An Investment Lesson From China’s Stock Market Downturn

The Hong Kong China Index was in the grip of panic yesterday.

It closed down 7.2%, the biggest drop since November 2008.

The index is now down 28% in a month and a whopping 45% in a year.

Compare this with the Sensex, which is up 12% over a 1-year period despite recent volatility.

Now, here’s some data that will really shake you up.

Since its inception in December 1992, the MSCI China Index has returned only 1.5% per year in USD terms.

If you include fees, taxes, etc., the return can be almost zero.

Yes that is correct.

The stock market of the fastest growing economy, an economic miracle of the current century, has given almost zero returns over a period of up to 30 years.

Here is the chart for a quick overview.

data source: Twitter

is this crisis an opportunity By the way?

Charlie Munger certainly likes to think so.

He made his love for the Chinese economy and its major stocks loud and clear at the recently held AGM of the Daily Journal Corporation, a firm of which he is chairman.

He is believed to have said here.

China is a large modern nation. It has got such a huge population and such great modernity which has come in the last 30 years. We invested some money in China because we can get more value than the United States in terms of strength of the enterprise at the cost of safety. Others, including Sequoia, the leading venture capital firm in the United States, have made the same decision as we have. (Source: Juno Investments)

There is an important investing lesson here. The future is always going to be unclear. So, do your homework, make sure the underlying stock is of good quality and buy it with a substantial margin of safety.

It doesn’t matter what others think. If the stock ticks both quantitative as well as qualitative boxes, then go ahead and take advantage of it without worrying about popular opinion.

For Munger, Chinese investment BYD and Alibaba have ticked these boxes and they are also confident that the Chinese economy is doing well going forward. That’s all that matters to him.

By the way, I shared this update on my Telegram channel earlier today.

If you’re interested in ideas that could potentially accelerate your profits, don’t hold back. Join my telegram channel…

You’ll get access to the best ideas to spot Quick profit opportunities in this market,

Happy investment!

Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such.

This article is syndicated from equitymaster.com