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TMFMmbop (28.72)

It's never as good nor as bad as it seems



November 18, 2009 – Comments (2)

Back in January and February, near the market bottom, I wrote a few columns about China that were met with significant resistance. Take a look, for example, at some of the comments left here. I was bullish on China given the valuations at the time and was going about bulding diversified exposure to China via several companies. While one of those companies (AOB) did not work out, others such as CGA worked our fabulously. But the point is that when I presented these ideas on, I got comments like these:

Perhaps if those of us who have had experience in asia keep hammering away at the Motley Fools naivete regarding China -as in "People's Republic of", perhaps they will get the message. China only granted people the right to own private property in 2004. Subjecting Chinese companies to the same forms of analysis as you would a US company is unrealistic. I wouldn't buy Iranian government bonds either. These are countries that make up written rules as they go along and abide by some very old unwritten rules that only apply to insiders.

Fast-forward nearly a year and China stocks have generally very well, and too well in some cases. So just this week I penned an article on 3 Chinese stocks I think have gotten ahead of themselves, and perhaps not suprisingly I was met with resistance again!

There was this:

Frankly, I currently care more about "100% trustworthy accounting regulations" in the west that in China. China will grow in any case for the next decades. And it will grow using its rules (a balanced mix of planned economy and free market), not ours. We may like this or not but that is.

And this:

The 3 short candidates mentioned are not all well-researched. Any prudent investors can and should dig down deeper to NTES and CNTF's financial data and will find very good numbers, growth and prospects which we found.

To sum up, when I wrote positively about China when the stocks were down, people pointed out all of the negatives about China. And when I wrote negatively about China now that the stocks are up, people pointed out all of the reasons why Chinese stocks will outperform. These, in other words, are contrary indicators.

But when the market was down people focused on the negatives, and they're focusing on the positives now that the market is up. It's classic market "intelligence," and it's something we all need to fight against. I was reminded of this today while reading Michael Pettis's latest column. He wrote:

There is too much acceptance at face value that China has managed to escape the crisis fairly well, and that there are no serious concerns within the country.

Actually, people had serious concerns 12 months ago, but are now whitewashing them again since GDP growth has returned. When something goes awry, however, those serious concerns will come back.

But it is never as good nor as bad as it seems. And that's one secret to making money in the stock market.

2 Comments – Post Your Own

#1) On November 18, 2009 at 4:51 PM, TMFMmbop (28.72) wrote:

Sorry, here's the link to Michael's latest column:

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#2) On November 21, 2009 at 10:46 AM, MGDG (33.07) wrote:

I would say were at the not as good as it seems spectrum right now. Timing would seem to be more important when your going against the trend.

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