Friday, June 08, 2007

From 60 to 1.15 in less than 18 months

Someone I know asked me in 1996 whether it was okay to buy Sin Heng Chan at 60 ringgit a share. I had sold 200 units at 55 two days ago. I told him that at that price it would be madness to buy. He said his wife got the tip from the horse’s month that Sin Heng Chan was sure to reach a hundred within a month. He further told me that one Tan Sri, a close friend of his wife had given the tip. I warned him that if he wished to try his luck, he should put a stop order at 55.

Sin Heng Chan did hit 60. From there the stock headed south very fast and by Jan 1998 it was traded at a low of 1.80 before it rallied to 4.68. Then it came down again! By August 1998, it hit a low of 1.15. A year or so later, the stock closed at 4.10 before it was suspended for restructuring. On June 8, 2007, the stock closed at 83.5 sen per share.

I understand that he (the person who got the tip) bought 2000 shares at 60 a share and had failed to use a stop-loss. Because of a tip and the failure to use a stop-loss, he had lost over 100 thousand ringgit in just one deal of 2000 shares.

From this instance, you can imagine the madness of the investing or speculating crowd at that time.

The KLCI closed at 1,352.39 today. Its all time high at 1,374.33 was established two days ago. Our present bull market is entirely different from the previous bull markets. This one has great disparity between the blue chips and the second liners.

The 2nd board index closed at 106.10 today. This is only a fraction of its historic high of 682.99. Most second liners, even the ones with good fundamentals, have not been restored to their previous glories. Some examples are:

HSL as at Mar 1997 high: 36.00; now 3.88

Ranhill as at Sep 2003 high: 9.85; now 1.70

MNRB as at Dec 1996 high: 9.00; now 4.64

DRB as at Jan 1994 high: 11.30; now 1.83

FSBM as at Feb 2000 high: 10.50; now 1.47

Choo Bee as at May 1997 high: 4.82; now 2.38

Oriental as at Feb 1997 high: 9.00; now 5.50

For those who have bought any of the above stocks at its historic high, they are still licking their wounds. Hopefully, the market will continue to be bullish going forward. Until the second liners catch up and close the gap between them and the blue chips, the market is unlikely to crash for the present.

Disclaimer: This commentary is the opinion of the writer. It should not be construed as a recommendation to buy or sell. You buy or sell at your own risk absolutely.