Author: sgwealthbuilder

The recent mini-correction in the stock market must have caused some jitters to many local investors. Most of us wonder whether the current Euro debt mess, which has been on-going for three years, will spark off a major world-wide stock market mayhem or taper off in a few years. My own personal view is that history will repeat itself all over again and that a major correction is coming, probably at the second half of the year.

During 2007-2008, my company announced pay adjustment for all existing employees and I remembered my pay was adjusted upwards by $550. The feeling back then was buoyant for everyone in Singapore. Fresh graduates got record high starting pay and people were making money in the stock market. Penny stocks were speculators favourite plays and volumes for these counters were extremely high.

Then, reports of “sub-prime mortgages” started to surface in newspapers article. Most people just shrugged off this development in the United States. The issue dragged on for several months and soon imploded with the collapse of the Lehman Brothers. Of course, the stock markets tanked and caused world-wide mayhem. There was a U.S. Presidential Election and Obama was sworn in as the new President to deal with the financial crisis.

During the 2008 – 2009, stock market crashed throughout the world and triggered the collapse of several big US banks. It was a period of chaos and great uncertainties. Back then, even the Singapore government had to make the unprecedented move of guaranteeing all bank deposits till end 2010 to prevent bank runs. There were mayhem and carnage during the financial crisis.

There were also opportunities. There was one point I was very tempted to purchase Citi’s shares, which was trading at USD1.00 through my Philips Securities POEMS account. Citi’s shares was trading at rock bottom and anything below USD1.00, chances of it being nationalised by the US government would be very high. I did not proceed ahead to buy the shares as I thought the risk would be too much for me to take. Of course Citi survived the crisis and its stock subsequently recovered.

The “Great Financial Crisis” presented many good opportunities to make big bucks in the stock market but I was unable to fully utilize my Opportunity Fund back then as I was saving up for my wedding. What a shame! The 2008-2009 financial crisis was a rare window of opportunity for smart investors to make their fortunes.

Have you ever paused to wonder why Singapore has one of the highest concentration of millionaires in the world? There are so many cash-rich Singaporeans out there that even during the recent downturn. Many of them were seen snapping up private properties like hot cakes, despite the sky-high prices.

The reason is simple: many of them made big money from the stock market during previous financial crisis. It may sound odd, but every crisis is an opportunity for retail investors to make big money because that is the time when stock values dropped below their intrinsic values.

Most investors, especially the novice ones, tend to panic sell during stock market crashes because of the crisis in confidence. This is a typical “herd mentality” mistake that most investors tend to make and because of this, they tend to “buy high, sell low”, instead of “buy low, sell high”. The reason why most investors committed such mistake is because many of them are not fully aware of how the market works.

The stock market consist of three groups of players, namely Institutional Investors, Rich Investors and Retail Investors. Institutional Investors are players who invest on behalf of investment/insurance companies. They are the ones who usually flow huge amount of “hot money” in/out of the financial markets.

To make explosive wealth, one must have opportunity fund to invest during times of crisis. In September 2008, the collapse of Lehman Brothers (an investment firm in the United States.) ignited the world financial crisis. Before the collapse of Lehman Brothers, fear of a “big bang” recession had been lingering around for months due to the festering subprime mortgages mess in United States.

But no one would have predicted the magnitude of the economic crisis. Back then, the President of the United States announcing no bail-out for Lehman Brothers as it was considered not “too big to fail” (unlike other mega banks like Citibank, Bank of America, etc).

The next day, there were blood-letting carnage in stock markets throughout the world. Dow Jones witnessed a jaw-dropping decline of more than 770 points overnight. Singapore’s stock exchange (SGX) was not spared either. In the six months following the collapse of Lehman Brothers, from September 2008 to March 2009, stock markets worldwide fell by almost 40%, wiping off about USD16 trillion in capitalization. Singapore’s stock exchange also fell by close to 35%.

On looking back, the 2007-2009 financial crisis was indeed a “once in a generation” defining event in the financial sector. Personally for me, it had been both an eye opener and rewarding experience for me.