An investment lesson from China’s stock market crash
Chinese stocks plummet.
Yesterday, the Hong Kong China index was in the grip of a panic sell.
It closed down 7.2%, the biggest drop since November 2008.
The index is now down 28% in one month and 45% in one year.
Compare that with the Sensex which, despite recent volatility, is still up 12% over a one-year period.
Now, here is some data that will really blow your mind.
Since its inception in December 1992, the MSCI China index has returned only 1.5% per year in USD.
If you include fees, taxes, etc., the returns could be next to nothing.
Yes that is correct.
The stock market of the fastest growing economy, an economic miracle of the current century, has delivered near zero returns for as long as 30 years.
Here is the table for a quick overview.
The data source: Twitter
Is this crisis actually an opportunity?
Charlie Munger really likes to think so.
He loudly expressed his love for the Chinese economy and its dominant stocks at the recent annual general meeting of Daily Journal Corporation, a company of which he is chairman.
Here is what he is supposed to have said.
China is a great modern nation. There is this enormous population and this enormous modernity that has arrived in the last 30 years. We invested money in China because we could get more value in terms of the strength of the business on the price of the stock than in the United States. Other people, including Sequoia, the leading venture capital firm in the United States, have made the same decision as us. (Source: Junto Investments)
There is an important investment lesson here. The future will always be uncertain. So do your homework, make sure the underlying stocks are of good quality, and buy them with a sufficient margin of safety.
It doesn’t matter what other people think. If the title ticks both the quantitative and qualitative boxes, go ahead and take the plunge without worrying about popular opinion.
For Munger, his Chinese investments in BYD and Alibaba ticked those boxes and he is also confident that the Chinese economy is doing well going forward. That’s all that matters to him.
By the way, I shared this update on my Telegram channel earlier today.
If you’re interested in ideas that can potentially accelerate your profits, don’t be left behind. Join my telegram channel…
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Warning: This article is for information only. This is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
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