Wednesday, December 12, 2007

My China Investment

Yesterday at my favorite coffee shop (the one with the 60RMB cranberry juice) I flipped through an old issue of Newsweek. This issue featured China and its rapid economic growth. One little graph caught my attention. Last year there were 15 billionaires in China (I assume this is in US dollars). This year there are 106! That’s 7 times growth in one year. No wonder the China stocks are growing like crazy.

That brings me to one of my layman investing mistakes. When I first started investing, I was interested in BRIC stocks as part of my growth investments. I focused on China because my job is so involved in China. I invested in the iShares FTSE/Xinhua China 25 Index (FXI). At $98USD (Dec 2006) it was the most expensive stock I ever bought. But I’ve been watching it since the summer at $70s, I liked the companies it owned, and I wanted in on the China growth story.

Early January 2007 FXI went up to $115+ and then plummeted to low $90s. I nearly had a heart attack. In June when it reached $115 again I took profit and sold the stock. There were a few lessons I learned from this little adventure.

First of all it doesn't matter how great the stock is, it was too expensive for me. The amount I have to invest in this stock was more than I felt comfortable risking. I remember someone saying that if you are up at night worrying about how your investment is going to do tomorrow then that investment is not for you. This is a good check to have. Although I wasn’t up at night worrying, I was worried enough every time I check the prices.

This brings me to the second point. When investing long term (which is what I aim for) don’t worry too much about daily fluctuations. FXI fluctuates sometimes by $10 a day. However, over the long term it is still doing well ($182 today). If I stuck to my goal (around 2008 Olympics) and not be put off by daily fluctuations I’d still be in on the growth.

Thirdly, don’t be emotional. With a long term investment strategy a day or two is not going to matter. When I was watching the stock, I was afraid that if I missed selling/buying today I’d miss out completely. That's not true. Take your time and do the research and think things over. If it is a good stock to buy it still will be in another. If it's time to sell a day early or later will just be a little less profit. The important thing is to know you made a good rational decision.

Oh...And no use crying over spilled milk. Yes I could've made $65 more if I held on. Well knowing me and my risk tolerance I could never have held on that long. It was just too much money to lose.

I’ve come a ways since then. There is still a long way to go for me but I'm learning my lessons and slowly but surely becoming a more aware and confident investor. Now I have a clearer idea of what my risk tolerance is. I stick close to a strategy which I am comfortable with and is inline with my goals. Occasionally I still put a little money on riskier equities but only when I'm prepared for the risk.


mariam said...

It's funny but people say the young are fearless.

Well, not from my experience with money.

When I first got my real job, I realized how hard I had to work and I was watching fluctuates and I'd be angry if I lost $100 during a quarter.

Now that I'm more settled in my career, I just don't worry about it.

Esme said...

Exactly. I think now that I've some experience with gains and losses I've got a better perspective on how I see the magnitude of those gains and losses.