The start of my red equity portfolio
China stocks fall with Russia invasion. Is it even related?!
TL;DR – 5mins read
China stocks fall as Russia invaded Ukraine. China’s ties to Russia coupled with perpetual regulatory pressure triggered a massive selloff of Chinese stocks, deepened the losses and sent Hang Seng Index to the lowest level since 2008. The Hang Seng China Enterprises Index closed down 7.2% on Monday, the biggest drop since November 2008. The Hang Sang Tech Index tumbled 11% in its worst decline since the gauge was launched in July 2020, wiping out $2.1 trillion in value since a year-earlier peak.
China’s wealthiest drop US$71 billion in a day as China’s stocks plunge. Investors have reason to be jittery after several big-name funds reported significant losses related to Russia. Since Russia’s invasion into Ukraine began, China stocks fell and BlackRock’s funds with exposure to Russia had nosedived $17 billion.
On Friday, the Golden Dragon Index, which tracks American depository receipts of Chinese firms, slumped 10% for a second consecutive day — something that’s never happened before in its 22-year history. It fell 12% Monday to its lowest level since July 2013. China’s benchmark CSI 300 Index closed 3.1% lower on Monday. The onshore yuan also fell to its weakest in a month as sentiment toward Chinese assets turned sour.
My personal investment portfolio was not spared. It was the first time since the portfolio stock value (blue line) rose above the invested cash in August 2020 (red line), it dipped below on 15 March 2022. My portfolio stock value plunged 36% in the last 2 weeks, not to mention the hemorrhage that started 6 months with China’s crackdown on tech companies.
Three painful lessons I learned from this china stock crash episode, which I believe will be useful for all of us in investing:
Buy only good companies. Select only companies with good and strong cashflow, growing earnings per share and low debt.
Have a diversified portfolio across different instruments such as equities, bonds, real estate and crypto etc and make sure that each single stock doesn’t exceed 10% of your entire portfolio.
Stay away from leverage. Do you know that if you trade on TD Ameritrade, it is a margin account. It will auto lend you cash if you have insufficient to fulfil any obligation. Stock buying power and options buying power should not be negative – if it’s negative, you have over borrowed. When it is negative, that’s when you will kenna margin call to top up the difference between your marked to market stock value vs what you have put into the account. If you are unable to fulfil the margin call, some or all of your stocks will be liquidated and your losses will be realized!
The stock market seem to have recovered a little since china stock crashed *touch wood*. At least I don’t have the irritating margin call warnings in my TD Ameritrade account. For those who got part of your stocks liquidated, my condolences to you. When we lose money, there is a mixture of feelings and sometimes we blame others for it.
To move forward, we have no other way but to accept the reality. Learn from it, let it go and see how we can do better next time. No one is perfect including Warren Buffet. All super investors have lost money before, especially when they were much younger. But as they get more experience, they make more victories than what they have lost.
Please feel free to comment below or add on anything that I have missed so that we all can learn together. For those who are keen to learn more about how I pick my stocks, the criteria and how to assess the company’s intrinsic value and also selling of options, feel free to drop me a message in my facebook page.