In a jurisdiction as volatile but also potentially career-altering in terms of returns such as China, the sky is the limit when it comes to possibilities and approaches chosen by investors as well as traders. In fact, we’ve dedicated an entire article to just that: making it clear that there are anything from high-frequency traders who have embraces scalping as a business model to position traders or “buy and hold” investors who perhaps only make a purchase or sale once every couple of years.
Through this article, we will be putting an approach closer to the latter extreme under the microscope, one that we believe represents the ideal wealth management approach for the overwhelming majority of individual investors: gradually accumulating Chinese assets in our case and let’s say a balanced portfolio in general rather than going by the assumption that they have some kind of an edge that will enable them to become brilliant short-term traders.
For most market participants, the best trading advice they could possibly get is… as ironic as it may seem: do not trade, plain and simple.
There is a more than rational reason why, for example, the FTC forces brokers to disclose that the overwhelming majority of retail traders lose money when creating banners which promote trading-related “opportunities” and the same way, legislators choose similar approaches in other jurisdictions. Even in the absence of local laws, self-serve advertising platforms such as Facebook Ads or Google Ad Words make trading-oriented advertisers abide by strict standards as a gesture of self-governance, in an effort to protect consumers from… well, oftentimes themselves.
In a nutshell: if you don’t have an edge or “alpha” as it is referred to in the trading world, you are better off not trading on leverage. Or, to put it in plain English, you always have to ask yourself just what kind of advantage (if any) you have over other traders before initiating a trade and for the overwhelming majority of traders, that answer is less than glorious. We will not focus on explaining why that is the case or how one can develop an edge, as that is a topic best covered through a dedicated article.
Instead, we’ll tackle the elephant in the room in terms of questions: if trading is not recommended, what then?
One word: accumulation.
The combination between accumulating desirable assets and staying away from leverage is, in our view, more than enough to make most market participants more than happy in the long run. Instead of spending your nights glued to your computer screen, stressing over each 1% market movement, you will have the luxury of simply buying when you believe the price is reasonable enough and then stepping away completely for an extended period of time.
Will you be able to perfectly “time” tops and bottoms?
Of course not.
However, to share an “insider” trading secret: neither can traders, as timing tops and bottoms perfectly would involve predicting the future, something us humans are notoriously bad at. While traders employ a wide range of tactics (from chart patterns to… believe it or not, moon cycles and various other exotic to the point of absurd options) to delude themselves into thinking they can, experience invariably leads them to the conclusion that they’ve been foolish to assume such a thing in the first place.
As someone who embraces wise accumulation, you will acknowledge right off the bat that your approach isn’t conducive to timing tops and bottoms. Furthermore, you will be perfectly content with this state of affairs, knowing that discipline and carefully dosed research tops any ego-driven desire to become some kind of a market wizard.
Does this mean nobody should trade?
Of course not.
There are quite a few individuals and/or companies that do remarkably well. But they are not exactly your average investor who has a “day occupation” (be it job or running a business) and trades on the side. On the contrary, successful traders go all-in when it comes to pretty much every sense of the term, from spending their entire day in front of the computer screen staring at charts and various metrics to (going all-in time-wise) to investing in ultra-expensive trading setups (going all-in budget-wise). Those entities should indeed trade. Everyone else… less so.
Accumulating Chinese assets gradually is the name of the game, with the following tips being worth keeping in mind:
- Don’t be harsh on yourself if you occasionally buy the proverbial top. Sometimes, prices may very well drop hours after your purchase and there’s absolutely nothing wrong with that. Simply zoom out to higher timeframes and understand that you’re playing the long game
- However, don’t forget that accumulating doesn’t mean never selling. When the right conditions present themselves, it makes perfect sense to re-balance your portfolio by getting rid of assets that are no longer in line with your vision and adding others that are
- From “ivory tower” economists with deep academic credentials to hands-on trading legends such as Jesse Livermore, any professional worth his salt will most likely acknowledge that “discipline” needs to be the most important word in your vocabulary. In perhaps most cases, successful buy and hold investors haven’t done well due to amazing insights (the ever-elusive edge) but rather as a result of the fact that they had the mental strength to diligently implement their accumulation and divestment plans
- Speaking of mental strength, do not forget that being a good investor also revolves around that as well as, of course, physical strength. Imagine the average burned out and ultra-stressed trader who is sipping on his 5th energy drink for the day… aim to always be the exact opposite of that person, as embracing balance is paramount when it comes to the long(er)-term perspective
- Warren Buffett famously stated that “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” and we believe internalizing this statement is a must for those who wish to become better at accumulating Chinese assets. Also, please note that while Buffett referred to companies exclusively, the same principle applies to… well, pretty much anything else one can invest in
Our list of tips could continue but we would rather not turn our posts into novels and hope this article has more than properly done its job of convincing you to adopt the proper mindset when it comes to accumulating Chinese assets in particular or anything else for that matter. Should you be interested in digging (much) deeper and require our assistance, we would be more than happy to let you pick the brains of our ChinaFund.com experts and are only a message away.