Peter's Perspective
29th June 2015 by Peter Churchouse

“The money I lost almost equals my one-year salary…”

“Back then [2 months ago], I thought I must be stupid not to invest in stocks as making money out of it was so easy. Now I think I’m even more stupid. The money I lost almost equals my one-year salary.”

Wang Yan, 26 year old “investor”
Source: Bloomberg

A couple of weeks ago I sent out an update on our China thesis…”This is a Bubble

I think the headline was self-explanatory.

As I said then, we were seeing some crazy numbers coming out of the China market. The market was approaching a full-blown speculative frenzy.

I recommended tightening our trailing stop loss to 15%.

Well, on Friday the broader A-share market cratered by nearly 8% in a single day.

I’ve warned about this time and again:

In April I said “This market can whipsaw very quickly. We’ve seen it before and I guarantee we’ll see it again.

And a couple of weeks ago I said “the combination of massive margin trading growth and retail investors driven by pure speculation means that this bubble WILL burst.

This huge one-day correction has pushed us through our tightened stop loss, so we’re exiting China A-Shares and taking a healthy 70%+ profit with us.

Unfortunately, the Mainland China investing landscape will be littered with the likes of Mr. Wang (quoted above).

Reading between the lines, I can guarantee he has broken every single basic rule of investing…

  • he’s concentrated his entire portfolio in China stocks (no diversification or position sizing),
  • he hasn’t used any kind of stop-loss,
  • he’s purely speculating not investing,
  • and worst of all, he’s combined all of that with a dose of leverage which is how I guess he managed to just lose an entire year’s worth of salary in a couple months.

We made the case to buy China in August of last year. We reiterated it to our readers several times….

…and we tightened our stop loss when we saw the frenzy peaking.

When we combine our calls with position sizing and a stop loss, we give ourselves every chance to maximise our gains, and minimise our losses… and we certainly don’t put ourselves in a position to suffer the kind of devastating loss that Mr. Wang is facing (he’s young, and hopefully he’ll learn!)

But I’m not saying it’s game over for the China market.

Heck, the madness could drive another rally. Just this morning China’s central bank has cut its benchmark lending rate to a record low… the easing will continue.

Our August edition will show you exactly how to profit from that trend…

But for the meantime, we’ll step aside and let the greater fools fight it out, and focus on working hard to bring our subscribers more profitable ideas.

Last time when I talked about China I said “buckle up”… but now I recommend you take off your seat belt, get out the car and walk for a while!

Have a great week ahead!

Good investing,

Peter Churchouse

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