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Dr Chan: Don’t Chase Quality Stocks When They’re Expensive
It is rumoured that Hong Kong Exchanges and Clearing Ltd (388.HK) has suggested to the Hong Kong government to lower the taxes on stock transactions.
As a result of the rumour, the share prices of HKEx soared upon opening on Monday (16 October).
Many wanted to “chase” HKEx shares even when its price is high, but that is what I’ve advised against all along.
I had indeed recommended HKEx to investors long ago, but why do retail investors only “chase” it when its share price has already run up?
The share price of HKEx has been driven up by speculation sometime between July and August this year, but it fell back down afterwards.
During the period of speculation, its share price rose by leaps and bounds.
But during the correction period, the fall was slow and gradual, much to the annoyance of those who had bought at a high price.
Trading based on market rumour is as bad as gambling
Apart from positive rumour concerning HKEx, it is also reported that CK Asset Holdings Ltd (1113.HK) has sold its interest in The Center, a grade-A office tower in Hong Kong, for HK$40.2 billion.
The stock market is interesting. When the market is bullish, we would hear favourable or positive news one after another.
Likewise, when the market is bearish, negative rumours would keep surfacing.
Of course, I wouldn’t comment on the validity of the rumours. I just think that speculating based on rumours is akin to gambling, and this is only a game for speculators who enjoy gambling.
Real long-term investors, on the other hand, should buy when stock prices are low, and patiently await good news.
In the last shareholder meeting at CK Asset Holdings, Li Tzar-Kuoi had already publicly announced that CK was planning to sell its assets.
Since everything could be sold with the exception of Cheung Kong Center, it is just a matter of time for The Center to be sold.
Retail investors face immense pressure
The Hang Seng Index (HSI) has hit a new ten-year high, and many stocks registered upside breakaway gaps.
However, there are also many stocks that corrected or adjusted after the upside breakaway gap.
An upside breakaway gap is the result of speculative activities by institutional investors, which in turn forced retail investors to buy high.
But retail investors who have “chased” stocks at the high prices did not have the patience to wait out the correction, which could last as long as several weeks.
We see such examples aplenty. Among the investors who called into radio and TV stations to inquire about stocks, many were at a loss about what to do.
They had recently bought a stock at a high price but had to watch it fall afterwards for weeks. Note that these people had bought quality stocks, not junk stocks.
Unfortunately, they had bought the stocks at a high price and were unable to sell them at an even higher price.
As the HSI goes on a rising trend, they could only watch others make profits.
As retail investors have limited funds and cannot really diversify their investments, they often put all their money to “chase” one expensive stock, and thus they face even greater pressure.
Dr Chan Yan Chong is a renowned investment expert with decades of experience in investing. He’s guided retail investors through the various financial crises and stock market corrections and crashes. Dr Chan is speaking at our upcoming Shares Investment Conference 2H2017《股林大会》(Chinese event) on 4 November 2016 along with Buck Tan Mu Kun, Goh Mou Lih and Liu Jin Shu, who are all regular 958fm guests. Click on the button below to learn more.
This article was translated from Chinese to English by Chen Xushuang. Click here to read the original article.
