Friday, 28 November 2014

The perils of the stock market (Part 1)

Recently a fellow blogger wrote an article on the topic: Do you have what it takes to withstand the bear market?

I would like to add that beside the threat of the bear, there are certainly many more dangers in the stock "forest".  People should not rush headlong into the stock market without understanding the perils involved. There are many ways that we could lose money.

1. Daylight Robbery - CLOB shares

To recap - In the old days, we could purchase Malaysian shares in Singapore through over-the-counter trade, the so-called Central Limit Order Book, or CLOB, as the market was known.
Malaysia unexpectedly introduced capital controls on Sept 1, 1998 (Asian Financial Crisis) and declared the trading of Malaysian shares on Singapore's Clob International to be illegal.  All CLOB shares investors were burnt badly.

I lost 100% of my investment. Lucky that my invested amount was small as I got on the CLOB train at the eleventh hour. Or perhaps unlucky as I would miss the CLOB train by being just half a month late.

2. Once a blue chip, not always a blue chip - Chartered Semiconductor

ST Engineering, SingTel, SPH, etc are blue chips, then Chartered Semiconductor was once a heavy weight blue chip.

Chartered Semiconductor was created in 1987 and Singapore Technologies Engineering Ltd was part of the venture. It was once the world's third largest semiconductor foundry. In 2000, ST Engineering wholly acquired Chartered Semiconductor. 

In the heydays of Chartered Semiconductor, the share price was well above $10. But after the Iraq War and later the SARS, the share price crashed to a low $0.73.

After that the share price stayed at $1 - $2 region until being fully acquired by an Abu Dhabi company at $2.68 in 2009.  Imagined that you brought the shares at above $10 and got back $2.68 at the end...

Even branded name like "ST" does not guarantee anything.

Next one. You are cash rich. You think you can take whatever the stock market throw at you.  In a bear market, you have holding power and you think you can hold on until your shares recover.  But you are wrong... You lose...

(See part 2)


  1. Hi PIF

    It's a good reminder there especially on the CLOB and Chartered Semiconducter. Not any individual counters are invisible when bad things strike, which is probably the reason why reviewing them frequently becomes an important factors to remain successful.

    Awaiting for your part 2.

    1. HI B,

      Thanks for your visit. Hope that my memory has not failed me and do not get some of the data wrong.


  2. Hi PIF, good reminders thanks. Look forward to part 2.

    I think much perils can also be attributable to the individual rather than blame the market.

    The individual can exercise a fair degree of caution by investing when and only when there is a sizeable margin of safety, don't be too bullish on prospects and paying for it as well. After all, a stockmarket is just like a road, there are rules to follow and in general as long as you fall within their set parameters, you minimise chances of accidents.

    1. Henry,

      Thanks for your visit. But sometimes companies may not have the best interest of investors in mind and investors lose out. (See Part 2).