"Investing is difficult," i heard myself repeating such complacency during a brief conversation with a young accountant who was interested in making money in the stock market. Having been working as a research analyst and gotten the professional qualification. i don't show the minimum confidence that i should have on investing. And i often keep going back to the basic question: "How can i make more money in the market?" Inevitably, i share the same frustration of that lady.
Her accounting knowledge did not give her any confidence toward investing either, as she said: "It seems share price movements does not follow the financial performance of the companies, sometimes quite the opposite." "Even the accounts of a company itself go up and down. This year, a company scores strong numbers. The next, all things could turn 180 degrees."
i tried to lighten her a bit, saying accounting knowledge helps us, to certain extent, find a starting point. We have to take into consideration the company's underlying strengths, as well as such broader aspects as general market environment, the economy, psychology and even history. "It is difficult." i ended the conversation by recommending some periodicals, the likes of the daily Hong Kong Economic Journal, weekly The Economist magazine and amusingly the monthly National Geographic magazine. Although the last one appears to be unrelated, it offers the widest possible scope of human affairs.
i remember the first time i bought stock. In 2000, i bought China Mobile #941 at about $60 a share. A few days later, i sold the share at about $63. The reason i chose China Mobile is that i regarded China Mobile, the second largest blue chip, as the gauge of the overall market. Somehow, i had a "feeling" the market would go up. Then i made the bet on China Mobile. Together with the market, China Mobile did go up by more than a few dollars, before it came a few dollars down again. i "felt" that institutional investors, dubbed "big accounts", were doing something nasty. Then, i jumped out at $63.
It was a very lucky exit. Just after i sold the shares, the share price started its now infamous long deterioration from $60 to below $20. What was the lesson i learnt from this exciting ride?
Nothing.
Yes, i banked a thousand dollars but this profit was out of 100% pure luck. Should i buy China Mobile again or other stocks, i knew i could either win or lose. It was a 50/50, before brokerage fees.
Nothing, but the awareness of inadequacy.
Here, i share this apparently trivial incident because i believe most readers have had similar experience and taken similar "approach" to stock trading -- the sixth sense, or strictly speaking a combination of greed and fear.
i got on board driven by greed and got off out of fear.
A few years later, i bought China Mobile again, at around $17. Nowadays, everyone knows $17 a China Mobile share is cheap. But back in those hasty days, few people thought so. Today, most people regret buying China Mobile at its $20 something. If we rode the time machine and went back to 2003, i bet few people would dare to hold the stock, not to mention buying it.
Almost all analyses about China Mobile were unfavorable, as far as i knew. Anyone can dictate the gloomy factors about China Mobile, including the widely blamed intense competition, the decline of average revenue per user (ARPU) and the impact of Xiaolingtong, and the potential foreign competition once China opens the market.
i thought they were all irrelevant factors. First, China Mobile has a duopoly status in the market of 1.3 billion customers and potential customers. The only real rival in the mobile telecom service was China Unicom #762. In contrast, Hong Kong with its mere seven million people had six mobile telecommunications operators, what over-competition should mean to be.
Second, the pessimism about the declining ARPU won a lot of followers. ARPU was a popular tool used by analysts on measuring the performance of telecommunication providers in Europe, a fairly mature market. However, the same ARPU analysis fell apart in China.
Being a brief observer of Chinese businesses, i understood that the decline in selling price is not a nightmare, but simply part of the game in China. Chinese business was a volume business. And China Mobile was on the right track. Its subscriber base grew by the count of millions month after month.
Xiaolingtong is a technology like an extended household wireless telephone system. Similar technology had been available in Japan, but faded out quickly. Xiaolingtong was a fringe technology like Hutchison's Tian Di Xian in the mid-90's. As regarding foreign competition, China Mobile must have already established the valuable wireless network before foreigners knock the door.
It is always easy to be wise after the event. The point is that all the pessimistic arguments, which were so prevailing in the market, would become clearly invalid, in retrospect, when you have a cool head.
Unlike the first time when i bought the shares at $60 each and dumped them at $63 like a hot potato, i was confident enough to hold the shares until it hit $48.
i rethought about my vague comments on investing for that young accountant. i should have told her that the first thing an investor could do is being cool, defying greed and fear. Don't follow shepherd.
i should have recommended her read Sifu Vincent Lam's new book, "Setting Out The Journey Towards $100 Million Of Wealth" (Chinese Translation:《步上一億元財富之道》). Vincent offers many insights about investing in his trademark lively writing style. i was particularly absorbed into the chapters regarding market timing, how to avoid being trapped and how to control emotions.
Vincent gave me a copy of his book although i had already gotten one from the bookstore the other day. Gratefully, i accepted his gift and promise to pass my spare copy to a friend of mine. Here, i wish to give out that spare book, the one without Vincent's autography, sorry, to one of you. The first person who sends me an email requesting the book will get it. i am looking forward to your quick response.
Disclosure of interest: Currently, i am not holding any interest in China Mobile.
Aug 16, 2006
Copyright Quamnet
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