Head Kim Hak-gyun: Making Money from Stocks Is Not Free…Three Principles for This Year's KOSPI Investors

People without assets tend to try to build wealth quickly through investing, but this can backfire as an investing paradox. The more eagerly they rush, the harder it becomes to get the results they want. The point is that patience matters more than impatience in investing.

Now that it has broken below 1,450 won, people are saying we are in a dollar-weakness phase and they should buy dollars. This shows how quickly market perception can shift. Where a surge in the exchange rate once signaled economic crisis, a falling rate is now read as a sign of dollar weakness and seen as an investment opportunity.

Korea and China protested Abe's second cabinet's weak-yen policy from December 2012 as a 'beggar-thy-neighbor policy' and called it unfair. However, Jacob Lew, then U.S. Treasury Secretary under the Obama administration, judged that the yen's weakness was not aimed at improving trade terms but was an 'internal affair' to escape deflation, and tolerated it. This means the U.S. understood and accepted Japan's effort to escape deflation by artificially lowering its currency's value.

Analysts said that once a phase of won strength driven by dollar weakness arrives, foreign investors are likely to buy Korean stocks. While the Japanese yen, the currency at the center of Northeast Asia, has been weak, the Chinese yuan has already strengthened, and the won could move in step with the yen. Historically, when the dollar weakened and the won strengthened, foreign investors tended to buy Korean stocks, so with the current strong-dollar phase reversing, inflows of foreign buying can be expected.

There are concerns that further rate hikes, which are seen as a wild card in the market, could affect risk assets across the board. However, considering U.S. inflationary pressure and the economic trend together, the view is that if external variables such as the Middle East war end, the Federal Reserve is unlikely to pursue an aggressive tightening policy. This judgment rests on the view that a sharp rise in long-term rates or a strong Fed rate-hike policy is not likely to materialize.

While a Korean rate hike is an important variable in a context where a strong dollar leads to a weaker won, the Korean economy currently shows highly asymmetric traits. In some areas, industries such as AI and semiconductors are booming and earning large profits, while bank delinquency rates and the business conditions of small merchants are very poor. Because of this asymmetry, even a large rate hike would have limited impact on the KOSPI as a whole, and benefits tend to flow mainly to specific industries or selected people. In fact, the correlation between the KOSPI and the Bank of Korea's base rate has been very low, and the KOSPI has been influenced more by the monetary policy of the Fed, the key-currency issuer. Therefore, rate hikes are expected to be unlikely to seriously hit the stock market.

He explained that growth rates in Korea and the U.S., Korea's current account balance, and the interest-rate gap could push the won-dollar exchange rate lower, making Korean stocks, a non-dollar asset, more attractive. He added that these factors will ultimately show up in the market through foreign investor trading.

Young people voicing hardship and public sentiment wavering in Korea was pointed out as evidence that polarization in the Korean economy is deepening. This polarization has become serious enough to be described as 'K-polarization,' and the boom and bust of the semiconductor industry has recently been analyzed as a factor that has further deepened it. The interpretation is that imbalances across the economy are directly affecting the lives of young people.

Kim Hak-gyun, head of research at Shinyoung Securities, cited stocks like Kioxia, which rose 70 times before correcting 60%, as an example of extreme volatility, and warned that stocks that have risen excessively must inevitably correct steeply. He advised that when watching the current correction in semiconductor stocks, investors should also consider the rapid surge that came before.

Kim Hak-gyun, head of research at Shinyoung Securities, forecast that market volatility will remain large going forward. He said it is good to dip into semiconductors, but stressed that the investment size should be limited to what you can withstand extreme volatility with. This means that despite the potential of the semiconductor sector, which offers high returns, its inherent high volatility must be recognized and approached with caution.

In the U.S. market, while core stocks such as Nvidia rose 14 to 15 times, the small- and mid-cap index Russell 2000 instead fell. This was due to excessive concentration in leading stocks. But as that concentration eased, the Russell 2000 has outperformed the S&P 500 this year, rising nearly 20%. This trend suggests that capital flows may spread from the period when money concentrated in specific large caps to small and mid caps.

Recently, the KOSPI has been recovering more slowly than in past patterns, when it quickly rebounded after sharp index drops. What is notable, however, is that the breadth of the market is widening: even as the index falls, the number of rising stocks is increasing. In particular, previously weak stocks are also recovering on the KOSDAQ, raising expectations that the market's scope will gradually broaden. This suggests investment interest may spread beyond a few leading stocks to a wider range of names.

Amid such uncertainty, the market is inevitably expected to show high volatility as hope and fear intersect.

Given that over the past 15 years, stocks moved more than 5% in a single day only 10 times, the fact that such moves of over 5% now occur more than 30 times shows that extreme concentration has become normal. This stems from the fundamental uncertainty of walking uncharted ground, and questions over which of investors' fears and hopes will prove right are expected to persist. High volatility like this is recognized as a problem that will be hard to resolve in the short term.

He advised that because no matter how excellent the stocks you buy are, you cannot escape this volatility, investors must understand and accept the nature of the market.

He stressed that for young investors in particular, the vast time ahead is their greatest asset, and advised them to focus on enjoying the compounding effect, where money earns money over time. He added that if you try to hurry because you have no assets, you can fall into the 'investing paradox' where things go wrong, so dropping impatience and adopting an attitude of investing time is important.

Many people tend to invest recklessly with the thought that 'if not now, there will be no chance,' but even a good company's stock will fall sharply when its price overreflects expectations, and then an investment opportunity comes again. He likened the market to a bus, saying that even if this chance passes, the next one can come at any time, so investors should avoid leveraged or reckless investing.

Unlike passive investing in stock indexes, when investing in individual companies, you should study and examine them diligently, as if you were running the business yourself. He stressed that for this, the ability to read accounting financial statements and the ability to evaluate a company's value are essential. He explained that accounting principles and investment theory are the entirety of the academic requirements for living as a smart investor, and beyond that, a deep understanding of companies and industries is needed. He asserted that without these basic skills, it is difficult to make money.

According to him, investing means buying something cheaper than the value you think is appropriate and waiting for it to rise to that value, whereas speculation is based on the expectation that someone will buy it at a higher price than you without any such benchmark. He emphasized that while future forecasts can be wrong, the benchmark is absolutely critical. He pointed out that many investors sell after gaining 20 to 30% in a bull market only to see the price rise two or three times more, or fail to sell as prices fall and end up holding involuntarily as long-term investors. In that case, a bad company offers no guarantee of recovery even if held for a long time, so he explained that investing with a clear value benchmark is essential.

When they do their best, earn 20 to 30%, and sell, they then watch the stock keep rising, while stocks bought without a benchmark get stuck and must be held for long periods. As a result, in their investing life they hold good stocks briefly for small gains, while being dragged along by bad stocks. But bad companies offer no guarantee of recovery however long they are held, so this approach is very dangerous. He therefore stressed that investing only in what you understand well is absolutely critical, and that not investing in what you do not know is itself a form of investing. He added that the mindset of partnering with a company is fundamentally necessary.