My Investing Journey: The Bear Years of 2001-02 0 comments

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Some people complain that they had been born at the wrong time. If only, they say, I had been in the formative years of Singapore, then I would have been able to capitalise on the property boom which has seen prices jump tenfold or even hundredfold. Or participate in the construction and development boom of the 1980s etc etc.

A similar case may be made for me at the time I entered the stock market, right at the tail end of the 1998-2000 dot-com boom. This boom, of course, was what partly attracted me into the stock market in the first place, but it was to end unceremoniously soon after I opened my trading account. Over the years 2001 to 2002, the market was to first drop precipitously until it bottomed, and then enter range trading mode which sporadically produced suckers' rallies that eventually exhausted the speculative energy of the market.

Consider: the dot-com collapse; global recession; a series of corporate scandals such as MCI Worldcom, Enron, Tyco that sapped public confidence in corporate leaders and auditors; 9-11; war on terrorism in Afghanistan and then stalemate and impending war with Iraq (not to mention SARS... will save that for the 2003 writeup). A more unfortunate series of events could not have been "better" scripted. So any investors entering the market at that period (like me) would have had some justification in complaining that he had "entered at the wrong time".

And yet, on retrospect, it might actually have been the right time, in my context as a greenhorn investor. They say that one learns better when he takes action, and learns best when he suffers for it. What was a better time to experience this than during 2001-02 when the bear was flexing its paws? With the newspapers proclaiming a long-term depression every day and talk of GLC restructuring (euphemism for retrenchment) now and then, the newbie learnt to exercise more caution and understanding in all aspects of the investment process: prudence in stock-picking, diversification in asset allocation, diligence in monitoring, zero exposure to leverage, decisiveness in cutting losses and taking profit. That is what they mean by learning in difficult circumstances.

Another good thing was that the market was extremely forgiving of errors and poor decision-making, which provided a good learning environment. What way was there to go for a market that is trading at single-digit PEs and below-parity P/NTAs for many small-caps but up? A flip through the Share Investment issue of June 2002 revealed an interesting fact: very few stocks were reaching 52-week lows, <25 out of ~500, or about 5%. Compare that to exactly a year ago when there were ~50, or 10% of total; or even compare that to nowadays (undoubtedly a bull market) where there are surprisingly 60-70 stocks hitting 52-week lows out of ~600 stocks (~10%). The market was bottoming in mid-2002, although it would consolidate, suffer another blow through SARS (which served as the catalyst) and only start reversing with strength in mid-2003. For a market trading at low valuations one had many options to choose from, and did not run much risk of losing money provided he had holding power. For there was the "spring effect": the more tightly coiled the spring, the more strongly it would uncoil. So it was with stock prices, although at that time nobody knew we were near the bottom; however I was just ploughing a proportion of my salary into stocks every month, with conviction in the spring effect .... eventually.