Don’t let market clobber you again

Date: May 27, 2020

First published in Straits Times on 24 May 2020

Investors should learn lessons from Clob saga 20 years ago

It has been 20 years since I formed the Securities Investors Association Singapore (Sias) to help small investors who had invested in Malaysian shares that used to trade in Singapore on the platform known as Clob International (Central Limit Order Book).

Clob was an over-the-counter market set up to enable Singapore investors to continue trading some 180 Malaysian shares after the Kuala Lumpur and Singapore stock exchanges went their separate ways in 1990.

It proved very popular with investors here, with prices regularly doubling and tripling in a short space of time. They enjoyed speculating, which became the name of the game.

But in 1999, during the Asian financial crisis, the Malaysian government took the unilateral action to shut down trading on Clob. Prices came crashing down and I came face to face with hundreds of angry small investors. They were asking me, “What happened? Why like that?”


I was amazed to hear that most of them had no clue what they had bought into. They would invariably tell me: “They can go very high, and we can make good money quickly.”

In reality, they were trading in hugely speculative stocks, with very little real fundamentals. As the saying goes, “ignorance is bliss” and this was never more apt during the days of Clob.

After making money initially, these blissfully ignorant investors were lulled into a false sense of security, thinking they were smart investors.

Many thought that all they needed to do was choose a good remisier. None of them felt they needed to know anything about the stocks their remisiers bought for them.

“He knows how to choose the company and he has been making money for us” was one common justification for this “invest by remisier” approach.

To top it all, these investors also listened to self-professed investment gurus at coffee shops, markets and hawker centres who could give convincing-sounding tips based on rumours.


This mode of investing gained widespread popularity in the mid-1990s. So, if a stock shot up 400 per cent and no one knew why, it didn’t matter as long as the investors made money. They would pat themselves on the back and said they were “smart investors”.

When I asked some of them if they had ever lost money on Clob, they would very reluctantly admit that they had, but with the qualifier that “it wasn’t much, and anyway my remisier managed to make it back for me”.

The focus was skewed solely towards returns with no consideration of risks, and to be honest, why should they have bothered – after all, prices were rising and everyone was happy.

When trading on Clob was frozen and prices collapsed, there was widespread bewilderment first, followed by fear, panic and anger. Inevitably, there was a scramble to find scapegoats. Since brokers had made money for them, then it couldn’t have been their fault so it had to be someone else.

When I first met about 1,500 Clob investors in Apollo Hotel in 1999, they were wondering loudly why they were allowed to invest in Clob. They were blaming everyone, except themselves. Never mind the fact that they had access for more than 30 years to Malaysian shares before the Malaysian and Singapore stock exchanges split in 1990, and never mind that they had continued to trade through Clob for about eight years. Someone, anyone, had to be blamed.

To be fair, small investors were severely hampered by the fact that there was no organised independent investor education in the 1990s to educate and guide them. They could not obtain information on companies easily other than annual reports, which were voluminous and written in language not easily understood.

The man in the street wanting to do his homework would not have been able to perform the amount of due diligence that is possible today. This was mainly because of a lack of access to proper data and training in investing. The heavy reliance on their brokers was, therefore, understandable.


In 2000, Sias embarked on investor education programmes throughout the island to first introduce financial planning for families and then investing by using proper principles instead of relying on tips, rumours or leaving decisions solely to brokers.

Our mission was to inculcate in them the need to have knowledge and information before investing. Sias even launched its own research unit to provide coverage of smaller companies that may not be widely known to the investing public. Sias also reached out to elderly citizens to protect them from financial abuse and investment scams.

All programmes are free and focus on looking at company fundamentals, strategies and quality of management. So far, some 220,000 individuals have attended more than 4,000 courses by Sias and, hopefully, all have benefited from the knowledge and advice imparted.

Since 1999, two episodes have stood out by virtue of the losses suffered by small investors – the Lehman Minibond failure in 2008 and the recent collapse of water treatment firm Hyflux.

Both illustrate the need for education and investors to do their own due diligence before investing.

Having seen the scale of losses that can arise when investors don’t do their homework, I am determined that Sias will continue with these education efforts in the years ahead.

Investing with knowledge is, after all, the right way to invest. On the other hand, investing without knowledge is gambling.

Although it has been more than 20 years since Clob, I notice, with great trepidation, that a number of today’s investors are still behaving in the same manner as their predecessors.

Notably, many still practise the seven deadly investing sins, which in my view are:

• Not enough regard for risk and too much emphasis on possible returns;

• Being uninformed – insufficient knowledge about the companies and businesses they are buying into and the state of the investment environment;

• Fomo – fear of missing out, which is rushing into the market to follow the crowd (this is a polite way of saying investing based on greed);

• Insufficient regard for investment horizons – retirees have a short investment runway and have limited time to recover from investment losses. They shouldn’t be investing in high-risk instruments, but this was exactly what many retirees did for Clob stocks, Lehman Minibonds and Hyflux’s perpetuals;

• Holding on to losing investments too long because of hope that one day they will recover;

• Overcommitting with money they cannot afford to lose;

• Trying to time the market by buying low and selling high – many invariably panic and end up buying high and selling low.

• The writer is David Gerald, founder, president and chief executive of the Securities Investors Association Singapore.