kcchongnz blog
Is the stock market heaven or hell? Part 2 the Roaring 1990s. kcchongnz
The Roaring Mid 1990s
“Much of the real world is controlled as much by the “tails” of distributions as by the means or average: by the exceptional, not the mean; by the catastrophe, not the steady drip; by the very rich, not the “middle class.” We need to free ourselves from “average” thinking.
Philip Anderson, Nobel Prize reception in physics, “Some Thoughts About Distribution in Economic”.
I have written something about the market rises and crashes in the 1980s in the following article:
http://klse.i3investor.com/blogs/kcchongnz/73543.jsp
It can be seen that the stock market does provide good opportunities to build long term wealth for those who are well prepared as shown in its long-term uptrend and the periods of high appreciation of share prices in the 1980s. However, there were a number of severe market declines and crashes in the 1980s resulting heavy losses happened in just as fast and furious without any warnings and punish those who were greedy, ill-prepared and ignorant.
The high growth in the Malaysian economy and the proliferation of privatization projects initiated by the Prime Minister Mahathir Mohamad and rapid bank credit expansion resulted in the equity boom in 1993 through 1997 with foreign investors frocking into the Kuala Lumpur Stock Exchange (KLSE), and years after that. It became one of the top emerging markets with its market capitalization reached US214 billion in 1995, much higher than the SGX at US151 billion.
Many savvy investors made enormous wealth investing wisely in the market during this period, buying good companies when they were cheap the few years after the fall in 1987.
However, there were more people especially newbies who were ill-prepared entered and started to “play” the market like no tomorrow. Many left their regular jobs and business and became “professional” stock market punters and speculators. Stock broker’s public galleries were filled to the brim trying to earn easy money. Yes, it was easy punting penny stocks and especially the Second Board counters with little or no fundamentals, and making heaps of money, just for the beginning.
The KLCI ran up by 100% from the beginning of the year 1993 to 1275 points by the end of year as shown in Figure 5 below. Malaysian Airline (privatized recently at 30 sen) went up to RM7.80 apiece.
The KLCI did make a little plunge by 33% to 883 points slightly a year later on Jan. 27 1995 from its peak of 1,314 points on January 5 1994. Yes, not everybody made money after all. Some also lost their pants with this correction, especially those traded with margin financing.
The overall market held on for another two years before it started to climb again in early 1996. By the end of February 1997, the KLCI regained what it had lost the last couple of years and increased by 44% to 1271 points, the same as its peak at the end of 1993.
Rahman Hydraulic Berhad (now delisted) share price ran up by 700% to RM47 a piece. Aokam Perdana, a timber concession company sounding like a company which could churn out gold continuously, with a research house valuation of about RM4.00, had its share price ran up to RM31.50. Unfortunately, most of these high fliers had disappeared from the market.
What strike was phenomenal rise of the Second Board Index (SBI) due to the excessive speculations as share price soared to unimaginable level. That is an understatement actually as you can see from Figure 6 below.
The SBI ran up by 156% from 256 points in November 1995 to 656 points at the end of March 1997, in just 16 months. Repco Holdings Bhd, a company involved in marketing and distribution of auto parts and motor oils hit a high of RM140.50 apiece. Biscuit maker Hwa Tai Industries Bhd’s share price tipped over RM200. Transwater Corporation, an engineering supply company, with its share price up 962% to RM77. SAAG, an engineering equipment supplier, went up by 374% to RM27.50. MCSB System, an IT software, services and consultancy provider, with its warrant price up by 1652%! These were just some of those stocks which ran up fast and furious.
Soon after that, as a result of the Asian Financial Crisis which started in Thailand and spreading to other Asian countries, both the KLCI dropped by close to 60% in about just half a year. The markets did recover substantially by about 35% between one to three months. That was the most dangerous part, as those who thought Jaw 1 had ended without knowing the appearance of Jaw 2. The markets plummeted by another 60% in another half a year later when KLCI and SBI closed at 303 points and 77 points respectively on 28 August 1998. The KLCI suffered its biggest daily drop of 21.5% on Sept 8, 1998 after Anwar Ibrahim was sacked as the Deputy Prime Minister. From peak to trough within one and a half year, the KLCI and SBI had lost by 76% and 88% respectively. The crashes in 1997/8 was also far more severe than any of our recent market crashes.
Repco went into financial distress and has since been delisted, like many other second board high fliers such as MCSB System, SAAG, Transwater etc. Hwa Tai closed at 41 sen on 23rd March 2015.
Small time retail investors, speculators and punters, and most of all the margin traders were hit twice by a severe double whammy. How cold one ever recover if he speculated heavily in these, and many other Second Board counters?
How many speculators and punters managed to keep their winnings in the bull run of the 1990s? How many speculators and punters learn a lesson from this worst fall in the Malaysian market? Apparently not many as we went into the new millennium.
Stock market has been providing good wealth to those who know, but it is not very forgiving to those who are ignorant.
Benjamin Franklin says:
“An investment in knowledge pays the best interest.”
Please contact me for comments and questions at
kcchong15training2@gmail.com
K C Chong (30th March 2015)
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Discussions
4 people like this. Showing 12 of 12 comments
the 97's have plenty of big sharks ( few Datuks some still around ), KLSE rules too loose, short selling, T+7, George Soro's, reformasi etc.. Is a PERFECT STORM ( TWISTER Category 5 ).
2015-03-30 20:23
This is an interesting articles indeed! I went through this terrible time.
Repco was a Company with Warehouse in Kepong. The Boss cornered Repco scripts up to RM200 I think he pledged it to some sucker bank as collateral for 90% loan (My Friend Randy went to tender Repco cars under receivership)
I drove to Batu Pahat to have a look at Hwa Tai Factory in Outskirt of Batu Pahat. To my surprise Hwa Tai factory looked so deplorable & dilapidated that it doesn't even looked like anything more than RM200,000. It's stock was traded at Rm200,000 a share. Really unbelievable indeed!
There was this TTB of ICapBiz. He smiled & told all to buy Second Board shares only.
2nd Board?
I was buying all the Company Jeeps & Cars from Espirit. When Espirit was listed around RM2.00 its share price went limit up to RM9.00.
Espirit subsequently crashed back to below Rm2.00.
Interestingly, the day I bought the very last Mit Pajero from Espirit the Share went limit up to near RM3.00
I was so excited as I told the Director of Espirit that his Company share went limit up!
Ha! To my big shock and surprise this was what he said, "Mr. Tan, I am number 3 or 4 in the Company. My 2 other brothers are also Directors. Today is my last day. I have just lost my job. We are closing shop for forever."
But I protested, "Espirit Shares Gone Limit Up Today!" How is it possible?
You just watch the next few days, he warned. {The chicken's head already cut off. How long will the chicken last}
I wish I could warn everyone out there chasing Espirit blindly.
Eventually, Espirit went bankrupt & delisted.
This is a very emotional period for me as I saw one by one of my close friends gone bankrupt & went into hiding,
But as God saw it fit to deliver me. I went through 1997/98 completely out of the market.
To be continued....
2015-03-30 23:19
Posted by CCCL > Mar 30, 2015 08:23 PM | Report Abuse
the 97's have plenty of big sharks ( few Datuks some still around ), KLSE rules too loose, short selling, T+7, George Soro's, reformasi etc.. Is a PERFECT STORM ( TWISTER Category 5 ).
One of the sharks started with "I" and without an "r" and still strong with the recent Kenmark saga.
2015-03-31 03:39
Posted by ks55 > Mar 30, 2015 11:45 PM | Report Abuse
I totally agree "Stock market has been providing good wealth to those who know, but it is not very forgiving to those who are ignorant". Just look around and you may know who are the winners and who are the losers.
No one can be an 'expert' in stock market, but surely one can be better equipped with knowledge, skill and peritus than others provided he is willing to put in more effort. With the slight edge over the commoners, those better equipped will always at the upper hand. It is immaterial whether you are market operator/driver or merely a passenger. It also doesn't matter if you are KYY or ks55.
To invest based on FA coupling with TA and with sound buying strategy will make one stand a better chance to make profit most of the time. Another ingredient for successful investor is ability to overcome greed of oneself. Make decision to buy is easy, but to sell will be difficult.
For value investment, I just follow one simple principle on DY: 生平無大志 只求八巴仙
Good wisdom.
The only super investors I know of are those of the school of Graham and Doddsville.
http://klse.i3investor.com/blogs/kcchongnz/50988.jsp
Sorry that I don't know of other schools as I only have limited knowledge of merely the value investing.
Appreciate others can share their schools of taught and provide evidence that they can work consistently.
2015-03-31 16:43
calvintaneng
Thanks very much for your input here.
Yes Espirit is a classic example of over-emphasis in growth resulting on heavy gearing and over stretching its resources in its civil engineering and property development works. I remember it was doing a land reclaimation work in Malacca which failed miserably. When the credit squeeze came in 1997, it was just helpless and had no way to hide. Bankruptcy was so predictable.
If a public company couldn't stand the results of its high leverage when a black swan event which seems to happen quite often, what do you think about an individual borrowing large amount of money for investing and speculating in the stock market?
2015-03-31 19:41
calvin,
I was actually very surprised of your statement that TTB, a self-proclaimed value investor, advocates the speculation in the Second Board in 1997.
2015-03-31 19:44
Kcchongnz,
Yes, in those GoGo Years of 1993 to 1997 TTB appeared on TV3 smiled wryly and told all to buy 2nd Board Shares.
He was very extreme then.
In year 2006 I learnt that he started ICapbiz. Surprisingly he has very good selection of great stocks.
But later he again he tangent off to another extreme by "Keeping to Cash" and expecting a market crash.
I think his behavior could be due to the reckless years before the crash. Once he was too careless & now he is too cautious.
That's why I call him Turn Turn Boo. Turning from extreme left to extreme right.
2015-04-01 22:39
Kcchongnz,
One more thing. I too, have gone through quite an experience which caused me to go "off course". I shall relate it in your next post in Part 3 how I escaped the Crash of 1997 During The Terrible Asian Financial Crisis.
2015-04-01 22:44
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Posted by ks55 > Mar 30, 2015 05:35 PM | Report Abuse
Mr KCChong. What message do you try put forward?
Will appreciate if you can summarize and highlight the selling points for all to learn. Tq.
We all can learn many differrent things I worte about here from others about the stock market.
The power of the wisdom and Whims of the Collective.
You would certainly be a big contributor here.
2015-03-30 18:18