Whenever we are dealing with let’s call them “hot” assets (and yes, Chinese assets most definitely fit this description), greed tends to kick in and determine market participants to get ahead of themselves with respect to gaining exposure to the assets in question. The term “FOMO” (Fear Of Missing Out) is quite relevant in this respect because, indeed, due to a combination between greed (wanting to make as much money as possible) and fear (being afraid that the opportunity to buy at a certain price level will disappear and never return), many market participants end up making decisions for emotional rather than rational reasons.
Sometimes, they “get it right” or, in other words, their decision proves to be the correct one. It is vital to understand, however, that this doesn’t mean the strategy or thought process behind that decision was correct. As a rather extreme example, perhaps an acquaintance of yours spent his entire earnings for one month on lottery tickets, won and is now remarkably wealthy. Does this mean spending your one-month earnings on lottery tickets is a viable strategy? Of course not!
Here at ChinaFund.com, we stress time and time again that reason needs to prevail. In a society that is becoming increasingly emotion-driven, that is quite a statement to make but we fully stand behind it. For that reason, much to the surprise of many readers, we are not Chinese asset “perma-bulls” despite running a website called “China Fund Dot Com” and specializing in Chinese assets.
Because first and foremost, we are here to generate the best possible results for our clients.
And in many instances, the best possible results lie on the sell side: selling your existing holdings and waiting for a better entry point, shorting when the right conditions present themselves and so on. It’s not that we do not want Chinese asset prices to go up, but rather that we understand one important aspect: we have absolutely no direct control over them and as such, the best we can do is keep our ear to the ground and make wise decisions.
Therefore, when there are compelling reasons to conclude that the time is right to buy, we buy and when selling makes more sense, we do just that. We firmly believe that you cannot will a bull market into existence, you can simply ride one once it has been spotted and do your best to time good exits along the way for money management-related reasons. As such, at the end of the day, what we want is completely irrelevant in light of the fact that the market doesn’t react to our desires and especially the fact that we are here to help clients make correct decisions, even if they are not exactly bullish ones.
Few things are more dangerous than FOMO-bases strategies, which is why we believe they should be avoided at all costs. There is, of course, absolutely nothing wrong with buying aggressively when the right conditions present themselves. We do it all the time ourselves. However, taking things too far and buying for herd mentality-related rather than rational reasons can prove to be a fatal mistake for your portfolio.
Two words: dosage and context.
At the end of the day, someone might be bullish on Chinese assets long-term (hint: we are) and actually end up being proven right by the market eventually but if that person or entity traded too aggressively and for all the wrong reasons (especially if leverage is being used), the capital of the person/entity in question will be long gone by the time that happens.
The same is, of course, true for perma-bears. Time and time again, doom and gloom “experts” state that a devastating economic collapse is just around the corner. Are many of their concerns valid? Yes. Might they end up proven right by the market eventually? Once again, yes. But just like with the previous example, it is quite likely that by the time they actually are “right”, there won’t be enough capital for them to invest because on the one hand, they’ve missed out on extremely profitable bull markets due to always being bearish and on the other hand, they might have even lost a lot of their capital by shorting too soon.
The ChinaFund.com team believes generating worthwhile returns is more important than being right.
As such, we do not invest based on what we “believe” or based on what we think “should” happen. The same way, we do not invest for ideological reasons, nor do ideological considerations keep us from selling or even short-selling when the right conditions present themselves.
Instead, we simply follow the data and do our best to make rational decisions.
Are we capable of completely eliminating biases brought about by emotion from the equation? Most definitely not because even the wisest investors/traders are… well, human.
Perhaps human investing and/or trading decisions will eventually be outsourced to Artificial Intelligence and should that happen, many biases will represent a relic of the past. For the time being, however, we are most definitely not quite there yet and while AI-based trading does exist, few things can come even remotely close to the wisdom of an experienced market participant.
Should this state of affairs change, we will be more than happy to adapt.
But until that happens, the best we can do is “try” to eliminate emotional decision-making to as great of a degree as (humanly!) possible and help our clients do the same. Should you be interested in picking our brains with respect to a certain decision, your overall strategy or anything else, we are only a message away and can be reached through the Contact section of ChinaFund.com. Visit the page in question, send us a message with what you have in mind and we will get back to you with further details on what we can do to help as soon as possible.