These Stocks Are Up 126% in One Year… What’s Next?

Dong Jun recently shut down his factory in China and let all 100 workers go.

He says he makes more money trading Chinese stocks than he does manufacturing lighting equipment…

“Manufacturing is a very hard business these days,” Jun told the Wall Street Journal. “I want to make some money from the stock market and use the profits to restart my manufacturing business later, when the economy turns for the better.”

[ad#Google Adsense 336×280-IA]Jun still shows up almost daily at his manufacturing plant… But he spends his day trading stocks.

So far so good, he thinks…

China’s benchmark CSI 300 index is up 126% over the past year. And the more tech-heavy Shenzhen stock market is up 158% in the same time frame. He’s getting rich.

Why bother with all the hassle of employees and manufacturing when you can make more in the stock market – right?

This reminds me of a story I heard here in Florida during the housing bubble…

“I’m going to quit this plumbing job,” my colleague Matt Badiali’s plumber told him. “I’m making more money buying and selling houses than I ever could make by fixing toilets.”

Can you spot the flaw in the plumber’s plan? It’s the same flaw Jun has in his plan…

The plumber’s plan was built on ever-higher home prices. His success flipping houses reaffirmed his plan. Jun is experiencing the same thing with Chinese stocks right now.

But house prices don’t go up forever. And neither do stock prices.

Nine months ago, I said Chinese stocks were our best chance for 100% gains in the next two years. This might have been the most optimistic view about Chinese stocks on the planet at the time…

Chinese stocks are now up an astounding 126% in just the last 12 months. Clearly, there are some excesses in the market now.

The big question is, what do we do now?

“This is a bubble,” Peter Churchouse recently wrote to his Churchouse Letter subscribers.

Peter is a good friend of mine… He has spent more than three decades in Hong Kong, specializing in Asian real estate. In that time, he has seen every type of boom and bust possible in the Asian markets. (I urge you to check out his excellent work here.)

Readers of the Churchouse Letter who took Peter’s advice to buy local Chinese “A-shares” last fall, before they climbed, have made big profits. Now, Peter is tweaking his advice:

“Six months from now, the market could double up, or be down 50%. Nobody can ever call the top of a market like this one… I’m therefore tightening the trailing stop on my China A-Share recommendation.”

Peter gave the right advice to his readers. Now, you need to do the same. You need to protect yourself.

As Peter said, there could be more gains on the table… or the bottom could fall out.

So how do you handle that?

The right way to do it is by following a strategy we use in my True Wealth Systems letter…

By using this strategy, you could have turned $10,000 into $82,000 since 2012.

And in tomorrow’s essay, I’ll show you exactly how we did it.

Good investing,

Steve

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Source: Daily Wealth