Losing Money in China: From Money Management to Revenge Trading


Many mistakenly believe that just because this jurisdiction has meaningful generational wealth building potential (and yes, it does, we wouldn’t be interacting through this website if our team didn’t believe in the long-term potential of China from an investment perspective), everything you touch will automatically turn to gold.

This misconception is reinforced by the fact that for the most part, stories which involve investors and/or traders losing money in China don’t exactly abound. The reasons for this state of affairs range from more cynical ones (the fact that many entities are “selling” one thing or another related to China and negative outlooks aren’t exactly good for business) to aspects that pertain to human nature (with investors/traders loving to brag about their winners but being quite shy when it comes to displaying honesty with respect to mentioning their losers).

We will go on the record and clearly state this: losing money in China is not just possible… it’s downright likely.

As shocking as the previous statement may seem, it is actually quite logical upon further reflection.


One word: volatility.

Those who want quasi-guaranteed returns can try purchasing a few short-term US Treasuries, a few short-term German bonds and so on. Hold them until expiry and you will notice that in all cases, you “made money” (unless you held let’s say German bonds with negative yields, that is) or, to put it differently, all of your choices ended up being profitable. There is just one tiny problem: your returns are not exactly impressive… if they even exist in the first place, given the “complex” environment of 2020. You opted for ultra-low-volatility instruments which proved to live up to their reputation of being “safe” but had to accept the fact that the number one downside associated with your choices was represented by the less than spectacular returns you’ve generated.

Interested in greater returns?

Get ready for increased volatility.

As an extreme example, there are people who earn a living by investing in the worst of the worst in terms of alternative cryptocurrencies (the thousands upon thousands of so-called altcoins). They know the fundamentals are horrible, they know they’ll lose money in most cases but are counting on the fact that if one of ten investments generates a 20x return and the other nine result in a 100% loss, there are plenty of profits left after drawing the line. Such traders accept extreme volatility, understand the game they are playing and are well aware of the fact that yes, you can even make money if only 10% of your trades are winners.

Chinese assets are… well, somewhere in-between.

The altcoin example provided previously should have made one aspect perfectly clear: that the name of the game is meaningfully understanding the nature of the asset(s) you are investing in. If you do, then yes, it is even possible to generate decent returns by trading assets that are worthless from a fundamental perspective and will most likely be nothing more than a distant memory 10-20 years from now.

On the opposite end of the spectrum, those who do not put in the amount of time and energy required to meaningfully understand the assets they are investing in can impossibly put an eloquent risk assessment model on the table and as such, are actually closer to gamblers than investors or even traders. Even more so, professional gamblers might be offended by this comparison in light of the fact that even in such industries, you need a firm grasp on its statistics/realities to have staying power.

Again: if you want to pretty much never lose money, opt for some of the safest bonds out there and stay away from anything on the riskier side, understanding the fact that you will just have to live with the (much) lower returns.

Should you be interested in (potentially much) more rewarding endeavors, Chinese assets can represent an excellent fit as long as you understand that not only CAN you lose money, you occasionally WILL. In fact, your reaction(s) when the quasi-inevitable occurs will ultimately dictate if you have what it takes to do well in this jurisdiction.

As a general word of advice: remain firmly in the “money management” dimension and treat losses as nothing more than yet another variable in your money management equation, avoiding emotional responses such as revenge trading. For those that do not know, revenge trading basically revolves around taking losses personally and being more aggressive with future trades as a form of… well, revenge.

Needless to say, you are essentially throwing trading discipline away by embarking on such a journey and if there is one character trait that makes the difference between an investor or trader with long-term staying power and one without, it is precisely discipline.

Please understand that your “career” as an investor or trader is not dictated by your current trade. If it proves to be a winner, don’t let that inflate your ego and the same way, do not let losers bring you down. Yes, it is the most over-used cliché possible but investing as well as trading are indeed marathons. Your success is measured in staying power, most definitely not immediate results.

Some people get lucky and hit it big right from the beginning when investing in Chinese assets, others are rather on the unlucky side and due to a combination between bad luck and poor timing, start out by losing money. Lucky or unlucky, those select few investors/traders who stick around and continue with this activity for multiple years will find that good and bad luck usually have their way of canceling each other out in the long run.

In the end, it’s precisely qualities such as discipline or flaws such as the lack thereof which make or break an investor or trader. Therefore, as a conclusion and as strange as it may seem, losing money in China is not even inherently bad: as long as you adopt the right attitude toward losses, it may very well prove to be the beginning of an impressive long-term performance story.