Crazy day at the Market! You want some?
One of the most interesting and fascinating part of investment to me is standing at the sidelines to observe just how irrational investors and market as a whole can be.
Sometimes, at the lure of fast gains, they can get sucked into a trading frenzy, only to have the whole action dying down just as fast. I never fail to be amazed at such cases of mad crowd behavior.
One instance that reminds me of a crazy day in the market, will have to be the first day China Aviation Oil (CAO) re-opened for trading after a long suspension. For those unfamiliar with the Singapore market, CAO is a Singapore Stock Exchange (SGX) listed company based in Beijing, that supplies jet fuel.
It got it’s ass busted for illegal insider trading and crimes linking to risky oil derivatives speculation which resulted in massive losses of US500 million! To cut the long story short, the director, once hailed as a high flyer in the industry, was sent packing to jail, while the company went through a long painful restructuring process, which also saw the two knights in shining armour, Temasek Holdings (the investment arm of the Singapore government) and British Petroleum (BP) coming to it’s rescue.
Of course, in exchange for saving the company which was on the verge of meltdown, these white knights were able to buy the shares at the rock bottom price of 51.5 cents! And boy, were they in for some reaaaaaaaally BIG gains!
Price movement of CAO on the opening day. Note the huge surge in volume on that day compared to the teeny weeny average volume on subsequent days.
CAO was a very hot stock before it got suspended, and naturally it drew a lot of publicity during the whole saga. When it was finally primed to make a long awaited return to the Singapore market, everyone was anticipating and guessing how CAO will perform.
I knew that the first day was going to be field day for punters and speculators. I remembered vividly the day it re-opened on the Singapore market. The date was 29 March 2006.
Before the market was even opened, there were queues forming up to put in their bid for their lots of shares. Needless to say, the share price was being jacked upwards continuously.
Financial analysts were estimating beforehand that CAO will open trading in the market at a fair valuation of 50 cents. Lets bear in mind that Temasek Holdings and BP bought their share at 51.5 cents. With all the crazy punts and people who were jumping into the ride, guess what the price it opened at?
$1.30!
That an excess of 160% above what the analysts thought was a reasonable opening price! At the start of the day, Temasek Holdings and BP were already staring at a whopping 152% profit!
On that day, I was in the laboratory conducting some experiments (I was still a student then). I decided that I shall just turn on the computer to sneak a look at CAO’s price. When I saw the opening price, you can say that I was surprised, though I kinda expected this would happen. Still, I was a little taken aback by the mass interest the market was taking in that stock.
So the price just continued to climb and climb and climb, till it reached a climax of $1.85 before a mad sell off to take profit commenced. When the dust has settled, the stock closed at $1.64. Had Temasek or BP sold off that day, it will be a massive 218% profit in the pocket, all in a day’s work!
To put it in perspective, the black Monday stock market crash in 1987 dropped by 22% in a single day. Here, even though it wasn’t a crash, we have a stock that moved 42% from the opening to the high, and then plunging back by 11%. If you look it at another way, the closing price registered a 26% jump from the opening price.
If you are wondering, the price is now at $1.14 per share. Looks like the market has corrected itself and only rightly so.
So there you go! How wild, crazy and irrational can a market get? It can be exhilarating and also damn scary at times!
Looking to go into investment? Be prepared for a long ride! Not for the faintest of heart!
[tags]crazy, stock market, speculation, punters, investment, finance, singapore stock exchange, china aviation oil, black Monday, stock market crash, Temasek, British petroleum[/tags]
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