Lift off – Week 6
12. December 2025
Tian Xuan Zhou (Oliver)
Student, New European College – Munich
Fight or flight? What do you do when things go wrong? You may have heard of the saying “Patience is a virtue”, but in context with finance, what does it really mean? I think a common misconception about finance is that people generally think that it is very technical, and therefore, end up neglecting the mental side, the psychology, which I think, plays a more important role, especially in trading. Now many may question why such a job could possibly be psychological? But when the numbers and graphs start ticking in front of your screen, your palms may start to sweat a little more.
I saw this first hand on the job last year. News of government subsidies and trade in plans from the China Central Committee in an effort to reignite the slumping Chinese economy, August, 2024, saw a massive rally. For context, the default of Chinese property giant Evergrande Group brought the economy tumbling down with them back in 2021, as a result four miserable years for the stock market in China with consecutive annual decline. Now with China’s government seemingly willing to revive the economy, it seems like the time was now in August 2024, to bottom fish for cheap Chinese stocks.
Take the HSI for reference, through August and September, the HSI rose 41.36%. More than 40% in one month? Not many achieve such performance in a year. With China’s golden week, a major week long national holiday known for massive domestic tourism and travel, it seemed like the perfect storm – the week long holiday starting October 1st will stimulate spending that its economy was desperately lacking, and this bull run will see no end!
October 8th, disaster on judgement day. HSI touched double digits percentage decline before closing -9.41% lower, the worst daily performance since the 2008 financial crisis, it was red across the board. Many HSI components touched upwards of high 30% declines. Imagine if you were in the shoes of a trader, who had longed the Chinese market with the same logic before, how would you feel? Now I was merely just an intern on the job but let me tell you that it was deathly silent (it wasn’t thanks to the amazing team that we had actually shorted the index and a lot more but for the sake of writing and dramatic effect let just pretend that it was). How can such good reasoning be so wrong?
First lesson that I learned – feelings don’t mix with trading. It sounds so simple and is probably one of the first things that good traders will tell you, but it is so easily forgotten in the heat of the moment. A lot of money is lost not because the investor is wrong, but rather they are doing too much, cannot sit still. The same feeling when you create a new account, when you see that empty portfolio, you wouldn’t buy a stock just for the sake of buying and filling in a gap in your portfolio. It’s rash, nonsensical. You would be patient, do your homework, and overtime fill up that once empty portfolio.
Sure, in times of trouble, it may be scary. Once again imagine yourself as a trader, October 8th, seeing your entire portfolio go red across the board, you’d be lying if you weren’t nervous, scared. Do you trust your judgement? This is where one should take a step back, just take a deep breath, and reason with oneself. The rash individual would have been scared off and sold their shares. The rational individual, after reasoning with themselves, perhaps would have realised that it wasn’t all bad after all. HSI closed at 20,926.79 points on October 8th, it now sits at 25.690.53 points as of 20th December.
The main reason for the crash? Policy and stimulus were disappointing because they were apparently “too vague”, accelerated by profit taking and taking out stop losses. Now what I am not saying is that you shouldn’t set stop losses or stay in the position when the markets go the other way. What I am saying is that just because you are at a loss, you are not always wrong. If you strongly believe your reasoning, why should it fail? Sometimes a good idea is owed long enough that it is due to work.
An investor watches an electric screen displaying stock price figures at a stock exchange hall in Shanghai, China.
Second lesson that I learned – the market disregards your reasoning. Take another step back, ask yourself, how likely is it that the majority of funds and traders on the market have the same idea? Obvious isn’t it? Sure, a majority of the market may have an idea to long or short a stock, but the reasoning could be all different. Therefore, information is king. The more you know, the better and more accurately you can reason with yourself. Whether it is analyst notes, research firms or simply just news, it is important to know what other people are doing and what they might be thinking.
Once again go back to October 8th, if you were patient enough to wait until the end of the day, you would have found out that HKEX publishes official daily statistics on Stock Connect flows showing a huge net sell from southbound investors, profit taking. This isn’t the full picture, but it gives a good idea of what retail investors were doing. Would the trader still sell in the midst of October 8th with this information? (If you were stuck with such a position an hour into the session, or even 10 minutes, I doubt you’d get out, it was like a straight dive down premarket) Sure, downside protection is important but I’d imagine they may have second thoughts.
Sounds like it’s just being lucky? Sure, but best to be lucky in trading. Sometimes, the best trades are those that you just leave alone.
Now, we return to the present. China once again, posting disappointing and underwhelming economic data, missing estimates in November by a wide margin, and the market isn’t reacting too well… initially. More or less to me, it seems like it is trying but yet to make its mind up, trading almost flat this week. I think it has gotten to a point where good data is good and bad data is also good – It urges the Committee to increase its efforts through more policy and stimulus. Therefore once again, I find myself in a position, where I need to be patient, and let time do the work.
P.S. Merry Christmas and happy holidays to all 🎄✨
