Stock Market Cultural Chasm – Eastern versus Western Logic

Understanding Chinas Motivation

Cultural Chasm in the Understanding China Series

Western commentators and analysts find China troublesome to fathom. This is due to the ‘free market’ prism through which they look at the share market. It is a fundamentally flawed starting position when trying to understand China!

Cultural Chasm

There is a Cultural Chasm which is impossible for Westerners to understand – literally like fitting a round peg in a square hole.

Eastern philosophy is long term by nature where as Western philosophy is NOT. Short term thinking is indoctrinated in our Western markets.

China –A Pluralistic Society

The Chinese apply less political pressure to companies and Chinese industry works more with government – forming a pluralistic society.

Under a pluralistic society, power no longer just rests with the government. They no longer dictate views of all groups but take into account the needs of society.

Where companies make decisions which work within these governmental/societal needs they are supported as they are for the good of the state. Where they aren’t, mother China can be ruthless.

Control becomes indirect but just as strong – and maybe even stronger. For China its the NEXT growth phase.

In summary, the US is controlled by the captains of industry but China in comparison controls captains of industry.

Western logic in an Eastern dominated World

If we are right and a company will do as a nation bids then nothing is as it seems …. Economic rationality simply doesn’t work. What hope has an analyst got to understand a company’s prospects where any interaction exists with China ? What is the future of fundamental analysis ? On what basis will world markets operate?  These are serious issues facing the traditional investment management industry the world over.

It is a challenging environment, specifically for those who invest the old way ie using traditional fundamentals. Since the GFC this method has been outdated – the concern is that most haven’t worked that out yet.

What do we do?

At pivotal times knowing when to sell is invaluable.  We follow the changes in our Pythagoras Investment Timing Indexes. They offer a mathematical understanding of the stock market through volatility, which show that price sensitive events are predictable from changes in Volatility (i.e. in advance of price moves). These changes lead to buy/sell recommendations.

We recommend a sell when the market/stock is at risk of going down, or no-where. At these times we recommend investing in cash, and await the buying opportunity. When the market/stock is less risky, and it’s going to go up, we reinvest to profit.

Conclusion: The key to making money is selling.

The key to making money in any market is selling before any negative event. Pythagoras generates the sells before the events with share price effects – its proactive not reactive.

Investors know it’s rare for all stocks to go down all the time, all at once. Even in a bear market there are upward moves to profit from – if you have the right Buy/Sell recommendations.

Therefore Pythagoras can make money in any market regardless of the investment environment – in fact its best in the tough markets.   We worry less about the events and their timing and focus on Volatility changes. At Pythagoras we follow changes in volatility which precede the events. This places us at the forefront of investing.

 

 

Disclaimer: The information in this document (“Information”) is not intended to constitute advice.  It is for general information only and does not take into account your individual objectives, financial situation or needs.  You should assess whether the information is appropriate for you and seek professional financial advice before relying on or making investment decisions based on the Information.  Investment products are subject to risk including the loss of income or capital invested.  Past performance is not an indicator of future performance.  Neither Pythagoras Investment Timing Index Pty Ltd ACN 147371113 (AFSL 431 238), its directors, employees and representatives (collectively, “Pythagoras”) warrant the accuracy or completeness of the Information. To the extent permitted by law,  Pythagoras disclaims all responsibility and liability for any loss or damage of any nature whatsoever which may be suffered by any person directly or indirectly

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