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Try to keep your head in stock market, when all around are losing theirs

By Wang Yu (China Daily) Updated: 2015-12-31 10:25

Try to keep your head in stock market, when all around are losing theirs

Investors play cards at a brokerage in Fuyang, Anhui province. The Chinese mainland market is likely to remain volatile in the first half as growth slows further and the yuan is expected to weaken.[Provided to China Daily]

A decade ago, when I made an average of 50,000 yuan ($7,700) a year as a journalist, my attitude toward stock market investment was one of indifference. Even if I doubled that figure through buying and selling stocks, I would still be a poor man. Why bother?

Instead, I put all my savings in the bank, earning a paltry but stable interest income, even as my salary increased considerably over the years.

But people who have burnt their fingers in the recent stock market rout do not have to feel envious about my choice, because I now often wonder if I could have been financially better-off if I were one of those small retail investors.

The question is: How can one be a winner in the tumultuous, often emotionally charged local bourses?

One of my classmates in an executive business course, who is from a State-owned enterprise, once challenged a professor who advocated a bullish A-share market earlier this year. He asked him, as economic growth lost momentum and corporate profits kept falling, why do you believe the stock market will keep advancing?

His answer was something like: It is an "expectation", stupid.

In theory, listed companies' future performance will match their current share prices, sooner or later. This is also how the price-to-earnings ratio works out.

However, at the market's peak in June this year, the PE ratio even reached such high levels that investors joked that it should be renamed the PD ratio, which stands for "price-to-dreaming".

When the market index peaked at 5,178 points in June, almost everyone rejoiced with wild excitement, eagerly looking forward to 8,000. Traditional investors, who follow the metrics of low PE ratios and the ability to pay dividends, often found themselves mocked by those who chased instant money by sweeping ChiNext board stocks, mainly startup and growth enterprises.

The bubble burst eventually, as the Shanghai Composite Index plunged 40 percent in June. Quite a few of my friends were dealt a major blow, losing half of their equity value.

So here comes the first motto I would keep in mind if I dabble in the Chinese stock market in the future: Try to keep a cool head about you when all around are losing theirs.

My second motto would be to always remain focused on what you have carefully observed and keep investing in companies you are most familiar with. Do not be tempted to follow others, especially those who claim to have insider information.

In sports, there is a golden theory that you cannot play in the rhythm of your opponent, otherwise you will end up being pinned down.

When it comes to investment philosophy, many relied on insider information that could be leaked by companies to talk up share prices.

One of my tutors warned that "most retail investors do not have a coherent and prudent investment plan" when they pick stocks. I could not agree more.

Last but not least, I think we should always bear in mind the big picture, however pecuniary our motives are.

When the country's top leaders frequently addressed the importance of the stock market several times within one year, people have every reason to believe that it has become the authorities' top priority to fuel the economy and directly finance firms' hunger for liquidity.

And what specific segments did the watchdog attach the greatest importance to? Internet-oriented industrial upgrading, next-generation manufacturing capacity, the Belt and Road Initiative, medication and healthcare, alternative energy and environmental protection.

I'm not sure if these observations and lessons I have learned from others' experience will put me in good stead in the stock market. But I should be able to know soon as I am already taking the plunge while Chinese shares recover from the summer crash.

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