2022 is coming to an end, and before we know it, we have experienced another year of bear market. Since February 2021, the A-share market has shown a downward trend as a whole. The current point height of the Shanghai and Shenzhen 300 Index is similar to that around June 2020. It is normal that the investment has not been very profitable or has a slight floating loss in the past two years .
Figure 1: The decline statistics in this round of bear market
With the expectation of making money, investors will inevitably have an overwhelming mentality at the moment. Especially in the past two days, many friends not only endured the suffering of the body, but also endured the suffering of the market, which can be described as physically and mentally exhausted. In the darkness before dawn, we must persevere to welcome the dawn .
1. A good attitude leads to good behavior
Participating in fund investment with the expectation of making money in mind, but not making much money for about two years, investors will inevitably feel resentful.
We have always advocated “don’t buy high, don’t sell low”. Many of the behaviors of selling at the bottom of the bear market are caused by disappointment. “Is it true that public funds can’t make money at all?”, “Buying a fund is just watching the principal shrink and suffer”, “Return my principal, I will stop playing”… At the bottom of the bear market, in the fund investment community and forums, Complaints like this are common.
As fund investors, we should not overestimate our investment capabilities and the expected rate of return of public funds in a bull market; nor should we completely deny the allocation value of public funds in a bear market because of emotions regardless of long-term facts .
The return on investment of public funds is related to the systematic market conditions and the excess returns managed by fund managers, but it is also related to our investment behavior and investment mentality .
From the perspective of investment behavior, the current poor return on fund investment is often related to the lack of buying or insufficient fund positions when the market is not hot at the bottom of our bear market. The current state of floating losses may have something to do with our bull market forgetting risks and indulging in the dream of buying and rising. If you want to gain something in the next stage of investment, the mistakes you made in the past must be corrected and avoided.
From the perspective of investment mentality, if you can stick to the principles of long-term investment, grasp the dispersion, and divide into batches, the proportion of investors’ current floating losses will not be very high. We have seen that after the market rebound started in November, some investors basically stopped floating losses. Even if the current floating loss is still 10-20%, when the market heats up again, it will soon turn around. From a long-term perspective, at present, we must put an end to the loss aversion mentality of selling at the cost of return, and we must take the fund from the “chill” of the market to the “warmth” .
2. Don’t deny past efforts
Although in the past two years or so, there have been floating losses in fund investment, we must see the significance of our insistence on long-term correct things, and don’t easily deny our past efforts . Friends who insist on the fixed investment strategy and practice the reverse investment strategy, everyone should see that they have bought more fund shares in a market that has become cheaper, and have greatly reduced the floating loss.
Taking the Shanghai and Shenzhen 300 Index as an example, if you invest one sum at the highest point on February 10, 2021, you will lose about 29% as of December 19, 2022. If you can insist on making a fixed investment on the 10th of every month, as of December 19, 2022, you will only have a floating loss of about 12.2%. Although they are all floating losses, the loss is nearly 30%, and it is difficult to turn losses into profits. And the floating loss is less than 13%, and if the market heats up a little bit, it will be easy to make a profit.
Figure 2: Long bear market but rapid turnaround
The heat up in the market always comes inadvertently. Taking 2018 as an example, in the bear market of this year, the Shanghai and Shenzhen 300 Index fell by 25% throughout the year. In the bottom area of 2018, it is normal to have a floating loss of 10-20%. By the spring of 2019, the Shanghai-Shenzhen 300 Index had risen by 28.6% in the first quarter, allowing investors with floating losses to quickly experience a turnaround. In the fast-rising market, it is too late to chase high. Investors who chase high will regret that they did not bravely participate in the bottom area of the market in 2018 .
Investor sentiment in the current A-share market is sluggish, market turnover is declining, new funds are uninterested, and the fund investment community is not active… These typical signals, we will continue in the “handwritten newspaper” column every Friday track. Judging from the valuation of the main index in the A-share market, it is still significantly underestimated at present.
3. The night gave me black eyes
We can briefly review the returns of equity funds allocated to undervalued regions.
As of December 19, 2022, the current P/E valuation of the CSI 300 Index is 11.36 times, which is similar to 2020/4/17, 2019/2/22, 2018/8/24, 2016/3/11. Taking the above four time points as an example, if you buy active equity funds and hold them according to the active stock base index until February 10, 2021, you can get about 76%, 137%, 138%, and 155% return on investment respectively. Even without considering the precise profit stop in the bull market, we can still feel that the long-term investment rate of return of active equity funds is considerable.
Figure 3: Undervalued buy, the overall return of active stock funds is excellent
Fund investment must grasp the unity of investment winning rate and odds space. The bear market has lasted for almost two years, the A-share market is obviously undervalued, and our investment success rate is gradually increasing. Since the last CSI 300 index peak, the index has produced the largest retracement of nearly 40%. At present, there are many investment opportunities in various industries in the A-share market, and the odds space of active equity funds has also been greatly improved.
Actively buying in a cheap market range is a very important thing in fund investment. We have seen successful investors share their experiences in the investment community. One of their commonalities is that they actively buy and allocate in a bear market, but they can remain calm after the market heats up, and finally realize investment profits that cross the bull-bear cycle.
From the perspective of the difficulty of fund investment, actively buying in a cheap market range is the easiest and the expected effect is the best. At this point, we don’t need to predict the best-performing varieties in the market outlook, and we don’t need to pursue the returns of dark horse funds with high uncertainty. We only need to grasp the average return level and insist on being vague and correct.
Starting from this line of thought, there are many funds that investors can choose from at present. For example, take the initiative to choose multiple funds, build a diversified investment portfolio at the industry and strategic levels, and do a good job of long-term management by yourself. For example, if you choose FOF or fund investment consultants, you can worry less about choosing funds and just control your positions and asset allocation. Once you have corrected your mentality and saw the meaning and value of persistence, long-termism is no longer against human nature.
The night gave me black eyes, but I use them to find light . Please persevere and don’t fall before dawn!
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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