Laughing at Blue Monday
On May 28, 1962 – dubbed “Blue Monday” – the market fell 6%… its worst single-day slide since 1929.
Peter Stormonth Darling was an investment manager at investment bank S. G. Warburg & Co. at the time. He strolled in to tell his boss, Tony Griffin, how much the market had fallen.

Dow Jones Industrial Average, 1961-1962
The DJIA in 1961 – 1962. March – June 1962 delivered quite a scare to investors – in May the decline accelerated, as panic began to spread – click to enlarge.

Dow Jones Industrial Average, 1961-1962

Darling recounts:

Tony sat back, paused to reflect a moment, and just laughed. This was not because he had anticipated the crash or sold his own investments – he had not. It was his way of keeping the event in perspective. I’m sure it was the right way to act.
It was a useful lesson, and it helped me to view with some equanimity subsequent market collapses, such as those in 1974, 1987, and 1998.

Darling would eventually become chairman of Mercury Asset Management from 1979 up until Merrill Lynch acquired it in 1992. During his storied career, he came to know a number of wealthy people, some of whom are also shrewd investors.
He studied them, trying to discover their methods. And he learned what successful investing is all about.

The Largest Online Marketplace in the World
This company is twice the size of Enron at its peak ($100 billion). Pharmaceutical giant Valeant, which blew up in the last year, was only $90 billion at its peak. Before I get to what the stock is, let me tell you where it is: China.

CEO Jack Ma, wagging a finger (bad sign) Photo credit: Kiyoshi Ota / Bloomberg

I recently heard an excellent presentation by Anne Stevenson-Yang at Grant’s Spring Investment conference. Stevenson-Yang is the cofounder of J Capital Research, based in Hong Kong. J Cap provides independent research on China’s stocks and its economy.
To understand China’s economy today, she said, think of Silicon Valley in 1999. You may recall that was one year before the tech bubble peaked, then collapsed. The similarities between Silicon Valley (circa 1999) and China (from about 2006 on) are striking.
In China, there’s a big emphasis on growth… but not so much on profitability. Much like the days of counting website visits (or “counting eyeballs”) instead of profits in 1999.
Capital is cheap, and the market rewards executives for raising money… but not so much for generating a profitable return on that capital. Again, a lot like 1999, when investors threw billions at anything with a “dot-com” in its name.

Alibaba Group (BABA) since its late 2014 NYSE listing.