My Investing Journey-The Construction Stocks 1 comments

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It is now common knowledge that construction peaked in the mid-late 1990s before the Asian financial crisis hit fixed asset investment in Southeast Asia fatally and sank it into the doldrums for the next decade. Because construction order books took some time to be worked off and also partly because of the optimism surrounding the New Economy in the last years of the old millenium, the effects of the secular downtrend in the construction industry were only fully apparent when the global recession took hold in mid-2000.

It was during this interim period that many construction companies started listing on the SGX. To name a few (which I found on the SGX website):Chew Eu Hock(25 cts) and CSC(25 cts) in 1998, Strike(19 cts) and I.R.E.(23 cts) in 1999, Hor Kew(20 cts) and Hong Lai Huat(28 cts) in 2000. Fast forward to 2005, and most of these are trading below 10, or even 5, cents, while Chew Eu Hock has been de-listed. This is in addition, of course, to other construction companies which have been listed longer but have suffered similarly terrible fates: L&M, Wee Poh and Econ are three names that spring to mind.

To put it nicely, the construction companies displayed great timing in tapping the market for funds by listing at their peak; to put it bluntly, of course, directors were finding their exit strategies through the market before it would become clear to all that things were going rapidly downhill.

Things are a bit hazy now where I got the idea to buy Hong Lai Huat and Ipco in mid-2000 but I would guess that for the former I had seen the high trading volume and continual price rise since its IPO in July and decided to buy into the rising trend at 42 cents (bullish investor talk on online forums which I had started to visit also helped), while for the latter it had dropped from its peak at $4 (in early 2000) and I tried to bottom-fish at 1.00 (and again forumtalk gave me the herd confidence to follow). It was my first foray into penny stocks on which the old adage "high risk, high return" had lured my interest; ultimately, my returns from these two stocks taught me to focus on the risk factors in the future before plunging in.

Hong Lai Huat nowadays trades as PDC at about 2 cents (and negative NTA) and thin liquidity (like most other construction stocks) and I was lucky to get away with a 10% loss one week after I bought it, heeding another old adage (this time wisely) "cut your losses". Besides, I had realised I knew nothing much about the company, and had just bought it on a whim. As for Ipco, I was not so lucky: within one week it fell 30% and I liquidated in panic at 70 cents. Ipco was into infrastructural development and had surged on its Indonesian contacts (L&M also comes to mind in this respect); similarly it collapsed over these past few years as Indonesia underwent a series of crisis that sapped away investor confidence. It is today an investment holding company trading at 7 cents.

Monetarily it was no big loss, for I had only purchased 1 lot in Hong Lai Huat and 2 lots in Ipco (actually, I was being silly for commission in a round trip would cost significant frictional loss) but it did my ego a whole lot of good: it bruised it sufficiently that I decided to do basic research on a company next time before hitting the "Buy" button, and not to trust my "instinct" (which could not be trusted for newbies: beware). In fact, from then on I learnt to take a deep breath and undertake a minute of pensive reflection whenever I got one of those "instinctive" bull-thoughts on a stock that I read about (through analyst/newspaper reports, or forumtalk, or just watching the Active Movers screen): this was especially useful when I happened to be on a day off and got itchy fingers after watching the counters flashing on the screen. The other lesson, of course, was that one had always to interpret things in context, even recognised words of wisdom like "high risk high return" and "buy on the rising trend". It would take experience, and I would have to roll with the punches with every investing/trading decision: buy, sell, hold, or even inaction.