How do you feel when many of your friends are making easy money in the stock market? Worst still, one of your colleagues just changed a car during current bull market, and you are sitting inside. You try to not to fall into the temptation but many of your friends keep making money with very little investments. One of them told you that he bought 50 lots based on somebody’s “insider news” and the next day, he contra off and make more than $1,000 with zero investment. Can you survive this?
No, you gave up and ask him your first deadly question – “how to contra/short huh”?
In early 1999, local stock market started to recover after couple of years of “bear sleep” (started from Jul 1997 Asia Financial Crisis). I call it a “small bull” because it didn’t last for more than half a year, unlike what we are seeing now (from 2006 – 2007). It was slow initially and then somewhere after Mar 2007, it was obvious that market started to pick up and speed up. I was then just another speculator, and helped my colleagues to set up CDP and trading account. Very soon, we were all earning easy money. By mid-99, a few of of us occasionally made about $1,000 a day. We were laughing at the back of our directors, that they couldn’t earn such an income. Our contra orders got bigger and bigger and one of them traded in 100 lots most of the time. We were gambling, and there is a price to pay. A horrible correction set in in early Jul 1999 and within three days......
While you may have heard on how people changed car through stock market trading, I’ll share with you on how people suffered when market turned against them.
Story 1: Last Man Standing And Then Die
In the 1999 small bull which lasted until end of June, one of my friends was making lots of easy money by trading stocks. Let’s call him Mr. T. Mr. T was the one and only lucky guy who got out of the market almost immediately and totally when the severe correction sets in. He was the “last man standing”. He kept all his prizes which worth about $50,000 to $100,000. Subsequently he stopped stock trading, got married and bought a four-room resale.
But I knew that he would come back. Basically that is human nature. When you found a quick and easy method to win money, and you have been successful, you will come back sooner or later.
After the dot.com burst, Mr. T came back as expected. Somewhere in 2003, a few counters were heavily traded with high volume. For those who had stayed in the market for long should remember BIL, an investment company in hotel and airline. As usual, Mr. T punted with huge orders with only one problem. The market had been hot with BIL for quite a while and Mr. T was, in a way, late and became one of the “last men”. Share price of BIL got weaken and didn’t move beyond his purchase price. As he traded in huge quantity, a drop in every cent means a lot for an average income-earner. I was told that he also got burnt in other counters too. Mr. T ended in huge debt between $10,000 to $100,000 which he could not pay off. The broking house blacklisted him and took action to claim back their money.
Mr. T start to borrow money everywhere, from friends, colleagues and even superiors. He wanted to sell his house to pay off his debt but he couldn’t do it. This is because the property market was very bad then. If he sells it, he will realise another big losses. He kept his secret from his company but was soon exposed. Disciplinary action was taken against him and he resigned from his comfort zone in the midst of global recession. Unemployment rate was high then and in order to keep his family, Mr. T worked as a nightclub “manager” after daytime’s job.
One more thing, from what I was told, Mr. T never return the money back to his ex-colleagues after his resignation. He just disappeared. So, remember that if you lend money to a gambler, the first thing you should do is to write-off the loan as bad debt. Chances are, you're not getting it back.
Story 2: From Stock Market To Commodity
I had another friend who is a handsome chap. I mean it. Let’s call him Mr. A. Mr. A is handsome and change “partners” frequently. I used to joke with him that someday, he would have to payback. He was also one of those who speculated heavily during 1999 small bull. Similarly, he got burnt but one of his girls settled the debt for him. Wow.
Thereafter he was posted out and we seldom keep in touch. A year later, I was invited to attend an “old buddies” gathering. The purpose of the gathering was actually because Mr. A got into severe financial problem, not with loan sharks but with SIMEX. He confided to us that his new girl was working in SIMEX. And then he was persuaded to trade commodity after he was convinced on how easy it is to make money from it. The end result was that he made a loss of approximately $60,000. He paid the debt through credit cards and then the banks were suing him for payment. By the way, last time you can have duplicated credit limit with many cards. You finished the limit with one card and you can go on to spend on another. Today you can’t do that. There is only one credit limit no matter how many cards you hold. A brilliant policy lay down by the MAS.
Mr. A tried to negotiate for easier payment scheme with the banks’ management but they referred him to their lawyers. And when he wanted to negotiate with these lawyers, they replied that they had to follow their clients’ instructions. So the banks reached my friend’s company and his pay was frozen. According to him, his pay was “re-structured” and a large part of it was used to pay bank debt and court/legal fees. And for that large part that was used to pay off the debt, a large portion of it was used to cover interest. For those who studies account or finance should understand amortising loan. And now we know how mean a bank can be when they want their money back. That’s probably why I am always sarcastic when bank salesmen “beg” me to use their loan. I always replied, “Why do I need a loan for out of nowhere? I’m so fortunate to be debt-free”.
Mr. A has problem even with his meals!!! Collectively, we lend .jpg)
him some money to tide over. He knew this blood-sucking arrangement cannot go on and so he applied for bankruptcy. Yet there was one very last problem. Mr. A’s company is likely to terminate his contract before expiry. But he was sponsored for further study before and he may have to payback this benefit for early termination. 一波未平一波又起.
What happen to his relationship with this SIMEX girl then? You will never believe me. Mr. A told us that this time, he really really fell in love with her and beg for her return. She didn't give a damn. Anyway, that is not my point here and is a bit out of scope.
Conclusion
I had numerous stories like this. I can go on for days but let’s don’t waste our time and come straight to the learning point. If you gamble in whatever forms – stock market, football, casino or commodity, high chances are someday, you may have to chop off both hands. Your life, career and business may be shattered and you will also implicate your whole family. When you gamble, the cruelest thing that can happen to you is that you make lots of money initially. This is because when you finally incurred a loss, usually it is like "one time finish all" scenario. One loss and you are finished. That's why whenever someone made small losses in stock investment, this is how I encourage him – “it is good that you fell down initially and learn and become successful later. Life would be cruel to you if it is the other way round”.
After the 1999 small bull, I started to (self) learn value investment through books written about Warren Buffet’s investment strategy. I grasped the idea easily with accounting background and experience in the stock market. Nowadays I seldom introduce friends to my remisier and I never teach or write article about stock speculation. To-date, I have many times recovered all my previous losses. Back in 90s, one of my ex-colleagues asked me if I was making money from stock market every year. I couldn’t answer that question. I was hoping that someone could ask the same question again. Because this time, I got a firm answer and records.
