Conventional wisdom holds that equity markets can be relied on to do only one thing - fluctuate. Therefore, anyone who makes their living from the business of stocks and shares must have an in-built ability to take all those ups and downs in their stride. Self-confidence and resilience are prerequisites, as is a fair understanding of human psychology. Only with that is it possible to understand why markets shift in unexpected ways and why investor sentiment can sometimes override solid business fundamentals.
"If you want to make it to the top in this industry, you must quickly learn about accepting the good times and the bad," says Simon Lam, research director for Christfund Securities Ltd. "There is no such thing as an equity analyst or fund manager who has never made a wrong call or can claim to have made no mistakes with market timing." Mr Lam, who is also well-known as a respected financial commentator, believes that no one can hope to be a true market expert until they have witnessed a couple of economic cycles.
"Unless you have been through the down side, you are still a novice," he says. "The process of struggling through a bear market provides invaluable experience and shows what people are really made of." It also makes for a better understanding of human behaviour and the emotions which influence investors. "The equity market is certainly not just a numbers game," Mr Lam emphasises. "There is a great deal of strategy involved and this requires an understanding of psychology as well as the principles of business."
It is vital to keep your strategies under review
Seen it all
Mr Lam recalls being interested in the working of equity markets from a comparatively early age. He kept a close eye on global trends while studying in Canada for his diploma and certificate in economics and accounting. Foreseeing the trend towards growth in the financial planning market in China, he returned to Hong Kong in 1993 to take up a job as a financial analyst. At that time, the local market had never been more buoyant and was set for a few more years of impressive gains before the Asian financial crisis of 1998 caused a dramatic downturn.
With eleven years' experience to draw on, Mr Lam has now seen the peaks and troughs and everything in between. During that time, he has also observed the speed with which investor sentiment can turn and how external factors can move the market. "I started keeping an investment journal soon after the crash," he says. "It is to record notes on market data, how I interpreted the available information, and my decisions and strategies in coping with any changes." As the market started to rise again, it became an increasingly useful reference manual and a tool for predicting likely patterns of investor behaviour.
"I find it is vital to keep your strategies under review," Mr Lam explains. "Too many investors collect data from various sources but do not evaluate it properly. I make sure I know where I have missed out, so as not to make the same mistake twice."
Nowadays, a degree in a business-related discipline is more or less a standard requirement for an aspiring equity analyst. Good communication skills are also needed for report writing and the extensive daily contacts with clients and the representatives of listed companies. Since the job involves collecting and analysing data, a talent for investigation and an eye for detail are similarly important.
"The most useful information often comes from on-site visits to manufacturing plants and corporate offices," Mr Lam notes. "Therefore, an analyst must be able to think independently and spot items which need to be queried." Persistence also ranks highly along with confidence in one's own judgement. "It is essential not to lose self-belief, even when you or your company are going through a bad patch," he advises. "Things will always turn around."
Mr Lam emphasises that an equity analyst who focuses on speculative or short-term market returns will usually have a short-lived career in the industry. "Only those with vision and who take a long-term view will have the staying power to succeed in this business," he says. It is a thought Mr Lam has recorded more than once in his own investment journal.
There is little doubt that China-related stocks will remain one of the big stories in the local equity market. Investors do not want to miss out on the chance to share in the mainland's economic boom, whether directly or indirectly. According to Mr Lam, equity analysts with China experience, or knowledge of the mainland's legal, accounting and regulatory framework, are seen as a definite asset by investment firms in Hong Kong. Job opportunities are expected to increase both locally and in newly opened offices across the border.