Main reference: Story by Sinafinance market watcher ‘Cheetah’

THE A-SHARE MARKETS have shown signs of life this summer but are still highly unpredictable.

To help negotiate the choppy waters, one market watcher offers his list of top ten mistakes that China share investors often make.

liandfungLi & Fung helps bring Chinese exporters in touch with foreign retailers. Its Hong Kong shares fell sharply recently on news of inventory woes at one of its biggest clients.    Photos: Li & Fung

The benchmark Shanghai Composite Index – the chief tracker of A- and B-shares listed in China – sold off by nearly 2% on Thursday, hampered by Shanghai free trade zone issues and trading giant Li & Fung’s bad news on the US consumer front from Walmart.

As of Thursday’s close, the Index was trading at 2,156, down 4.3% from a year ago and off by over 11% from YTD highs seen in February of this year.

So it’s only fitting that as we head into next week’s one-day trading week, with the rest of the week off for National Day, we should avoid these 10 ill-advised trading habits.

In my opinion, the worst of the bad investing practices is to use borrowed money to buy shares.

There is a natural uncertainty to returns – or lack thereof – in any equities market.

Therefore, regardless of what interest rates you might be able to negotiate, no loan is worth risking on something as risky as the stock market.

Furthermore, most legal, aboveboard loans have rigid timeframes for repayment that make it very awkward when an investor’s “sure bet” is generating ROIs at a slower pace than principal and interest can be repaid to creditors.

sc9_26Recent China shares performance.       Source: Yahoo Finance

The second investing no-no is to bet all your “chips” on one chip.

Hedging is key to managing risk, and to bet the farm on one counter is to invite almost certain disappointment, if not disaster.

It’s a strategy not too far removed from the chances and wisdom of relying on daily lottery tickets for one’s retirement nest egg.

Another investing taboo is fickleness.

Share price growth is almost always a process, and throwing in the proverbial towel at the first sign of trouble is a behavioral characteristic that is almost always punished by the free market at the end of the day.

Fourth on the no-no list is letting your emotions trump your rational investing self.

In short, don’t fall in love with your portfolio picks -- we all know that love is ultimately blind and we all get cinders in our eyes and fail to see our stocks’ unique flaws when emotions take over.

Fifth on the verboten side is buying into a share for the first time when it is already overpriced.

This may seem like the most obvious proscription so far, but you would be surprised at how many investors are swept up by the hype of a hot stock.

“Buy low, sell high” never gets stale, but stock tips do.

walmartWalmart is in full Halloween mode these days, and got a bit of a scare from recent inventory figures.      Photos: Company

At No.6 on the to-avoid list is falling prey to hubris or overconfidence.

Just because you got lucky with a few sector picks doesn’t mean every sector peer selling shares is also undervalued.

The unlucky No.7 warning is to avoid blindly holding onto shares for the long haul under the fantasy that time will heal all wounds.

Some counters are just born and raised to be perpetual laggards, no matter how long a position you take, so just make sure to conduct due diligence before making a move.

If after three years of holding a position you are still in the red on a pick, chances are you will never see black.

No.8 is deciding to throw basic investing principles to the four winds and go rogue.

The fundamental rules of the market are at play and valid in both bull and bear markets, and adhering to them with more than just a wink and a nod is wise advice.

Over-exuberance is the No.9 mistake that investors sometimes make.

To date, no one has figured out how to create a perpetual motion machine and the same goes for upward share price movements.

Always remain vigilant for sudden downside drivers – real or potential.

Finally, don’t forget to learn from your mistakes.

Rather than seeing a flawed pick or an over-hold as just a monetary loss, think of it as one of many lessons in a personal textbook you are writing on winning investment strategies.



See also:

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  • Lionel Lim