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"This may have been true two to three years ago when all the Chinese RTO small-caps were still listed." Wouter28


I believe it seems as true today as it was 2 or 3 years ago. Investing in Chinese small caps appears to me to be very high risk investing. Actually investing in small cap stocks in general, no matter what the country appears to be high risk.

One time someone posted the failure rate of small cap companies in the USA and it was quite high.....higher than I had thought beforehand.

I believe the risk seems much, much higher with not only Chinese smallcap stocks but all small cap stocks from emerging markets.

I would submit that for a majority of US investors, they would be better off if they did not put substantial sums of money into smallcap companies in emerging markets where they have little idea of what might be going on within the country or the company.

I am not the only one that thinks this way. Here is a book that was recently posted on Global Gains Philosophy board. It seems quite interesting to me as it comes from famed international investor Mark Mobius. The name of the book is "The Little Book of Emerging Markets: How To Make Money in the World's Fastest Growing Markets (Little Books. Big Profits)".

Here is the most relevant quote from a person that reviewed the book on the topic of investing in emerging markets:


"Mark Mobius explains how difficult it is to do it yourself, without saying that bluntly to you as I am doing. Personally, I would encourage investing in a broad fund that can go anywhere, and not a country-specific fund, unless you have a very strong view of why a particular market will do well."


http://www.amazon.com/The-Little-Book-Emerging-Markets/produ...


Here is another tidbit of what the reviewer said:


"12) As such, investing in emerging markets takes a lot of work to do it well. And if you read the book, you might think by the end that you don't have enough information to do it on your own, and I think you would be right."

http://www.amazon.com/The-Little-Book-Emerging-Markets/produ...



I would submit that most US based investors do not have enough information to do emerging market investing really well......much less small cap emerging market investing.

It seems extremely high risk to me.

Before anyone says something like "Just because small-cap Chinese stocks are not right for you....", please realize that I am a very international guy......high risk international type guy.....I have ventured into areas where few Americans would even think about venturing like Lagos, Nigeria (One scary place) and up into the hills overlooking Rio in the Favelas where in the 1980's even the police would not go.....the girl that brought me there told me I would be killed if they found out i was American and to just act like I was a deaf mute which seems pretty high risk to me......so I am not opposed to high risk investing.

What I am opposed to seems to be when people like encouraging others to invest LARGE sums of money in RISKY adventures in which almost no one really knows what they are talking about. I know some like to play the expert by citing many articles from various sources that in a fit of confirmation bias supports their position....but I would maintain that internet research on a emerging market small cap stock appears to be like almost no research at all.

The Global Gains team had substantially more resources than almost anyone on this board and yet and still they recc'd a company like CMFO. Let's see where that is trading now:

http://finance.yahoo.com/q?s=CMFO

or how about the AOB recc or is it wreck:


http://finance.yahoo.com/q?s=AOBI&ql=0


or how about GSI:

http://finance.yahoo.com/q?s=GSI&ql=0


Did I leave one out.....yeah.....what about that Chinese restaurant...I forget the name....maybe because the performance of both the company and stock wound up being forgettable.


All these were GG recc's or WRECKS.

Notice I have said nothing about any of these companies being frauds......I think most or all of the above simply FAILED to perform....FAILED to live up to the HYPE......which seems what most microcap and smallcap companies do irregardlesss of the country.

So, a few people got LUCKY with their investments with a YONG or a CGA....that does not mean other people or even the same people could replicate those results with different other companies in the Chinese smallcap space,

Most Chinese smallcaps seem like they are NOT going to become international titans.....most will likely fail which seems why I will continue to say that most US based investors would be better off investing in mostly US based companies were they have familiarity with things like the legal system and can more easily find firsthand evidence of the viability of a different product or service.


Starrob




"Starrob celebrates that the legitimate companies who’s share prices have been decimated by headline news (not company news) may get delisted and the long-term shareholders who have stuck around knowing the risks, may lose the chance to profit as these companies continue to succeed. Well, I have to strongly disagree with you. I am much more interested in small-cap Chinese stocks now than I was two years ago and have allocated my portfolio accordingly. Just because small-cap Chinese stocks are not right for you does not mean you have to cheer that other investors may lose their chance to invest in this space while the odds of success has gone up significantly due to the de-risking that has occurred over the last two years and the excessively cheap valuations. I think the beginner investors you are trying to save moved away from this space long ago. The shareholders that remain know the risks involved in investing in this space." wouter28


All that remains to be seen.....I am not completely sure who might be or might not be aware of the risks. Also just because a company might be "Legit" does not mean that they have a viable long term concept. Baidu might be long term concept.....the other have to prove themselves....microcap to much, much larger takes quite a lot....many will likely not make it. Starrob


"Also this attitude of moving on after the stock valuations go down is not one of the true long-term investor. If the business model is still strong and the company still has a bright future, you should not sell just because others have sold the stock and driven down the valuations. If you have this kind of attitude, then I recommend investing in index funds. When valuations and risk both go down, this is an opportunity to buy. Sorry for the rant, but this kind of thinking is upsetting, especially when you are recommending that people steer away from stocks that have a higher chance of success because of the “perceived” risk and not the “actual” risk." wouter28


Taking the opposite side of the coin....I like making investors very mindful of risks instead of covering risks up and pooh-pooh'ing them away.

Some people like steering others into high risk investing.....some say the risks don't matter....some say that the perceived gold at the other end of the tunnel should be the only thing that matters.....Some people like silencing those they criticize their beloved stocks......some seem afraid of criticism.

Anyone can go on any board of a stock I like and outline all of the risks..... perceived and actual......only occasionally will I make a comment here or there.....I don't like pooh-pooh risks away....if forced to I will say, "yes All those risks appear to be real but I decided that in my own personal portfolio that I am comfortable with those risks."

As for this part ".....“perceived” risk and not the “actual” risk.", I will only say that no one truly knows what a "perceived" risk vs a "actual" risk until after the fact. I have a question for you....What is a "perceived" risk called when it actualizes????

I have seen that happen numerous times both in real life and on these boards when people claim a risk to not be "real" and then the "risk" actualizes....It seems interesting to me how some people begin reframing the whole thing of that which they did not want to see to fit their reality tunnel.




Starrob
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