffling through things in the storeroom at my parents' house, I chanced upon a textbook on catechism belonging to Dad. Apparently, it was required reading for non-Muslim pupils in his primary school days. In the book was a passage on Egypt's seven years of plenty followed by seven years of famine. I thought the story held an important investment lesson for everyone and not just those of Abrahamic faiths.
If only Dad had taken it to heart.
A refusal to quit while he was ahead was what brought him down.
dennis@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/