One lesson I learned when I first came to “The Orient”—about the time that Genghis Khan was building mounds of skulls under his version of martial law—Asians have a completely different view of return on investment.
We tend to think that the Asian mentality is to look at decades rather than years, years rather than weeks. However, when it comes to money, time frames and percentages are shorter and larger. Presenting an investment idea that offers 15 percent annually for five years is usually met with “What’s your idea to double my money in 24 months?” My take on this is that business investment is the slow and steady turtle winning the race, while cash-on-the-table passive investment should be the fast rabbit. Maybe that is why Asians are characterized as big casino gamblers.
I can remember Taiwanese stock- market traders sitting around and betting thousands with each other if the next price change on a particular stock would be up or down. Asian money often wants action in the short term, as well as potential profits. How long does the average cockfight lasts when tens of millions change hands? No wonder the financial-literacy advocates have such a difficult time in Asia.
One of those top 10 trading rules—written by Westerners, of course—is always like “Invest
conservatively and grow your money over time with the least amount of risk possible.” Yeah, good luck selling that idea in Asia. Actually, the only time you hear something like that is when the stock market has been in a downside trend for several years from someone who did not cut losses and who, therefore, also missed the condo boom.
From what I understand, the latest investment strategy is to put the stocks you own in a warehouse and forget about them until they generate a profit. The interesting thing is, apparently, this only applies to issues that are down 10 percent, 20 percent, 50 percent from the original purchase price. And they never stop talking about those issues that are supposed to have been put away in a quiet place for “safe-keeping”.
Buying and holding for the long term is a valid stock-market investment strategy. However, every passive investment must be viewed in the context of the real world. That is why Warren Buffet’s “I buy on the assumption that they could close the market the next day and not reopen it for five years” is great if you are a billionaire and won’t need the money in those five years.
Buffet was 56 years old and a billionaire when he said that. One of his first major stock purchases was American Express Co. (AXP) in 1964. But if you happened to buy AXP at $65.07 on June 1, 2007, and saw it go to $10.26 on March 6, 2009, you might disagree. By the way, AXP went back up to $65 in late March 2013.
Albert Einstein—or maybe Abraham Lincoln—said: “Compound interest is man’s greatest invention”. But Al Capone—I think—said: “Compound inflation is man’s worst invention”. The two factors of “cost of money” and “opportunity cost” must be included in every investment decision. If real inflation is 6 percent and it is, then over five years that stock better be up 30 percent just to break even.
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