“Organic Growth” of Chinese Assets?


One of the most over-used terms in the world of trading and/or investment is most definitely the “organic growth” one, especially in light of the fact that it tends to be used in a very… let’s call it self-serving manner.

Before continuing, it is worth pointing out yet again that to be a successful investor/trader in general and when it comes to Chinese assets in particular, analyzing the asset(s) you have in mind in a brutally objective manner is a must. Many readers undoubtedly came to ChinaFund.com expecting a “perma-bull” narrative or in other words, expecting us to be yet another Chinese-oriented team of experts that believes prices can only go up, China is the future and everything else will collapse… that is hardly the case.

Is this because we believe prices won’t go up?

No. We are definitely long-term bullish but this doesn’t mean we see the world around us through rose-colored glasses, as that is a surefire way of losing money. Instead, while we do believe that the future will ultimately be bright for pretty much any desirable and meaningfully investment grade (!) Chinese asset, we also accept the fact that there will be anything from occasional bumps to depressing bear markets we will have to deal with along the way and there is ultimately absolutely nothing wrong with that. There is however more than just “something” wrong with assuming that just because you are long-term bullish, this automatically means prices cannot possibly go down in the short to mid-term.

Is this because we believe China doesn’t have a bright future?

Once again, no. As explained rather obsessively here at ChinaFund.com, we believe a future in which China becomes more and more dominant is pretty much inevitable in the absence of Earth-shattering developments, the forces at play are simply too great for us to be pessimistic with respect to China’s big picture future. But short-term, make no mistake, there has been pain and there can be pain in the future as well.

Our team’s problem with the “organic growth” narrative revolves around the fact that it tends to be used in a let’s call it cheerleading manner, with die-hard optimists believing that only upswings are “natural” or “organic” and that whenever prices go down, an evil manipulator or another third party needs to be blamed.

When it comes to Chinese assets, conspiracies revolving around the West that is trying to curb China’s growth whatever it takes abound. Ironically enough, the same principle tends to be valid with respect to Western assets, with China being the “usual suspect” whenever perma-bulls are looking for someone to blame for less than stellar price action.

No matter what the context may be, the party using terms such as “organic” is pretty much always trying to be manipulative in one way or another by framing the narrative in a way which makes it seem that any price action that goes against the core beliefs of the party in question is somehow unnatural… with, of course, it being only a matter of time until things get back on track.

By embracing such an attitude (yes, even when investing in Chinese assets), we firmly believe that you are shooting yourself in the foot as an investor. Instead, we would strongly recommend leaving emotion out of the equation completely, no matter how much you appreciate the asset you own. At the end of the day, as pretty much any investor or trader worth his salt can confirm, falling in love with a position is never a good idea and on the contrary, such love stories usually end in tears.

As emotionally numbing as it may be (and yes, you have to accept the “emotionally numbing” dimension of trading and investing if you are serious about longevity), brutal decisions need to be made when the time is right. If your model indicates that it is time to sell one of your favorite assets, you pull the trigger or “worse” yet, why not even short-sell when the right conditions present themselves? The same way, if you see opportunities that your model indicates are asymmetrically in your favor but they are associated with an asset or asset class you aren’t necessarily ideologically aligned with, a good investor/trader will once again tell you that pulling the trigger makes perfect sense.

Think of it as brutally rational trading and/or investing, it is most definitely a metaphor that rather accurately describes the manner in which the ChinaFund.com team sees Chinese assets. Whenever we need to make an investment decision, we do our best to put our bias behind us and instead, do what the numbers/models dictate.

The same way, “brutal honesty” is the name of the game when working with clients as well. If you were looking for a team of “yes men” consultants, we can assure you it is most definitely not us. Our team does not hesitate to share painful truths/information with clients because we know that something which perhaps rubs you the wrong way now but is in your best interest will ultimately consolidate the relationship we are trying to build.

As such, you will never see us push terminology such as “organic growth” and generally speaking, for a team that even has the word “China” included in its domain, you will notice that we are the exact opposite of “cheerleader” advisors. Therefore, do not be shocked when we tell you that for example short-selling opportunities might emerge when it comes to one of your favorite assets and please know that we are only embracing the “brutal honesty” mantra because it is in your best long-term interest. To find out more about what we can do for you, our Consulting section is at your disposal or, of course, you can use the Contact section of ChinaFund.com to send us a message with what you have in mind.

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