At this time last year, January 2009, the stock market was gloomy. Even sophisticated investors like bankers, UOB chairman, Mr Wee was worried about the state of the economy. It proved what Warren Buffet had said about being greedy when others are fearful is right. However, the bargains were not in large cap or blue chips companies, it was in the small cap stocks.
At this time, buyers of stocks in DBS bank, SGX, must have looked with disbelief and incredulity as friends (who bought Ho Bee or Rotary) told them that their return is 6 times. DBS bank and SGX stock rose from $7 to $13 and $5 to $8 respectively. Ho Bee and Rotary rose from 30 cents to $1.90 and 22 cents to $1.20. $100k invested would return $600,000 in a year time.
Investors who sold Ho Bee and Rotary must have ignored the many right things Ho Bee and Rotary‘s management did. Ho Bee had a large number of fully sold projects TOP in year 2009 (which meant that it will receive large amount of cash inflow as most of the money is paid to developers when the projects TOP). Rotary story was that it had cash per share of 22 cents and that it had recently paid off $40 M of loan.
How can a company like Rotary with no debt go bankrupt? It also proved again that Peter Lynch advice is timeless as he advised that small cap companies have better growth potential than larger cap companies and it is important to stay tune to the story. If there is any lesson to be learn, it is to understand the story of the stock you are holding and stay tune every 6 months.
His advice on walking in when there is no crowd and walking out when a crowd forms is a strategy I have used from investing, shopping and travelling etc. I avoid the maddening crowd when people rush for work during the morning peak hour and retail peak hour on Saturday. We go shopping on weekdays and I go to work at about 9.00 am which is after peak hour. It has served us well.
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