This is an excerpt from STOCK MARKET INVESTMENT In Malaysia And Singapore by Dr Neoh Soon Kean, the Benjamin Graham of Malaysia. Year of printing 1985
THE GREATER FOOL THEORY (Page 67 Last paragraph)
This is a theory that is usually very popular during the immature phase of a stock market's development. More of the followers of this theory are not aware that the trading system which they believe in goes by this peculiar name. From the stock market's behaviour during the past three booms, we can say that many Malaysians/Singaporeans appear to be strong supporters of this theory. This theory was very popular in the US during the 1920s but since then, it has fallen out of favour even though pockets of true believers still appear from time to time.
In essence, believers of this theory hold that stock prices are not dependent on anything tangible but rather dependent on the continual appearance of more people who are willing to purchase the stocks at an even higher price {these people are the so-called 'greater fools'). Thus, it neither matters what price one buys a stock nor that the stock's price is ridiculously high by any normal standard of measurement. Thus the believers of this school of thought hold the view that whatever stock one buys can always be sold at a higher price because there will always be greater fools than themselves. Thus, it is fine to buy MUI Bhd at $24.00 because there will be another person foolish (or brave) enough to pay $26.00 for it. Believers of the greater fool theory never for a minute think that the supply of fools will be exhausted and that they may be the final purchaser before the crash.
During every stock market boom, there are usually a large number of believers of the greater fool theory and some of them actually make a lot of money on the way up. Some of them get out in time by finding some greater fools to take over their hot potatoes in the nick of time but many find that they themselves end up as the greatest fools because there is no one else willing to bid up the price anymore. Needless to say, the Greater Fool Theory is a much discredited one among academics and most professionals. But it still finds many adherents. Why is this so? Everyone is having too much fun, (that is, making so much money) on the way up that they do not want to leave the market. George Goodman, writing under the pen name of 'Adam Smith' has this wonderful parable to explain how people are caught up in the web of the Greater Fool Theory and do not know when to get out.
We are all at a wonderful ball where champagne sparkles in every glass and soft laughter falls upon the summer air. We know, by the rules, that at some moment, terrorists will burst in through the terrace doors, killing many and scattering the survivors. Those who leave early will be saved, but the ball is so splendid that no one wants to leave while there is still time. Everyone wants to enjoy one more dance and sip one more glass of champagne. So everyone kept asking: "What time is it? What time is it?" We look around and find that all the clocks have no hands.
This may be a surrealist's way of describing the stock market but Goodman's parable has a great deal of truth in it. Of course, we know that in every speculative boom of the past, the 'terrorists' did come when most of the guests were still enjoying themselves at the ball. As 'Adam Smith' implies, nobody knows when a speculative boom will end but end it must for that is the rule. At every speculative boom, not many of the small speculators escaped with their gains made on the way up. Most of the smaller speculators known to me eventually lost all their gains and much more than what has been gained.
Some even lost a large part of their original capital. Thus on the next occassion when you happen to find yourselves at this type of a ball, try to leave early. The problem is that once one is caught up in the fun and games of the party, one is apt to lose touch with reality. Chances are that believers of the Greater Fool Theory will hang on to the bitter end, only to be slaughtered. It is better to miss a few dances or a few glasses of champagne than lose one's life.
In concluding this section, an anecdote about Bernarde Baruch, generally acknowledged to be the greatest stock traders of the 1920s is related. He was once asked how it was that he remained so rich while many of his contemporaries had declared bankrupt. This was his splendid answer: 'I always sold too early.'
Calvin comments:
This book called Stock Market Investment in Malaysia & Singapore was written & printed by Dynaquest of Dr. Neoh Soon Kean in year 1985 (now out of print).
Did you notice these words from Dr. Neoh?
Thus, it is fine to buy MUI Bhd at $24.00 because there will be another person foolish (or brave) enough to pay $26.00 for it. Believers of the greater fool theory never for a minute think that the supply of fools will be exhausted and that they may be the final purchaser before the crash.
Yes, Mui Bhd was chased up to a high of Rm24.00 per share during its heyday. And Mr. Market was going GaGa chasing it then. It was totally wrong to chase Hot Hot Popular Stocks like Mui Bhd at over Rm20.00 then.
So it is the same today! Many are going GaGa over Hot Hot Stocks of the hour! They are too dangerous to chase.
And look at Mui Bhd share today. It closed at 19 sen.
So from Rm24.00 to 19 sen Mui Bhd has crashed by more than 99%!!
So at Its Peak of Rm24.00 a share Mui chai (Mui Bhd) was the darling of the Market. And that was the wrong time to buy.
And now that Mui Bhd has fallen more than 99% to only 19 sen that the Market behaved totally opposite of those days of euphoria! Mui Bhd falling 99% is worst than the fall KLSE during the Asian Financial Crisis of 1997/8 when KLSE fell from 1,332 points to 262 points - a Drop of 81%.
It is even worst the the 1929 Stock Market Crash of New York when Market plummeted 89% & ushered in the Great Depression Years.
Those who bought KLSE at 262 points when Dr. Neoh Soon Kean said "KLSE was the Bargain of the Century" made great fortunes later.
Same for Sir John Templeton who bought Stocks at the very bottom of the Great Depression at the Outbreak of the 2nd World War in 1939! Sir John Templeton later became a legend.
And this is now the correct time to buy Mui Bhd at this Rock Bottom Price of 19 sen.
Calvin Tan Reseach advocates buying Mui Bhd share and holding it tight for these reasons:
1) Divorce settlement will Force Sale of Assets. Either by Tan Sri Dr Khoo himself or by Court Order
2) Tan Sri Dr. KKP is now 78 years old. The Word of God says, "
Psalm 90:10King James Version (KJV)
10 The days of our years are threescore years and ten; and if by reason of strength they be fourscore years, yet is their strength labour and sorrow; for it is soon cut off, and we fly away.
In modern English it means the years of our lifespan are 70 years. And by reason of strengh (through proper exercise, proper food, care from loved ones) they might reach 80 years old.
Tan Sri Dr. KKP is now 78 years old. And with so much besetting problems he should call it a day. Sell & liquidate Mui Group, distribute assets & Cash to share holders. Call it a day. And retire to a life of prayer and contemplation.
After all the things of this world are temporal & the things unseen are eternal.
This is only Calvin's suggestion. Will this be the best course of action & God's will for Tan Sri Dr. KKP's life. Only he and His Master can decide.
Warmest regards,
Calvin Tan
Singapore
Please visit Calvin's Prayer Website www.inspiretopray.com
As Matthew Henry says, "A life spent in communion with God is the pleasantest life in the world"
O the pure delight of a single hour
That before Thy Throne I spent
When I kneel in prayer and with Thee my God
I commune as friend with Friend.
https://www.youtube.com/watch?v=-bKdowFr9rc
http://klse.i3investor.com/blogs/www.eaglevisioninvest.com/120347.jsp
