Study On Value Investing Strategy Of China Individual Investors

Individual investor is the most important entity in China stock market. As the consciousness of investment among Chinese people grows rapidly, the number of individual investors is increasing drasticly. However, study on investing strategy of individual investors has always been both scarce and without depth and breadh. Today, when we face the once-in-a-century global finance crisis, in order to avoid the shrinking of national wealth and ensure the safety and growth of people's assets, study on the strategies of individual investors has become a pressing issue.In November of 2007, Petrol China was listed at the Shanghai Stock Exchange. This is the so-called "Petrol China Gate" by media since in this stock a large number of individual investors lost their money . "Petrol China Gate" has alredy become a milestone in China stock market development, a typical case for study on individual investors' inappropriate decision making methods. By analyzing " Petro China Gate", the paper tries to find the mistakes embeded in the strategies of individual investors and, in the meantime, put forward its own proposal.At first, the paper gives a summary of China individual investors, including their basic situation, common investing methods and investing performance. Then, the paper begins to analyze the performance of individual investors in "Petro China Gate" . After looking back the process that Petro China succeeded in being listed abroad and returning to China Stock Exchange, the paper points out that individual investor is the biggest loser in "Petrol China Gate". Next, the paper induces game theory and behavior finance theory to analyze the mistakes of individual investors in this event, indicating that the wrong choice of investing strategy is the main factor leading to the setback of individual investors. So, in light of individual investors' characteristics and investing problems, the paper suggests that value investing strategy should be the sensible choice of individual investors in making investment decisions.As for value investing, the paper gives a sysmetic elaboration of its origin, the main founder, theory content and the success of its application. The paper also uses data of Chinese stock market from 2001 to 2005 to give a authentic proof analysis of the applicability of value investing in China. With regard to the quantitive models involved in value investing, the paper mainly presents CAPM model, absolute value assesment model and relative value assesment model.Finally, taking Petro China as an example, the paper shows how individual investors utilizes value investing strategy. It explains how to choose value assesment model, how to define discount rate and growth rate, and how to calculate the intrinsic value of Petrol China. In the end, the paper elebrates on how to make value investing strategy according to the calculated intrinsic value.