During a recent sit-down with some of my Taiwanese friends, the discussion topic invariably shifted to stocks and stock markets. I am not Taiwanese, but I was curious as to how the Taiwanese investors and their stock exchange worked. It turned out to be a revelation of how a stock market can be affected by various inefficiences, cultural and political issues. Here are some of my findings from that night and from my past inquiries:

Like many Asian markets, the stock exchanges uses a numbering system rather than a alphabetical ticker system, comparable to the race-track where gamblers bet on horses by the numbers as well! What was more interesting was the fact that almost every Taiwanese household have a certain amount of their money/savings involved in the stock market, are technical analysis investors and almost all of them engage in day-trading activities. Many of these investors can actually be stay-at-home housewives, who often get their information from the 10+ television channels that constantly report on financial news.

Taiwanese investors would rather put their money into the stock market because it does not make sense from a fee perspective to invest in mutual funds. Mutual fund commissions are all front-loaded while transactional fees for stock trades are very minimal. Recently, Taiwanese financial companies are pushing sales and encouraging investors to stop worrying about managing their own portfolios; and letting a fund manager take care of their retirement plans. The results have not been ground-breaking yet.

The Taiwanese investors often rely on technical analysis as a tool and if you were a good investor, you would not want to be publicized or celebrated. The fear and risk of a mafia/mob knocking on your doorstep to ask you to trade money for them is a strong reality even in this day and age in Taiwan.

My Analysis
I respect technical analysis as a analytical tool, but for an entire nation, the whole investor population to be functioning on those premises, means that a multitude of swing traders control the stock market. The balance sheets and company fundamentals are not a decision factor in Taiwan. There is only but one common data for everyone in those charts, so who can really take an advantage? When one person realizes a chart trend to buy in or get out, it is certain that the technical analysis herd will follow right behind; leaving the slow and ignorant to transfer their wealth to the fast and knowledgable. It is liken to Las Vegas odd-makers making books and taking bets.

It remains too easy for Taiwanese companies to list on the exchanges and these companies really don’t care about pleasing investors because no investor holds the stock long enough to care about the company’s operational issues! Shareholder activism is a non-issue. The stock market at times resembles more like an lottery than a place for companies to raise cash and investment capital. No other investing style can establish a foothold in Taiwan, certainly not a value investor!

Let me speak my mind on television media again. Don’t watch investment television! For an amateur investor, this is the most deadly of mistakes because their emotional rationale rides on a roller coaster and are at the whim and beckoning of every media report. They are tempted, and driven to decisions without further knowledge and investigations. The fact that Taiwan holds such a significant importants with financial media serves to feed the gambling hunger of its investors.