Expert Tips - Real Combat Manual for the Stock Market

Author: Yin Hong/Nationality: Mainland China
Publisher:
Publish Date: 2005-01-01
Features: A Good Son and a Good Stock
Mu Anping is a doctor and has a pair of twin sons. The older Mu and his wife favored their second son very much because he was obedient, well-mannered, and had excellent academic performance. Therefore, the older Mu had his eldest son start working early as a worker, while focusing all his efforts on nurturing his second son. The second son did not disappoint his parents' expectations and was admitted to a key university. The Mu couple lived frugally to support their second son's education, job search, and even helped him buy a house and find a spouse in a big city. In a few years, they almost spent their entire life savings. The second son also proved himself worthy, and after years of hard work, he became a department head in a large state-owned enterprise. The older Mu was very happy because he had a second son who could bring him honor. However, after retiring, the older Mu's thoughts gradually changed. Because the successful second son worked in a distant big city, he could not even come home for the Spring Festival. The only one who could accompany the older Mu for shopping, drinking, and chatting was his eldest son. When he was sick, only his eldest son could take care of him, and during holidays, only the eldest son, whom he had always considered "unsuccessful," could give him family joy. The older Mu and his wife had devoted almost their entire lives, energy, money, and dreams to their second son, but they received no return from him, not even seeing him for several years. Meanwhile, the older Mu had invested very little in his eldest son, yet now he was receiving tangible emotional returns from him, which left him feeling quite uncomfortable. Later, because he was (truly bored), the older Mu gradually became interested in the stock market. In 2004, he invested his family's spare money in the stock market. At that time, the market valued the concept of value investing, and high-performance blue-chip stocks became the focus of market funds. However, after careful analysis and comparison, the older Mu unexpectedly bought Fushun Iron and Steel (Figure 2), which had mediocre performance and had not paid dividends for a long time. Others found it strange: "Why didn't you buy so many high-performance stocks? Why buy a stock with only a few cents per share in earnings?" The older Mu explained, "What do stock investors buy stocks for? Isn't it for returns? But what about the returns of high-performance stocks now? I did a statistics, and in high-performance stocks with good return potential, one-fourth of the companies do not return even a cent to shareholders. Some companies even have earnings per share of 0.90 cents but do not distribute dividends. More than half of the companies only distribute a few cents or even less in dividends. What's even more frustrating is that some companies, although they do pay dividends, immediately use financing methods like rights offerings or additional share issuances to take money back from shareholders, and the amount they raise is many times greater than the dividends, making high-performance stocks excuses to raise funds. For companies that only think about taking but never giving back, how useful are high performance then?" The older Mu said, "Ordinary people need to be practical in life, and when choosing stocks, they should also be practical. Fushun Iron and Steel may not qualify as a high-performance stock, but as long as it can rise, it's good enough for us. We just want this practicality." His fellow investors scoffed at the older Mu's views. However, by the end of the year, Fushun Iron and Steel had risen more than double, while none of the high-performance stocks during the same period achieved such a high growth, and many blue-chip stocks even saw sharp declines. It seemed that the older Mu had already derived the "truth" of stock trading from his "practice" with his eldest and second sons. P5-7