Source: Steel Seal of Thought

1.From not making a name to making a fateful life

In a round of decline, investors' mentality often has to go through three stages:

Stage 1: In the face of a decline, I'm both nervous and excited. While busy selling profitable stocks, and at the same time paying attention to stocks that were previously optimistic but are too highly valued, is there an opportunity to scour the bottom?

Second stage: Every stock in the account is green, and the position can't be solved. Every day, they hope for good, complain if there is no benefit, and they can't sleep as soon as the external market falls;

Stage 3: The benefits that should have come out have come out, but the stock market continues to fall day by day. Every day, it opens with hope, and after a few struggles, it goes all the way down. Every time I refill my position, I fight with meat buns and dogs, and if I have money, I don't dare to transfer it to my financial account. Anyway, my positions are all deeply locked up, and it's falling. Instead, it seems like it has nothing to do with me...

This process, judging from investment theory, isUnder the downward negative beta suppression of the general market, the “individual stock alpha,” which is bullish on one side, the more it twists and turns, the more it loses; From the point of view of investment psychology, they are also investorsThe change in mentality from “the more you lose, the more you don't accept your life,” to “the more you give up.”

However, the general market often does not begin to reverse until investors all “agree”.

The behavioral finance series hasn't been updated for a long time. Today, let's analyze three typical psychological phenomena during a round of decline.

II.Misalignment between price anchors and safety margins

Since stocks don't have a clear price like bonds,In order to determine whether the bid price for trading stocks is reasonable, investors need to find a target object to anchor the price, called a “price anchor”For example, stock prices in the Kweichow Moutai and Ningde era are two typical “price anchors”. As soon as they fall, the prices of many leading stocks in the industry are also under downward pressure, and then the pressure is transferred to second-tier and third-tier varieties.

Sellers and buyers tend to choose different “price anchors,”The buyer's “price anchor” is the price of a large-cap index or similar stockIn a round of trading where the general market fell, the psychological price naturally fell along with it.

But the seller is not the same; the seller choseThe “price anchor” is often your own purchase costTherefore, when a position is lowered, many people like to sell a profitable position first. This is psychological“Disposal effect”.

If you wait until it falls to a certain point, your hands are full of losses, and then your position is reduced,The “price anchor” is not a cost, but rather a previous stock priceIn the midst of a round of decline, sellers often hesitated, “I didn't sell even at 10 yuan, now I don't even want to sell 9 yuan,” thereby reducing their willingness to sell.

More importantly, the buyer not only has an objective price anchor, but also needs a margin of safety, and needs to be one level cheaper at a reasonable price.

As a result, the price of the buyer and seller is always one level apart, and the probability of a transaction has decreased — this phenomenon is even more obvious in second-hand housing transactions.

The phenomenon it caused was,After a round of decline, there is always a quantitative decline at the beginning, because everyone always has profitable stocks to sell, but when it falls to a certain extent, it starts to shrink. Buyers and sellers are always unable to find a balance point due to the psychological disorder described above.

It also explains whyAfter the bear market shrinks, is it easier to drive higher and go lower when there are advantages again?

If buyers and sellers are faced with the previous “unable to agree” price situation, this sudden benefit reduces the number of sellers, and buyers' willingness to buy rises because of the benefits, so it is high. butAfter opening higher, sellers whose current price was higher than the price anchor, or even cost, solved the obstacles to making a move psychologicallyOnce there is a trend of stagnation in the general market, they will not hesitate to take action, and the market will go all the way down.

More importantly, this kind of handle replacementInvestors with high cost of ownership are replaced by investors with low cost of ownershipThe impetus for further decline — a 5% set is always easier to sell than a 10% set, which has led to the following problems.

III.Resistive decline caused by chassis copying

In the middle and late stages of a round of decline, there will be a large number of companies in the market that have declined all the way down. Valuations are already very cheap, but every day there are endless sales prices. Every day it hits a new low, even if the market rebounds, itIf it just rebounds to the 5-day EMA, it will continue to decline. This trend is known as a “resistance decline”.

This type of company that is resisting the decline is more serious than other types of companies, because the reason for its decline is neither overvaluation nor weak fundamentals, but ratherFalling into a “bottom-hunting - stop-loss” downward spiralIn the end, it triggered unreasonable underestimation. Once it appeared on a large scale, it would cause the valuation range of the entire market to shift downward.

As mentioned earlier, sellers use cost as a price anchor. They tend to sell what is profitable first, sell everything that is profitable, and then sell less than 10% at a loss. If all stocks lose 10% or more, many investors will “lie flat.”

However, the problem is that stocks are traded every day, so some shareholders of a declining stock have just bought it for a while, and the cost of holding shares is very low.In a state of shambles or even small profits within 5%.

Not all of this kind of capital is optimistic about the long-term value of the company; most simply feel that it has dropped too much. Once the market rebounds,I just want to enter the market in the short term and bounce back, and have a strict take-profit and stop-loss plan, so if the market doesn't reverse in a few days, it will sell.

Since most shareholdings are in a deep state of optionality, large-scale active traders are in the theme direction of high turnover rates. This type of company is left with only this kind of small-scale “seize rebound plus take profit and stop loss” transactions, which has led toThere are small-scale sales every day, falling 1% more than the market every day. Accumulated, it becomes this kind of “resistance decline” trend.

This kind of “resistance decline” not only affects the general market, but is also the main reason for shareholders' serious losses. When they realize that they are already deeply entrenched and unable to move, the market value continues to be “slashed” every day.

Therefore, the experience of many senior shareholders,In a round of sharp decline, don't hold any stocks that are ranked short on the moving average, because the more entrenched the market, the more likely it is that a “resistance decline” will occur.

However, there are drawbacks to any method. The problem with this method is that once there is a major rebound, this type of bottom-level overdrop is also the most severe. Often, two large sun lines recover more than a dozen small negative lines.

This involves the third type of mentality, the loss-aversion mentality of short positions “gain and lose.”

4.Loss aversion to going short and floating

In a round of declining markets, the mentality of most short and low positions is not much better than that of those with high positions.

Since A-shares mainly make money by doing more unilaterally, all investors are either actually bulls (those with high positions) or potential bulls (those with low positions). Those with short positions and low positions rely on the bulls to make money, but they chose the position of bears. This contradictory mentality is more fully reflected in the decline.

The feeling of those with high positions is “losing money every day,” while those with short positions and low positions are not shorting,The space of decline after a sale is psychologically equivalent to a “buoyancy”Therefore, the psychological position they are most concerned about is the price at which he sold or the position of the index. Once the general market rebounds beyond this position, it is a typical “gain and lose.”

Psychologically confirmed,Although “gain and lose” and “lose and gain” do not increase the amount you have, in terms of psychological perception, the former is more painful than the latter. This is the psychological effect of loss-aversion.

The reason for the violent rebound in the bear market isThe mentality of short and light traders who are afraid to step into the air and keep stealing the rebound.

However, the reason why short positions and light positions choose short positions and light positions is precisely because risk appetite is relatively low, and the investment method system also supports a sharp rise and fall in positions. Therefore, the shareholding mentality is not as good as long-term capital, and the stability of holding shares is not as stable as a secure market, so theyIt also became the dominant force in the more intense decline after the rebound failed.

However, this “rebound to the bottom and cut the meat out” model continued several times. When investors realized that the short trend formed by the market had no solution in the short term, they would gradually give up the idea of stealing a rebound. Their mentality calmed down. Seeing that the rebound did not take action, they naturally did not sell the market later.

Stock proverbs:“The bulls don't die, the decline doesn't stop”, there are actually two types of “multiple heads” here:

One is the actual bulls who hold shares and don't sell them“Death” means “to die”. They lie flat and don't sell, because no single rebound can meet their selling standards. What is the effect of this type of “death” for bullsLock chips.

The other is a “potential bully” for short positions and light positions and is always planning to seize a rebound in the short term“Death” actually means not rebounding; if they don't rebound, they don't need to cut meat. What is the effect of their “death”Cut off the firepower of bears.

Many people may want to ask, even though the decline is immovable, but those holding shares and coins are all lying flat. How is the general market still reversed?

5.Market microstructure at the bottom

In the midst of a general market decline, apart from a short-term rebound, there are alsoReal long-term underwriting capital, and the amount always drops more and more——In contrast, short-term underwriting capital decreases less and less.

Therefore, it is always necessary to wait until the real bottom of the market is successfully exploredLong-term allocation of funds is gradually replacing short-term blogging rebound funds, after becoming the leading force in scouting the bottom.

The shareholder structure at this time is either deeply entrenched or bullish for a long time.The chip structure is stabilizing. Only then can this kind of rebound continue, and only then can the rebound be accumulated and turned into a reversal.

Of course, there are many models of market reversal. Some are major reversals in confidence caused by major policies, and some have been copied out of hard copy of capital, but only this kind of “falling off the market long-term capital feels cheap enough” is the most reliable model.

The key question is how to calculate “cheap enough”? After all, OTC capital's judgments about cheapness also vary.

Judging cheap also involves “price anchors”. For long-term capital, there are three types of “price anchors” that are cheap:

1. Relatively cheap: The stock price of the market leader was first accepted by the market and stabilized. For example, Kweichow Moutai, Ningde Times, and China Mobile. Other leaders will seem cheap if they fall again

2. Absolutely cheap: Equity yield comparison, that is, including domestic bonds and US bonds

3. The microstructure is cheap: A large number of individual stocks fell to a safe margin level with low valuations

However, the intervention of long-term capital is a slow process. After a long period of decline in the market, it will also take a long time to build a foundation.It's a process where the money-making effect goes from local to overall, and it's also a process of reversal in mentality.

Take the final stage of the 2018 bear market as an example. On November 1, after a discussion meeting between top leaders and private entrepreneurs, the market initially stabilized. However, after the rebound, it fell to a new low on January 3, before it completely ended the 2018 bear market.

In these two months, leading the decline was made up for by strong sectors in the previous period — pharmaceuticals, food, and beverages, which performed best in the second quarter, steel, petroleum, and petrochemicals, which performed the best in the third quarter. Instead, it fell the most sharply in the fourth quarter; there was also the underestimation of large-scale goodwill in the annual report.

Also similar to this year was 2012. This was the first time that China's GDP fell below 8% (the previous long-term policy consensus). It was the first year that it officially entered a long-term decline channel. For the first time, investors faced the stage of economic downturn. They were all somewhat dazed and overwhelmed. The market declined for seven months in a row.

Despite a series of policies issued by the management, Huijin increased its holdings in four major banks, and the actual suspension of the IPO. Coupled with the holding of the 18th National Congress and the start of a steady rebound in GDP in the fourth quarter, the stock market still fell all the way down. It wasn't until after the Politburo meeting in December that the market got rid of the bearish mentality, surged 16% in a single month, and recovered five months of lost ground in one fell swoop.

The change of big things is always a long process. When all conditions are met, it is still necessaryThe adjustment of the microtransaction structure, this kind of lag often leaves the people in it at a loss; they are unable to see the reversal occurring. They even use long-term negative factors to explain the short-term decline, falling before dawn.

Editor/jayden