[Apartment] "Caught the last train of Ecopro..." Is Principal Recovery Possible This Year? (Park Se-ik Part 1)

Highlights

"I will keep buying Samjeon every month as soon as I get my salary!" they said, but then... huh...? Where are you going...? When it breaks 80,000 won, 75,000 won, 70,000 won, they get scared and stop buying after that.

Investors say, "After listening to the executive director," "I bought up to 63,000 won, 60,000 won, but when it went down to the 50,000 won range, I got scared and couldn't buy anymore." They say things like this. The problem is, when you should be investing, if you buy stocks when they are expensive, you miss the chance to buy at the bottom!

Shin Ji-eun: Welcome to Economic Hotspot! Apat, let's open the door energetically today as well. Now that we have entered the second half of 2023, autumn, we have invited an expert today to take a look at the stock market outlook at this point. He is a person with truly remarkable titles. We have with us Park Se-ik, CEO of Chesley Investment Advisory, known as the mentor of Donghak Ants and the sage of Yeouido. Welcome. I heard that you founded your company with Peter Lynch's Magellan Fund as your role model. I am curious about which aspects of the Magellan Fund you took as a role model.

Magellan Fund

An active fund launched in 1963 by the global investment company Fidelity Investments. Unlike index funds that gain or lose money as the stock index rises or falls, it refers to a fund where the fund manager directly manages and grows stocks.

Park Se-ik: Peter Lynch had an average annual return of 29.2% at that time. The Magellan Fund.

Shin Ji-eun: That's amazing.

Park Se-ik: It is amazing. Bank interest rates have risen to about 4-5% recently, but three years ago, you would get about 1.5% at the bank. But the fund yielded 29.2% annually. So if we usually make 26% profit ten times in a row, it becomes exactly 10 times.

Shin Ji-eun: That's right.

Park Se-ik: So if you invest 100 million won and earn 26% annually, after 10 years it becomes 1 billion won, and after another 10 years, 10 billion won. The average annual return was 29%, from 1977 to 1990. You might think that the US economy was in a high-growth phase and the fund only invested in good markets, but in 1979 there was the second oil shock. Recently, there has been a lot of talk about high interest rates. The Fed raised rates to 5.5%, but back then, Treasury Secretary Paul Volcker raised rates to 20%. He took office in August 1979 and raised rates so much that there were rumors of another Great Depression in 1980 and 1981. Despite that, the fund managed to earn an average annual return of 29%.

Shin Ji-eun: The timing was incredible.

Park Se-ik: Also, in 1985, there was the famous Plaza Accord, and in 1987, there was Black Monday.

Plaza Accord: An agreement among the finance ministers of the US, UK, Germany, France, and Japan aimed at easing the strong US dollar.

Black Monday: On October 19, 1987, the New York Wall Street stock market dropped 22.6% in one day.

And in 1988 and 1989, it was the beginning of the Asian bubble bursting. Despite these various situations, the fund earned an average annual return of 29%, and Peter Lynch retired in 1990, having never recorded a negative return until 1989.

Shin Ji-eun: He is a man of plus returns.

Park Se-ik: Fund managers dream of amazing returns like Peter Lynch's, but it's very difficult.

Q. Current stock market situation: Is it a market where gains can be made?

Shin Ji-eun: Since we have Park Se-ik, who dreams of being the Peter Lynch of Korea, I want to ask about the Korean stock market. Before coming in, I looked at the charts. Looking back 10 years, it seems like a dull market, right? Since mid-2021, the market has been declining and then stagnating without major events. Investors feel confused. Do you think the current bearish market will continue into winter, or is it a market where gains can be made if you enter now?

Park Se-ik: That's a very good question. One of the top three people who made the most money in stocks in our industry is Chairman Park Young-ok, known as the Stock Farmer, right? You said farmer.

Shin Ji-eun: Yes.

Park Se-ik: When you think of a farmer, do you think they only grow rice? No, some grow chili peppers, tomatoes, cucumbers. Just like the term "barley hump" (a hard time), stocks are similar. There are stocks to harvest and stocks to plant. From that perspective, I think both are true. There are stocks that need to be harvested, and the representative example is that Korea's KOSDAQ has very strong seasonality. You can think of it as a seasonal fruit.

Shin Ji-eun: Really?

Park Se-ik: It is always strong at the beginning of the year, but not always. The average annual return of KOSDAQ in odd years over 25 years is about 40%, while Korea's overall average annual return was about 9%. Peter Lynch had 29%, and the S&P 500 had 14% at that time. So what was the average annual return of KOSDAQ in odd years over 25 years?

Shin Ji-eun: Over 25 years...

Park Se-ik: KOSDAQ's average annual return in odd years is 40%. But in even years, the average annual return is minus 17%.

Shin Ji-eun: It came out almost like clockwork?

Park Se-ik: The difference is huge. So whether it's an odd or even year makes a big difference, and whether it's the beginning or end of the year also matters. Investing in KOSDAQ in the first half or second half makes a big difference. This year is an odd year. KOSPI hit 2,134 at the end of last September and dropped to 2,180 on January 6 this year, signaling the start of a second decline. Many experts said it would break 2,000. But I said in January that there would be a slight rise because this year is an odd year. KOSDAQ rose from 660 to 950, a 40% increase. Now it's September, and next year is 2024, an even year. So those who made profits in KOSDAQ this time can take profits now. Harvest! And if you look closely, before and after Chuseok in September and October, new rice and apples come out.

Shin Ji-eun: Yes, that's right.

Park Se-ik: But if a farmer is greedy and holds on thinking the apples will grow bigger during the hot summer, typhoons come in September and October, and the apples rot as the weather cools. Similarly, it's better to take profits in KOSDAQ now. Not all KOSDAQ stocks, but those that rose significantly this year can take profits and buy again next year. You don't have to buy now thinking you'll hold for 10 years. You can plant new seeds next year. Then, thinking of planting in autumn and harvesting barley in spring, now is the time to turn your eyes to KOSPI. Also, a new momentum has appeared recently. China announced it will allow group tours. Even when group tours are allowed, without accurate past data, it's hard to calculate how much it will improve things.

Shin Ji-eun: Right, it's hard to gauge.

Park Se-ik: Then, let me quiz you. How many Chinese tourists came to Korea last year?

Shin Ji-eun: That's a tough question, but I'll try. Since China has a huge population, maybe 10 million? No, that seems too high. About 5 million?

Park Se-ik: Last year, China tightened quarantine measures, so while other countries benefited from reopening, Korea's Son Heung-min was seen playing in the Premier League without masks, and Major League Baseball was open, China tightened quarantine. As a result, the exact number of Chinese tourists (Youkers) who came to Korea last year was 227,000.

Shin Ji-eun: Only that many?

Park Se-ik: For reference, in 2016, 8.06 million came. From 2017, there was retaliation due to THAAD deployment. From March 2017, group tour advertisements to Korea disappeared. The Chinese government denies it, but in practice, group tours were not allowed. From 2017 to 2019, the number dropped below 4 million, then rose to 6 million in 2019. But last year, less than 230,000 came.

Shin Ji-eun: COVID-19 was really scary.

Park Se-ik: But in July, before group tours were allowed, 230,000 came in just that month, matching last year's total. So how much can it increase with group tours allowed? Looking at the past, in 2019, without group tours allowed, 6 million came. In 2016, when group tours were allowed, 8 million came. October is the National Day holiday.

Shin Ji-eun: A busy month.

Park Se-ik: Yes. The biggest holiday is Lunar New Year (Chunje), and the second biggest is National Day. So in October, about 400,000 Chinese tourists might come. Also, the sector that suffered the most from COVID-19 was biotech.

Shin Ji-eun: Biotech?

Park Se-ik: Because during COVID-19, clinical trials were almost halted. Now they are resuming. In the US, biotech and healthcare stocks are doing well. From the Korean stock market perspective, biotech will be hot in the second half of this year and the first half of next year. Among KOSPI large caps, semiconductors are important. Last year, due to China's strict quarantine, mobile phones didn't sell well. Usually, 500 to 600 million units sell, but last year less than 300 million sold. Recently, Huawei's Mate 60 news has come out and is selling well. So last year, among the three major memory sectors?PC, mobile, data centers?mobile sales were weak, causing huge inventory. But this year, phones are selling better than expected. Considering this, Chinese consumption, biotech, and semiconductors are new crops to plant and harvest by next spring.

Q. Outlook for secondary batteries: Is there continuous growth?

Shin Ji-eun: You gave a big outlook, but one hot sector you didn't mention is secondary batteries. What is your view on the outlook for secondary battery stocks? Some see it as a sector with huge growth potential. What do you think?

Park Se-ik: To conclude, even when ECOPRO hit its first peak in April-May, I said it had entered the trading zone. Some don't understand the difference between trading and investing. Some say they invest but are actually trading. Even fund managers often don't know the difference.

Shin Ji-eun: What's the difference?

Park Se-ik: You probably don't know well.

Shin Ji-eun: I guess trading feels like just buying and selling, while investing involves philosophy and study.

Park Se-ik: Right. Investing means that during COVID-19 and last year's Fed rate hikes, asset prices, though not all stocks, especially blue chips, dropped far below intrinsic value. When prices are that low, most stocks are good buys without much analysis. During COVID-19, when KOSPI was at 1,430, I said stocks were cheap and predicted it would exceed 3,000 next year, so "buy a house."

But not everyone made money then. Some lost money. In May, one of the most bought stocks was the inverse ETF (Gopbus). In February this year, among the top 10 most bought stocks by individuals, three were inverse or leveraged ETFs betting on declines. Just because prices rise doesn't mean everyone profits. The key is that asset prices were very cheap compared to value, so this is not the time for trading. You just buy and hold, and prices will rise. The mistake was telling people to sell now and buy if prices fall further, which is trading advice. But if prices don't fall as expected, you should buy as prices cross the 20-day or 60-day moving averages. Instead, vague advice like "buy if it falls again" was given. But in undervalued zones, short-term predictions don't work.

Shin Ji-eun: It seems largely useless.

Park Se-ik: Yes, useless. Just buy with an investment mindset and hold for at least 6 months to a year. One year is not a long time.

Shin Ji-eun: Right.

Park Se-ik: That's why during COVID-19 and last year's second half, when all the bulls disappeared, I alone kept saying "buy! buy!" because prices were cheap. Buying below 2,500 almost guaranteed profits.

Shin Ji-eun: Right, picking up bargains.

Park Se-ik: Not for a long time, but within a year, profits came. So I advised investing. But some kept trading, saying "it will fall again," which is trading advice. Trading in cheap zones is wrong. Conversely, when prices exceeded 3,000, no one predicted it, but when it hit 3,150, our company stopped accepting funds and said "this is an expensive zone." Yet many bought stocks thinking they were investing. When stocks are expensive, you should trade.

Shin Ji-eun: Trading.

Park Se-ik: Yes, you must trade. But trading is not just buying and holding for 10 years. When trading, if the 20-week or 5-week moving average breaks, you should reduce stocks. But many who trade poorly buy at the top and hold, increasing losses. Good traders cut losses step by step, averaging down at the top. Poor investors buy small amounts at the top and large amounts as prices fall, leading to big losses. They don't understand this and wonder why they get stuck.

So to conclude, since April-May, ECOPRO entered the trading zone. You can invest again in October. Even though even years are bad, not all stocks fall. In the second half, due to major shareholder tax requirements, KOSDAQ is weak.

Major Shareholder Tax Requirements

Also called "major shareholder capital gains tax," it is the tax that major individual shareholders must pay on gains from selling their shares.

From an investment perspective, the second half offers opportunities to buy stocks at cheap prices, so don't rush to chase prices up. Even now, if you are a skilled trader, you can trade watching 15-minute charts. But if you want to hold for about 3 years, wait for KOSDAQ stocks to fall from late October to early December, then buy. Even if they don't fall as much as expected, buying then is good.

Shin Ji-eun: Understood. Those considering investing in secondary batteries don't need to rush.

Park Se-ik: One more thing about secondary batteries: even with seasonality, if fundamentals are very good and there is a surprise next quarter, buy. If something better than expected happens, buy. But recently, ECOPRO Materials is preparing to list. I read an article this morning where CEO Kim Byung-hoon commented that this year’s performance won't be as good as last year. Last year, operating profit was about 36 billion won, but this year it won't be as good.

Shin Ji-eun: He gave the right answer?

Park Se-ik: So for secondary batteries, nickel prices surged last year, then lithium prices surged and fell. Prices are linked to raw material costs. Analysts predict future performance without knowing how raw material prices will move. So they know P (price) but not Q (quantity). Lithium carbonate prices have dropped about 60% from the peak. If prices keep falling, prices and operating profit won't be good. CEO Kim's comment confirms this. Experienced investors buy stocks on the day of poor earnings announcements and sell when good news comes.

So, as the saying goes, "buy rumors, sell news." For secondary batteries and ECOPRO, earnings announcements come in Q3 (July, August, September). Then, due to major shareholder tax requirements, KOSDAQ weakens. Poor earnings and tax requirements coincide, creating timing. Without knowing this, trying to time the market by chart watching often fails. But knowing this, you can buy good stocks cheaply. Without this knowledge, you miss timing repeatedly.

Shin Ji-eun: It seems that if you invest in stocks, you should calculate carefully rather than just follow others or news.

Park Se-ik: You must carefully synthesize various factors. If you can't do basic math, you can't do this with other methods.

Shin Ji-eun: I think everyone has gained a good overview of the Korean stock market outlook today. We covered the Korean stock market outlook in part 1, and in part 2, we will discuss more specific topics.

This content was produced with the assistance of AI translation services.