Sir Isaac Newton got it wrong, big time. He poured his money into the South Seas. But he feared that, just like apples, markets that go up must come down, and so he got out. Phew! But then the great man started to question his own maxim. The speculative bubble continued, gravity appeared to exert no effect, and he dived back in. The bubble burst and he lost a fortune, which he never recovered.
Of course timing your exit from a bull run is one of the hardest things to do. But to get the timing just right seems to have more to do with luck than judgement. Here is a letter we received yesterday from one of our readers, Mr Colin Blackman. Read his dilemma for yourself.
“I share my time between the UK and Hong Kong. I am a Hong Kong resident and this allows me to have a Reminbi savings account and trade in Hong Kong shares directly. I like to think that I can view the situation from both sides.
“If you can find time to listen to the Bank Holiday Monday version of Night Waves on Radio 3 (online!) which is a discussion of modern China by a Chinese living in San Francisco and westerners who live there or have done. Their common criticism is that we are looking at China from a western perspective, not a Chinese one, which is why we get a skewed view.
“You are right (you usually are!) that with savings rates low (I get a mere 0.45% on my RMB account, but capital appreciation hopefully) the stock market is the only alternative. The Chinese do like to gamble: your horse may come last, you may have a bad run of luck at mah jong, so what if the stock market drops?
“Some would argue that there is enough cash in the market to sustain the market. While there have been mega IPOs (like ICBC) that have locked up staggering amounts of money, there has still been enough for the smaller IPOs and the market generally. There are 3 IPOs currently in Hong Kong, all open to public subscription.
“You are also correct that it is the consumers who are driving the market. They rely on who is involved and rumour, especially rumour. The quality of the company is irrelevant.
“I’m told, for example, that the Hong Kong market will drop after 7 July. Why? Because a friend’s feng shui master told her! That’s the sort of rumour that could cause a significant number to sell on 6 July and suddenly the prophecy becomes self-fulfilling. We might dismiss that as a silly notion but that’s just taking a western perspective.
“However, even the head of Hong Kong’s monetary authority is now voicing concern. Adverse comments from Beijing did nothing, so I doubt his comments will have any effect.
“So what have I done? What I always do – I cashed in soon after the beginning of the new financial year ….and every day I curse the missed profit. Perhaps I should just buy a few …..”
© Investment & Business News 2013