What's going on?

The Chinese government threw cold water on the stock market�s eight-day hot streak on Friday, after two of its own investment funds announced plans to sell, sell, sell.

What does this mean?

It�s good practice to lock in your profits from successful investments when you rebalance your portfolio. But if you happen to be an investment fund backed by the Chinese government � known for buying and selling on its say-so � then that �good practice� can have unintended consequences.


Chinese stocks added about $1 trillion in value last week after the government encouraged investors to buy the country�s shares. But at the same time as some analysts were cautioning that stocks had risen too far, too fast, the government � keen to avoid a boom-and-bust cycle � published an article warning against a �crazy� bull market on Friday. And for individual investors who had piled in based on earlier advice, the rapid selloff that followed could�ve hurt�

Why should I care?

For you personally: Every day�s a school day.

Short-term investors might�ve felt the impact more than most, given that they rely on quick and continuous rises. For them � and for you � this whole brouhaha highlights just how important it is to do your homework before buying or selling, rather than doing what someone else tells you to. For long-term investors, though, Friday�s selloff will probably just be a blip in the context of typically upward-trending markets. That might be why long-term investors � who take the time to understand company fundamentals before buying a stock � tend to do best (tweet this).

The bigger picture: Run for cover.

International funds followed local investors� lead and sold Chinese shares overall for the first time this month on Friday. But their reasons might�ve been different: they may be anticipating more trouble ahead for the country�s companies after the US sanctioned four Chinese government officials on Thursday, and wanted to limit their investments� exposure to any fallout.