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The worst way to invest



February 11, 2010 – Comments (0)

China's latest decision to invest $9.6 Billion in stocks made the headlines today. In principle, this is a step in the right direction. However:

1. Too little

$9.6 Billion is only a drop in the bucket. With a $2.4 Trillion (and still goring!) toxic investment in treasuries, this tiny amount can't make any difference. It should have been 100 times that amount.

2. Too late.

They should have started years ago. They've been asleep at the wheel and they woke up only now when the disease already reached the terminal stage and the bad-debt crisis is now inevitable. 

3. They overpaid.

What was wrong with investing when S&P was at 666? They did nothing when stocks were reasonably valued and they are investing now when the index is definitely in an overvalued territory.

4. They bought crap.

And what did they purchase? Mostly gold and oil stocks. The two absolutely worst sectors in the whole stock universe. 

5. They bought individual stocks and ETFs.

When you know you're a terrible stock picker, you should buy the index. Government officials make terrible stock pickers. A government official is infinitely gullible and he is also quite happy to be gullible when there is a modest present involved. Therefore is you are a government, and especially if you are a corrupt government, you had better leave stock picking to professionals and buy the S&P 500 index instead. Instead they duped themselves into thinking they can pick individual sectors. It's not an accident that they bought the worst junk they could find. This mistake will be repeated over and over again as long as they continue to play this game instead of accepting the average stock market return like good conservative investors.

My summary: finally they tried to adopt the right strategy but they did it so clumsily that it would be better if they just bought more Treasuries. 

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