I keep seeing this headline from Investor’s Business Daily about Chinese stocks, and it’s really, really getting on my nerves.
The headline reads something like “5 Chinese Stocks to Buy and Watch.” And the article itself is pretty much what you’d expect – IBD says that some combination of Alibaba (NASDAQ: BABA), TenCent (TCEHY), JD.com (NASDAQ: JD), Nio (NASDAQ: NIO), Li Auto (NASDAQ: LI), Canadian Solar (NASDAQ: CSIQ), Pinduoduo (NASDAQ: PDD), NetEase (NASDAQ: NTES) and Baidu (NASDAQ: BIDU) should be owned by individual investors…
Now you might notice that I just listed 9 stocks that appear in an article with a headline that leads with “5 Stocks…” The headline stays the same, but the actual stocks in the article change every few weeks.
The reason for this has to do with how the financial media markets itself. You’re probably well aware of what a “keyword” is, and how companies use keywords to market stuff to you.
It’s a beautiful day down here on the southern coast of Georgia. I’m sitting outside by the pool, enjoying the view out over the marsh. But I’m jealous of the snow reports I’m seeing for Colorado, where I spent a few fantastic years as a ski bum in my mid-20s. And I’m sure you know exactly what happens when I Google something about a ski trip out West…
On any given day, the number of people that might search Google for shoes, or skis, or bicycles doesn’t really change all that much. The reasons they do so, and the time of year they do it doesn’t change that much, either. Bikes in the spring, skis in the fall and winter…there’s a lot of consumer data out there, we’re all pretty predictable.
But when it comes to searches about the stock market, individual stocks and investments, well, that’s a bit different. People’s behavior isn’t as predictable, because the stock market is more dynamic than the shoe or bicycle market, the stories of interest change constantly.
One day maybe Elon Musk says something stupid and there’s a massive amount of people typing “Tesla” into the Google search bar. The next day maybe there’s news from Apple and “iPhone” is the big search term.
The constant flow of information is what I love about the financial markets. There’s always something new and interesting to learn, new variables to add to the equation. I’m rarely at a loss for something to write about…
But it’s a very special challenge for financial media marketing, from research and newsletter companies like Pro Trader Today all the way up to heavyweights like Investors Business Daily.
Anatomy of a Headline
IBD’s “5 Chinese Stocks…” headline is a good one, very effective.
Because, given the state of relations between the U.S. and China, China’s ongoing struggle with COVID and its effect on supply chains for companies like Apple, and the importance of the Chinese consumer on companies like Tesla, it’s a pretty good bet that something “China” and “stocks” will be in the news pretty often.
And the marketing team at Investor’s Business Daily know that having a headline like “5 Chinese Stocks to Buy and Watch” pop up right there in your search results, ready to be clicked on, will almost certainly attract the kind of eyeball-ular attention that financial publishers live by.
Plus, the ability to switch whichever “5 Chinese Stocks…” are relevant in and out of that report every couple weeks keeps IBD current, keeps that report relevant, like they really do have their finger on the pulse…
But I have a problem with this kind of investment clickbait. And it has to do with risk.
A company like Investor's Business Daily carries a lot of weight. They offer good research on individual companies. Their ranking systems are based on solid metrics. And the company definitely benefits from a perception of trustworthiness…
What I find lacking in an article titled “5 Chinese Stocks to Buy and Watch” is twofold.
One concerns timing. In all the permutations of the “5 Chinese Stocks…” I’ve read, there’s not much discussion of the potential for higher interest rates, or a recession, or other economic concerns that should provide important context of when, exactly, an investor should buy these stocks. In other words, is it, in a general sense, a good time to buy stocks?
Then there’s the issue of switching the stocks that appear in the article. How is an investor supposed to interpret the fact that Alibaba might appear in one “5 Chinese Stocks…” article, but then be omitted from the next version a few weeks later? Does that omission mean the stock is no longer a buy? Should the stock be sold?
The lack of context for their recommendation and the absence of follow-through after the recommendation is a problem for me. (Now, I’m sure IBD uses the standard boilerplate caveat “this information is not intended to be a recommendation for the purchase of securities…”, but c’mon, this is people’s money we’re talking about. It is deeply hypocritical to throw out a bunch of ticker symbols and then hide behind some “buyer beware” BS.)
The second – and bigger problem for me – is: should investors buy Chinese stocks at all?
My Zero-China Investment Policy
If you’ve read my work for a while, you know that I maintain a zero china investment policy. I don’t buy them, I don’t trade them and I don’t recommend them.
It’s because I think China’s ambitions and the tension that exists between it and the U.S. means there’s a huge and underappreciated risk about the future of Chinese companies that are listed here in the U.S.
6 months ago, the U.S. government cut China off from all advanced semiconductor and semiconductor equipment sales. Americans working in China’s chip industry were given a choice: leave China or give up their American citizenship.
China hasn’t retaliated… Yet.
You’re probably well aware of the sanctions that the U.S. has placed on Chinese companies like Huawei and Tik Tok. There is good reason to believe that the Chinese government uses Chinese companies to gather data on foreign countries.
Most recently, it was announced that the Chinese government bought “golden shares” in Alibaba, worth about 1% of the company. 1% isn’t enough of a stake to really worry about. But these so-called golden shares carry other benefits. Like representation on Alibaba’s Board of Directors so the Chinese government can have direct influence over decision-making. And the golden shares also give the Chinese government immediate access to the data Alibaba collects.
Maybe it’s nothing. Maybe the Chinese government just wants a piece of the action and won’t try to leverage all that data. And maybe the U.S. government won’t add new sanctions.
Personally, I do not see the point in taking on such unnecessary risk when there are so many safer and potentially more lucrative opportunities with U.S. based stocks.
So, thanks anyway, Investors Business Daily, I’ll watch whichever 5 Chinese stocks show up in your next report, but I’m not risking my money on any of them.
That’s it for me today, have a great weekend and I’ll talk to you on Monday.
Pro Trader Today