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  • Mar 15, 2022 - An Investing Lesson from China's Stock Market Meltdown

An Investing Lesson from China's Stock Market Meltdown

Mar 15, 2022

An Investing Lesson from Chinas Stock Market Meltdown

Chinese stocks are crashing.

The Hong Kong China index was in the vice like grip of panic selling yesterday.

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

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

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

Now, here's some data that will really shake you to the core.

Since its inception in December 1992, the MSCI China index has returned just 1.5% per annum in USD terms.

If you include fees, taxes etc., the returns could come to almost zero.

Yes, that's correct.

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

Here's the chart for a quick overview.

Data Source: Twitter

Is this crisis an opportunity by the way?

Charlie Munger definitely likes to think so.

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

Here's what he is believed to have said.

  • China is a big modern nation. It's got this huge population and this huge modernity that has come in the last 30 years. We invested some money in China because we could get more value in terms of the strength of the enterprise on the price of the security than we could get in the United States. Other people, including Sequoia, the leading venture capital firm in the United States, have made the same decision we have. (Source: Junto Investments)

There's an important investing lesson here. The future is always going to be unclear. So, do your homework, ensure that the underlying stocks is of good quality and buy it with an enough margin of safety.

It doesn't matter what others think. If the stock ticks both the quantitative as well as qualitative boxes, go ahead and take the plunge without worrying about the popular opinion out there.

For Munger, his Chinese investments of BYD and Alibaba ticked these boxes and he is also confident of the Chinese economy doing well going forward. This is 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 can potentially accelerate your profits, don't get left behind. Join my telegram channel...

You'll get access to the best ideas on how to spot accelerated profit opportunities in this market.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Rahul Shah

Rahul Shah (Research Analyst), Managing Editor, Microcap Millionaires has led the team from the front in developing some of our most stringent and rewarding research processes. As per his own admission, the turning point in Rahul's life as a financial analyst came a few years back when he got introduced to the works of Warren Buffett and Charlie Munger. From Buffett, he understood the value of investing in good quality business with powerful moats and strong management teams. Charlie Munger on the other hand inspired him to be a lifelong learner and use mental models in order to arrive at the crux of matters across most disciplines. Rahul firmly believes that in order to be successful at investing, you have to do the big things right and possess a great temperament and a contrarian streak.

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