Know when to hold 'em

When discussing Buffett or Lin Yuan, analysts say that these investors are winners because of their long-term investment decisions. In 1988, Buffett bought $1.3 billion worth of Coca-Cola Co. shares, whose value soared to $13.3 billion along with the increasing Coca-Cola stock price. Lin did the same with his stock decisions. He believed there would be no losses if one held a stock for more than a year. "Most of my stocks are held in my account for more than three years," Lin said. "The least growing stocks have doubled their prices."

Although individual investors are well acquainted with the long-term investment theory, few follow the advice. The SIPFC survey showed that 50 percent of the respondents chose to operate on a short-term basis and held stocks for no more than three months, indicating their eagerness to gain short-term yields.

"The 1-percent turnover rate is normal in line with the total market value of our stock market," said Dou Yuming, Investment Superintendent of Harvest Fund Management Co. Ltd. "The actual daily turnover rate here has reached 7 percent."

One trait of individual investors is that they do not care about the performance of listed companies. The survey showed that 63.4 percent of individual investors never participated in voting for or against the motions of board of directors' meetings and that 14.3 percent of them did not even know they had the right to vote. This lack of knowledge shows that most individual investors have little initiative in exercising their stockholder rights. They only invest for price differentials, which provides market dealers with the golden opportunity to manipulate stock prices, adding a speculative atmosphere of the stock market.

Zhou Ling, a 32-year-old housewife, put 200,000 yuan into the stock market three years ago after hearing some "inside news." A stock market plunge shortly shrank her 200,000 yuan to 50,000 yuan afterward. She only recovered her money this year when the market rebounded.

"I dare not touch stocks anymore," Zhou said.

Growing up

"The Chinese like to trade stocks on their own, mostly because they don't believe in institutional investors," said Cui Yinghong, a retired worker. "How can you rest assured if your money is in other people's hands?"

Cui's worry does not come out of nowhere. Since 2000, fund manager scandals and stories of their collusion with securities dealers have been exposed one after another, causing huge losses for investors and eroding individual investors' trust in them. The SIPFC survey showed that about 80 percent of individual investors were aware of the risks of investing in mutual funds. Their biggest worry is the possible corruption of fund managers.

Zheng Zhi pointed out that people's investment habits have decided their way of investing in the stock market. For a long period of time, there were few financial products in China, and the only way to appreciate one's assets was to save money in banks to get interest. Securities markets are an emerging market in China and have only started to enter a relatively prosperous period after many years of development.

"When the stock market matures, individual investors will also mature," said Zheng Zhi. After the big roller-coaster run in June and July, many people turned to mutual funds instead of operating stocks on their own, reflecting that investors are in fact maturing.

Dou Yuming said it's hard for individual investors to grasp the market trends. If they buy funds, it can be tantamount to inviting experts to trade stocks for them. The fund management companies are backed by powerful research teams that have gathered in-depth analysis on macroeconomy, industry policies and the performance of listed companies. Equity funds grew 110 percent on average last year and average returns in the first half of this year reached 70 percent. But how many individual investors get such high returns?

Zhong Luchuan, an analyst with West China Securities, stated that the 115 million registered stock accounts certainly mark a milestone for the Chinese securities market. It should also be remembered that the stock indexes have been breaking record highs, and nobody has ever experienced such high points. The risks are becoming higher.

Zhong suggested those looking to get in on the action invest no more than a quarter of their assets in the stock market. Some have invested as much as 75 percent of their assets, but Zhong said it was highly risky to invest all of one's money in the stock market.