China’s Stock Market Retreat Proves Buffett Right

(BRK.A), (BRK.B)

China’s stock market has rocketed upward in 2015, with China’s domestic equity markets having more than doubled, but its recent 20-percent retreat brings to mind Warren Buffett’s recent words on whether traditional value investing has a place in such a market.

“Investment principles do not stop at borders, Buffet noted at the 2015 Berkshire Hathaway annual meeting. “I would apply the principles of the Intelligent Investor—stocks as prices of a business—in evaluating businesses overseas.”

With China’s high-flying stock market increasingly built on borrowed money, with margin debt at a record 8% of the stock market’s free float, Chinese investors may be wise to heed another one of Buffett’s famed aphorisms.

“Only when the tide goes out do you discover who’s been swimming naked.”

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.