My wife invested a tidy sum more than a decade ago in five Chinese companies – and then forgot about it. When going through some paperwork, she rediscovered her investments and learned they had grown five-fold in value by November, 2007.

Our awareness of the investment, however, weighed on us during the calamitous events of 2008 as we watched, month-after-month, the value of the stock slide until we couldn’t take it anymore – in January this year, with the value just 20 percent up from her original investment, we cashed out.

From my previous reporting on behavioral finance, I knew that in the long run the smarter move would be to keep the cash in the market. But an surprise pregnancy and the unplanned expenses (to counter the unplanned joy) made it a straightforward decision for us. At least, we were getting out while we were ahead.

And then I’ve watched the Chinese stock market roar back to life, with year-to-date gains on the Shanghai index alone reaching 90 percent in August.

Doh!

What can I say – we’re human. And as humans we have a nagging propensity to sell low and buy high.

According to behavioral economist, our natural “fight or flight” impulses that kept us alive in the jungle often make our investment portfolios dead meat.

A buy and sell of a stock on a single day is a virtual coin toss: investors have a 50.2 percent chance of making money, investment counselor Philippa Huckle once told me. The longer investors hold, however, the chances of profit expand exponentially: there is a 70 percent likelihood of earning a profit holding for 18 months. Hold for five years, odds increase to a 95 percent probability of positive return, she said.

Yet despite this knowledge, our patience for investment is slipping: from 1984 to 2000 the average stock buy was held for two years and seven months; by 2004, the average slid to two years and two months.

According to Dalbar Inc., a financial research company, a $10,000 mutual fund investment in 1985 left to sit without withdrawal would be worth $95,000 in 20 years, despite losses suffered during the 1987 market crash, the 1997-98 Asian currency crisis and the technology implosion of 2000.

One interesting fact from behavioral finance research helps explain why we dropped that forgotten Chinese stock once we became aware of it – loss aversion. Research shows that investors “feel” the loss twice as much as a similar gain: In other words, the experience to lose $1 ,000 twice as intense as the pleasure of a $1000 gain.

Watching the stock drop month-after-month became too much to take, and we – like a lot of other investors – wanted that pain to go away. And it cost us.

Now I’m trying to forget that, too.

We’ve all heard the old tale that if you invested $10,000 in Microsoft when the company went public in 1986, today you’d be a multi-millionaire. We think back to when oil was trading at $30 a barrel, and ask ourselves why we didn’t get into the action. Or, look at the price of gold. Why didn’t I invest a bit just a few weeks back? We kick ourselves.

But actually making these investments is of course easier said than done. Because when we’re faced with investment decisions, it’s not that simple. People are comfortable with different levels of risk. And finding out where you stand within that spectrum can be challenging.

On this week’s Biz Clinic, we sampled a series of these tests designed to gauge your stomach for risk.

The following are some from a test put together by professor at Rutgers University:

In general, how would your best friend describe you as a risk taker?

1. A real gambler
2. Willing to take risks after completing adequate research
3. Cautious
4. A real risk avoider

You are on a TV game show and can choose one of the following. Which would you take?

1. $1,000 in cash
2. A 50% chance at winning $5,000
3. A 25% chance at winning $10,000
4. A 5% chance at winning $100,000

When you think of the word "risk" which of the following words comes to mind first?

1. Loss
2. Uncertainty
3. Opportunity
4. Thrill.

Take the full test if you want to get a clear picture of your appetite for risk.

While I was skeptical, the tests can be helpful. One independent consumer survey broke down a possible investment strategy for me. Another suggested a mix of aggressive mutual funds, with bonds. I was told I had a “moderate risk tolerance.”

They helped put my level of risk in perspective. And they got me thinking of another question you might ponder:

A Harvard-dropout has started a relatively new company that could revolutionize the way people use personal computers. You could make millions in the long run. But right now, he needs $10,000. Would you fork over the cash?

How do you find the right financial advice? First find the right financial adviser. CNN's Andrew Steven's reports.

In an special Web exclusive, an extended chat with John Gannon of the Financial Industry Regulatory Authority on sussing out the best financial adviser.

SINGAPORE – The talk was about global rebalancing. U.S. President Barack Obama arrived in Asia on his first official tour, talking about a "rare inflection point in history". A time where "we have the opportunity to take a different path." A chance to rebalance the model where Asia consumers consume more and US exporters export more.

Chinese President Hu Jintao was among world leaders at the APEC summit in Singapore.

APEC leaders fully endorsed the strategy; virtually every economy in the world does. But look inside the APEC meeting in Singapore, and see the problems of turning this into reality. One of the biggest may be China.

More than two years ago, China began to allow its currency to appreciate against the dollar. By the time the financial crisis exploded, it had risen in value by about 20 percent. The crisis was the signal for China to freeze the exchange rate there at about 6.83 to the US dollar.

That was a year ago. Even China's Asian trade partners are now worried that the Chinese yuan is undervalued against the sinking dollar. So one of the key issues in Singapore was to put subtle pressure on China to unfreeze its currency.

Finance ministers talked about flexible exchange rates, the APEC leaders were expected to talk to about "market oriented" exchange rates - all aimed at prodding China to become a little more "market oriented" in its own exchange rates.

But by the end of the gathering, all reference to market-oriented exchange rates in the final statement from leaders had been erased. There had been debate behind closed doors between the U.S. and China about the statement. In the end China appears to have won out.

The message seem to be China will move only when its ready. And for all its newfound goodwill and push for re-engagement, there's not much the U.S. can do about that.

We've all heard financial experts talk about "shorting" the market, and the role that "short-selling" arguably played in the global financial collapse. But is it really such an awful financial tool? And are U.S. regulators correct in cracking down on the industry?

And in a Web exclusive, Stephen Figlewski of New York University take a long look at the world of short-selling.

Hong Kong, China - As long as there are free markets and humans remain emotional creatures, there will always be financial crises.

So says renowned British historian Niall Ferguson. The Harvard University professor and I had a chance to meet in Hong Kong at a recent investors' conference. He shared his observations on the current economic crisis.

CNN: Is there anything unique about this recession?

Ferguson: This isn't a recession is the first point to make. It's a near depression. In fact, I am calling it the Slight Depression to distinguish it from the Great Depression of 1929 to 1933. And the unique thing is that we nearly repeated history. In other words we nearly repeated the Great Depression, but we avoided it with massive monetary and fiscal stimulus. So we are in new territory.

CNN: When does government intervention work?

Ferguson: We need to be very careful when we talk about government intervention. That covers a multitude of sins. There was a lot of government intervention in the Soviet Union and we know how that story ended. So we are talking very specifically here about two policies: one is the use of central bank money creating power to avoid a liquidity crisis that crunches the entire banking system. So intervention by the (U.S.) Federal Reserve beginning in 2007 and escalating in September of 2008 was primarily designed to avoid massive bank failures of the sort that made the Depression so serious in the early 1930s. And I think there is no question that we have learned from history and Ben Bernanke, as chairman of the Fed, has learned from history, that it's a good idea to avoid a generalized collapse of the banking system.

CNN: When does government intervention not work?

Ferguson: The other kind of government intervention, which is slightly more problematic, is the sort in which the government runs a large deficit in order to stimulate the economy by building roads and building bridges in order to get people back to work in the hope that in doing that, it will generate a recovery. This is the model developed by John Maynard Keynes back in the 1930s and it's been used by countries around the world to varying degrees. And to some extent, this has been effective. But the problem is, in the United States, you are adding a stimulus on top of an already huge structural deficit in the public finances, and the prospect of a trillion dollars of new borrowing every year for the decade ahead, that scares me and it should scare everybody.

CNN: There's been a backlash against the financial world, especially Wall Street. Have we seen the same level of fury after past crises and where does that vitriol lead?

Ferguson: It's not, by any means, the first time that people have felt furious of what they have seen going on in Wall Street: a financial speculative bubble that bursts and causes a recession which drives other people, ordinary folks out of jobs. The question is just how far this populous backlash is going to go in the United States and indeed around the world now. My suspicion is that it's got a ways to go. Each time an American loses his or her job, not surprisingly, he or she looks around and asks who's to blame for this. And when they see on Wall Street, the banks paying out million-dollar bonuses with what appears to be, and in some cases is, taxpayer money from the TARP fund, I am not at all surprised that people feel mad. And when they feel mad, they turn around and they say, 'How can I express this anger? Who can I vote for who is going to articulate my feelings of frustration?' And I wouldn't be at all surprised to see, as we approach the mid-term elections, more and more politicians, particularly Republicans, trying to articulate that sense of popular grievance.

What lessons have you learned from the current economic crisis? Tell us what your experiences are.

LONDON, England – Based on fundamentals, the markets shouldn't be at the levels they've reached. Some hard cold realities have been reminding investors that the long awaited recovery may turn out to be more anemic than anticipated.

Have markets over-heated?

Take last week for instance. U.S. stocks fell worst than expected on monthly manufacturing numbers and a horrific employment report.

The number of U.S. workers on payrolls fell by 263,000 in September - much worse than expected - and the unemployment rate rose to 9.8 percent, a 26-year high. To make matters worse, the average workweek fell to a record low of 33 hours, hardly encouraging to those who have been buying stocks on recovery hopes.

Nouriel Roubini, who predicted the financial crisis, is bearish on the market. "Markets have gone up too much, too soon,too fast," he said in an interview over the weekend with Bloomberg.

"I see the risk of a correction, especially when the markets now realize that the recovery is not rapid and V-shaped, but more like U-shaped, that might be in the fourth quarter or the first quarter of next year," he said.

Roubini is not alone in his thinking. The head of global bank HSBC, Michal Geoghegan, is worried the economic recession could be worst than some anticipate.

"Is this a V recovery or a W?" Mr Geoghegan asked in an interview with the Financial Times. "[I think] it’s the latter. [If I’m right] we have to be very careful we don’t grow the balance sheet so far before the recovery has come only to write it back into the impairment line later on. I’m cautious about growing too fast."

And economist Lena Komileva of Tullet Prebon said the weak data, specifically referring to the manufacturing data out of the U.S. last week, "do challenge the market's optimism that this year's capital markets rally is the bellweather of a V-shaped economic recovery and it forces a negative revision of future quarters growth projections, which challenges current valuations."

In simple talk, the markets are ahead of themselves. The global equity rally has added about $20 trillion to the value of stocks worldwide since this year's low on March 9, according to Bloomberg.

Governments have spent about $2 trillion on stimulus, while central banks have taken extraordinary measures to try and get growth moving again.

All that liquidity and hopes of a global recovery have pushed stocks substantially higher, more than 50 percent for the S&P 500, and nearly 50 percent for Europe's Dow Jones Stoxx 600 index from their March lows.

While markets are off their best levels, they are still too high based on economic reality. I suspect the disappointing economic numbers last week, won't be the last. If Roubini and some others are right, markets have much further to fall.

Do you think the markets are too high?

LONDON, England – On a quiet summer day in August, when many in London's financial district are away, or wishing they were away, comes a lightning bolt from the head of the Financial Services Authority.

Adair Turner proposes the idea of a special tax on financial transactions.

Adair Turner, the man in charge of regulating the City of London, has said that some parts of the financial sector have grown "beyond a socially reasonable size," and some of what it does as "socially useless activity."

In short he thinks financial services account for too much of Britain's output, robbing other sectors of some of the best and brightest.

To underscore his point, he looks at what “percentage of highly intelligent people from our best universities went into financial services." And then goes to say, "Unless you've got a theory that explains why financial intermediation suddenly needs all this extra resource, there is something of a conundrum. Is it really the case that financial intermediation today is a more complex thing that a decade or two back?”

He proposes the idea of a special tax on financial transactions.

His is not a new idea.

Originally, an economist named James Tobin suggested a special tax on foreign currency transactions to curb speculation. Then in 2005, then president of France, Jacques Chirac, placed a "Tobin tax" on financial transactions to deal with what he perceived to be the excesses of "liberal globalization."

"If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit," Turner said.

It's clear that freewheeling capitalism didn't work, that policymakers need to devise ways to curb excessive risk taking. Higher capital requirements should be the first line of defense.

Unsurprisingly, Turner's possible solution and open questioning of whether the financial district is too large, is already provoking sharp debate and response. He even went so far as too suggest that London's competitive advantage as one of the world's premier financial hubs shouldn't be defended at any cost.

The head of the British Bankers Association Angela Knight, did not mince words in response. "I think that if we say we do not want to have an international, competitive industry here, then we will do to financial services what we have done to manufacturing and engineering in the past and that is have it as a minor industry and lose it to others," she said.

I agree with Knight.

Yes, there have been excesses and recklessness in the financial sector that will take decades to unwind, including eye-popping amounts of money bailing out a financial system that could have been put to much more productive use.

But haven't they acknowledged the excesses? Let's not further undermine an economy already on its knees by making it less competitive and attractive. Let's first start with better supervision.

Do you agree there should be global taxes on financial transactions as a way of curbing excesses? Would such taxes be effective?

HONG KONG, China - Confused by the rules and regulations of China's stock markets? You are not alone.

Probably one of the most common questions I am asked as Asia Business Editor is how to invest in China, especially its stock markets. The markets are up more than 80 percent this year. With the world economy in turmoil, many investors see China as a bright spot on an otherwise dark landscape. They want in.

Market watchers debate if China's stock markets are headed into bubble territory and warn that trading is still a new phenomenon in the country. Information is scarce, spotty, and often only in Chinese. Market swings are extremely volatile.

But with that warning in mind, here is a little guide to help the intrepid better understand China's stock investing ABC's.

A-shares: Stocks of Chinese companies listed in mainland China - in Shenzhen and Shanghai. These shares are sold in Chinese yuan, largely to local investors. Foreign individual investors cannot buy A-shares directly. International institutions can, but with limits. "China has a very restrictive policy in terms of allowing foreign investing into the local stock market," explains Peter Alexander of Shanghai-based Z-Ben Advisors. "They don't actually need foreign investors because there is enormous amount of demand locally." Alexander suggests going through a bank or a mutual fund.

B-shares: B-shares are also stocks of Chinese companies listed in Shenzhen and Shanghai. These stocks were originally meant for foreign investors and are sold in U.S. and Hong Kong dollars. The B-share market never really took off in the way the Chinese government intended. Chinese companies looking for foreign funds often choose instead to list on the Hong Kong stock market. The government has recently loosened the rules to allow more domestic investors to buy B-shares though the number of companies is pretty small.

H-shares: If anyone wants to trade in Chinese stocks directly, Alexander says Hong Kong is the place to do it. "Over the past decade, a number of Chinese companies have begun to list on the Hong Kong market," he told me. "Banks, petroleum companies, every type of industry, big companies, very liquid." These shares trade in Hong Kong dollars and are governed by international standards, so buying and selling H-shares is more transparent. Information on these listed companies, Alexander says, is easier to find.

ADRs: American Depositary Receipts. These are shares of non-U.S. – in this case Chinese - companies listed in New York. Investors can buy big Chinese names such as China Mobile or PetroChina but the selection is limited.

Investing in Chinese companies is a bit of a letters game - and, certainly, a risky one.

LONDON, England – Last week when I appeared on CNN to talk about earnings, I raised the issue of the quality of the U.S earnings.

Wall Street gains sent the Dow above 9,000 points for the first time since January.

Investors have been pushing stocks higher fueled by better than expected earnings. The Dow broke through 9,000 for first time since January, while the S&P 500 has shot up 11 percent in the past two weeks. The U.S. earnings season has fueled a global rally.

But are investors getting too euphoric? If you look at the revenue side of the earnings, not all is well. Take the 143 companies in the S&P 500 who reported last week. Revenues actual fell on average 10 percent from the same period a year ago, according to Bloomberg data.

Steven Ricchiuto, chief economist at Mizuo Securities USA hit the nail on the head when he spoke about the divergence between earnings and revenues.

"We know companies are cutting costs at a record pace, and that is helping earnings. But you can't keep on shrinking your way to profitability. Eventually, you do damage to your end users. You have to get revenues up to have a sustainable upturn."

David Rosenberg, chief economist and strategist at Gluskin Sheff, echoed similar sentiments when quoted by the Financial Times.

"Earnings may be beating low-balled estimates for the majority of S&P 500 companies, but there is no questioning the fact that we are also seeing a sustained decline in revenues."

"What we are still witnessing is a trading opportunity rather than a fundamental shift in the outlook. We must take into account what the risks are going to be once the buying momentum is lost," he added.

The bottom line is that companies can't indefinitely cut costs, they need to get revenues moving higher. But every time they shed a job, that means one less consumer spending as much money in the economy, undermining the prospects for recovery, which in turn of course, hurts companies earnings prospects.

In a research note this month, the economist Nouriel Roubini sounded a note of caution.

"Expectations of corporate earnings will have to be downgraded again. Demand will be weak, most prices will be falling, and companies will therefore have little pricing power and their profit margins will remain squeezed. The expectation that in these conditions profits will rebound strongly is quite far-fetched."

Roubini is worth listening to, because he's the guy who predicted the credit mess. As I've written many times before, any sustainable recovery is still far away.

But for now, investors aren't too concerned why companies are beating earnings expectations; that they are is enough. A closer analysis might make investors a little less euphoric.

Do you agree or disagree?