Making investment decisions based on predictions of political and economic changes is a risky proposition because predictions are often wrong.
Even if one is able to make a correct prediction once or twice, all the gains could be lost if the next prediction is wrong.
Such an approach to investing is like betting on one’s luck. What investors should do instead is focus on the operation and earnings performance of individual companies.
Though the trade conflict between China and the United States continues to grab headlines – and it may go on for years – investors should, rather than predict how it’s going to unfold, remember that trade war or not, life will go on.
Most likely, the first thing people do after they wake up in the morning is to check messages on WhatsApp and Facebook. They would open their Outlook and Google Calendar when back in the office, use digital payment tools to pay for their lunch and browse online shopping websites during breaks.
All those internet firms would continue to see revenue growth, or in the worst-case scenario, just grow at a slower pace.
The same holds true for those restaurant chains as people will continue to eat no matter what happens to the tariffs.
Some Chinese and Hong Kong restaurant plays are trading at just a bit over 10 times earnings and offering good value. A few counters in the telecommunications sector also look attractive, offering a stable yield of 5 to 6 percent.
Over the long run, the fundamental trend of a business is what matters most. Focusing on this trend should be far more rewarding than guessing whether the stock market is going to rise or fall in the next few days, weeks or months.
This article appeared in the Hong Kong Economic Journal on Dec 10
Translation by Julie Zhu
[Chinese version 中文版]
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