Got talking about matters economic and financial this morning on the phone with the brother who speaks my language. Like millions of others are doing right now, brother Gordon was bemoaning the sudden plunge in the value of his RRSP. That’s Canadian for 401(k).
He was saying that it looks like he’s shovelling money into a black hole, because every time he checks his balance it has dropped by much more than what he puts in it every month.
“I’m thinking about cashing all the stocks in and simply buying a guaranteed income certificate,” he said. “That way, at least I’ll stop the bleeding and have something left when I retire.”
I didn’t have to tell him anything he didn’t know already: that retirement money is for retirement and not for day-trading, that he should just ride it out, and that if the worst happens, we’re all screwed anyway.
Then I told him a little story from my time in Hong Kong.
It was mid-January, 1995. The Asian financial crisis was still about three years away, but as far as anyone could tell right then, the worst was already happening. The Hang Seng Index, the leading indicator of shares in Hong Kong, had been falling for months. A property bubble had burst about a year before, so people who’d bought apartments during the boom years were now being forced to either walk away from deals or face paying out mortgages costing much more than the current value of the flat. Everyone had stopped buying, apartment prices were crashing, and there was no end to it in sight.
Then on January 17, 1995 the Great Hanshin Earthquake struck Kobe, Japan. As the leading market in the region, Tokyo plunged about 1,000 points. Other markets including Hong Kong spiraled down with it, the notorious Nick Leeson‘s desperate and ultimately futile attempts in Singapore to prop the Nikkei up in the following weeks led to the collapse of Barings Bank… but that’s another book, movie and talk-show tale.
I remember thinking as I was watching the numbers wither while cutting those famous pictures of the elevated roadway that fell onto its side that any market reaction to this has got to be overdone. That feeling was reinforced after a Chinese colleague came back to the studios with a quote in English from a stock analyst who’d said: I think the market is headed for the worst period in its history, and I wouldn’t advise anyone to buy stocks right now.”
So the next day I went down to the Hong Kong and Shanghai Banking Corporation building in downtown Hong Kong, that breathtaking Norman Foster construction some say looks like the back of a fridge, and headed for the basement where the share trading counters were. I’d opened a stock account a while before, but had done little trading up to then.
When I got to the counter, an old Chinese lady was at the counter next to me shuffling some papers. Stealing a glance over her shoulder, I could see they were paper stock certificates in the bank we were standing in: HSBC. Oh my God, I thought. Here’s this withered old lady who probably keeps her cash in a shoe box thinking the roof is going to cave in, so she’s selling her stocks in a panic, and I’m down here to buy them.
It wasn’t that long until payday, so I cleaned out my savings account and stuck it all in the bank stock. I hadn’t been able to save a fortune by then, but I thought what the hell. Things can’t get much worse than this.
As it turned out, that day was very close to an historical low point for the Hang Seng Index and its leading stock, HSBC.
Ha-hah, I’m such an investment genius, right? Wrong!
When the market bounced back about 30% only a few month later, I sold the lot, thereby taking in a decent profit but losing out on what has since then turned out to be gains probably 10 times as great.
Moral of the story: you can’t predict the future, but you can make the present one hell of a lot more enjoyable if you quit worrying about it, let go of the greed and fear, and just go with the flow. At the end of the day, we’re all dead anyway.
Speaking of withered old ladies in Hong Kong, here’s one with the little red-haired girl, taken on the dock at Lamma Island only days before we left.