But They Did Not Give Up
Winners are not those who never fail but those who never quit.宝剑锋从磨砺出，梅花香自苦寒来。Don't give up
An inspiring article written by a former SI member, Mossie
— 01 Apr 2006 MY STORY
01 April 2006 Introduction
One night I woke up screaming, “SELL, SELL…” The Market has overtaken even my sleeping hours. My wife made a joke of it the next morning but I knew something was not right. Except, I didn’t know what it was.
Six years has passed since that fateful night. In between, the Market took and thankfully, gave back everything I had: my house, my car, and my family. More importantly, it revealed a lot about of my greed, my fears and myself. Those lessons have stayed with me ever since.
I hope to share my lessons with you. Hopefully, you will not make the same mistakes I did. THE BEAR ATTACK
I have never seen the likes of it before. The ST Index fell from a high of almost 2,000 points in May 1997 to 800 points in Sept 1998. A drop of 1,200 points and the bloodbath lasted a full fifteen months. Worlds came apart. Fortunes, which took a lifetime to build, were wiped out in 12 months.
I was not spared. The Asian crisis took away my business, my house and car. My business floundered, and what sources of cash inflow I had dried up. By May 1998, my assets, including the house were “forced” sold and all I had left was the CPF savings accumulated through 12 years of contributions.
When has bought me to this low point of life?
The foremost answer was I had mistaken a bull market for brains. Years 1990 to 1993
I graduated from university in 1988 and I started my stock trading in 1990. Up to that point, I have never lived through a recession in my working life. Having lived through a string of 6 to 7% growth rates for a few years, I began to take for granted that strong GDP growth rates would be with us forever. Hence, I was totally unprepared for what was to come in the form of the Asian crisis. The mother of all bull markets came along in 1993. That further made me more complacent into believing that bull markets were my destiny in life.
My methodology of investing in stocks was non-existent. I relied on tips from friends and brokers. Swept along with the upward momentum in stock prices, it was easy to make money. Small trades soon gave way to bigger trades as I got bolder.
When “contra” profits piled as the market surged higher, I thought I was a genius and leveraged my trades with bank overdrafts. Bigger profits piled up and I begun to believe I was really a genius. By the end of 1993, I must have made half a million dollars. I was becoming arrogant. Mixing arrogance with the brashness of youth, I thought I was invincible. It was a dangerous mix and a major cause for my eventual down fall.
Success breeds success. It’s not what you know but whom you know, or so I was mistakenly led to believe. I would arrange to get myself associated with professional fund managers who were part of the syndicates to ram stock prices upwards. When they bought, so did I. When they told me to sell, I did. When they told me to cut losses to move to another counter. I blindly followed.
I was mistakenly led to believe it was the easiest money making formula in the world. All I had to do was to follow what “smart” money does, make the money, and then spend that money on these fund managers on gifts and alcohol to ensure that they will continue to look after me.
Methodology? What methodology? Fundamentals of stock investing, what fundamentals? I mistakenly believed then, that it was more important to grease the palms of my “guru’ who told me “what” to buy than asking the all important “why”. I was totally dependent on handouts in the form of tips, rumours and recommendations. I had no knowledge of investing of my own. I was like the mindless dog lapping up the handouts given by my masters. Years 1994 to 1996
Through the influence of friends, I applied what I learnt from contra in the stock market to the property market. From 1994 to 1996, I was part of syndicate that would pool our borrowed funds together and speculate on property. The cycle repeated itself. Except, my ego by now has expanded 10 fold!
We would get our hands on choice units of property launches because one of the members of the syndicate owned a housing agency. Before the ink on the sales option could dry, we would flip the options for a profit. The property market in 1995 was just about to reach boiling point. Finding buyers was not difficult. We had a stream of Indonesians and Hong Kong nationals making a beeline to Singapore. Most of them were taking advantage of Singapore’s attractive immigration policies, especially for those who wanted to be business immigrants. One of the conditions of seeking Permanent Residency was to invest $1m in a business or buy a property. Most of them bought properties and that inflated the property bubble further.
In hindsight, I was sadly lulled into believing that I was a genius for making lots of money at such a young age. The reality was that I was an empty vessel making lots of noise. I was just plain lucky to be around at the right place and the right time. I wasn’t a genius. I had not invented anything that improved the lives of millions. I was a just a plain old speculator jockey that rode up a general uptrend in the stock and property markets. It was my own arrogance that led me to believe that I was smart. I had mistaken a bull market for brains. THE PAIN
The Asian crisis struck in 1997. The cause of the crisis was not specific to what Asians did or didn’t do. It was simply the correction of a very extended bull cycle exacerbated by over borrowing by all sectors of the economy. Punters like me over borrowed to buy shares and properties. Companies borrowed too much to chase over-valued assets like land. Too many golf courses were built. For every dollar of capital, three dollars or more were borrowed against it.
For me, the day of reckoning came in May 1998. It was the month I received notice that my house was going to be forced sold. I had borrowed close to seven figures from banks to support my leveraged lifestyle and my business. When interest rates surged, I had no means to keep up with interest payments. The situation was made worse when my business floundered when I made certain guarantees to suppliers. The bank called on the guarantee and I had to liquidate all my assets to meet the call. My world caved in.
Whatever I owned, my portfolio of shares, my semi-detached house in District 10 and my turbo driven Volvo had to be sold. To put a roof over my head, I had to move back to live with in-laws after the sale of my house. The glorious emperor really had no clothes after all.
In the end, I had nothing to show for my twelve years of working life. Whatever all the trading profits I made in 1993, it was given back to the market from 1995 to 1997. Whatever profits I made in speculating in properties in 1995 to 1996 were lost in 1997. THE BUS TRIPS
After my debts were paid off, I was left with fund accumulated in my CPF, little cash, no job, no car, no house, a jobless wife, two crying babies and lots of time. But since I was living with in-laws, I could not loathe around the house. I would put up a brave point, wore a long sleeve shirt and maintained the impression that I still had a job. My pride demanded that.
But where could I go to spend my day? I would spend a lot of my initial jobless period on the bus. I would sit on the bus and followed the bus on the routes around Singapore. The buses were air-conditioned and it didn’t require much capital in the bus fare. It was interesting to see sights of Singapore I have never seen. The scenery was always changing and that took the boredom out of the day.
I would always have someone to talk to at the Bus interchanges as I shared a coffee with the Bus drivers and those inspectors that maintained the schedules. Most importantly, it slowly removed my depression to know that the average man on the street had harder battles to fight than I did. I saw how they struggled to survive and they did it with great dignity.
Eventually, it became to dawn on me that I could either wallow in my self-pity, continue to ply the bus routes for the rest of my life or I could put yourself to study how to invest properly. I decided on the latter.
Over the latter half of 1998, I put myself under a strict regime of self-study. I devoured every resource material on the Asian crisis. One of the sites I visited regularly was Nouriel Roubini's Global Macroeconomic and Finanacial Policy Site. From there, I also understood more about the interplay of the economic business cycles on different classes of assets (Bonds, stocks, and commodities). I make more comments on this in the section Investment Clock.
I also gave myself to the study of Technical Analysis. I read Edward and Magee’s “Technical Analysis of Stock Trends” cover to cover because I wanted to recognize accumulation patterns by “Smart Money”. I needed to understand how syndicates set themselves up to ram prices by accumulating stocks during quiet spells in the market.
Knowing how “Smart Money” worked, they would corner the market over a long period of time when no one was interested in the market. Their eventual aim would be to ram up prices when the bull market resurfaces. Always, the “Dumb Money” or the faceless crowd would succumb to the herd instinct and left holding the proverbial baby. I needed to recognize accumulation and distribution patterns so as not to get caught by “Smart Money” as they sold. Technical Analysis provided the tools.
To understand the operating of the herd instinct and how not to succumb, I read, “Contrarian Investing: Buy and Sell When Others Won’t Make Money Doing It” by Anthony M. Gallea. From there, I learnt that crowd behaviour is usually wrong. To succeed in the stock market, I must behave in the opposite fashion. That is, fear when there is greed all around and be greedy when there is fear.
For Fundamental Analysis, I read both books by Peter Lynch. They were “One Up On Wall Street” and “Beating the Street”. I learnt from these two books that it was possible for the average man to beat the professionals at the game. This was achieved by, first, having an understanding and a love for business. Second, by being observant of great products and after some homework, invest in them.
Lynch mentioned coming across stocks like Nike at the shopping malls. In our context of stocks listed in Singapore, it could be Tiger Balm (Haw Par Healthcare), GP Batteries. In the Hong Kong context, it could be Giordano, Esprit and so on.
I also learnt that what mattered most was not only must the business economics be sound, but that the Management of the Company has to be capable to deliver growing earnings consistently over time. Buying stocks with cheap Price Earnings Ratios, low Price to NTA or high Cash per share is not enough to spur me to invest. The company must be able to convert capital into sustainable earnings growth over time. APPLYING THE LESSONS LEARNT AND THE SUBSEQUENT BULL MARKET
After reading, studying and reviewing my every trade I made in the last year and a half, my mistakes became clearer to me. For one, I did not have a methodology. I depended on handouts from friends and brokers. I saw the market as a place to gamble, not a place to invest in companies. I never did any homework on the company I speculated in.
I allowed emotion to rule me by succumbing myself to crowd hysteria. I allowed prices to condition my mind. When prices moved up accompanied with high volumes, I would GET ALL EXCITED and pile in as well, hoping that the momentum will move me along. Worst, I chased prices. When prices fell to the lowest levels, I failed to buy because I was swept along in the pessimism.
By 1998 following the burning of Indonesia, prices in the market have fallen to levels not seen in the last ten years. Companies with viable businesses had fallen to depressed prices. Stocks like Inchape Marketing were even trading below their cash per share. Tan Chong International fell to HK12cts, way below the value of the motor franchise.
Having read volumes about the stock markets, I knew that I had a golden opportunity before me. Should I be buying when there were extreme levels of fear pervading? Did viable business like DBS justify being at their lowest levels historically? I knew I had to buy. But sadly I had no money.
At about Sept 1998, my lucky break came. The CPF liberalized the use of CPF funds. I turned to my wife and asked her for permission to pool our CPF Funds to buy the market. She replied with an emphatic, “Are you mad?!??” I could understand her anxieties. The last thing she wanted was another encounter with Mr. Market.
I had to convince her that I was a reformed man. To her credit, she was prepared to have confidence in me again provided that I showed her that I have done my homework in the stock I wanted to buy. With that mandate, I set myself to work again.
Coincidentally around that time, the Government announced that there were plans to put together a multi-modal transportation system. In other words, they wanted to integrate the bus and rail (MRT) operations to eke out greater efficiencies.
I knew how bus operations worked. Don’t forget, I spent a lot of time during the initial months of unemployment sitting around bus stations and drivers. I knew the cash flow nature of the business and I was convinced that such a business was a cash-generating machine. This became my first principal in investments: BUY BUSINESSES you understand.
By that time, I was so familiar with bus operations that I knew some major statistics by the back of my hand. For example, Singaporeans took five million trips on the bus and trains a DAY! I also knew from observation that the greatest profits were earned on the feeder routes around the satellite towns. (Hence, the need for multi-modality. MRT lines bring people to people centres and the feeder buses distribute them to the outskirts.)
This leads me to my second principal: DO YOUR HOMEWORK. I dug out all the Annual Reports of DELGRO, SBS and TIBS and I read voraciously all the newspaper cuttings surrounding these companies. I even went to the extent of digging out the Government White Paper on Multi Modal Transport and tried to digest the logic behind the Government’s intentions. From the Annual Reports, it confirmed that the business was positively generating cash and that valuations were cheap. If you have a chance to see the company at work, do so. Nothing beats visually inspecting the workings of the business.
This leads me to my third and most important principal. Buy into stocks or industries that will be undergoing CATALYTIC CHANGES that the market had not yet noticed. Don’t buy into a cheap company for the sake that it is cheap. Cheap companies can remain cheap forever. But buy into a cheap company that was going to embark on positive changes that will enhance the profits.
For the bus companies, the CATALYTIC change that was about to happen was the change in Government operations. Bus operators will be allowed to run rail operations. That would have the effect of bolstering their cash flows and increase operating efficiencies. The Government’s intentions were splashed across the major newspapers but no one noticed. The prices hardly budged when it was announced.
Currently, the companies undergoing catalytic changes are in the business of Supply Chain. Specifically, companies like TeckWah and Mentor Media are doing roaring businesses and it’s reflected in the earning results. The catalyst: major acceleration towards outsourcing by MNCs as a result of the emergence of IT, e-commerce, efficient transportation services and so on.
Needless to say after all that work, I convinced my wife that I was a changed man. I got her blessings and I set about to buy all three bus companies from October/November 1998 onwards. But never did I expect the Bull market of 1999 to return so quickly that it did, and with such ferocity. My three bus companies moved along with the market liquidity and I made back all I had lost from the previous years.
There are countless opportunities existing in the stock markets that are about to face catalytic changes we can exploit. But it needs the determination and instincts of a hound dog to sniff them out. Thankfully, the playing field has been made more level with the Internet and the freer flow of information. Gain knowledge, for knowledge is KEY to your success.INVESTMENT CLOCK
The key understanding from studying the Investment Clock was realising that that macroeconomics determined the tidal shifts in the direction of liquidity. At certain phases of the boom bust or economic cycle, it is best to sell everything and take a holiday. Likewise, at certain phases of the cycle, it’s safe to load up and be engaged. At times commodities, bonds and stocks out-perform one another.
I never understood The Investment Clock during the years 1993 to 1997. When the property and stock markets were at boiling because of availability of cheap credit and liquidity, I should have avoided them and stay in cash.
Just as it is important to understand how the moon affects tidal movements in the sea, direction of interest rates sets the tone for the markets. CONCLUSION
What I have shared in these pages are just my lessons from my journey from losses to recovery. I hope they have been useful to guide as you navigate your way through these treacherous waters called the Stock Market.
But please note, my suggestions here are not the only way. There are many other ways to successful investing. There are also a lot of other areas I have not mentioned for the sake of brevity. For example, I have not talked about risk management (an important area) or planning. Maybe, if there is interest, I will share my thoughts on that.
For now, it leaves to wish one and all, “HAPPY INVESTING".