Two questions to ponder before you buy TCM stocks

He said in retrospect he had neglected a key rule of the market: "Buy on rumor, sell on news". He had done the opposite and paid the price.

Well, buying on news is not totally wrong. Buy decisions should be based on confidence in a company's future. The logic is that if you believe in a company's value, you should act like a value investor, and buy and hold.

But that appears to be the most difficult thing to do for most Chinese small investors. Their way to survival is to "stir-fry" stocks－that is, speculate for short-term gains.

It transpires the most they hold stocks is not more than a month and in June, before the latest round of market meltdown, the time for a small investor to hold stocks was reduced to no more than a week, according to a research note by Hong Hao, managing director for research at Bank of Communications International.

So, before you buy TCM-related stocks amid the current feverish rally in them, ask yourself two questions: Do you really believe TCM companies have a bright future? And most important, how long are you going to hold their shares if you buy them now?