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THE INVESTMENT APPROACH OF CALVIN TAN

Author: calvintaneng   |   Latest post: Thu, 4 Jun 2020, 11:24 PM

 

'THE GREATER FOOL THEORY By Dr Neoh Soon Kean (Excerpts from STOCK MARKET INVESTMENT), Calvin Tan comments

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This is an excerpt from STOCK MARKET INVESTMENT In Malaysia And Singapore by Dr Neoh Soon Kean, the Benjamin Graham of Malaysia. Year of printing 1985

 

THE GREATER FOOL THEORY (Page 67 Last paragraph)

This is a theory that is usually very popular during the immature phase of a stock market's development. More of the followers of this theory are not aware that the trading system which they believe in goes by this peculiar name. From the stock market's behaviour during the past three booms, we can say that many Malaysians/Singaporeans appear to be strong supporters of this theory. This theory was very popular in the US during the 1920s but since then, it has fallen out of favour even though pockets of true believers still appear from time to time.

 

    In essence, believers of this theory hold that stock prices are not dependent on anything tangible but rather dependent on the continual appearance of more people who are willing to purchase the stocks at an even higher price {these people are the so-called 'greater fools'). Thus, it neither matters what price one buys a stock nor that the stock's price is ridiculously high by any normal standard of measurement. Thus the believers of this school of thought hold the view that whatever stock one buys can always be sold at a higher price because there will always be greater fools than themselves. Thus, it is fine to buy MUIB at $24.00 because there will be another person foolish (or brave) enough to pay $26.00 for it. Believers of the greater fool theory never for a minute think that the supply of fools will be exhausted and that they may be the final purchaser before the crash.

 

   During every stock market boom, there are usually a large number of believers of the greater fool theory and some of them actually make a lot of money on the way up. Some of them get out in time by finding some greater fools to take over their hot potatoes in the nick of time but many find that they themselves end up as the greatest fools because there is no one else willing to bid up the price anymore. Needless to say, the Greater Fool Theory is a much discredited one among academics and most professionals. But it still finds many adherents. Why is this so? Everyone is having too much fun, (that is, making so much money) on the way up that they do not want to leave the market. George Goodman, writing under the pen name of 'Adam Smith' has this wonderful parable to explain how people are caught up in the web of the Greater Fool Theory and do not know when to get out.

 

We are all at a wonderful ball where champagne sparkles in every glass and soft laughter falls upon the summer air. We know, by the rules, that at some moment, terrorists will burst in through the terrace doors, killing many and scattering the survivors. Those who leave early will be saved, but the ball is so splendid that no one wants to leave while there is still time. Everyone wants to enjoy one more dance and sip one more glass of champagne. So everyone kept asking: "What time is it? What time is it?" We look around and find that all the clocks have no hands.

 

  This may be a surrealist's way of describing the stock market but Goodman's parable has a great deal of truth in it. Of course, we know that in every speculative boom of the past, the 'terrorists' did come when most of the guests were still enjoying themselves at the ball. As 'Adam Smith' implies, nobody knows when a speculative boom will end but end it must for that is the rule. At every speculative boom, not many of the small speculators escaped with their gains made on the way up. Most of the smaller speculators known to me eventually lost all their gains and much more than what has been gained.

Some even lost a large part of their original capital. Thus on the next occassion when you happen to find yourselves at this type of a ball, try to leave early. The problem is that once one is caught up in the fun and games of the party, one is apt to lose touch with reality. Chances are that believers of the Greater Fool Theory will hang on to the bitter end, only to be slaughtered. It is better to miss a few dances or a few glasses of champagne than lose one's life. 

In concluding this section, an anecdote about Bernarde Baruch, generally acknowledged to be the greatest stock traders of the 1920s is related. He was once asked how it was that he remained  so rich while many of his contemporaries had declared bankrupt. This was his splendid answer: 'I always sold too early.'

 

Calvin comments:

This greater fool theory could be applied to stocks like IFCA, Sumatech, VSolar, XOX & others

I have people telling me I missed IFCA on the way up. Calvin does not go gambling in casino Greater Fool Type of Stocks.  And how they missed a fortune on the way up  due to my warnings.  And how they finally lost all their 'profits and all their capitals' for overstaying. Now I am not here to tell you how to punt or gamble. I am here to warn of a Greater Fool Stock.

All will have to be responsible for your own actions in investment. 

 

LATEST ADDITION TO GREATER FOOL STOCKS ARE HENGYUAN

 

See the Pump & Dump of Hengyuan

 

 

HENGYUAN REFINING COMPANY BERHAD (4324)

Company Website 
Annual Report 
General Meetings


HENGYUAN REFINING COMPANY BERHAD (4324) Chart
Chart Period:
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Greatest Fool who chased Hengyuan from Rm17 to Rm19 will be stuck up there for a very long time.

The Opportunistic Fools who bought the Falling Knives of Henguan from Rm15 down to Rm10 are also stuck in limbo!!

 

Now the Greater Fool Stock is Jaks

See

JAKS RESOURCES BERHAD [S] (4723)

Company Website 
Annual Report 
General Meetings


JAKS RESOURCES BERHAD (4723) Chart
Chart Period:
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Greatest Fools who chased Jaks near Rm1.80 will be hung up there for a very long time

 

Now in progress are Many Opportunistic Fools who bought the falling knives of Jaks from Rm1.50 to Rm1.00 will also be caught & stuck in limbo later when price of Jaks return back to its true level

 

So take care

 

Calvin Tan Research

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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iamwen Hi Calvin, thanks for sharing such analysis! I always want to read STOCK MARKET INVESTMENT In Malaysia And Singapore by Dr Neoh Soon Kean for such a long time and couldn't find it anywhere, not even the printed version / pdf version, do you mind to share where to purchase it?
31/07/2018 10:29 AM
calvintaneng iamwen Hi Calvin, thanks for sharing such analysis! I always want to read STOCK MARKET INVESTMENT In Malaysia And Singapore by Dr Neoh Soon Kean for such a long time and couldn't find it anywhere, not even the printed version / pdf version, do you mind to share where to purchase it?
31/07/2018 10:29

Wait lah

Hope DR NEOH will come out with a Revised & updated Version

The 1985 now out of print.
31/07/2018 10:41 AM
Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$€£¥ Dr Neoh Soon Kean shared very insightful knowledge into the KLSE in his book. Very good for those who are interested in investing in the Bursa.

I got a copy of the book from a friend.

Well worth to reprint the book even unrevised.
31/07/2018 12:37 PM
TheContrarian I still have my copy. :-)
31/07/2018 7:15 PM
Junichiro I still have that book. It is abt fundamentals of investment. Anyway, Dr Neoh in an interview with The Edge, more than a decade ago, admitted that he missed the bull run of 1993.
31/07/2018 10:55 PM
calvintaneng I first heard of Dr Neoh in the 1990s when My Friend Mr Ang of Alcar Motor told me about him in the Sunday Mail writeup i think.

i followed him on and off as i was very busy then.
In year 2005 i subscribed to Dr Neoh's monthly digest.

Among his first recommendation i bought 20,000 shares of RUBHD or Ranhill Utility Bhd at Rm1.20

RUBHD has an Nta of Rm3.00 and P/E 3. The only problem with Rubhd was no dividend. That put off my Johor Sifu. Oh he missed it.

AND RUBHD WAS TAKEN PRIVATE AT RM3.00

Now Ranhill has resurfaced with all its assets stripped. So i think it is no longer the same.

Over the years Dr Neoh has more hits than misses

In Ajiya alone he is making rm2 millions. i think Dr Neoh still in Top 30 of Ajiya today. My Johor Sifu sold and made Rm1.5 millions just from Ajiya alone. But as times have changed Dr Neoh gets even more defensive and is satisfied with 8% to 10% growth rate which i think he could easily achieve
01/08/2018 12:10 AM
calvintaneng IN MARKET CRASH GREATER FOOL MIGHT LOSE 90% OF CAPITAL OR MORE
11/10/2018 10:27 PM


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