IMPORTANCE OF DIVERSIFICATION,
Posted on June 22, 2013 by Calvin Tan
Ecclesiastes 11:2 ” Divide your investments into seven , or even to eight, for you do not know what misfortune may occur on the earth (NASB)”.
Solomon tells us 2 Important Things In This Verse:-
No.1) TO DIVERSIFY OUR INVESTMENTS INTO 7 OR EVEN 8 AREAS. WHY? HE GAVE THE REASON –
No. 2) FOR YOU DO NOT KNOW WHAT MISFORTUNE MAY OCCUR ON THE EARTH.
In Other Words, Don’t Put All Your Eggs In The Same Basket. Because When The Basket Falls Down, All the Eggs Will Be Broken Together. That means Total Loss!
Let Me Relate 3 True Stories:-
No.1) One Evening, after the plane landed at Changi Airport from Kuala Lumpur, I took a taxi home. Since the journey from Changi Airport to my place in Jurong West takes about an hour, I decided to talk to the taxi driver regarding the latest developement in Singapore.
As I was conversing with this particular taxi driver I noticed that he looked different. So I said, “You don’t look at all like a taxi driver, you must have been a CEO or some Big Time Business Man?” And I was right.
Then he shared his story. “Actually”, he says, “I am the Owner of An Import & Export Company In Singapore. Business has been very good and it’s growing bigger and bigger all the time.” “Why are you driving a taxi, then?”, I chipped in. “We recently sent a Consignment of Goods To The US. It Was One Of The Biggest Sale We Made – Worth US$20 Millions.
Then 911 STRUCK NEW YORK TWIN TOWERS. All our contacts with the Receiving Party in US were cut off, since their Office is in the TWIN TOWERS THAT COLLAPSED. We are not sure where the goods that we sent are currently located. At the same time our Creditors are chasing for payment. We don’t know what to do. At the moment I am driving a taxi to get cash for daily expenses.”
No. 2) During the Asian Financial Crisis, everyone was trying to cut cost. Instead of staying in hotel, I moved to a house operated as a Home Stay for traveling salesman. It costs only rm30 a night with a/cond.
Here I met a young gentleman driving a gleaming Mercedes Benz. Curious I said,”You look like a well to do prosperous man of better means than to stay in this cheap place here?”. Then he told me his predicament. He shared with me that by age 22 he is already a millionaire. He started as a young apprentice doing electrical wiring for homes and offices.
One evening when his boss and colleague had left he was still working into the wee hours of the night. He wanted to complete the job. The place was the Sultan’s Palace. When he was absorbed in his work, Datuk Ling Liong Sik walked in. Then followed by Datuk Samy Vellu. Seeing his hard work and dilligence both Cabinet Ministers gave him their Name Cards. And they told him to go to them if he needed help.
He went to see them, got some lucrative contracts and started his own company. Money just rolled in and in no time due to his hard work and dilligence he made his fortune.
However, he thought, “I only my made my fortune by my connections. I wasn’t sure whether it was by my own ability?” So he decided to leave Malaysia for work in Singapore – where he is on his own without any special connections. Alas! He said that the Singaporean Business men outsmarted him and he lost his entire fortune.
So he returned to Malaysia. Went for help again. This time he managed to get subcontract work for The Petronas Twin Towers In K.L. Unfortunately, the Asian Financial Crisis Struck in 1997 and his Main Contractor ran away and did not pay him – estimated to be 2 Million ringgit.
However, his suppliers are chasing him for only RM200K worth of goods. That is the reason why he has to go into hiding. My advise was to tell him to be honest with his suppliers. After all the Petronas Twin Towers Still Need to be completed, somehow.
I hope these two gentlemen turn out well.
3) Mr. Liew of HELANG CAMAR hailed from Sabah. He started his Used Car Dealership in KL before the Asian Financial Crisis of 1997/98. His Used Car Business thrived in 1993-early 1997. He told me he still have half of his capital tied in the Oil Palm Plantation Lands in Sabah. He wanted to sell off his Plantation and put all the capital into the booming Car Business. I advised him not to do it.
Then The Asian Financial Crisis Struck in End 1997. He told me his accumulated profits for 3 years were wiped out within 3 short months. And he is staring at further losses from Unsold Stock of Cars. However, his Oil Palm Fruit Bunches were fetching good prices. So his losses were cushioned by the Booming Palm Oil Prices.
By May 2001 (4 years later) the Used Car Market Fully Recoverrd and he was doing well once again. However, Palm Oil Prices Crashed Below Production Cost! The cost of fertilizer, worker’s wages and overhead costs is more than the actual selling price of palm fruits. Trees were left idle, fertilizer sold back to supplier & workers retrenched. With the downturn of Palm Oil Prices he concentrated his energy on the Used Car Business.
You see, It Is Important To Diversify Investments Since We Cannot See The Future.
Calvin comments:
1) The taxi driver looked very different indeed. He was wearing expensive high quality specs, branded clothes with the appearance and demenour of a Corporate Top Boss. That's why he stood out. Never in my imagination one Business mistake can wipe out one life's work and savings! I hope he has recovered since 9 11.
2) This nice young gentleman should have taken life easier. Venturing into the Unknown (for him that was Singapore) can be risky as things there are untested. Always invest in what you know for sure. He would not have lost his fortune if he has taken the time to work for experience first and understand the Singapore market first before commiting his monies. In any case I admire his integrity and hard work. I think by now he should have found success due to his diligence and fortitude.
3) This is the Most Important lesson of all. Mr. Liew from Tawau bought those Oil Palm lands for only Rm500 an acre in those days. In year 1993 he sold half his plantations and moved to KL & started a Used Car Company in Kajang called Helang Camar. The timing was impecabble as he was in the midst of the GoGo Years before the Asian Financial Crisis of 1997/8.
Times were great and he was doing a roaring business. Monies kept rolling in and piling up! He was so happy with the fast pace of money making in KL compared to the slow snail and dull business of tending oil palm plantations in Sabah.
He wanted to sell off the other half of his slow moving oil palm business in Tawau, Sabah and put all his capital into KL's Car Business. This was in year 1996 - near the very peak of the Boom!
At this time Used Car Dealers would make multiple bookings for New Proton & Perodua Cars. Some booked 50 units & some booked in hundreds. Waiting list for cars stretched from 4 months for a Proton Wira to as long as One Year wait for a New Proton Perdana!
To get hold of a New Proton Perdana then you have to pay as much as "Rm10,000" extra! to get one. Such was the extremely over heated market of the GoGo Years.
I was happy to have warned him not to do so as the future is unknown (Asian Financial Crisis arrived in 1997 just one short year away)
And when the Asian Financial Crisis Struck! All the 3 years of accumulate profits that Mr. Liew made were wiped out in just 3 short months! At that time a Proton Iswara 1.3 worth Rm33,000 before the crisis could crash 50% to only Rm16,500 (50% Value Wiped Off in just months)
So many gone bankrupt with the twin collapse of KLSE (Crash from a high of 1332 to its lowest at 262 points) & all assets (Houses, cars, businesses - everything fell like tent pins in unison.) There was no escape but facing total lost and imminent bankruptcies for all those who over leveraged.
It was during these dark and bleak times that Oil Palms gave him solace. And to his surprice CPO prices shot up! And lifted him from his gloom and compensate his losses in his Used Car Business.
As the US has still not resolved its problems & the world still awashed in crude oil it behoves us to go defensive & diversify our investments as future is still unknown.
I hope all i3 Fellow Forumers will be careful with your investments.
Always remember, Return OF capital is more important than return ON capital
This entry was posted in Johor House For Sale. Bookmark the permalink.← THE UNIQUE BUMIPUTRA DOCTRINE OF MALAYSIA – BALANCING INEQUALITIES.
Calvin further comments on this past post, As at July 22nd, 2017: 9.26pm, Singapore Time.
As future is unknown and there may be a black swan event due to the unpredictable nature of the world, it is always wise to diversify our investments.
George Soros bet against the Thai bath and won during the Asian Financial Crisis.
George Soros also bet against the pound and won. In fact he was the one who broke the Bank of England, so to speak.
However, George Soros was not so lucky betting against Donald Trump. In fact this round with QE 1, QE 2, QE3 & so forth George Soros' luck seem to run out.
Why oh why?
BECAUSE THEY HAVE CHANGED THE RULES OF THE GAME BY ENDLESS QE & MONEY PRINTING.
This same happened to Jesse Livermore. When Dow collapsed on October 29th, 1929 - Jesse Livermore made a killing by shorting the Dow. He made the most money on that day of carnage while millions suffered.
But then it was downhill all the way for Jesse Livermore.
Why oh why?
BECAUSE THEY HAVE CHANGED THE RULE OF THE GAME THEN. AND JESSE LIVERMORE COULD NOT OPERATE AS USUAL. SO HE ENDED UP A PAUPER AND FINALLY COMMITTED SUICIDE.
So listen Friends,
Nothing is set in stone for life.
That's why the Divine Word from God still stand today
And Listen Carefully to these wise words again:
Ecclesiastes 11:2 ” Divide your investments into seven , or even to eight, for you do not know what misfortune may occur on the earth (NASB)”.
