May 24, 2007
Numerology as Basic Trading Strategy in China
James Areddy writes Chinese Investors Crunching Numbers Are Glad to See 8s:
… the Chinese investing public’s trust in the predictive power of numbers — rather than fundamentals like business prospects or profit — is one of many reminders of how buying on the Shanghai and Shenzhen stock exchanges looks like gambling.
Brokerages are set up like casinos. Investors drink tea, smoke and chat as they make trades on computers lined up like slot machines. Instead of dropping in coins, they swipe bank cards to pay for shares. In China, individuals, often with little understanding of financial concepts, make up 60% to 80% of trading.
The absence of a free press in China and regulatory constraints on what financial analysts can say publicly leave investors vulnerable to unusual trading theories. They often make do with folksy trading tips such as those now circulating among investors advising people to wear red clothes, which are representative of a “hot” market, and to eat beef to sustain the “bull” run, while avoiding references to “dad,” since the word in Chinese is a homonym for “drop.”
Areddy ends the article by quoting a Chinese investor who says “in the stock market, half your results come from luck.” If you’re picking stocks based on “lucky” ticker symbols then a lot more than half your results come from luck.
UPDATE: The Bespoke guys ran the numbers… interesting post.
May 24th, 2007 at 4:32 pm
Hey, this sounds like the U.S. equity market in the early 20th century. There must be a lot of chances regarding all the misprizing. And a lot of risk for sure, too. Where are the Chinese Livermores?
May 24th, 2007 at 6:48 pm
At least they are admitting a luck factor in stock picking. Remember when we were all skilz back in 1999?
May 24th, 2007 at 8:29 pm
Markus: They exist but you don’t have to be very savvy to make a fortune in a market like this.
Steve: Sure, but we never consulted numerologists (maybe we should have, lol).
May 25th, 2007 at 8:28 am
Hi there,
You might want to see this music video made on the Chinese Stock Market!
May 25th, 2007 at 11:08 am
Moola: Thanks for the link. 死了都不卖 … I’ll die before I sell? We’ll see about that! ;-)