Since the opening of the A-share market for more than 30 years, it has experienced many cycles from peaks to troughs, and then from troughs to peaks. There are many opportunities for low position layout, and there are also many magnificent big market prices. But here’s the reality: Investor returns overall have been lackluster. It is often that the income slips away before it is hot, and finally the bamboo basket is empty.
Figure: The ups and downs of the CSI 300 Index
One of the main reasons for this result is that investors always like to enter the market when it is lively, but absent when it is cold but full of gold . When the effect of making money is good, everyone flocks into the market, even borrowing money to increase their positions, expecting to make a few bucks and a lot of money. But at this time, asset prices are inflated and transactions are crowded, and the potential risks are huge. When the effect of making money is not good, everyone is unwilling to enter the market, and even does not hesitate to cut the meat. But at this time asset prices are underestimated, bargains are everywhere, and there is considerable room for future profits.
Although this method of operation is in line with people’s nature of seeking advantages and avoiding disadvantages, it has caused great obstacles to investment.
1. A small loss is a big one, and what is gained must be lost
Investors’ behavior of “chasing up and down” is essentially a kind of greed. I don’t want to “miss 100 million” when the market is good, and I don’t want to bear any losses in the adjustment. But judging from the final result, such an approach is often a small gain.
During the bull market from 2006 to 2007, as the market continued to rise, funds were continuously purchased on a net basis. The obvious climbing stage occurred from the third quarter of 2006 to the third quarter of 2007, reaching a peak of 462.5 billion units in a single quarter. Then the market turned into a decline, and the CSI 300 fell by 70.19% from October 1, 2007 to October 31, 2008. Investors who entered the market at that time were under the pressure of long-term and deep adjustment. It seems that they have seized the opportunity and seized the bull market, but they are actually standing on the “top of the mountain” .
Source: Galaxy Securities, China Asset Management
In the bottom area of the market, the fund as a whole showed net redemptions. For example, when the market peaked and fell back in June 2015, Christians began to flee frantically, and the net redemption in the third quarter reached 588.3 billion shares. It seemed to get rid of the risk of further losses, but then the market gradually recovered. The Shanghai and Shenzhen 300 Index rose by 33.50% from October 1, 2015 to January 31, 2018. Investors who admitted their losses and left the market are no longer present at this time, and missed the opportunity to recover their capital.
Source: Galaxy Securities, China Asset Management
This kind of operation of chasing ups and downs is in line with human nature. In the short term, we have gained small profits and picked up sesame seeds, but in the long run, we have lost watermelons. It rushed in at the peak and caught the final madness, but the subsequent adjustment space and range were also unbearable. Leaving the market at a low point reduces the pain of account floating losses, but what is lost is cheap bargaining chips, and what is lost is the profit opportunity brought about by the market’s “failure to come”.
2. Go in the opposite direction and be prepared to overcome human nature
There is an old saying in the investment world: Don’t come here when you are at the peak, and don’t leave when you are at the bottom . Only in this way can we overcome the greed and fear of human nature and give a suitable time for coming and going.
First, realize that everything is a cycle . Although market volatility is elusive in the short-term, it is difficult to get rid of the shackles of the cycle in the long-term. It often “fails to come” at the historical extreme low, and “prospers and declines” at the historical extreme high. You can’t expect the market to keep rising, and don’t worry that the market will keep falling.
Second, we must follow the general trend and go against people’s hearts . In investment, it is necessary to follow the market trend and look for promising assets for investment. But this does not mean that we must grasp the hot spots and chase the wind. If asset prices are overheated and inflated, we must give up decisively and be prepared to go against the trend. At this time, we should give up chasing up and buying, and look for those areas where the market is stable or even bleak, and find assets with underestimated values and underestimated advantages in places where no one cares, and make layout calmly and calmly.
Finally, let the investment have rules to follow . There is still a long distance between investment planning and actual operation. In order to be able to overcome inner greed and fear, make correct decisions and implement them at peaks and troughs, we must also have a set of mature investment operation methods to achieve the unity of knowledge and action.
3. Be calm and calm, adhere to the correct operation method
When implementing the reverse idea, it is inevitable that there will be entanglement and hesitation. To this end, investors can adopt many downplaying timing strategies or methods to avoid the impact of asset price fluctuations and focus on the investment itself, such as strictly adhering to valuation constraints, fixed investment, portfolio investment, etc.
Strictly abide by the valuation constraints, so as to “don’t buy at high prices and don’t sell at low prices” . In the operation, the valuation range is strictly defined, actively participate in the low valuation and reasonable valuation range, and don’t leave the market easily, so as not to fall before dawn. Once the valuation enters the falsely high range, be prepared to retreat in time, and don’t covet the last copper plate.
Use the appropriate method of opening positions . As an ordinary investor, it is difficult to judge the time to enter the market. Therefore, it is not recommended to use the method of entering and exiting the whole position. You can consider adopting the method of batch or fixed investment to smooth out the peaks and troughs of the price and reduce the overall risk. Even if unfortunately some shares are bought at a high level, because the proportion of the total assets is limited, subsequent callbacks have limited impact on the overall portfolio income. When encountering a stock market trough and having a large amount of follow-up funds, you will reduce your fear of adjustments, collect cheap bargaining chips step by step, and be friends with time until the value is realized.
Use the asset allocation strategy of large categories to carry out portfolio investment . The peak period and trough period of various assets are different, so the portfolio investment of multiple assets can be used to realize the mutual hedging of risks and reduce the impact of single asset fluctuations on sentiment. For example, the fixed income + of “debt bottoming and stock strengthening” is relatively stable in the medium and long term, and the investment experience is also relatively good.
In the long run, professional investors represented by public funds can bring long-term and considerable returns to clients through systematic research and scientific decision-making. However, in the actual investment process, investors’ human nature of seeking benefits and avoiding disadvantages leads to frequent buying and selling, chasing ups and downs and other investment behaviors, which greatly reduces actual returns.
If you want to gain something in the capital market, you must insist on “don’t come here at the peak, and don’t go away at the bottom”. In terms of specific trading operations and portfolio management, we should “follow the general trend and go against human nature”, and not affect the medium and long-term investment layout due to short-term interests.
Disclaimer: The research and analysis of funds and fund investment advisory portfolios do not constitute investment consulting or advisory services. The remarks published on this account represent personal opinions and are not used as a basis for trading. Fund investment is risky, the past performance of the fund and fund investment advisory portfolio does not indicate its future performance, and the income created for other customers does not constitute a guarantee of performance. The fund investment advisory business is still in the pilot stage, and there is a risk that the pilot fund investment advisory institutions will not be able to continue to provide services due to the disqualification of the pilot program. Please read relevant legal documents and risk disclosure statements carefully, and make rational investments based on your own risk tolerance.
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