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"Buy Low, Sell High" - How China's Senior Citizens Are Learning To Trade Stocks

Tyler Durden's picture




 

Much has been said here about the relentless Chinese stock market bubble, where the Shanghai Composite closed just shy of fresh multi-year highs, and with a market cap of $10 trillion, or about 2.5x higher than where it was about one year ago, is well on its way to catching up to total US stock market capitalization; in volume terms, China has already surpassed the US. 

 

A few days ago, we showed why the market in China is sucking in millions in new, inexperienced traders every week when we showed the case of one middle-aged rural Chinese "trader" who explained that "it's easier to make money from stocks than farmwork."

In short: a bubble which is sucking in millions by the week, and which will end not only in tears but likely in riots and civil disobedience when the tens of millions of inexperienced traders, farmers, housewives, and unemployed lose everything once the bubble burst as it always does.

Oh, and senior citizens.

In a amusing (if not so much for the participants) anecdote, the FP's Warner Brown decided to take the advice of Li Chaoli and participate in a stock-trading class.

21-year-old Chaoli arrived in Shanghai from Yunnan province less than a month ago and knowing nothing about stocks or finance, took a job promoting Homily Stone, a software package that promises to help investors achieve easy profits by choosing fast-rising stocks. “We also offer classes to teach stock trading tips,” Li explained while trying to register the phone numbers of passersby on a notepad. “So it’s no problem if you don’t know much about stocks.” Everyone, she noted, is starting out the same way.

Brown went to one of the free lectures in an aging Shanghai office tower on a morning in mid-May, when nearly 500 pupils filed to hear a lecture from Chen Haisheng, one of Homily Stone’s purported in-house stock experts. "An entry fee of $320 lent an air of exclusivity, but the ubiquitous fee waivers that Li and other staff members handed to virtually everyone — this writer included — suggested that Homily Stone may have had another, bigger pot of money in its sights."

This is how China's army of nouveau traders is preparing for war with the upcoming market crash, but enjoying every day of the mania phase in the meantime:

Attendees registered and found their assigned seats in a multipurpose room lined with posters showing cartoon bulls, rising trend lines, and slogans such as “Homily Stone: simple and straightforward, happy stock-trading.” The number of graying heads was conspicuous, and most of the students appeared 50 or older. Some students set up camcorders on tripods and readied binoculars before Chen took the stage. As Chen projected Homily Stone’s software on a screen and began by reviewing the basics of “buy low, sell high,” the students alternated between scribbling notes and stealing bites of steamed buns and swigs from milk cartons and thermoses of tea.

The promises of untold riches if you just BTFATH were apparently not exciting enough for some of the senior citizens present:

After more than two hours of Chen’s lecture, a few older people in chairs nodded off, including an elderly gentleman who took a nap on my shoulder. For the most part, though, Chen kept people’s attention, peppering his Beijing-accented talk with laugh lines, requests for the audience to repeat pithy slogans, and demonstrations of forecasting that aroused murmurs of approval.

As for said promises, they were not exactly untold: they amount to "guaranteed" returns of 300%, but there is a catch: all these soon-to-be-millionaires need to pay $490 for a trial, not even the full version, of the company's trading software.

As the morning session neared its close, Chen promised more detailed stock-picking tips to those who gained admission to an afternoon class by paying $490 for a trial of Homily Stone’s software. A hush fell over the room when Chen predicted the Shanghai Composite’s 2015 bull market could reach a high of nearly 5,700 — about 33 percent above its then-level of 4,300. And when he guaranteed a 300 percent return for people who buy the program and follow his methods with recommended “dragon head” — or hot — stocks, the room erupted in applause.

Well, considering the SHCOMP is already half way to his 5700 target, it seems to be money well spent. If, of course, the senior citizens remember to convert paper profits into real ones before one day, the bottom falls off from under the market.

Why is Homily Stone focusing on China's senior citizens?

After the class, Homily Stone staff set off explosions of confetti as a group of silver and gray-haired students formed a line to sign up for the software. When asked about the audience’s age, an employee conjectured, “Older folks tend to have more free time, and their level of trust tends to be higher.” Meanwhile, Li, dressed in a pant suit, had stood by a wall watching attentively all morning. I asked her if she planned to try to get a piece of China’s bull market for herself. She seemed embarrassed. “I don’t know much about buying stocks,” she replied. “I’d like to learn some more at this company before doing any trades myself.”

What happens next? Well, the Politburo mandated bubble will keep growing and growing and suckering in more 60 year olds with promises of untold riches, until one it all ends and most of the people in the Homily Stone conference lose their life savings... as happened in 2008 when in April 2008 the NYT wrote articles like "To See a Stock Market Bubble Bursting, Look at Shanghai." Here are some excerpts:

When experts periodically warned about the possibility of a bubble, prices would dip temporarily then soar even higher, breaking records and inciting another mad dash to snap up equities.

 

The Shanghai composite index has plunged 45 percent from its high, reached last October. The first quarter of this year, which ended Monday with a huge sell-off, was the worst ever for the market.

 

Suddenly, millions of small investors who were crowding into brokerage houses, spending the entire day there playing cards, trading stocks, eating noodles and cheering on the markets with other day traders and retirees, are feeling depressed and angry.

...

Si Dansu, 68, and a retired engineer, is even more distraught, but she blames the government.

 

“I devoted my whole life to the country. I went to the countryside after graduation, and worked as an engineer in a Shanghai factory until retirement. I invested almost all my savings and retirement fund in the market 10 years ago. But now I’m totally penniless. All my stocks went down.”

The sequel is just a matter of time.

But not everyone will lose all their money: Chen Haisheng and his Homily Stone "stock tip expert" coworkers, who will disappear shortly never to be heard from again, will be millionaires having risked nothing and simply taken advantage of people's gullibility.

They will be some of the very few whose life savings won't disappear overnight.

As for everyone else, while it is easy to feel bad for them in light of what is coming, the fact that not one person had the common sense to ask of the stock trading company why, if it is so good, does it not merely trade out of its own capital and make orders of magnitude more, sadly suggests that they all have it coming. Because while central bankers may be wrong about everything else, they are right about one thing: when it comes to greed, humans always fall for the promise of a quick buck.

 

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Thu, 06/11/2015 - 21:09 | 6188580 Normalcy Bias
Normalcy Bias's picture

Well, for the sake of the Chinese, I hope their markets are as honest, clean, and well regulated as America's! USA! USA! USA!

Thu, 06/11/2015 - 21:13 | 6188604 Boomberg
Boomberg's picture

Just replace "China" with "USA" in this article, circa 1990s until now. 

Thu, 06/11/2015 - 22:09 | 6188741 7.62x54r
7.62x54r's picture

Day trading absolutely does not work that way.

Buying low requires that you have some sucker that is stupid enough to sell to you when the stock is at it's low point in the cycle.

Selling high requires that you have some sucker who is willing to buy from you when the price of the stock has peaked, and is likely to go down.

You are not buying or selling stock to your broker. Your broker is paid to find a buy sell partner for you. If no one is willing to do the other half of the trade, you find yourself unable to buy the stock for a reasonable price at the low point, and unable to avoid the sled ride down when the stock peaks.

So many wannabe day traders lose their shirts to this simplistic timing attempt...

Fri, 06/12/2015 - 01:58 | 6189193 Laowei Gweilo
Laowei Gweilo's picture

lol at the negative tone of the article

 

sounds like it was written by some less genuinely concerned about the risk levels, and more cynical that in the mean time many of them are getting [cash] rich

Fri, 06/12/2015 - 03:34 | 6189261 Undutchable73
Undutchable73's picture

that's the same as saying everyone would play an xyz game if they were assured to win.. Some people just don't want to play Pyramid..even if they win

usually older people..the ones that built something

Thu, 06/11/2015 - 21:14 | 6188605 BlackChicken
BlackChicken's picture

Don't forget our exceptional liquidity.

Thu, 06/11/2015 - 21:57 | 6188709 MonetaryApostate
MonetaryApostate's picture

Ho Lee Fuk Batman, they are going to rape these seniors sidways in every country....

http://galeinnes.blogspot.com/2015/06/rent-life.html

Thu, 06/11/2015 - 22:17 | 6188759 7.62x54r
7.62x54r's picture

Indeed they will. New traders are like newbs at the poker table.

Fri, 06/12/2015 - 00:06 | 6189025 Antifaschistische
Antifaschistische's picture

it won't be a problem as long as EVERYONE uses trailing stops.  That way EVERYONE will limit their loss.   It works perfectly and no one will be hurt financially.

Fri, 06/12/2015 - 05:27 | 6189333 Nostradumbass
Nostradumbass's picture

"it won't be a problem as long as EVERYONE uses trailing stops.  That way EVERYONE will limit their loss.   It works perfectly and no one will be hurt financially."


wink wink nudge nudge say no more say no more

Thu, 06/11/2015 - 23:43 | 6188976 AGuy
AGuy's picture

"Buy Low, Sell High" - How China's Senior Citizens Are Learning To Trade Stocks

 

I am pretty sure Tyler has got this wrong. The Title should read "How China's Sr. Citizens are Learning to Trade Stocks: "Buy High, Sell Low"

Thu, 06/11/2015 - 23:56 | 6188996 The Rolling Thunder
The Rolling Thunder's picture

My best friend's ex-wife makes $75/hr on the laptop. She has been unemployed for eight months but last month her income with big fat bonus was over $15000 just working on the laptop for a few hours. Read more on this site..... www.Earnmore9.com

Thu, 06/11/2015 - 21:09 | 6188595 ebworthen
ebworthen's picture

"Buy row, serl hi!"

BRSH!

Thu, 06/11/2015 - 21:12 | 6188602 Creepy A. Cracker
Creepy A. Cracker's picture

Sum Ting Wong!!!

Thu, 06/11/2015 - 21:39 | 6188670 trulz4lulz
trulz4lulz's picture

You rike vilus?

Thu, 06/11/2015 - 21:13 | 6188603 BlackChicken
BlackChicken's picture

The current bubble in China seems eerily similar to the one here in the late 20's. If history were to rhyme a little, China will crash mightily and be sucked into a massive war fighting the bad-guys/evil-bullies. They will emerge with the strongest economy in the world while skimming profits from every other country on earth.

The USA would loose reserve currency status, and be financially set back at least one generation. I hope this never happens, but the timing is uncanny

Thu, 06/11/2015 - 21:46 | 6188685 thegazzman
thegazzman's picture

i also see the similarities between the two; the margin account openings, the unbound optimism, the less educated flooding the market, rampant manipulation in small and mid cap stocks. 

 

im not sure about china's prospects of winning a war though. they'd be up against nuclear weapons and much more experienced generals and tactitions in modern warfare.

Thu, 06/11/2015 - 22:02 | 6188726 BlackChicken
BlackChicken's picture

China's real prospects are contingent on how much of our technology they have stolen. If it's as much as my personal beliefs lead me to believe, we are in for one rude awakening.

If their manufacturing capacity remained stable, they would simply annihilate us by sheer numbers and produced boats/ships/guns.

Fri, 06/12/2015 - 06:46 | 6189406 Lin S
Lin S's picture

True, except that...

1. Chinese technology has never been sent into combat before, it is unproven.

2. Their officers, NCO's, and enlisted personnel have zero combat experience, are unproven, and did not fare well in their 20th Century wars.

3. China has a lot of internal problems that make war problematic for the Party and its' members continued survival.

Thu, 06/11/2015 - 21:18 | 6188619 blindman
blindman's picture

http://www.maxkeiser.com/2015/06/max-keiser-lloyd-blankfeins-god-complex...
Max Keiser: ‘Lloyd Blankfein’s God complex is destroying the American and world economy; he’s the Mother Teresa of slush funds’
Posted on June 11, 2015 by Stacy Herbert
.
self regulation for the few, not u

Thu, 06/11/2015 - 21:30 | 6188645 q99x2
q99x2's picture

BTFCD

Thu, 06/11/2015 - 21:40 | 6188673 buzzsaw99
buzzsaw99's picture

But now I’m totally penniless. All my stocks went down.

to end up penniless either they all went down to zero or Dansu had a margin account.

Thu, 06/11/2015 - 22:01 | 6188723 CPL
Thu, 06/11/2015 - 21:44 | 6188679 Normalcy Bias
Normalcy Bias's picture

...totarry penniress?

Thu, 06/11/2015 - 21:58 | 6188715 suteibu
suteibu's picture

Damn, more "look how fucked the Chinese are."  I suppose the anecdotal stories are limitless if that's your focus. 

Is Foreign Policy the new Diplomat? 

I miss Zack what's his name telling us how everyone else is so fucked up that the US is still exceptional.

Thu, 06/11/2015 - 22:19 | 6188763 7.62x54r
7.62x54r's picture

These new traders are the ones getting totally fucked. A whole nation of shoeshine boys is entering the stock market. Time to get the fuck out.

Thu, 06/11/2015 - 22:16 | 6188757 Budnacho
Budnacho's picture

"Gleed is Good"

Fri, 06/12/2015 - 02:36 | 6189219 Laowei Gweilo
Laowei Gweilo's picture

wtf is gleed?

Fri, 06/12/2015 - 12:03 | 6190324 divingengineer
divingengineer's picture

Gleed! Gleed!

Rike Glorden Glecko!

You no speaking the engrishes?

 

Thu, 06/11/2015 - 22:38 | 6188810 kelley805
kelley805's picture

stock fever stock fever we know how to do it... (my apologies to the Bee Gees)

 

Here is the starting point.

http://michaelekelley.com/2015/04/28/next-recession-will-start-with-this-country/

 

Here is how to prepare.

http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/

 

Here is how to get your mind off this stuff.

http://michaelekelley.com/category/humor/

Good luck!

Thu, 06/11/2015 - 23:38 | 6188965 roddy6667
roddy6667's picture

This reminds me of all the "No Money Down" seminars from informercials in the Eighties. Later, there were similar programs with stocks. I am reminded of one the had a red light to sell and a green light to buy.

Americans do the same stupid shjit.

Fri, 06/12/2015 - 12:05 | 6190331 divingengineer
divingengineer's picture

The radio ads for real estate seminars are back too.  "Meet Chad, he used to be a firefighter, but now he makes millions flipping houses using OTHER PEOPLE'S MONEY!!!!!!"

Fri, 06/12/2015 - 00:13 | 6189035 creeko
creeko's picture

But who will the chinese farmers have to revolt against?  All the thieves will have by then absconded to high-end zip codes in the U.S.

Fri, 06/12/2015 - 02:25 | 6189211 Itch
Itch's picture

I would gladly beat that bastard to death and enjoy it. Don't mess with the old, they have nothing to lose.

Fri, 06/12/2015 - 03:18 | 6189249 MSorciere
MSorciere's picture

The Chinese are now and have always been the world's biggest punters.

 

Why  is this supposed to be news?

Fri, 06/12/2015 - 12:06 | 6190333 divingengineer
divingengineer's picture

I don't get it.

 

Fri, 06/12/2015 - 04:09 | 6189274 dumdum
dumdum's picture

 

 

Does not matter what culture or race.

It is always the same.

There are sharks and there are baitfish.

Fri, 06/12/2015 - 05:44 | 6189344 Boscovius
Boscovius's picture

Kenneth Lay and Jeffery Skilling of Enron couldn't have done it any better when they set their employees up to buy out the company shares at the tip top of the bubble when all the execs were bailing out.

Fri, 06/12/2015 - 08:09 | 6189578 Raul44
Raul44's picture

So, you stupid chinese, how do you enjoy a merican life?

Fri, 06/12/2015 - 12:07 | 6190336 divingengineer
divingengineer's picture

Yeah!

Yeah!

Dat da rife!

Dat da rife!!!

Do NOT follow this link or you will be banned from the site!