Fishing for fortune: The young dive into stocks
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E-mail Shanghai Daily, May 28, 2015
"Risk," Warren Buffett once famously observed, "comes from not knowing what you are doing." In China's current bull market frenzy, it's not hard to find young people jumping on a bandwagon without knowing where it's going.
People like Akira Zuo, 25.
She's planning to get married by the end of this year and decided the surging stock market would be a good place to earn some extra money before settling down to family life.
Why not? The Shanghai Composite Index has almost doubled in the past six months to nearly 5,000. Everyone is talking about it. The "greed and fear" factors that traditionally drive stock markets have given way to greed alone.
Zuo's future mother-in-law, who also dabbles in the stock market, is worried.
"She thinks she's brave, but actually she is young, inexperienced and blind," says the prospective in-law. "She hasn't tasted the horror of a stock market like we who are older have. When the bear hits, she will be completely shocked. I hope she doesn't lose all her savings."
In April, more than 4 million new stock accounts were opened in just one week, compared with less than 100,000 in April 2014.
For the older generation, investment in the stock market has been a primary way to chase higher yields than the returns they can get from interest-bearing bank deposits.
For the young, investment is often just the current fad, fed by a naive belief that the bottom will never fall out of a rising market.
"Why should I be afraid?" Zuo told Shanghai Daily at the end of April, when she collected profit of about 50 percent on an initial investment of 100,000 yuan (US$16,122) — all her savings from three years of work.
"I don't know very much about the market or the companies," she admitted, "but it's government policy that's giving us the profit, which is basically like a free lunch. I would be an idiot not to buy. I only wish I had more money."
Like Zuo, many new account owners are from the post-1990 generation.
"All my classmates and friends are suddenly talking about the stock market as if they were investment bankers," says Felix Wang, a junior at Shanghai University. "You are out of the trend if you haven't made some money from shares."
The China Household Finance Survey conducted by Southwestern University of Finance and Economics found that 2.3 percent of all new investors in the fourth quarter of 2014 were born after 1990, a small but noticeable new demographic trend.
"Many younger relatives and friends have asked me about how to open an account and whether there is a minimum investment required," says 34-year-old Yang Meihui, who works with a local brokerage. "Many of them know nothing about the market, not even the basics, like how to operate and trade, but they are already putting all their money in equities."
Looking back, Yang says she and her friends knew nothing about stocks nor had any interest in markets when she was their age. How times have changed!
Or have they? The history of stock markets is littered with example of market rallies that sucked more people in the longer they lasted. In the end, institutional investors and the super rich — the so-called "smart money" — grabbed profits and headed for the exits, leaving shell-shocked small investors counting their losses.
According to legendary investor and mutual fund pioneer John Templeton, the four most dangerous words in investing are "this time, it's different."
But that isn't how younger investors, who seem to shrug off the law of gravity, see it. For them, the market will just keep going up and up.
So it was with Shanghai University junior Wang. He opened a stock account in March, with about 10,000 yuan from pocket money and part-time jobs. Following the advice of more experienced classmates, he bought some Internet concept shares and made 1,000 yuan in a week.
"We started watching more serious news other than the celebrities or TV shows," he says. "We also started paying attention to what government leaders were saying."
Like Wang, Zuo and most of their peers, it's a simple strategy: just follow the trend and buy whatever is recommended on TV or is hot in market talk, such as stocks that might benefit from President Xi Jinping's "One Belt One Road" initiative to expand infrastructure spending.
The young investors say they aren't afraid of market downturns. Then again, few of them have ever experienced that sinking feeling.
The first week of May was a wake-up call for some. The Shanghai market plunged 8 percent in three trading days. Some individual investors, who watched as their paper profits evaporated, took fright and cashed in shares at a loss. But some younger investors bravely hung on.
"When the price dropped, it was time to buy more shares," Zuo said in early May. "Otherwise I will never get the chance to make my money back. I have to keep marching, marching and marching forward!"
She might be wise to heed another remark by Templeton: "Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria."
Generations of investors
YANG Wan, 64
Retired factory worker, 22 years in the stock market
"I have been very cautious in the past eight months, since the market started going up. My grandchildren, who are also trading shares now, always complain that I'm too cautious and have missed a lot of good opportunities to make money. They just keep buying, whether it's on the rise or it's falling. And they won't listen to my suggestions. Sometimes I feel they are not investing, but more like gambling. But it's their own money, so it's their choice."
Zou Renchun, 48
Manager at a US company, 8 years in the stock market
"I was hit hard last time when the Shanghai index dropped from 6,000 to 2,000. I started trading quite late, when it was already around 5,000, so I didn't make much money before it suddenly just collapsed. This time, I don't want to miss it. I also loaned some money to my 21-year-old son to make his own investments. It's not about how much money he can make. I think it will be a good experience that trains his ability to face ups and downs. He's a bit too bold in his investments, but he's young and brave, so that's not necessarily bad. He has gotten a higher return so far than I have."
Rindy Yang, 35
Public relations specialist, eight months in the stock market
"A lot of my younger colleagues, those in early 20s, are suddenly all talking about the stock market. They are more laid back about investment than I am. I really don't want to lose any money, but my younger colleagues don't even think about losing. They only think about earning more."
Matt Pan, 20
University junior, three months in the stock market
"I opened the account just after the Chinese New Year, with the money from my red envelopes. It's the first time that I have become quite fanatic about anything. I watch the analysts on finance news every evening, and I'm always on my stock market app to watch prices. I do some transactions almost every day, though many older relatives told me it's better not to trade too frequently. It has been a very interesting experience and also good training for making bigger investment once I start working. Nowadays, everyone has some investments. You can't expect to make a living just from your full-time job."
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