Like some other market writers, I feel the heavy hand of history resting on me as I report on the calamitous events tossed up by the year-old global financial crisis.
I am no stranger to financial crises. In fact, I have seen plenty of calamities in the local financial market over the past 22 years, and I can still remember some with clarity.

I started working in 1986, just months after five stockbroking firms folded and the local bourse was closed for an unprecedented three days to clean up the mess caused by massive fraud over 'forward contracts' in refrigerator maker Pan-Electric.
On Oct 19 the following year - known as Black Monday - and exactly 21 years today, Wall Street suddenly plunged by 23 per cent, giving market players an early taste of how a squall on Wall Street could transform into a mighty tempest worldwide.

As the crash reverberated around the globe, Singapore's Straits Times Index nosedived 25 per cent in a day.

Hong Kong fared even worse. Its stock exchange battened down the hatch and refused to open for four days as it waited for the financial storm to abate. When it finally re-opened for trading, the Hang Seng plunged 33.3 per cent.

At that time, I had a good friend in Hong Kong, then in his late 20s, whose pastime included dabbling in Hang Seng Index (HSI) futures contracts.

He had everything going for him - a good job, a steady girlfriend and plans to get married.

But the plunge marred his life forever. He lost about HK$1 million (S$190,630 today) in HSI futures and was made a bankrupt because he was unable to pay up. He lost his job soon after, and his girlfriend left him.

Over the years, my friend's misfortune is never far from my mind each time I encounter a crisis confronting the financial markets. One small misstep is all that is needed to drive a person to the brink of despair.

My friend had taken what he regarded to be a calculated risk. He had paid up the 5 per cent deposit on his HSI contracts and anticipated that he would lose all of it only in the worst-case scenario.

The global stock market plunge caused losses to snowball to six times the original deposit he had put up, and he was required to pay the difference.

But the crash in October 1987 was a breeze compared with the gale-force winds lashing financial markets since August last year.

Wall Street titans Lehman Brothers and Bear Stearns have been swept away, while Merrill Lynch fled into the bosom of the Bank of America.

Even big commercial banks have not been spared. US-based Washington Mutual failed, and European bank Fortis was carved up.

So, while we pray that the global financial tempest will bypass us, it would be naive not to try to take some precautions.

For most Singaporeans, the biggest asset is their house, a wise choice considering the vast destruction of value taking place in other asset classes such as stocks, oil and commodities.

But during the recent property boom, many Singaporeans had bought condos under a deferred payment scheme that was stopped only last October.

Under the scheme, a home buyer had to fork out only the stamp duty and 10 per cent of the purchase price upfront. He needed to pay the remaining 90 per cent only when the flat was given its temporary occupation licence (TOP).

It would be wise for these buyers to consider lining up financing for their houses now.

There is a strong likelihood that banks may scale back their lending and tighten the criteria for getting a loan as the job market becomes rougher.

Worse, those hoping to get a loan to pay the remaining 90 per cent of the purchase price may be unsuccessful because of plummeting property prices.

A simple example: Let's say you bought a condo for $1 million. You opted for deferred payment and place a downpayment of $100,000.

At TOP, you are unable to get a loan, and the developer is forced to sell off the condo for $700,000.

After deducting the downpayment, there is still a shortfall of $200,000 that you must pay him.

In extreme cases, you may face bankruptcy if you fail to work out some payment arrangement - the same plight that had befallen my friend.

How about investments in the stock market? Is this an asset class to be avoided completely?

It is clear that we are living through a period that will certainly be described as the second great stock market crash in history. The first great crash occurred nearly 80 years ago, with the calamitous collapse of Wall Street in 1929.

This appalling financial carnage may make us too scared to spot any buying opportunities thrown up by the big plunge in stock prices.

The late investment guru Benjamin Graham, who survived the 1929 crash unscathed, suggested a way to profitably invest under such depressed market conditions.

Rather than try to time the market, he advised investors to look exactly at what a company is worth and how much it would be worth if worst should come to the worst.
If the company is so cheap that its value stays almost the same even if it were to go out of business, then you have a 'margin of safety' in your investment, he said.
For me, his sage advice is the guiding philosophy behind all my investments.

Way back in 1986, when Singapore was mired in a deep economic recession, I started building up my nest egg after buying 1,000 shares in the then Singapore Bus Services for $3,000.

The company seemed like a safe bet, paying a steady dividend with the income earned from providing transport to thousands of Singaporeans every day. It also offered concession passes to shareholders.

Despite the ups and downs over the years, I have kept the stock with me. The original investment has since grown to $30,000 in value.


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