Kospi has risen eightfold in 36 years — but that's just 6% a year

Even in the era of Kospi 8000, the index's annualized gain is a modest 6%

Value investing has evolved from low PBR screens to future cash-flow analysis

AI, semiconductors and data centers now reflect tomorrow's earnings potential

'Watch the company, not the share price' — survival is the first rule of investing

These days, investors tend to ask the same questions. "Should I start buying shares now?" "The market has already risen so much — is it still worth buying?" "Can I put my savings or business operating funds into stocks?"

Just a few years ago, stock investing was the domain of a relatively small group. That has changed. Salaried workers, the self-employed and even corporate executives now treat equities as a core pillar of wealth management. Investors who have already built up significant share holdings are weighing whether to add more. Stock investing has moved beyond a passing craze to become part of everyday life.

Amid that shift, investors face another dilemma: should they hold firm to their own investment philosophy, or actively embrace the market's new trends? The tension between the two has long defined the investing world — the debate over whether principled investors or trend-followers ultimately come out ahead.

Looking at the market today, the answer appears to be neither one nor the other. An investment philosophy is worth keeping, but the changes of the times cannot be ignored.

Think Kospi has risen a lot? The annualized gain is just 6%

Since Kospi first crossed 1,000 in 1989, South Korea's stock market has grown consistently over the past 36 years, recently breaking through the 8,000 mark. Concerns about a short-term surge exist, but the index's roughly eightfold gain over 36 years works out to an annualized return of just 6%.

Index composition also matters. Underperforming companies are dropped and growing ones are added — a survivorship bias built into any benchmark. Accounting for that, the long-term rise in share prices can be seen as a natural reflection of corporate growth and innovation rather than mere inflation.

The stock market is not a market for trading assets; it is a market for trading corporate capital. Companies use debt to expand their asset base and generate profit. It is therefore entirely natural that equities offer a higher expected return than bank deposits.

The scale and pace of money flowing into capital markets suggests the shift goes beyond a trend — equities appear to be settling into a new normal. Where real estate once dominated wealth accumulation, stocks are now establishing themselves as an essential asset class.

Kospi market capitalization at the time each index milestone was first crossed

So what should guide investment decisions? The starting point is ultimately valuation — assessing worth against price. The most important role of brokerages and asset managers is analyzing whether investment targets are fairly valued relative to their present and future worth. That applies not only to companies but also to real estate, goodwill and other intangible assets.

The challenge is that future value never stops changing. A company's share price behaves like a living organism. New technologies emerge, industry conditions shift, and policy and regulation evolve. Countless news events each day reshape the market's judgment of what a company's future is worth.

There is a common saying in the stock market: "First comes supply and demand, second comes valuation." In the short run, money flows drive share prices. Over a longer horizon, however, prices ultimately converge on changes in corporate value and growth.

Value investing itself is evolving

This is a good moment to reconsider what value investing actually means. Traditionally, it meant finding companies trading below their asset value — low price-to-book ratios and low price-to-earnings ratios were the key metrics. But as innovative growth companies emerged, led by those in the United States, the definition began to shift.

Today, value investing is no longer simply about finding companies whose current assets are cheap. It has evolved into identifying companies undervalued relative to their potential for future earnings growth. Warren Buffett's highly profitable investment in Apple fits that same logic. Many investors saw Apple as a growth stock, but Buffett judged it a value stock when future cash flows and market dominance were taken into account.

The market's high regard for AI, semiconductors and data centers can be read in the same light. Investors are assigning greater value to future earnings potential than to current earnings.

The investment behavior of high-net-worth individuals illustrates this evolution well. They do not necessarily move before everyone else, and they rarely predict futures that no one else can see. But when they conclude that a structural shift is underway, they act more decisively than most.

Among the cases this columnist has encountered, some investors holding financial assets worth tens or hundreds of billions of won — composed entirely of bond-type instruments — converted the bulk of those holdings into equity-type assets within just a few months from mid-2025 onward. They placed a higher value on the profit opportunities that industrial change would create than on the direction of interest rates.

Such judgments do not always pay off. Investment in secondary batteries and electric vehicles, for instance, has disappointed relative to expectations. Related assets in many portfolios have failed to generate meaningful returns for nearly two years.

What is notable, however, is that these investors have not exited secondary batteries entirely. Instead, they have aggressively expanded their semiconductor exposure to defend overall portfolio returns while maintaining — or in some cases modestly rebuilding — their secondary battery positions. They do not believe the structural growth story has been fundamentally broken.

Ultimately, the approach taken by high-net-worth investors resembles asset allocation based on conviction about structural change — adjusting weightings — more than concentrated bets on a single industry.

They do not flip their portfolios all at once. They make incremental adjustments as market conditions evolve, correcting mistaken calls and reinforcing sound ones. Their response to market change is, as a result, far more systematic.

Particularly among wealthy investors who run their own businesses, the instinct for reading the times is sharp. They think through how AI will reshape industries, what role semiconductors will play, and how far electric vehicles and robots will grow — before committing capital.

What they share is a commitment to their investment philosophy alongside an openness to market change. They do not dismiss new industries in the name of principle, nor do they chase trends without discipline.

Leaving the market out of FOMO is the worst move — rule No. 1 is survival

Society's view of the stock market has changed considerably in recent years. Particularly among younger generations, a growing movement is pushing away from real estate as the default vehicle for wealth management and toward a more active use of financial assets.

Even so, watching the market lately raises a concern. What appears to be growing is not so much genuine interest in investing as an obsession with rising share prices. A significant number of investment decisions seem driven by FOMO — fear of missing out — the anxiety that one is being left behind.

The problem is that this approach can produce gains when markets are rising, but is far more likely to generate heavy losses and disillusionment when volatility expands. Many retail investors repeatedly follow the same pattern: aggressive buying in bull markets, then exiting during downturns. Those who suffer a major loss once often turn their backs on the stock market for a long time afterward.

This, in this columnist's view, is the investment failure most worth guarding against. The most important thing in stock investing is not how much a particular holding earned, but how long an investor can stay in the market. Wealth is not built on a single win; it accumulates over time through the power of compounding.

In that sense, stock investing should never become a means of covering today's living expenses or rent. The shorter the time horizon, the more vulnerable an investor becomes to market volatility. A better frame is to treat investing as saving for the future — deferring today's consumption to fund tomorrow's growth.

High-net-worth investors this columnist has met share a similar perspective. They do not simply manage their own returns. They pair investing with education for the next generation, teaching their children how to preserve and grow wealth over time. They emphasize not which stocks to buy, but why one invests at all and how to evaluate a company. Assets can be inherited; an investment philosophy can only be passed on through deliberate education.

Share prices change every day, sometimes surging or plunging for reasons unrelated to underlying corporate value. But a company's competitive strength is not built overnight. Research and development, market share, brand value, technology and management capability all accumulate over years.

Investors should therefore follow companies, not share prices. Those who watch the share price are buffeted by the market every day; those who watch the company can endure volatility and wait. They are neither swept up in excitement when prices rise nor easily driven to despair when prices fall.

The question of whether to hold to an investment philosophy or follow trends can ultimately be understood by the same token. An investment philosophy should not be abandoned. But structural change cannot be ignored either. What matters is not the movement of share prices but the ability to read changes in companies and industries.

When more retail investors focus on understanding companies rather than chasing share prices, their results will become more stable and sustainable. That, in turn, is how stock investing can take root not as a passing craze but as a healthy culture of wealth management.

th5@heraldcorp.com