MIMOSA, 10 May 2016
Some lessons are unexpected. Back in 2000, during the height of internet stock craze, I was an amateur manager of a small stock fund consisting of 8 smalltime shareholders who were all my relatives. Being a bit of a contrarian, the fund focused mainly on biotech stocks, which were enjoying quite a strong run, even if not quite as exuberant as dotcom stocks. The fund did well – a roughly 250% return over 3 years, but as always, the lesson was not from this relative success, but from a far larger failure – the missed opportunity to bank a 750% return.
One stock stands out in my mind: Incyte Pharmaceuticals, which I had bought variously when it was trading in the $10-$20 range during 1998-99. By early 2000, it had crossed $100/share and was rapidly heading higher. At the time, I was well aware that there was no fundamental reason behind this runup – it was classic speculation. The question was when to sell? Internally, we had set a target of $150 (at a time when it was nearing $140 and rising rapidly). It was not to be. We sold some weeks later when it had slid down to the $60s…
Call me greedy and stupid. But I learned my lesson – I’m not made for stock trading! More importantly, it was my first introduction to the dangers of inexorable growth, which creates expectations that are difficult to reset and that far too often lead to disaster. more →
Thanks for a terrific article, Daniel. I have been teaching Personal Finance workshops in Cambodia over the last few years. The growth of formal credit and the increasing trust in banks is quite notable. Can you link up your research with the informal credit market in Cambodia? What about the movement of credit from “community lenders” to MFIs and banks? You noted that in other countries state banks provide credit, while in Cambodia it is the private sector. Considering the political climate in Cambodia would state banks have reduced risk? Keep these ideas coming !
Hi Cecelia. Our Cambodia report does discuss informal lending a bit. One thing we’ve seen is that there’s a significant presence of small, unregistered lenders that still look somewhat formal (e.g. have an office, staff). That said, we haven’t been able to get a good handle of how big their impact is. As a rule, the tendency in most markets is for formal lending to grow alongside the informal, without really displacing it at all. Data from Findex is pretty convincing on this.
As for state banks — I’m certainly not suggesing that Cambodia should go down that path! Only pointing out that the market dynamics are very different, and risks need to be assessed differently as well.